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CASE NO.: Appeal (civil)  4500 of 1989

PETITIONER: TWENTIETH CENTURY FINANCE CORPN.LTD.& ANR.

RESPONDENT: STATE OF MAHARASHTRA

DATE OF JUDGMENT: 09/05/2000

BENCH: S.P.BHARUCHA & B.N.KIRPAL & V.N.KHARE & S.S.M.QUADRI & D.P.MOHAPATRA

JUDGMENT: JUDGMENT

DELIVERED BY: V.N.KHARE,J. S.S.M.QUADRI,J.

V.N.KHARE, J.

      (1)  Despite the decisions of this Court in  Builders  Association  of India and others vs.Union of  India     and  others (1989)  2 SCC 645 and M/s.  Gannon Dunkerley  &  Co.  and  others vs. State of Rajasthan and others (1993) 1  SCC  364,  the  controversy as regards the power  of  the  State  legislature  to levy  sales tax under  clause  (29A)(d)  of  Article 366  of  the  Constitution in the  context  of  the  question where is the taxable event on the transfer of right  to  use any  goods remained unresolved.  In this  group  of  cases,  we  are  concerned  with   the  power   of   States  legislatures  to levy sales tax on the transfer of right  to  use any goods envisaged under clause (29A)(d) of Article 366  of the Constitution on the premise that goods put to use are  located within  their  States.   Several  States  by  their  legislations have levied tax on the transactions of transfer  of  right to use goods on the location of goods at the time  of  their use within their States irrespective of the  place  where the  agreement for such transfer of the right to  use  such goods is made.  The questions therefore, that arise for  consideration  in these cases are, whether a State can levy  sales tax  on transfer of right to use goods merely on  the  basis that the goods put to use are located within its State  irrespective  of  the  facts  that -  (a)  the contract  of  transfer  of  right  to use has been  executed outside  the  State;  (b)  sale  has  taken place in  the  course  of  an  inter-State  trade;   and  (c) sales are in  the  course  of  export or  import  into  the   territory  of  India.    The  appellants  case  is that, the State legislature cannot so  frame its law as to convert an outside sale or a sale in the  course of import or a sale in the course of an  inter-State  trade  or  commerce into a sale inside the State.   (2) The  appellants  in civil appeals and the petitioners in the writ  petitions  filed  under Article 32 of the  Constitution and  transferred  petition, and respondent in Civil Appeal  Nos.  6218-  23/95  are  the  companies  incorporated  under  the

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Companies  Act, and some have their registered offices  at  places outside the respondent States and others have inside  the  States.   They  carry on business of  leasing  diverse  equipments.  According  to them, they entered  into  Master  Lease Agreements with the lessee i.e.  the party who desired  to  take equipment for use on hire. The appellants and  the  petitioners    agree   to    give   on   lease    diverse  machinery/equipments  listed in the Lease Summary  Schedule,  subject to  terms and conditions stipulated in  the  Master  Lease  Agreements.  The Lease Summary Schedule only mentions  the  broad  category of equipment proposed to be leased and  the  correct  value  thereof.  The  Master  Lease  Agreement  provides that orders for individual equipment will be placed  by  the appellants at the instance of lessees and that  the  equipment  to  be  leased  will   be  dispatched   by   the  manufacturer   or  supplier  concerned  to  the   locations  specified  in the lease.  Thereafter, at the instance of the  lessees, the appellants place their purchase orders to  the  suppliers or manufacturers for supply of individual items or  equipments  falling  within the category and  correct  value  mentioned  in  the  Master Lease Agreement  Schedules.  The  appellants  and the petitioners further case is that, they  disburse  the value of equipment to the suppliers and at the  instance of the appellants and the petitioners the suppliers  deliver the  equipments  to the lessees  at  the  specified  locations for use.  After the equipments are delivered  and  put   to  use, the   lessee  executes  supplementary  lease  schedules acknowledging due receipt of the lease equipments,  and  such supplementary lease deeds form an integral part of  the  Master Lease Agreement.  Such is the nature of business  carried on  by the appellants and the petitioners  in  this  group  of  cases.   According  to  the appellants  and  the  petitioners,  one  transaction of transfer of right  to use  goods is subjected to sales tax by more than one States.  On  such  a transaction, some States levy tax on the  appellants  and  the petitioners, merely because the goods were found to  be  located in  their States at the time  of  execution  of  contract  which has  taken place outside the  State.   Some  States levy tax when the goods are delivered in their States  for  use  in  pursuance of agreements of  transfer  executed  outside their States and some States tax such  transactions  of  deemed sales on the premise that agreements for transfer  of right to use have been executed within their States. The  appellants  and the petitioners, therefore, have  challenged  the  validity of the legislations by various States  whereby  one  transaction of transfer of right to use goods has been  subjected to tax by more than one States.

      (3)  The petitioners by means of writ petitions  under  Article 32  and  transferred petition have  challenged  the  validity  of the provisions relating to imposition of tax on  transfer of  right to use goods contained in the sales  tax  laws  of  States  of  Maharashtra,  Karnataka, Tamil  Nadu,  Haryana, Uttar Pradesh, Rajasthan and Andhra Pradesh.  Civil  Appeal Nos.  6218-23/95 are directed against the judgment of  the  Andhra  Pradesh High Court allowing the writ  petitions  filed  by the respondents therein.  We will separately deal  with  the  sales tax laws of other States.  At present,  we  propose to  consider  the controversies involved  in  these  cases  with  reference to the provisions contained  in  The  Maharashtra Sales  Tax on the Transfer of the Right to  Use  Any Goods for any Purpose Act, 1985 (hereinafter referred to  as  the Maharashtra Act).  The Maharashtra Act purports to  levy and collect tax on the transfer of the right to use any  goods  for any purpose in the State of Maharashtra.  Section

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2(10)  of Maharashtra Act defines sale thus:  sale means  the  transfer of the right to use any goods for any purpose  (whether  or not for a specified period) for cash,  deferred  payment or  any other valuable consideration, and the  word  sell  with  all its grammatical  variations  and  cognate  expressions,  shall  be construed accordingly.  The  above  sub-section has an Explanation, which runs as under:  -

      Explanation.   - For the purposes of this clause, the  transfer  of the right to use any such goods shall be deemed  to have taken place in the State of Maharashtra if the goods  are  in the State of Maharashtra at the time of  their  use  irrespective  of  the  place where the agreement  for  such  transfer of the right to use such goods is made, and whether  the  assent  of the party is prior or  subsequent  to  such  transfer of the right to use any such goods.

      Section  3  of  the   Maharasthra  Act  provides  for  incidence  of  tax  and Section 4 deals with  levy  of tax.  There  is  no dispute as regards the definition of  sale.  What  is  under challenge is the Explanation to sub-section  (10)  of  Section 2 of the Act, which fixes situs of  deemed  sale within the State of Maharashtra on location of goods at  the  time  of  their use.  The appellants in  Civil  Appeals  excepting  Civil Appeal Nos.  6218-23/95, had challenged the  levy  of sales tax by State of Maharashtra by means of writ  petitions  under Article 226 of the Constitution before the  Bombay High Court.  Before the High Court, it was contended  by  the appellants that the Maharashtra  Act,  particularly  Section 3 read with Section 2(10), purports to levy tax not  only  the transfers of right to use goods which takes  place  within the State of Maharashtra, but also upon the transfer  which occasions the movement of leased or to be leased goods  from  one  State  to another, and also upon  the  transfers  effected  during movement of goods from one State to another  and,  therefore, the Act is ultra vires Articles 269(3) and  246 read with Entry 92A of List I of the Seventh Schedule of  the  Constitution.   It was  also contended  that  the  Act  imposes sales tax upon transfers of the right to use  goods  which  takes place outside the State of Maharashtra and also  in  the course of import of the goods into the territory  of  India  and as such the Act is ultra vires Articles 286(1)(a)  and (b) of the Constitution.  The High Court was of the view  that  the transaction of transfer of right to use goods is a  species of bailment, as there is no transfer of ownership in  such  transaction  and since such transactions are  in  the  nature of  contract of bailment, the transfer is  completed  only upon the delivery of the goods and, therefore, situs of  sale  created by the Explanation to Section 2(10) of the Act  is  valid.  Consequently, the writ petitions were dismissed.  It  is in this way the appellants are in appeal before this  Court. Excepting two States the provisions of the Sales Tax  Acts  of all the other States are on line with that of  the  Maharashtra  Act.  Since the grounds of challenge to all the  Acts  are substantially the same, we, therefore, propose  to  decide these cases by a common judgment.

      (4)  S/Shri  K.R.Parasaran, R.F.Nariman and Harish  N.  Salve, learned senior counsel, appearing for the appellants  and  the petitioners urged, that there are two  independent  limitations  upon  the taxing power of the State  based  on  situs  of the sale - one is engrafted in Article 286 and the  other  where the sale occurs within the State, it cannot  by  virtue of Entry 54 of List II read with Entry 92A of List I

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levy a tax on a sale which is in the course of  inter-State  trade  or commerce and, therefore, Section 3 and Explanation  to  Section 2(10) of the Maharashtra Act which seeks to levy  tax  on mere  location of goods at the time  of  their  use  within the  State, are ultra vires Articles 286 and 269  of  the  Constitution.  Their further argument is that,  taxable  event of such transaction of sale would be upon the transfer  in law of the right to use goods in question and, therefore,  the  situs of transaction of sale would, on first principle,  be  the situs of the contract which has the effect in law of  transferring  the right to use goods and, therefore, no such  tax can be levied merely on location of goods in that State.  Shri S.K.Dholakia, learned senior counsel, appearing for the  State  of Maharashtra contended that, in the absence of any  enactment  by  the Parliament, the nature of  contract i.e.  the  transfer of right to use goods is to be determined with  reference  to law dealing with contract, namely, the  Indian  Contract  Act, and in that connection referred to  Sections  148  and 149 of the Indian Contract Act.  According to him,  the  transfer of the right to use goods being in the  nature  of  a  contract of  bailment, there  must  be  delivery  or  possession  of goods before it can be said that the right to  use  is transferred.  According to him, until the goods are  delivered  to the lessee it is only an agreement to give  it  on  bailment and, in fact, the delivery of goods is sine qua  non  of the transfer of right to use goods.  Thus, the State  legislature  was fully competent to enact the Explanation to  Section 2(10)  of the Act.  In brief, the argument is  that  the  taxable event would be the location of goods - delivery  of  which is to be effected for use.  Shri C.S.Vaidyanathan,  learned Additional Solicitor General, appearing for Union of  India, Shri  A.K.Ganguly, learned senior counsel  appearing  for  the State of Tamil Nadu, Shri K.  Ram Kumar,  appearing  for the State of Andhra Pradesh, Shri Adarsh Goel, appearing  for  the States of Uttar Pradesh and the State of  Haryana,  Shri  S.K.  Jain, appearing for the State of Rajasthan  and  Shri  M.Veerappa for the State of Karnataka argued, that the  taxable event of such transaction of deemed sale would be on  the  location  of  goods  the delivery of  which  is  to  be  effected  for use within the State.  They further  contended  that,  in  view of  the   decision  in  the  second  Gannon  Dunkerleys case (supra), the provisions of Section 4 of the  Central Sales  Tax  Act  are  applicable  to  deemed  sales  envisaged  under  clause  (29A)(d)  of Article 366  of  the  Constitution and, therefore, on the application of Section 4  of the Central Sales Tax Act, States legislatures were fully  competent  to  levy  sales tax if the goods at the  time  of  their use are located within their States.

      (5)  On  the  argument  of  learned  counsel  for the  parties,  the questions that arise for consideration are (a)  what  are the limitations on the power of States to levy tax  on  the transactions of transfer of right to use any  goods  and  (b) where is the situs of taxable event on the transfer  of  right  to  use goods under Article 366(29A)(d)  of  the  Constitution.  Before we deal with the aforesaid questions,  it  would be helpful to look into the legislative history of  levy  of sales tax in this country and the decisional law in  order to resolve the controversy before us.

      (6)  The power of the State legislature to levy  sales  tax  first time found place by virtue of Entry 48 of List II  of  the Seventh  Schedule of the Government of  India  Act,  1935.  The Entry was to the following effect:-

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      taxes on sale of goods and on advertisement.

      In  exercise  of  the   aforesaid  power,  the   then  Provincial legislatures  levied sales tax on the  sale  and  purchase  of  a number of commodities. Government of  India  Act  did  not make any provision about situs  of  sale  for  purposes  of levy  of  sales tax  by  the  then  Provincial  legislatures  with   the  result,   the   then   Provincial  legislatures on the basis of one or more than one  elements  constituting  sale made it as the basis for levy of tax by  legislations.  Some  of the States levied sales tax  merely  because the goods were located within their provinces at the  time  of  contract.  In the province of Bihar, if the  goods  were  produced and manufactured inside the province, it was  made  a basis  for levy of tax, as a result  of which   one  transaction  of sale was subjected to levy of sales tax  by  more  than  one Provinces  resulting   in  burden  on   the  consumers.  These difficulties were well taken care of while  framing the Constitution and, as a result of which we  find  Articles 286, as it existed in the Constitution, when it was  enforced.  Relevant Article 286 is reproduced below:-

      Article 286.  Restrictions as to imposition of tax on  the  sale or purchase of goods (1) No law of a State shall  impose, or authorise the imposition of, a tax on the sale or  purchase of goods where such sale or purchase takes place-

      (a)  outside the State ; or (b) in the course of  the  import of the goods into, or export of the goods out of, the  territory of India.

      Explanation.   For the purposes of clause (a), a sale  or purchase shall be deemed to have taken place in the State  in  which the goods have actually been delivered as a direct  result of  such  sale  or   purchase  for  the  purpose  of  consumption  in that State, notwithstanding the  fact  that  under the general law relating to sale of goods the property  in  the goods has by reason of such sale or purchase  passed  in another State.

      (2)  Except insofar as Parliament may by law otherwise  provide,  no  law of a State shall impose, or authorise the  imposition  of, a tax on the sale or purchase of any  goods  where  such  sale or purchase takes place in the  course  of  inter-State trade or commerce:

      Provided that the President may by order direct  that  any  tax  on the sale or purchase of goods which  was  being  lawfully  levied by the government of any State immediately  before  the  commencement  of   this  Constitution   shall,  notwithstanding that the imposition of such tax is contrary  to  the provisions  of this clause, continue to  be  levied  until the day of March 31, 1951.

      (3)  No  law  made  by  the  legislature of  a  State  imposing, or  authorizing the imposition of, a tax  on  the  sale  or purchase of any such goods as have been declared by  Parliament  by law  to  be essential for the  life  of  the  community  shall have effect unless it has been reserved for  the  consideration  of the President and has  received  his  assent.

      (7)  Entry  54 of List II of Seventh Schedule  to the

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Constitution as it existed on the date of enforcement of the  Constitution is extracted below:-

      54.   Taxes  on the sale or purchase of  goods  other  than newspapers

      (8)  After  the commencement of the Constitution, two  sets  of controversies arose as regards the power of  States  legislatures  to  levy sales tax on transactions of sales  firstly,  with reference to clauses (1) and (2) of  Article  286  as it  existed  prior to the Sixth  Amendment  of  the  Constitution   and   secondly, with    reference   to   the  transactions  of  works  contract.    The  Explanation   to  definition  of sale in the Bombay Sales Tax Act, 1952 gave  rise  to  first controversy.  The said Explanation  provided  that sale of any goods which have actually been delivered in  the  State of Bombay as a direct result of such sale for the  purposes  of consumption in the said State, shall be  deemed  for the purpose of the Act to have taken place in the State,  irrespective of the fact that the property in the goods has,  by  reason  of such sales, passed in  another  State.   The  question,   therefore, arose  as  to  whether   the   State  legislature  of  Bombay  could  levy   sales  tax  on   the  transactions  of sales merely on the basis that goods, as  a  result of  such sales, were located for consumption  within  its  State although sales are exempted under Article  286(2)  of  the Constitution.  The Bombay High Court, on a  petition  under  Article 226  of the Constitution,  struck  down  the  aforesaid provision being of the view that the definition of  sale  in the Bombay Sales Tax Act was repugnant to Article  286  of the Constitution.  But, the said decision of  Bombay  High  Court was reversed by the Supreme Court in the case of  State  of Bombay and another vs.  United Motors (India) Ltd.  and  others (1953) SCR 1069.  However, the controversy  did  not  abate and correctness of decision in the case of United  Motors  (supra),  was  doubted   and,  therefore,  it   was  reconsidered  in The Bengal Immunity Company Ltd.  Vs.  The  State  of Bihar and Ors.  (1955) SCR, 603, wherein  it  was  held, as thus:

       The  operative provisions of the several  parts  of  Art.  286, namely clause (1)(a), clause (1)(b), clause  (2)  and  clause  (3) are intended to deal with different  topics  and,  one  cannot  be  projected or read  into another  and  therefore  the Explanation  in   clause  (1)(a)  cannot  be  legitimately  extended to clause (2) either as an  exception  or  as a proviso thereto or read as curtailing or  limiting  the ambit of clause (2).

      xxx xxx xxx

      What  is an inter-State sale or purchase continues  to  be  so irrespective  of the State where the sale is  to  be  located         either  under  the general law when it  is  finally  determined what the general law is or by the fiction created  by  the         Explanation.   The situs of a sale or  purchase  is  wholly irrelevant as regards its inter-State character.

      Until Parliament by law made in exercise of the powers  vested in it by clause(2) of Art.  286 provides  otherwise,  no State can impose or authorize the imposition of any  tax  on  sales or purchases of goods when such sales or purchases  take  place in the course of inter- State trade or  commerce  and  the  majority decision in The State of Bombay vs.  The  United Motors  (India) Ltd.(1953) SCR 1069 in so far as  it

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decides to the contrary cannot be accepted as well  founded  on principle or authority.

      In  nutshell,  it was held that situs of a  sale,  as  engrafted  in  Explanation to Article 286(1), as it  existed  prior  to the Sixth Amendment of the Constitution, cannot be  applied to  clause  (2) of Article 286,  which  related  to  inter-State  trade  or commerce and situs of sale is  wholly  immaterial as regards its inter-State character.

      (9)  After  the decision in The Bengal  Immunity case  (supra),  certain  recommendations were made by Tax  Inquiry  Commission, proposing certain amendments in the Constitution  relating   to  levy   of    sales   tax.    The   aforesaid  recommendations were accepted and as a result of which  the  Parliament  passed  the Constitution (Sixth Amendment) Act,  1956  whereby, in List I of the Seventh Schedule Entry 92-A  was added, which runs as under:-

      92-A.   Taxes on the sale or purchase of goods  other  than  newspapers, where such sale or purchase takes place in  the course of inter- State trade or commerce.

      Entry  54         in List II was substituted which  reads  as  thus:-

      54.   Taxes  on the sale or purchase of  goods  other  than  newspapers subject to the provisions of entry 92-A  of  List I.

      Sub-clause  (g) was added to clause (1) and sub-clause  (3)  was added to Article 269 of the Constitution, which are  extracted below:-

      (g) taxes on the sale or purchase of goods other than  newspapers,  where such sale or purchase takes place in         the  course of inter- State trade or commerce.

      (3)  Parliament  may by law formulate  principles         for  determining  when a sale or purchase of goods takes place in  the course of inter- State trade or commerce.

      (10)  By virtue of the aforesaid amendment in  Article  269, the Parliament was empowered to levy and collect tax on  sale  or purchase of goods where such sale or purchase takes  place  in  the course of inter-State trade or commerce,         and  also to lay down the principles for determining when sale or  purchase  of goods takes place in the course of         inter-State  trade  or  commerce.   The   Sixth  Amendment  also  omitted  Explanation  to         clause (1)(a) of Article 286  and  further,  clauses         (2) and (3) of Article 286 were substituted by  two  new clauses.  Amended Article 286 read as under:-

      286.   Restrictions  as to imposition of tax  on the  sale  or  purchase of goods.   (1) No law of a State  shall  impose, or authorise the imposition of, a tax on the sale or  purchase of goods where such sale or purchase takes place

      (a) outside the State ;  or

      (b)  in the course of the import of the goods into, or

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export of the goods out of, the territory of India.

      (2)  Parliament  may by law formulate  principles         for  determining  when a sale or purchase of goods takes place in  any of the ways mentioned in clause (1).

      (3)  Any law of a State shall, insofar as it  imposes,  or  authorises the  imposition  of, a tax on  the  sale  or  purchase  of  goods declared by Parliament by law to  be  of  special         importance  in  inter-State trade or  commerce,  be  subject to such restrictions and conditions in regard to the  system of  levy  rates and other incidents of  the  tax  as  Parliament may by law specify.

      (11)  After  Sixth Amendment in the Constitution,         the  Parliament  passed  an Act known as  The Central Sales Tax  Act,  1956.  The objects of the said Act were to  formulate  principles  for determining when a sale or purchase of goods  takes  place in the course of inter-State trade or  commerce  or  outside  a State or in course of imports into or  export  from  India,  to  provide  for  the  levy,  collection  and  distribution  of  taxes on sales of goods in the  course  of  inter-State  trade or commerce and to declare certain  goods  to be of special importance in inter-State trade or commerce  and  specify the restrictions and conditions to which  State  laws imposing taxes on the sale or purchase of such goods of  special importance shall be subject.  After the enactment of  the  Central  Sales  Tax Act by the  Parliament,  the  first  controversy stood resolved.

      (12)  Yet another controversy, as regards the power of  the  State legislature to levy sales tax on transactions  of  works  contract remained unresolved.  In Gannon Dunkerley  &  Co.   vs.  State of Madras (AIR 1954 Madras 1130), the High  Court of Madras was of the view that the transaction of work  contract  was  not a contract for sale of goods         as  defined  under the provisions of Sales of Goods Act and, therefore,  sales  tax  is not leviable on the amount received  by  the  contractors  from the persons for whom they had         constructed  building  during the relevant assessment year. However, the  Kerala High Court, the then High Court of Mysore, the  then  High Court of Nagpur and the High Court of Rajasthan were of  the  view  that, States legislatures were competent to pick  out  from  the composite transaction of         building  contract,  which  included transfer of property in materials, and make  the  portion  attributable  to the cost         of  such  materials  subject         to  payment of sales tax.  Ultimately, the  Supreme  Court, in  the  State  of Madras vs.   Gannon  Dunkerley  &  Co.(Madras)  Ltd,  (1959) SCR 379 held, that in         a  building  contract  which is one, entire and indivisible, there is  no  sale  of  goods         and  is not within the  competence  of  the  Provincial legislature under Entry 48 of List II in Schedule  VII of the Government of India Act, 1935, to impose a tax on  the supply of the materials used in such a contract treating  it  as a sale.  (13) After the decision of this Court  in  Gannon Dunkerley case (supra), States suffered losses as  a  result of  avoidance of Central Sales Tax Act  leviable  on  inter-State  sales  of goods.  Therefore, the  matters were  referred   to  the  Law         Commission   of  India.   The   Law  Commission,  after considering the matters referred to, made  certain          recommendations  suggesting   amendments  in   the  Constitution  in order to augment the revenue of the States.

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In  the         light  of recommendations of  the  Law  Commission,  Parliament  passed Constitution (Forty-sixth Amendment) Act,  whereby a new clause 29-A was inserted in Article 366 of the  Constitution, which is extracted below:-

      29-A.    tax  on the sale or  purchase  of  goods  includes

      (a) a tax on the transfer, otherwise than in pursuance  of  a contract, of property in any goods for cash,  deferred  payment or other valuable consideration ;

      (b) a tax on the transfer of property in goods(whether  as goods or in some other form) involved in the execution of  a works contract;

      (c) a tax on the delivery of goods on hire-purchase or  any system of payment by installments;

      (d)  a  tax  on the transfer of the right to  use         any  goods  for  any         purpose  (whether or not  for  a  specified  period)         for  cash,  deferred   payment  or  other  valuable  consideration;

      (e) a tax on the supply of goods by any unincorporated  association or body of persons to a member thereof for cash,  deferred payment or other valuable consideration;

      (f)  a tax on the supply, by way of or as part of         any  service         or in any other manner whatsoever, of goods,  being  food or any other article for human consumption or any drink  (whether or not intoxicating), where such supply or service,  is   for   cash,   deferred   payment  or   other   valuable  consideration.

      and  such         transfer, delivery or supply of  any  goods  shall  be  deemed to be a sale of those goods by the  person  making the  transfer, delivery or supply and a purchase  of  those goods by the person to whom such transfer, delivery or  supply is made.

      (14)  Simultaneously, a new Entry 92-B was inserted in  List  I         of Seventh Schedule to the Constitution,  which  is  extracted as under:

      92-B.  Taxes on the consignment of goods (whether the  consignment  is         to  the person making it or  to  any  other  person), where such consignment takes place in the course of  inter-State trade or commerce.

      (15)  In clause (1) of Article 269, a sub-clause  (h)  was  also  added  and  clause (3) of Article  269  was also  amended.  The amended provisions of Article 269 is extracted  as under:

      (h)  taxes  on the consignment of goods (whether the  consignment  is         to  the person making it or  to  any  other  person), where such consignment takes place in the course of  inter-State trade or commerce..

      (3)  Parliament  may by law formulate  principles         for

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determining  when a sale or purchase of, or consignment         of,  goods  takes  place  in the course of inter-State  trade  or  commerce.

      (16)  By Forty-sixth  Amendment, Article 286  of  the  Constitution  was also amended by substituting clause (3) by  a new clause which reads as thus:

      (3)  Any law of a State shall, insofar as it imposes,  or authorises the imposition of, -

      (a) a tax on the sale or purchase of goods declared by  Parliament by law to be of special importance in inter-State  trade or commerce;

      (b)  a  tax on the sale or purchase of goods, being  a  tax  of the nature referred to in sub-clause(b), sub- clause  (c) or sub-clause (d) of clause (29-A) of Article 366

      be  subject  to  such restrictions and  conditions  in  regard to the system of levy, rates and other incidents  of  the  tax as Parliament may by law specify.  (17) After the  Forty-sixth  amendment, States legislatures became competent  to  levy sales tax on deemed sales envisaged in clause (29A)  of   Article   366  of  the  Constitution   although   such  transactions were not sales within the meaning of sale and  most  of  the States legislatures enacted law to levy  sales  tax  on         deemed  sale in terms of the provisions  of  clause  (29A)  of  Article  366 of the Constitution, and  sought  to  assess  the  contractors  on   the  transactions  of  works  contracts.  It is at this stage writ petitions were filed in  this  Court challenging such levy contending, that the power  of  States legislatures to levy tax on transfer of  property  in  goods  involved  in         the execution  of  works  contracts  referred  to  in sub-clause (b) of clause (29A)         of  Article  366,  is in excess of power conferred on States         legislature  under Entry 54 List II.         The respondent-States in those writ  petitions  defended  the levy on the ground that  sub-clause  (b) of Article 366(29A) bestowed on them a power to levy tax  on  works contract independent of Entry 54 of List II. This  Court in the case of Builders Association (supra) held, that  the  power  of the State legislature to levy tax  on  works  contract  is subject to the limitation contained in  clauses  (1),  (2) and (3) of Articles 286 and 269.  Again, in second  Gannon Dunkerleys case (supra), this Court reiterated that  levy  of  sales tax under sub-clause (b) of clause (29A)  of  Article         366 is subject to the discipline to which any  levy  under  Entry  54  of the State List is made subject  to         the  Constitution,  as  held         in the Builders  Association  case  (supra).

      (18)  We have traced the history as regards the  power  of States legislatures to levy sales tax only to find out as  to  whether  the power of States legislatures to levy  sales  tax under clause (29A) (d) of Article 366 is subject to same  limitations, as noticed in the earlier decisions.

      (19) Following the decisions referred to above, we are  of  the view that the power of States legislatures to  enact  law  to         levy tax on the transfer of right to use any  goods  under  Entry  54  of  List II of Seventh  Schedule  has         two  limitations  one arising out of the Entry itself;  which is  subject         to Entry 92-A of List I, and the other flowing from

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the  restrictions  embodied  in Article 286.  By  virtue  of  Entry  92-A of List I, Parliament has power to legislate  in  regard to  taxes on sales or purchase of goods  other  than  newspapers  where  such sale or purchase takes place in         the  course of  inter-  State trade or  commerce.   Article  269  provides  for levy and collection of such taxes.  Because of  these restrictions, States legislatures are not competent to  enact  law  imposing  impose  tax  on  the  transactions  of  transfer  of right to use any goods which take place in         the  course of inter-State trade or commerce.  Further, by virtue  of  clause  (1)         of  Art.  286,  the  State  legislature  is  precluded  to  make law imposing tax on the transactions  of  transfer  of right to use any goods where such deemed  sales  take  place  (a) outside the State and (b) in the course  of  import of goods into the territory of India.  Yet, there are  other  limitations  on the  taxing   power  of  the   State  legislature  by         virtue  of  clause   (3)  of  Article  286.  Although  Parliament has enacted law under clause (3)(a)  of  Article 286 but no law so far has been enacted by Parliament  under  clause  (3)(b)  of  Article 286.         When  such  law  is  enacted         by  Parliament,  the  State  legislature  would  be  required  to  exercise its legislative power  in  conformity  with  such  law.  Thus, what we have stated above,  are         the  limitations  on the powers of States legislatures on levy of  sales  tax on deemed sales envisaged under sub-clause (d) of  clause (29A) of Article 366 of the Constitution.

      (20)  While examining the power of States legislatures  under  Entry 54 of List II in earlier part of this judgment,  we  have  noticed that the situs of the sale or purchase  is  wholly immaterial  as  regards  the  inter-State  trade  or  commerce,   as held  in   Bengal  Immunity  Co.Ltds  case.  Further,  the  State legislature cannot by law, treat  sales  outside         the  State  and sales in the course  of  import  as  sales within the State by fixing the situs of sales within  its  State  in the definition of sale, as it is         within  the  exclusive  domain  of  the   appropriate  legislature, i.e.  Parliament  to fix the location of sale by  creating  legal  fiction or otherwise.

      (21)   It          may  be   noted  that   the   transactions  contemplated under sub- clause (a) to (f) of clause (29A) of  Article         366  are  not actual sales within  the  meaning  of  sale  but  are deemed  sales  by  legal  fiction  created  therein.   The situs of sale can only be fixed either by the  appropriate  legislature or by judge made law, and there  is  no  settled  principles for determining the situs  of  sale.  There  are  conflicting views on this question.         One of  the  principles   providing situs  of   sale  was  engrafted  in  Explanation  to clause (1) (a) of Article 286, as it existed  prior  to  the Constitution (Sixth  Amendment)  Act,  which  provided that the situs of sale would be where the goods are  delivered  for consumption.  The second view is,  situs  of  sale  would  be the place where the contract  is  concluded.  The  third view is, that the place where the goods are sold  or  delivered  would be the situs of sale.  The fourth view  is,  that where the essential ingredients, which complete  a  sale,  are  found  in majority would be the situs  of  sale.  There  would  be no difficulty in finding out situs of sale  where  it  has been  provided  by  legal  fiction  by   the  appropriate  legislature.   In the present case, we  do         not  find  Parliament  has, by creating any fiction,  fixed  the  location  of  sale in case of the transfer of right  to         use  goods. We, therefore, have to look into the decisional law.

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      (22)  In Indian Copper Corporation Limited  vs.   The  State  of  Bihar and others, 1961 (2) SCR,276, the  question  arose  as  to where would be the situs of sale incase  of  a  transaction  which was not covered by Explanation to  clause  (1)(a) of Article 286, as it existed prior to  Constitution  (Sixth Amendment)  Act.   In  the   said  case,  the   sale  transaction  took place in the State of Bihar and the  goods  were  sent to outside the State, but not for consumption  in  such  State of first destination.  The State of Bihar levied  sales  tax  on such transaction.  This Court, in  the  above  case, held thus :

       If a single State was designed to have the power to  tax  any  particular transaction of sale, the question that  next  falls  to be considered is the determination  of that  State  in  regard to which it could be predicated  that         the  sale  in question was not  outside that State or in  other  words, the determination of the particular State in  regard  to  which  it could be said that the sale was inside  that  State.   The  key  to  the   problem  is  afforded  by  two  indications in the Article itself:  (1) the opening words of  Article         286(1)  which  speak of a sale or  purchase  taking  place  and  (2) the non-obstante clause in  the         Explanation  which  refers to the general law relating to sale of  goods  under  which  property in the goods has, by reason  of such  sale  or  purchase,  passed  in another         State.  These  two  together  indicate that it is the passing of property within  the  State  that  is  intended to be fastened  on,  for         the  purpose         of  determining,  whether the sale in  question  is  "inside"  or "outside" the State, and therefore, subject  to  the  operation of  the "Explanation that  State  in  which  property passes would be the only State which would have the  power  to  levy a tax on the sale.  As was explained in         the  recent decision of this Court in Burmah Shell Oil Storage &  Distributing  Co.,  of India, Ltd vs.  The  Commercial  Tax  Officer:

      By  sale here  (Art.286(1)(a)   is  meant  completed  transaction  by which property in the goods passes.   Before  the  property in the goods passes,  the contract of sale is  only  executory, and the buyer has only a chose in  action.  .The  Constitution thinks in terms of a completed  sale  by  the passing of property and not in terms of an executory  contract for the sale of goods.

      Notwithstanding  that  is not an outside sale,  the  power  of  the State  to  tax might  be  negatived  by  the  operation  of  the  Explanation which  by  its non-obstante  clause  shifts the situs of the sale and renders the  sale  transaction  one within the delivery-cum-consumption  State,  i.e.   as  the State in which the sale transaction  much  be  deemed to  take place.  Where the terms of the  Explanation  are satisfied, the sale transaction will, by a legal fiction  created by it, be deemed to take place inside the State of  delivery  and  therefore  outside the State in which  the  property  passes.  The conclusion reached therefore is that  where  the property in the goods passes within a State as  a  direct result  of  the sale, the sale  transaction  is  not  outside the State for the purpose of Art.  286(1)(a), unless  the  Explanation operates.  We need also add that the  power  of  the State to impose the tax might still not be available  unless the  transaction  in question is unaffected  by  the  other  bans imposed under sub-clause (1)(b), (2) and (3)  of  Art.   286.  The submission therefore of learned counsel for  the appellants, that in respect of non-Explanation sales the

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State  of Bihar has no power to levy a tax by reason of such  sales  being outside the State within Art.  286(1)(a) must  be rejected.

      In  brief,  it  was held that, where a  sale  was         not  covered         by Explanation to clause (1)(a) of Article 286, the  State  in  which property in goods passes would be the only  State which would have the power to levy a tax on the sale.

      (23)   In          A.V.Thomas  &   Co.   Ltd.   vs.    Deputy  Commissioner  of Agricultural Income Tax, 1963 Supp.(2) SCR,  608,  the  goods  (teas)  were stored  in  the  godowns  at  Willingdon  Island  which  was in the  State  of  Travancore  Cochin and  from  there samples of tea were taken  to  Fort  Cochin which  at  the  relevant time was in  the  State  of  Madras.          There, at Fort Cochin, samples of tea were sold by  public auction  in  lots.   Some were  purchased  in  their  entirety  and  others in parts and after  the  consideration  money  was paid at Fort Cochin delivery orders were given to  the  buyers  addressed to the godown keepers  at  Willingdon  Island and  actual delivery of tea was taken there.   These  teas were then sent out from Willingdon Island in Travancore  Cochin for  consumption either in other parts of  India  or  were  exported out  of  India.  The question  arose  as  to  whether         the State of Travancore Cochin could levy sales tax  on  the location of goods.  As there was no delivery of         tea  as  a  direct result of sale for purposes of consumption  in  any  particular         State,  Explanation  to  clause  (1)(a)  of  Article         286  as  it existed prior  to  Constitution  (Sixth  Amendment) Act, was not available.  Since there was no legal  fiction         to determine the situs of sale it was held that the  sale  was "outside" sale and was not inside sale qua State  of  Travancore Cochin because the property in goods  passed  when the contract was accepted on the fall of hammer in Fort  Cochin which  was  in the State of  Madras.   The  relevant  extract of the judgment is reproduced below:

      that  the         property  in  the goods  passed  when  the  contract  was  accepted         on the fall of the hammer  in  Fort  Cochin.          Under  Art.   286(I) it was the  passing  of  the  property  within the State that was intended to be fastened  on  for         the  purpose of determining whether  the  sale  was  inside or outside the State.  Subject to the  operation  of  the         explanation that State in which  property  passed  would  be the only State which would have the power levy the  tax  on the sale.  But the explanation did not apply in         the  present         case as there was no delivery as a direct result of  the sale for consumption in any particular State.

      (24)  The aforesaid decisions unambiguously laid down  that  where  situs of sale has not been fixed or covered  by  any  legal  fiction created by the appropriate legislature,  the  location  of sale would be place where the property  in  goods  passes. The Constitution Bench held, that it was the  passing         of the property within the State that was  intended  to be fastened on for the purpose of determining whether the  sale was inside or outside the State.

      (25)  It was then urged on behalf of respondents that,  it  is the location of goods where they are put to use would  furnish         the situs of sale.  According to them, there  would  be  no completed transfer of right to use goods  until  the  goods are delivered.  We have traced the legislative history  of  sales  tax in this country only to show that,  excepting

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where  the appropriate legislature by creating legal fiction  fixed the situs of sale on location or delivery of goods for  consumption  like omitted Explanation to Article  286(1)(a),  there is no authority to show that mere location or delivery  of goods would be the situs of sale.  Here, we would like to  cite  an  appropriate illustration given in the decision  in  Bengal  Immunitys   case(supra)  only   to   resolve   the  controversy before us. The illustration given is as under:

      Take,  for instance, a case where both the seller and  the  buyer  reside and carry on business in Gurgaon  in         the  State of Punjab.  Let us say that the seller has a godown in  the  State of Delhi where his goods are stored and that         the  buyer has also a retail shop at Cannought Circus also in the  State  of  Delhi.   The buyer and the seller  enter  into  a  contract at Gurgaon for the sale of certain goods and a term  of the contract is that the goods contracted to be sold will  be  actually  delivered         from  the sellers  godown  to  the  buyers retail  shop,  both  in the  State  of  Delhi,  for  consumption  in         the  State  of  Delhi.   Pursuant  to  this  contract  made in Gurgaon in the State of Punjab, the  buyer  pays  the full price of the goods at Gurgaon and the  seller  hands  over  to the buyer also at Gurgaon a  delivery  order  addressed  to the seller’s godown-keeper in Delhi to deliver  the goods to the buyers retail shop.  As a direct result of  this sale the sellers godown-keeper, on the presentation of  this  delivery order,  actually delivers the goods  to  the  buyers retail shop at Connaught Circus for consumption  in  the  State  of Delhi.  On one view of the law, the situs  of  such  a         sale would be Gurgaon.  We need not decide that  it  is, because that type of case is not before us and there may  be  other views to consider, but it is certainly a  possible  view.  It  is  also  possible  to hold  that  this  is  not  inter-State  trade or commerce, because there is no movement  of goods across a State boundary.  Again, we need not decide  that  because  that  also may be controversial.          But  given  these  two  postulates the transaction would  fall  squarely  within the  Explanation  and yet it would not  come  within  clause (2), for there is no movement of the goods across the  border of any State and both the seller and the buyer are in  the  same place.  Surely, the Explanation will, in presenti,  govern such  cases  irrespective of whther  Parliament  has  lifted the  ban under clause (2).  If these postulates  are  accepted  then by  virtue of clause (1)(a)  read  with  the  Explanation  the  State of Delhi alone will be entitled  to  impose a  tax on such a sale or purchase and the  State  of  Punjab will  be  precluded from doing so by reason  of  the  fictional  situs  assigned  to such a sale  or purchase  by  Explanation,  although the contract was made, price was paid  and  symbolical or constructive delivery of the goods by the  handing         over of the delivery order took place in Gurgaon in  the State of Punjab.

      We,  therefore, find that the location or delivery  of  goods  within  the State cannot be made a basis for levy  of  tax  on         sales of goods.  Under general law, merely  because  the goods are located or delivery of which has been effected  for  use  within the State would not be the situs of  deemed  sale  for  levy of tax if the transfer of right to  use         has  taken place in another State.  Therefore, the contention, on  behalf of the respondents that there would be no  completed  transfer  of right to use goods till the goods are delivered  is  to prevail, then the respondents are further required to  show  that the contract of transfer of right to use goods is

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also  entered into in the said State in which the goods         are  located         or delivered for use.  The State cannot levy a  tax  on  the basis that one of the events in the chain of  events  has taken place within the State.  The delivery of goods may  be  one of the elements of transfer of right to use, but the  same  would not be the condition precedent for a contract of  transfer  of right to use goods.  Where a party has  entered  into  a         formal  contract and the goods  are  available  for  delivery  irrespective of the place where they are  located,  the  situs of such sale would be where the property in goods  passes, namely, where the contract is entered into.

      (26)  Next question that arises for consideration         is,  where  is the taxable event on the transfer of the right  to  use  any  goods.   Article 366(29A)(d) empowers  the  State  legislature  to enact law imposing sales tax on the transfer  of  the         right  to use goods.  The  various  sub-clauses  of  clause (29A)  of Article 366 permit the imposition  of  tax  thus:  sub-clause  (a)  on transfer of property  in  goods;  sub-clause (b) on transfer of property in goods;  sub-clause  (c) on delivery of goods;  sub-clause (d) on transfer of the  right to use goods;  sub-clause (e) on supply of goods;         and  sub-clause  (f) on supply of services. The words and  such  transfer,  delivery  or supply. In the latter  portion of  clause (29A),  therefore,  refer  to  the  words  transfer,  delivery  and  supply, as applicable, used in  the  various  sub-clauses.   Thus, the transfer of goods will be a  deemed  sale  in the cases of sub-clauses (a) and (b), the  delivery  of  goods  will be a deemed sale in case of sub-clause (c),  the supply of goods and services respectively will be deemed  sales  in  the cases of sub- clauses (e) and  (f)  and  the  transfer of the right to use any goods will be a deemed sale  in  the case of sub-clause (d).         Clause (29A) cannot, in our  view,  be read as implying that the tax under sub-clause (d)  is  to be imposed not on the transfer of the right  to  use  goods but on the delivery of the goods for use.         Nor, in our  view, can a transfer of the right to use goods in sub-clause  (d)  of         clause  (29A)  be equated with the  third  sort  of  bailment  referred to in Bailment by Palmer, 1979 edition,  page 88.  The third sort referred to there is when goods are  left  with  the         bailee to be used by him  for  hire,  which  implies         the  transfer of the goods to the bailee.   In  the  case  of  sub-clause (d), the goods are not required  to  be  left  with  the         transferee.  All that is required  is  that  there  is a transfer of the right to use the goods.  In         our  view,  therefore, on a plain construction of sub-clause         (d)  of  Clause  (29A), the taxable event is the transfer of         the  right  to  use the goods regardless of when or whether  the  goods  are delivered for use.  What is required is that         the  goods  should be in existence so that they may be used.         And  further         contract in respect thereof is also required to  be  executed.   Given that, the locus of the deemed sale is         the  place  where  the  right to use the  goods  is transferred.  Where  the  goods  are when  the   right  to  use  them  is  transferred  is         of no relevance to the locus of the  deemed  sale.  Also of no relevance to the deemed sale is where the  goods  are delivered for use pursuant to the transfer of the  right  to use them, though it may be that in the case of  an  oral  or  implied transfer of the right to use goods, it  is  effected by the delivery of the goods.

      (27)  Article  366(29A)(d) further shows that levy  of  tax  is not on use of goods but on the transfer of the right  to  use         goods.   The  right to use goods  accrues  only  on  account         of the transfer of right.  In other words, right to

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use  arises only on the transfer of such a right and  unless  there is transfer of right, the right to use does not arise.  Therefore,  it is the transfer which is sine qua non for the  right  to  use any goods.  If the goods are  available,         the  transfer  of the right to use takes place when the  contract  in  respect thereof is executed.  As soon as the contract is  executed,  the right  is vested in the lessee.   Thus,  the  situs  of taxable event of such a tax would be the  transfer  which  legally transfers the right to use goods.  In  other  words, if the goods are available irrespective of the  fact  where  the  goods  are located and a  written  contract  is  entered         into between the parties, the taxable event on such  a deemed sale would be the execution of the contract for the  transfer  of right to use goods.  But in case of an oral  or  implied         transfer  of  the  right to use  goods  it  may  be  effected by the delivery of the goods.

      (28)  No authority  of this Court has been  shown  on  behalf of  respondents  that there would  be  no  completed  transfer  of  right  to         use  goods  unless  the  goods  are  delivered.   Thus, the delivery of goods cannot constitute a  basis  for  levy of tax on the transfer of right to use         any  goods.  We are, therefore, of the view that where the goods  are  in existence, the taxable event on the transfer of         the  right  to  use goods  occurs when a  contract  is  executed  between         the lessor and the lessee and situs of sale of such  a  deemed  sale         would be the place where  the  contract  in  respect         thereof  is  executed.   Thus, where  goods  to  be  transferred are available and a written contract is executed  between         the  parties, it is at that point situs of  taxable  event  on the transfer of right to use goods would occur and  situs of sale of such a transaction would be the place where  the contract is executed.

      (29)  Learned  counsel  representing  the         respondents  States contended that by virtue of application of Section 4  of  the         Central  Sales  Tax Act,  States  legislatures  are  competent to enact law imposing tax on the transfer of right  to  use goods if the goods are located for use within  their  States and placed reliance on the decision of this Court in  second Gannon  Dunkerley  &  Co.   (supra).   The  relevant  passage of the said judgment runs as under:

      The  question whether a sale is an outside sale or  a  sale  inside the State or whether it is a sale in the course  of import or export will have to be determined in accordance  with  the  principles contained in Sections 4 and 5  of         the  Central         Sales  Tax  Act  and the  State  Legislature  while  enacting the sales tax legislation for the State cannot make  a departure from those principles.

      (30)  The         aforesaid contention advanced has no  merit  and  reliance on the second Gannnon Dunkerly & Co.(supra) is  totally         misplaced.  It may be noted that after  Forty-sixth  amendment  of the Constitution, the definition of sale in  the  Central Sales Tax Act has not been amended and  further  this  Court  in         second Gannon Dunkerleys  case(supra)  was  dealing         with  the  question of levy of sales tax  on  works  contract  as envisaged in Article 366(29A)(b) and not  under  Article         366(29A)(d).   In second Gannon  Dunkerleys  case,  this  Court  has construed sub-clause(b) of clause (29A)  of  Article         366  as  conferring power to split the  single  and  indivisible  contract  into one for sale of goods and  other  for  supply  of labour and services and as a result  such  a

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contract  which was single and indivisible has been  brought  at  par with a contract containing two separate         agreements.  Since  tax was held as tax on sales of goods and, therefore,  it  was         held that principles contained in Section 4 of  the  Central         Sales  Tax Act would apply to transaction of  works  contract  as  envisaged in clause (29A)(b) of  Article 366.  Moreover,  the transactions contemplated under Section 4  of  the  Central Sales Tax Act involve series of events and         for  that reason it has no application to the present case.

      (31)  It was  then argued that if Section  4  of  the  Central         Sales  Tax is not applicable to the transaction  of  deemed sale  under 366(29A)(d), the same may be applied  by  analogy for determining the situs of sale of the transfer of  the  right to use goods.  We have already held that situs of  sale  can  only be fixed by the appropriate  legislature  by  creating a legal fiction like omitted explanation to Article  286(1)(a)  but situs of sale cannot be fixed by analogy  of  Section 4 of the Central Sales Tax Act.

      (32)  Coming  to the question that a  transaction  in  question  is in the nature of a contract of bailment, it  is  true  that  the High Court of Bombay in the  judgment  under  appeal has  taken  the view that the  transactions  of  the  transfer  of  the  right to use goods are in the  nature  of  bailment.   If such a view is taken then the State would not  have  the  power  to levy sales tax  on         such  transactions.  Unless such transaction is held to be a sale or deemed sale  in  law         and it is only then the State legislature would  be  competent to enact law to levy tax under Entry 54 of List II  of Seventh Schedule.  The levy of tax is not on use of goods  but  on the transfer of right to use goods.  The High  Court  proceeded  on the footing that the transfer of right to         use  is  different  from sale or deemed sale without         considering  the  legal fiction engrafted in clause (29A) of Article         366  of  the         Constitution.  We are, therefore, of the view  that  the reasoning of the High Court in upholding the Explanation  to  Section  2(10) of the Act is not tenable in         law.   This  question  is also related to another question which falls to  be  considered, namely, whether the State of Maharashtra can  levy  tax  on the transaction which is an inter-State  sale.  The  Bombay  High Court expressed the view that in  case  of  transfer of right to use goods when agreement is made in one  State  for giving delivery of goods for use by the lessee in  another         State, the movement precedes a transfer of right to  use  i.e.   the         movement  is antecedent  to  the  completed  transaction  and only upon delivery of goods the transfer of  right  to  use is completed as the transfer of right to         use  goods  is not concluded merely by execution of an  agreement  or  document.  In view of the fact that the transaction  in  question  is  deemed  sale and definition of sale  in  the  Central         Sales Tax Act is not amended, the said reasoning of  the  High Court is not only erroneous, but runs contrary  to  two  decisions of this Court -(i) Builders  Association  of  India  (supra) and  (ii)  M/s.  Gannon  Dunkerley  and  Co.  (supra)         wherein,  it  was categorically held that,  in  the  determination of inter- State character of sale the situs of  sale  is  immaterial.  When goods are entrusted to a  common  carrier         for delivery, it amounts to delivery to  consignee.  If  it takes  place  outside   the  State,  the  fact  that  subsequently goods have reached the State where they are put  to  use, cannot be ground for determining the tax  liability  on  the ground that the goods are located in that State         for  use.

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      (33) During the course of argument an apprehension was  expressed  that,  in  case we take the view which  have         now  taken  in  our judgment, many unscrupulous  companies  would  shift  their head offices to neighbouring countries only  to  avoid  sales  tax.  It is true that in such cases the  State  would not be competent to levy tax on the transfer for right  to  use         any goods.  Shri K.  Parasaran, the learned  senior  counsel         is right when he contends that such apprehension is  not  justified as  the  Parliament has  ample  power  under  Article 246 of the Constitution to plug such loopholes.

      (34)  Shri Harish Salve, learned senior counsel raised  an additional argument that Section 3 of the Maharashtra Act  levied tax  on the transfer of right to use goods  effected  before  the  date  of   commencement  of  the  Constitution  Forth-sixth  Amendment Act, 1982 which inserted clause (29A)  in  Article  366 of the Constitution and, therefore,  it  is  ultra  vires.  As the appellants are to succeed on the first  ground, we are not disposed to go into the said question.

      (35)  As a  result of the  aforesaid  discussion  our  conclusions are these:

      (a)  The States in exercise of power under Entry 54 of  List II read with Article 366 (29A) (d) are not competent to  levy  sales tax on the transfer of right to use goods, which  is a deemed sale, if such sale takes place outside the State  or  is a sale in the course of inter-State trade or commerce  or is a sale in the course of import or export.

      (b)  The appropriate  legislature by  creating  legal  fiction         can fix situs of sale.  In the absence of any  such  legal  fiction the situs of sale in case of the         transaction  of  transfer  of right to use any goods would be  the  place  where  the property in goods passes, i.e.  where the written  agreement transferring the right to use is executed.

      (c)  Where the goods are available for the transfer of  right  to use the taxable event on the transfer of right  to  use  any goods is on the transfer which results in right  to  use  and  the  situs of sale would be the  place  where         the  contract is executed and not where the goods are located for  use.

      (d) In cases where goods are not in existence or where  there  is  an oral or implied transfer of the right  to         use  goods, such transactions may be effected by the delivery of  the  goods.  In such cases the taxable event would be on the  delivery of goods.

      (e)  The transaction of transfer of right to use goods  cannot be  termed as contract of bailment as it  is  deemed  sale within the meaning of legal fiction engrafted in clause  (29A)  (d)  of Article 366 of the Constitution wherein  the  location or delivery of goods to put to use is immaterial.

      (36)  In the light of what we have stated  above,  we  will  examine  the provisions of the various Acts which         are  impugned in the present case.

      (37)  These  civil  appeals  and writ  petitions  are  pending         for  a  considerable  period  of  time  and  during  pendency  of  these  cases  many States         have  made  various  amendments  in their  State Acts but the appeals  and  writ  petitions  were         not  accordingly  amended.   We  have  been

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supplied  with photocopies  of the provisions of  the  Acts  during hearing  of  these   matters.   We  are,  therefore,  noticing the provisions of the Acts as they are contained in  the  copies  supplied  to  us by  learned  counsel  for         the  parties.

      (38)  Maharashtra         Act  -  In  earlier  part  of  this  judgment  we  have  already reproduced the  Explanation  to  Section         2(10)) of the Act.  The said Explanation fixes  the  situs of deemed sale in respect to the transfers of right to  use  any goods.         The said Explanation deems the transfer  of  right  to  use any goods to have occurred in the  State  of  Maharashtra if the goods are located within the State at the  time of their use, irrespective of the place where agreement  of  such  transfer  of the right is made  and  therefore  it  widens the  scope  of  the definition of sale  so  as  to  include         deemed  sales  (i)  which  are  in  the  course  of  inter-State  trade  and commerce and (ii) sales outside         the  State of Maharashtra and (iii) sales which occasioned import  of  goods  into         India.  Section 3 of  the  Maharashtra  Act  provides incidence of tax.  It lays down that subject to the  provisions  contained  in  the Act and rules, tax  shall  be  leviable  on  the turnover of sales and         therefore  turnover  necessarily  has  to  include outside sale and sale  in         the  course of  inter-State trade and commerce and  sales  which  occasioned import of goods.  Although Section 8-A of the Act  (as  referred to in written notes), provides that nothing in  this  Act would be deemed to impose or authorise  imposition  of  any tax on a sale outside the State or in the course  of  the  import  or export or inter-State trade or commerce         but  the  Explanation has not been amended accordingly.  There is  a  provision  for exemption of turnover related to goods  in  respect         of which tax has already been paid under the Bombay  Sales  Tax  Act,  1952 but there is no provision  that such  exemption  would  be available in case of goods         which  have  suffered  sales tax under the other Sales Tax laws.  We are,  therefore,  of the view that since the Explanation has  not  been  amended in conformity with Section 8-A of the Act, the  Explanation   to  Section  2(10)  of  the  Maharashtra  Act  transgresses  the  limits of legislative power conferred  on  the  State  legislature         under Entry 54 of List II  and  we,  thus,  instead of  striking  it   down,  direct  that   the  Explanation  to Section 2(10) of the Act shall be read down  to  this  effect  that it would not be  applicable  to  the  transactions  of transfer of right to use any goods if such  deemed sale is (i) an outside sale, (ii) sale in course  of  the  import of the goods into or export of the goods out  of  the territory of India and (iii) an inter-State sale.

      (39)  Karnataka Act.  The tax on the transfer of right  to  use any goods is levied under the General Sales Tax Act,  namely The  Karnataka Sales Tax Act.  Section 2(t)  of  The  Karnataka Sales Tax Act, 1957 defines sale as under:

      Sale with all its grammatical variations and cognate  expressions   means  every  transfer  of  the  property          in  goods(other than by way of a mortgage, hypothecation, charge  or  pledge) by one person to another in the course of  trade  or  business  for  cash         or for deferred  payment  or  other  valuable consideration (and includes, -

      (i) xxxx (ii) xxxx (iii) xxxx;

      (iv)  a transfer of the right to use any goods for any

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purpose(whether         or  not for a specified period)  for  cash,  deferred payment or other valuable consideration).

      The above definition of Section 2(t) has Explanations.  The relevant portions of which are being reproduced below:

      Explanation  3.  (a) The sale on purchase of  goods  (other than in the course of inter-State trade or  commerce  or  in the course of import or export) shall be deemed,         for  the  purposes of this Act, to have taken place in the  State  wherever  the  contract of sale or purchase might have been  made, if the goods are within the State-,

      (a) xxxx (i) xxxx (ii) xxxx (b) xxxx (c) xxxx

      (d) Notwithstanding anything contained in the Sales of  Goods  Act,  1930  (Central  Act No.  3 of  1930),  for         the  purpose         of  this Act, the transfer of the right to use  any  goods for any purpose(whether or not for a specified period)  of shall be deemed to have taken place in the State, if such  goods  are  for         use within the State, irrespective  of  the  place where the contract of transfer of the right to use the  goods is made.

      The  provisions of Section 5(3) of the Act provide for  a  single  point tax.  Section 5C is a charging section         for  levy  of  tax  on the transfer of right to  use         any  goods.  Section 5C is reproduced as under:

      5-C.  Levy of tax on the transfer of the right to use  any   goods.    Notwithstanding   anything  contained   in  sub-section (1) or sub-section (3) of Section 5, but subject  to  sub-sections (4), (5) and (6) of the said section, every  dealer shall pay for each year a tax under this Act on  his  taxable         turnover in respect of the transfer of the right to  use any goods mentioned in column(2) of the Seventh Schedule  for  any purpose (whether or not for a specified period)  at  the  rates specified in the corresponding entries in  column  (3) of the said Schedule).

      (40)  A  perusal of Explanation 3(d) to  Section 2(t)  shows  that the transfer of right to use any goods would  be  deemed to have taken place in the State of Karnataka if the  goods are for use within the State irrespective of the place  where  the contract of transfer of right to use the goods is  executed.   The said Explanation 3(d) to Section 2(t) widens  the ambit of definition of sale by including sales outside  the State of Karnataka and the sales which occasioned import  of goods into India, merely on the premise that goods put to  use  are located within the State of Karnataka irrespective  of the place where the contract or transfer has taken place.  This  Explanation  is in excess of legislative power  under  Entry  54  of  List  II of the Seventh  Schedule.   Another  important  aspect to notice is that the provision of Section  5(3)  which  provides  for single point         taxation  has  been  omitted         in  its  application  to  Section  5C.   Therefore,  Explanation (3)(d) to Section 2(t) of the Act has to be held  in  excess  of legislative  power conferred  on  the  State  legislature  under  Entry  54  of List II  of  the  Seventh  Schedule  of the Constitution following the reasoning  given  while  discussing  the Maharashtra Act.   We,  accordingly,  direct that  Explanation  3(d) to Section 2(t) of  the  Act  shall  be  read         down to this effect that it  would  not  be  applicable  to the transactions of transfer of right to         use

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any  goods if such deemed sale is (i) an outside sale, (ii)  sale  in course of the import of the goods into or export of  the  goods  out         of  the territory of  India  and  (iii)  an  inter-State sale.

      (41)  Tamil  Nadu.  The Tamil Nadu General  Sales         Tax  Act,  1959  also levies tax on transfer of right to use         any  goods. Section 2(n) defines sale as under:

      sale with all its grammatical variations and cognate  expressions  means  every transfer of the property in  goods  (other than by way of a mortgage, hypothecation, charge  or  pledge)         by one person to another in the course of  business  for  cash, deferred payment or other valuable  consideration  and includes

      (i)  xxxx (ii) xxxx (iii) xxxx (iv) a transfer of the  right to use any goods for any purpose (whether or not for a  specified  period)  for cash,  deferred  payment  or  other  valuable consideration.

      The above definition has Explanations and the relevant  Explanation (3) is extracted below:

      Explanation  (3) (a) The sale or purchase of  goods  shall be deemed, for the purposes of this Act, to have taken  place  in  the State,  wherever the  contract  of  sale  or  purchase might have been made, if the goods are within  the  State-"

      (i) xxxxx (ii) xxxxx (b) xxxxx

      Explanation 3(a) to Section 2(n) of the Act deems sale  to have occurred in the State of Tamil Nadu if the goods are  located within  the  State.  Although  the  Explanation  is  general in  character, the petitioners contended  that  the  said Explanation is being applied in the case of transfer of  right to  use any goods which have taken place outside  the  State  or  an  inter-State  sale.    During  the  course  of  argument,  learned counsel appearing for the State of  Tamil  Nadu  contended that the said Explanation is applicable  in  cases  where the transfer of right to use goods takes  place  outside the State, and the State is empowered to levy tax on  such  transaction  of deemed sale, if the goods are  located  within the  State.  Further, in Section 3(A), the rates  of  tax  has  not been specially prescribed.  Following what  we  have  stated  earlier, we hold that the Explanation 3(a)  to  Section 2(n) of the Act is in excess of power under Entry 54  of  List II of the Seventh Schedule so far as it relates  to  the  transactions of transfer of right to use any goods are  concerned.   Since  the said Explanation is in the  general  provisions  of the Act, we direct that Explanation 3(a)  to  Section 2(n)  of the Act shall be read down to this  effect  that  it  would not be applicable to  the  transactions  of  transfer  of  right to use any goods if such transaction  of  deemed sale  is (i) an outside sale;  (ii) the  sale  which  occasioned  the import of goods into India;  and  (iii)  an  inter-State sale.

      (42)  Haryana.   Haryana General Sales Tax  Act, 1973  also  levies tax  on transfer of right to  use  any  goods.  After  Forty-  sixth  Amendment, the Act has  been  amended.  Section 2(l) defines sale, which runs as under:

      Sale  means  any transfer of property in goods  for

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cash or deferred payment or other valuable consideration and  includes-

      (i) xxxx (ii) xxxx (iii) xxxx

      (iv)  transfer  of the right to use any goods  (except  tents, kanats, chholdari, crockery, utensils, furniture and  all other goods dealt with by the tent dealers as also other  allied dealers for decoration and lighting purposes) for any  purpose (whether  or not for a specified period) for  cash,  deferred payment or other valuable consideration;

      The charging section in relation to tax on transfer of  right  to  use any goods is under the general provisions  of  the Sales Tax Act.  Note 4 of Section 2(e) reads as thus:

      Note  (4) A sale falling under sub- clause(iv) shall  be  deemed to have taken place within the State if the goods  in  respect of which right to use has been transferred  are  within the State at the time of their use.

      Note (4) is substantially akin to explanation impugned  in  the Maharashtra  Act.   Note (4) widens  the  ambit  of  definition  of sale by including outside sale, inter-State  sale  and import into the territory of India.  Following the  reasoning  given earlier, we direct that Note (4) to Section  2(e)  of  the Act shall be read down to this effect that  it  would  not be applicable to the transactions of transfer  of  right to use any goods if such deemed sale is (i) an outside  sale, (ii) sale in course of the import of the goods into or  export of the goods out of the territory of India and (iii)  an inter-State sale.

      (43) Uttar Pradesh.  Uttar Pradesh Trade Tax Act, 1948  also  levies tax  on transfer of right to  use  any  goods.  Section 2(h) defines sale, which is reproduced below:

      Sale  with  its grammatical variations  and  cognate  expressions,  means  any  transfer  of property  in   goods  (otherwise  than by way of a mortgage, hypothecation, charge  or  pledge)  for cash or deferred payment or other  valuable  consideration and includes

      (i) xxxx (ii) xxxx (iii) xxxx

      (iv)  a transfer of the right to use any goods for any  purpose (whether  or not for a specified period) for  cash,  deferred payment or other valuable consideration.

      (44) Clause (ii) of Explanation I to Section 2(h) runs  as under:

      in a case falling under sub-clause (iv), if the goods  are  used by the lessee within the State during any  period,  notwithstanding that  the agreement for the lease has  been  entered into outside the State or that the goods have  been  delivered to the lessee outside the State.

      (45)  Section 3.F is a charging section which provides  tax  on transfer  of  right  to use any  goods  and  it  is  extracted as under:

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      (1) Notwithstanding anything contained in section 3-A  or  section  3- AAA  or  section 3-D  but  subject  to  the  provisions  of sections 14 and 15 of the Central Sales  Tax  Act, 1956, every dealer shall, for each assessment year, pay  a tax on the net turnover of-

      (a)  transfer  of the right to use any goods  for any  purpose (whether  or not for a specified period) for  cash,  deferred payment of other valuable consideration;  or

      (b) xxxx

      at  such rate not exceeding fifteen percentum as  the  State Government may, by notification, declare and different  rates  may  be declared for different  goods  or  different  classes of dealers.

      (2)  For the purposes of determining the net  turnover  referred  to in sub-section (1), the following amounts shall  be  deducted from the total amount received or receivable by  a dealer in respect of a

      (a)  transfer referred to in clause (a) of sub-section  (1)  whether  such  transfer  was   agreed  to during  that  assessment year or earlier, -

      (i)  the amount representing the value of  the  goods  covered by sections 3, 4 and 5 of the Central Sales Tax Act,  1956;

      (ii)  the amount representing the value of the  goods  exempted under section 4;

      (iii)  xxxx  (iv) xxxx (v) xxxx (vi) xxxx (vii)  xxxx  (viii) xxxx (ix) xxxx (x) xxxx (xi) xxxx (xii) xxxx

      The  aforesaid  provisions  show that so far  as  the  inter-State  sales  are concerned, in  substance,  are  not  taxable, but no provision has been made for declared goods.  Yet,  there is another aspect. By virtue of clause (ii)  of  Explanation  I to Section 2 (h), the ambit of sale has been  widen  by including outside sale as inside sale on  mere  location  of goods for use within the State irrespective  of  the fact that the agreement for transfer of right to use has  been  executed outside  the State or whether  the  sale  is  outside the State, the tax is chargeable within the  State.  And, further, on account of a special provision for rates of  tax, the other provision such as single point tax as well as  exemption  etc. is  not applicable to the  transaction  of  transfer  of  right to use any goods.  We find that  clause  (ii)  of  Explanation  I  of Section 2(h) is  in  excess  of  legislative  power  under Entry  54,  List  II  of  Seventh  Schedule  and, therefore,  we direct that  clause  (ii)  of  Explanation I of Section 2 (h) of the Act shall be read down  to  this  effect  that it would not be  applicable  to  the  transaction  of transfer of right to use any goods if  such  deemed sale is (i) an outside sale, (ii) sale in course  of  the  import of the goods into or export of the goods out  of  the territory of India and (iii) an inter-State sale.

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      (46)  Rasjasthan. The Rajasthan Sales Tax Act,  1994,  levies tax on transfer of a right to use any goods.  Section  2(23) defines lease which is being reproduced below:

      Lease means any agreement or arrangement whereby the  right to use any goods for any purpose is transferred by one  person to another whether or not for a specified period for  cash,  deferred payment  or  other  valuable  consideration  without the transfer of ownership, and includes a sub-lease  but  does not include any transfer on hire purchase or  any  system of payment by installments;

      (47) Section 2(38) defines sale which runs as under:  sale  - with all its grammatical variations  and  cognate  expressions means every transfer of property in goods by one  person to  another  for  cash, deferred  payment  or  other  valuable consideration and includes

      (1)  a  transfer, otherwise than in  pursuance  of  a  contract, of property in goods for cash, deferred payment or  other valuable consideration;

      (2) xxxx (3) xxxx

      (4)  a  transfer of the right to use  goods  for  any  purpose (whether  or not for a specified period) for  cash,  deferred payment or other valuable consideration;

      The  said sub-sections has Explanations.  Explanation  II(b) runs as under:

       in a case falling under sub-clause (4), if the goods  are  used by the lessee within the State, whether or not for  a  specified period,notwithstanding that the agreement  for  the  lease has been made outside the State or that the goods  have  been moved from outside the State or the  goods  have  been delivered to the lessee outside the State.

      (48) The  said  Explanation is substantially  on  the  pattern of Explanation to Section 2(10) of the  Maharashtra  Act.   By  virtue of Explanation II(b) of Section  2(38)(4),  the  definition of sale is enlarged and it includes  sales  outside the State or sales which are inter-State sales have  been made chargeable if the goods are used within the State.  Therefore,  the said Explanation is in excess of legislative  power under Entry 54 of List II of Seventh Schedule and, we,  accordingly direct  that the Explanation II(b)  of  Section  2(38)  (4) shall be read down to this effect that it  would  not  be applicable  to the transaction of the  transfer  of  right to use any goods if such deemed sale is (i) an outside  sale, (ii) sale in course of the import of the goods into or  export of the goods out of the territory of India and (iii)  an inter-State sale.

      (49) Andhra Pradesh.  The Andhra Pradesh General Sales  Tax Act, 1957 levies tax on the transfer of right to use any  goods.   Section  2(n)  defines   sale,  which  is  being  reproduced below:

       Sale  with  all  its  grammatical  variations  and  cognate expressions means every transfer of the property in  goods  whether as  such  goods  or in  any  other  form  in  pursuance  of  a  contract  or otherwise by  one  person  to  another in the course of trade or business, for cash or for

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deferred  payment,  or for any other valuable  consideration  xxx  or in the supply or distribution of goods by a  society  (including   a co-  operative   society),  club,  firm   or  association to its members, but does not include a mortgage,  hypothecation or pledge of, or a charge on goods. The above  sub-section has Explanations.  The relevant Explanations are  reproduced below:

      Explanation   II :-   (a)  Notwithstanding  anything  contained in the Indian Sale of Goods Act, 1930 (Central Act  III  of 1930) a sale or purchase of goods shall be  deemed,  for  the purpose  of this Act to have taken  place  in  the  State, wherever the contract of sale or purchase might have  been made, if the goods are within the State.

      (i) xxxx (ii) xxxx (b) xxxx

      Explanation  IV:  -  A transfer of right to  use  any  goods  for  any purpose  (whether or not  for  a  specified  period) for  cash,  deferred   payment  or  other  valuable  consideration shall be deemed to be a sale.

      The amended Section 5E of the A.P.  Act runs as under:

      Tax on the amount realised in respect of any right to  use goods:

      Notwithstanding anything contained in this Act:  -

      (a)  Every dealer who transfers the right to use  any  goods  for  any purpose, whatsoever, whether or not  for  a  specified  period,  to any  lessee or  licensee  for  cash,  deferred payment  or other valuable consideration,  in  the  course of his business shall, on the total amount  realized  or  realizable by him by way of payment in cash or otherwise  on  such  transfer or transfers the right to use such  goods  from  the lessee or licensee, pay a tax at the rate of five  paise in  every  rupee  of the  aggregate  of  such  amount  realized or realizable by him during the year;

      (b)  the transfer  of  right to use  any  such  goods  entered into  by any dealer, shall be deemed to have  taken  place  in this State whenever the goods are used within the  State, irrespective of the place where the agreement whether  written or oral for such transfer or right is made."

      Explanation   IV to  the   definition  of  sale  as  contained in Section 2(n) of the Act brings within its ambit  tax  on transfer of right to use any goods.  Explanation  II  of  Section 2(n) which is a general provision, provides that  irrespective  of  the  place where the contract of  sale  or  purchase might have taken place, if the goods are within the  State, it will be included within the definition of ’sale

      (50) Clause (b) of Section 5.E deems that any transfer  of  right of goods entered into by any dealer, is deemed  to  have  taken place in the State if the goods are used  within  the  State irrespective of the place where the agreement has  taken  place.  Relevant provisions of Section 38  is  being  reproduced below:

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      Nothing  contained  in  this Act shall be deemed  to  impose or authorize the imposition of a tax on the sale  or  purchase  of  any goods, where such sale or  purchase  takes  place -

      (i) outside the State;  or

      (ii) in the course of the import of the goods into, or  export of the goods out of the territory of India;  or

      (iii) in the course of inter-State trade or Commerce

      Explanation :   The provisions of chapter II  of  the  Central Sales Tax Act, 1956 (Central Act 74 of 1956), shall  apply for the purpose of determining when a sale or purchase  takes  place in the course of inter- State trade or commerce  or outside a State or in the course of import or export.

      (51)  Although, the aforesaid Section was required  to  be  amended after  the ITC Classics case under  appeal,  it  remained unamended  and its Explanation provides  that  the  provisions  of Chapter II of the Central Sales Tax Act, 1956  shall  apply  for the purpose of determining when a sale  or  purchase  takes place in the course of inter-State trade  or  commerce  or  outside a State or in the course of import  or  export.

      (52) We have already held that since the definition of  sale  so  far as it relates to transaction of transfer of  right to use any goods is concerned in Central Sales Tax Act  has  not been amended, the provisions of Section 4  of  the  Central Sales  Tax  Act  will not  be  applicable  to  such  transactions.  Thus, we find that clause (b) of Section 5.E  is  in excess of legislative power of the State under  Entry  54  of List II of Seventh Schedule.  We, therefore,  direct  that clause (b) of Section 5.E of the Act shall be read down  to  this  effect  that it would not be  applicable  to  the  transaction  of transfer of right to use any goods if  such  deemed sale is (i) an outside sale, (ii) sale in course  of  the  import of the goods into or export of the goods out  of  the territory of India and (iii) an inter-State sale.

      (53)  Following  what we have stated above, we are  of  the  opinion  that the decision of the Bombay High Court  in  20th  Century  Finance Corporation   Ltd.   Vs.   State  of  Maharashtra  (1989) 75 STC, 217 (under appeal) is erroneous,  whereas,  we affirm the decision of the Andhra Pradesh High  Court  in ITC Classics Finance & Services vs.  Commissioner  of Commercial Taxes (1995) 97 STC, 330 (under appeal).

      (54) For the aforesaid reasons, all the civil appeals,  writ  petitions and the transferred case,  excepting  civil  appeal Nos.   6218-23/95, deserve to be allowed  and  civil  appeal  Nos.    6218-  23/95   deserve  to  be   dismissed.  Consequently,  we  set aside  the  judgments  under  appeal  excepting  in  CA  Nos.6218-23/95.  All the  civil  appeals  excepting C.A. Nos.6218-23/95, writ petitions under Article  32, the transferred case and the writ petitions filed before  the  High Court are allowed to the extent what we have held  in  this judgment and directions issued hereinafter.   Civil  appeal Nos.   6218-23/1995  are  dismissed.   The  relevant  assessment  orders if impugned in these cases are set aside.  We  direct the respondents to assess the appellants and the  petitioners  for the relevant years involved in these  cases  only  in accordance with the principles of law laid down  in

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this judgment. There shall be no order as to costs.

______________________________________________________________

SYED SHAH MOHAMMED QUADRI, J. (for himself and on behalf of B. N. Kirpal, J.) (Minority view).

55. We have had the advantage of reading the judgment prepared by our learned brother Khare, J. and we regret not to be persuaded to agree with the interpretation of Sub-clause (d) of Clause (29A) of Article 366 of the Constitution of India.

56. The facts in Civil Appeal No. 4500 of 1989 and the history of the legislation leading to the passing of the Constitution (Forty-Sixth Amendment) Act, 1982, by which Clause (29A) was inserted in Article 366 of the Constitution, have been exhaustively dealt with by our learned brother, he has also referred to the respective contentions of the learned Counsel in extenso, so we do not consider it necessary to repeat the same here.

57. The question that arise for consideration in this batch of cases are: (1) What are the limitations on the power of the State Legislature to levy tax on the transaction embodied in Sub-clause (d) of Clause (29A) of Article 366 of the Constitution? (2) what is the real Import of Sub-clause (d) of Clause (29A) of Article 366 and where does the taxable event on the transfer of right to use goods arise? (3) whether the impugned legislations of the States are unconstitutional being in violation of Clauses (1) to (3) of Article 286 and Clauses (1) and (3) of Article 269 of the Constitution; and (4) whether the orders Impugned in the appeals the provisions challenged in writ petitions and transfer petitions are sustainable.

58. On the first question, after tracing the history of the sales tax legislation both under the Government of India Act, 1935 as well as under the Constitution of India and dealing with the events leading to the insertion of Clause (29A) in Article 366 of the Constitution and after noticing the law laid down in the decisions of the Constitution Benches of this Court in Builders’ Association of India v. Union of India  and Gannon Dunkerley & Co. v. State of Rajasthan, our learned brother reiterated the limitations imposed by Clauses (1). (2) and Sub-clause (a) of Clause (3) of Article 286 and Clauses (1) and (3) of Article 269 of the Constitution as well as Sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act and observed that in addition to these limitations the States would be bound by any law that might be enacted by the Parliament under Sub-clause (b) of Clause (3) of Article 286 of the Constitution. We are in respectful agreement with the reasoning and conclusions mentioned in para 19 and the principles laid down in Clauses (a) and (d) of para 35 of his judgment.

59. The germane question in question No. 2 while question Nos. 3 and 4 are consequential.

60. There is cleavage of opinion among the High Courts on question No. 2. The following reasons impelled us to record this note of discord on the interpretation of Sub-clause (d) of Clause (29A) of Article 366 of the Constitution.

61. The legislative competence of a State to tax sales or purchases of goods, is derived from Entry 54 of List II of the Seventh Schedule of the Constitution. Before the Constitution (Forty-Sixth Amendment) Act, 1982, the term ’sale’ or the expression ’sale or purchase of goods’ was not defined in the Constitution. The term ’sale’ was understood in the same meaning as in the Sales of Goods Act. Many transactions which resembled ’sale’ but did not satisfy the requirements of that term resulted in such

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transactions escaping sale tax liability. This Court in many cases did not approve the State Legislations which extended the meaning of ’sale’. The Parliament, therefore, inserted Clause (29A), defining the expression ’tax on the sale or purchase of goods’ in expansive terms, in Article 366 of the Constitution, which has to be read in Entry 54 of List II of the Seventh Schedule to the Constitution.

62. To find out the ambit of Sub-clause (d) relating to transaction of ’the transfer of right to use any goods, which along with the transactions specified in sub-clauses (a) to (c) and (f) of Clause (29A) of Article 366 of the Constitution, is treated as a ’deemed sale’, it is necessary to quote Clause (29A) here : "(29A). Tax on the sale or purchase of goods’ includes - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) Involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (c) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.’

63. A careful reading of Clause (29A) shows that it is an inclusive definition and has two limbs. The first limb says that tax on the sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f) thereof. The second limb provides that such transfer, delivery or supply of any goods referred to in the first limb shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and the purchase of those goods by the person to whom such transfer, delivery or supply is made.

64. A perusal of Sub-clause (d) shows that the tax, envisaged therein, is on the transfer of the right to use any goods for any purpose, the period of use may or may not be specified, the consideration whereof may be cash, deferred payment or any other valuable consideration (need not necessarily be cash consideration). As the tax is on the transfer of right to use any goods, we shall ascertain the meaning of the word ’transfer’.

65. In The New Shorter Oxford English Dictionary 1993 Edition, Volume 2, Page 3367, its meaning is given, inter alia, as follows : ’(Law)-conveyance of property, especially of stock of shares, from one person to another.’ In Black’s Law Dictionary Sixth Edition, Page 1497, the word ’transfer’ is defined to mean, inter alia, "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property...’. In Corpus Juris Secundum Volume 87, Page 892, it is defined to mean, "common use of the word ’transfer’ is, to denote the passing of title in property or an interest therein from one person to another and in that sense the term means that the owner of the property delivers it to another person with the intent of passing the rights which he had in it to the latter."

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66. Our endeavour here is to discern what transfer, in the context of Clause (d), means. Is it simply signing of a document that brings about a transfer of right to use any goods or is it also necessary to give control of the goods to complete the transfer with the Intent of passing the right to use the goods to the hirer? A combined reading of the first and the second limb of Clause (29A) suggests that mere execution of a document de hors passing the domain of the goods does not result in transfer of right to use any goods and will not constitute a ’deemed sale’ within the meaning of Clause (29A), The ’deemed sale’ envisaged in Sub-clause (d) involves not only a verbal or written transfer or right to use any goods but also an overt act by which the transferor places the goods at the disposal of the transferee to make their use possible. On this construction, it is explicit that the transfer of right to use any goods involves both passing of a right in as well as domain of the goods in which right to use is transferred.

67. It is a common ground that the transaction mentioned in Sub-clause (d) which is treated as a ’deemed sale’, is in effect leasing hiring of the goods, which implies use of the goods by the hirer.

68. It will be useful to note the following passage in ’Introduction to the Law of property’ by Mr. F.H. Lawson 1958 Edition, Page 117. "In Roman law hire was nothing more than contract. In English law, however, it is much more. Here again we must distinguish between chattels and land. When a chattel is handed over by way of hire a bailment takes place, and thereby the hirer is put in possession of the thing. For land the corresponding transaction is a lease, and here too there is a transfer of possession. So far the two are very similar, though whereas the lessor always retains what is misleadingly called ’possession’, a bailor who bails goods for a fixed term loses possession...

69. The Halsbury’s Laws of England describes ’Hire of chattels’ Fourth Edition, Volume 2, Para 1551 thus : "Hire is a class of bailment. It is a contract by which the hirer obtains a right to use the chattel hired in return for the payment to the owner of the price of the hiring. The proprietary interest in the chattel is not changed, but remains in the owner, although upon delivery the hirer becomes legally possessed of the chattel hired, so that if it is lent for a time certain, even the true owner is debarred during that time from resuming possession against the hirer’s will and, should he do so, becomes liable in damages for the wrongful seizure.

70. We can with advantage refer to ’Bailment by Palmer’. The learned author refers to the classification of bailment made by Holt C.J. in Coggs v. Bernard 1703 (92) ER 107 into six categories of which the third is relevant on the facts in the case of the appellant. Here the equipment, on being received from the manufacturer/supplier, is left with the hirer for being used for hire. The material extract of that book reads thus: And there are six sorts of bailments.... The third sort is, when goods are left with the bailee to be used by him for hire; this is called location et conduction, and the lender is called locator and the borrower conductor.

71. Be that as it may, what is the contractual nature of the transaction specified in Sub-clause (d) of Clause (29A)? Whether it is a specie of bailment or not? These questions should not detain us because we are concerned here not with the contractual nature of the transaction but with the substance and content of Sub-clause (d). Suffice it to mention that the Parliament itself has not named the transaction and for purposes of the present discussion relating to tax on the transaction of the nature in Sub- clause (d) of Clause (29A), brought into the fold of deemed sale, it is not necessary to give a nomen juris to it. It may, however, be mentioned that various High Courts in India treated the transaction in Sub-clause (d) as bailment; among them are the High Court of Andhra Pradesh in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer, Company Circle, Visakhapatnam

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(1990) 77 STC 182 ITC Classic Finance and Services v. Commissioner of Commercial Taxes (1995) 97 STC 330 the High Court at Bombay in 20th Century Finance Corporation Ltd. v. State of Maharashtra (1989) 75 STC 217 the High Court of Punjab and Haryana (the Tamil Nadu Taxation Special Tribunal) in Upasana Finance Ltd. v. State of Tamil Nadu (1999) 113 STC 403 the High Court of Orissa in Krushna Chandra Behera v. State of Orissa (1991) 83 STC 325.

72. Reverting to Sub-clause (d) of Clause (29A), a perusal of the Statement of Objects and Reasons appended to The Constitution (Forty-Sixth Amendment) Act, 1982, shows that the Parliament has taken note of the fact that the main right in regard to films relates to its exploitation and after exploitation for a certain period of time, in most cases, the film ceases to have any value, so instead of resorting to the outright sale of a film, only a lease or transfer of the right to exploit the film is made. The device by way of lease of films has been resulting in avoidance of sales tax so to curb that device, Sub-clause (d) is inserted in Clause (29A). Even so, Sub-clause (d) is wider import than a mere leasing of films. It applies to all kinds of leasing/hiring of goods, for example, leases of plants, machinery, computers, cars, planes, furniture etc,

73. A sale of any goods is complete when the property in the goods passes to the purchaser pursuant to a contract of sale of those goods. So also, a deemed sale of goods under Sub-clause (d), as has been pointed out above, will be complete when the control of the goods in which the right to use is transferred, passes to the transferee under the contract of transfer. Such a transfer of right to use any goods may be effected either by the execution of a written contract between the parties indicating the mode by which giving the control or domain of the goods to the hirer is contemplated or by an oral contract coupled with delivery of the goods to the hirer. There can be no oral contract with regard to unascertained goods because there can be no delivery of such goods. Where a written contract exists whether in regard to ascertained goods or unascertained goods, the intention of the parties, as evidenced by the terms of the contract to ’transfer of right to use the goods’ is determinative of the fact as to when, how and where the right to use the goods is transferred. It is a well-settled principle of interpretation of contracts that the contract must be construed as a whole. When and where such a deemed sale, under Sub- clause (d), takes place is a question of fact which has to be decided on the facts and circumstance of each case, Including the terms and conditions of the contract evidencing the transaction.

74. It may also be pointed out that though the ingredients of a sale of the goods as defined in the Sales of Goods Act and a deemed sale of goods as defined in Clause (29A) of Article 366 are different there can be no difference in the incidence of tax and they cannot be treated differently for the purpose of levy of sales tax. 75. We shall now examine the contention that the transfer of right to use the goods is complete on executing the master lease only and nothing more need be done. In the factual matrix, in the case of the appellants, there is a master lease which is entered into between the appellants and the hirer for leasing of an equipment. The equipment, on that date, is not in existence. After execution of the master lease, the appellants will place an order for purchase of an equipment with the manufacturer purporting to be at the instance of the hirer with instruction that the same be delivered at his place. On the aforementioned premise, can the transfer of the right to use the equipment be complete on execution of the master lease and the appellants’ liability under Sub-clause (d) to pay sales tax would commence immediately even though the equipment in regard to which the right to use’ has been transferred to the hirer is not in existence? But then it is conceded that transfer in Sub-clause (d) will not be effectual where the goods are not in existence. Now, the next stage after placing the order for purchase of an equipment, let us take, an equipment has been manufactured and is thus brought into existence but remains unspecified; will then the transfer be complete at that stage and the appellants’ tax liability will

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start immediately on its manufacture. In our opinion no. At that stage even the sale of the equipment in favour of the appellants will not be complete as the property in the equipment will not pass to the appellants. The manufacturer will have to specify an equipment and either deliver or appropriate it to the contract of sale by the appellants, which will complete the sale of equipment in their favour. Thereafter, the transfer of the right to use the goods can become effective and the liability of the appellants to pay sales tax will arise. Let us take a case where the equipment is with the supplier as unspecified goods, will the transfer to use the goods be complete on execution of the master lease in respect of any unascertained equipment? Can in such a case the appellants be called upon by the revenue to pay sales tax on the execution of the master lease? We shall answer this question in the negative because, in our view, a transfer under Sub-clause (d) will not be complete on execution of the master lease. It will be complete when the supplier delivers the equipment to the appellants or hands it over to a carrier or a bailee or as per the instructions in this case to the hirer, which is deemed unconditional appropriation of goods to the contract of sale and then only the transfer under Clause (d) will take effect. In other words, in this case after execution of the master lease when the control of the equipment passes to the hirer that the transfer of right to use the goods will be complete. And it is at that stage that the liability of the appellants to pay sale tax will arise. 76. There is yet another aspect, which though not decisive, is of considerable practical significance and that is before the hirer is given the control/domain of the equipment, his liability to pay consideration under the contract may not arise. But the consequence of acceptance of the contention that on execution of the master lease, the transfer under Sub- clause (d) is complete, will be to give the revenue the legitimacy to tax the consideration mentioned in the master lease even before the appellants acquire a right to receive the same. This will be not only an unintended consequence of enacting Sub-clause (d) of Clause (29A) but also an improper and unjust action having approval of the Court. 77. We may clarify here that in the aforementioned examples, we have assumed that the lessor, the manufacturer/supplier, and the hirer are within the same State, albeit they may be in different districts (places). 78. It may be apt to notice here the principles with regard to unascertained goods in the case of sale of goods, which are Halsbury’s Laws of England - Vol. 41 - Paras 708-709: (i) The rule relating to unascertained goods is fundamental to the contract of sale inasmuch as a contract to sell unascertained goods is not a complete sale but a promise to sell. (ii) Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. In particular, where the individuality of the goods depends upon their being separated, weighed, measured, tested or counted, or upon some other act or thing being done in relation to them for their ascertainment, the goods are not ascertained until such act or thing is done. Goods are unascertained, notwithstanding that they are to be taken from a specific larger bulk, if the identity of the portion so to be taken is unascertained. The ascertainment of the goods does not of itself necessarily pass the property. It does so only if the parties have agreed that the property in the goods should pass when ascertained. In our view the same principles will apply in the case of a deemed sale embodied in Sub-clause (d). 79. If these principles are borne in mind, it cannot but be held, in the instant case, that till the equipment is handed over to the carrier to be delivered to the hirer, the sale of the equipment itself, ordered by the appellants, will not be complete much less can it be said that the deemed sale in favour of the hirer will be complete on execution of the master lease in respect of non-existent/ unspecified goods. That is why we have held above that on execution of the master lease, there can be no transfer of right to use the unascertained goods giving rise to the liability to pay sales tax on the deemed sale under Sub-clause (d). 80. This takes us to the question of fixing the place of taxable event in

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regard to the transaction mentioned in Sub-clause (d) of Clause (29A). 81. It will be apposite to note here the mandate contained in Article 286(1) prohibiting the State from imposing or authorising the imposition of tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of the import of the goods into or the export of the goods out of the territory of India., Clause (2) of Article 286 enables the Parliament to enact law and formulate principles for determining when a sale or purchase of goods takes place in any of the ways aforementioned. Clause (3) of Article 269 of the Constitution also authorises the Parliament to formulate principles, by enacting law, for determining when a sale or purchase or consignment of goods takes place in the course of inter-State trade or commerce by law. Before the formulation of the principles by the Parliament, the question of sale ’inside one State’ and ’outside other State’ came up for consideration of this Court in A, V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax. The question which arose for consideration of a Constitution Bench of this Court was whether the State of Travancore, Cochin can levy sales tax on the transactions in question. They involved the sales of tea in lots by auction which was conducted at Fort Cochin in the erstwhile Madras State. The bid amount was paid at Fort Cochin and the delivery note was taken from there. The tea lots were at Willingdon Island in the then Travancore Cochin State. Pursuant to the delivery notes, the tea lots were sent from Willingdon Island (Travancore Cochin) for consumption to other States and other countries. On the ground that the goods were within the State of Travancore Cochin, sales tax was sought to be levied by that State on those transactions of sale. This Court opined that the property in the goods passed when the contract was accepted on the fall of the hammer at Fort Cochin (Madras) and held: On the facts of this case it was found by the Sales Tax Appellate Tribunal that in regard to the sales of tea in ’full lots’ the property passed at Fort Cochin and this view has not been challenged in this Court. Therefore, the majority decision in Indian Copper Corporation Ltd. v. State of Bihar, the only State which would have the power to levy a tax on such sales would be the State of Madras and so far as Travancore Cochin was concerned, the sale would be an outside sale. In the present case, therefore, the sale was an "outside sale" and cannot be said to be "inside sale" qua Travancore Cochin because the title passed at Fort Cochin which is in the State of Madras. Apart from that the money was paid there and the delivery order was also received there even though the actual physical delivery of goods was made at a Willingdon Island in the State of Travancore Cochin. At the time Explanation to Article 286(1) was in force, so it was observed that the fiction created by the Explanation 286(1)(a) was inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State. 82. By virtue of the said constitutional provisions, the Parliament enacted the Central Sales Act, 1956. Section 3 of the Act contains the principles to determine when a sale or purchase of goods takes place in the course of Inter-State trade or commerce, Section 4 embodies the principles to determine when a sale or purchase of goods is said to take place outside the State and Section 5 contains the principles when a sale or purchase of goods is said to take place in the course of import or export. 83. It may be pointed out here that after the insertion of Clause (29AJ in Article 366 of the Constitution, the definition of ’sale’ in Section 2(g) of the Central Sales Tax Act is not amended to conform to the definition of the expression ’tax on the sale or purchase of the goods’. In Gannon Dunkerley’s case (supra), a Constitution Bench of this Court while dealing with the case of works contract falling under Sub-clause (b) of Clause (29A) took the view: It is, however, made clear that the absence of any amendment in the definition of sale contained in Section 2(g) of the Central Sales Tax Act, 1956 so as to include transfer of property in goods involved in execution of a works contract does not in any way affect the applicability of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act to such transfer.

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We have no valid reason to think that the same position will not obtain in a case falling under Sub-clause (d). Therefore, the contention that for determining the question as to whether a ’sale’ is inside one State and outside all other Stales or whether it is in the course of inter-State trade or commerce, recourse cannot be had to the provisions of Sections 3 and 4 of the Central Sales Tax Act, is untenable. 84. The taxable event in regard to the sale of goods is passing of the property in the goods or appropriation of the goods. In regard to each of the deemed sales the taxable event are specified in Sub-clause (a) to (f) of Clause (29A) of Article 366 of the Constitution. For purposes of levy of a tax on transactions referred to in sub-clauses (a) and (b) the taxable event is transfer of property in goods, in Sub-clause (c) it is delivery ,of goods, in Sub-clause (d) it is transfer of right to use any goods, whereas in sub-clauses (e) and (f), supply of goods is postulated as taxable event. It must, however, be made clear that no tax can be levied under a legislation enacted by virtue of the power conferred in Entry 54, List II of the Seventh Schedule of the Constitution on the agreement for sale, therefore, necessarily the taxable event has to be on the completion of a deemed sale. We have also discussed above as to when and where a deemed sale will be complete in regard to specified goods as also in regard to unspecified goods. However, some aspects which remained untouched may be dealt with here. In the case of a deemed sale of goods, whether specified or unspecified, under Sub-clause (d), where more States than one are involved, the taxable event will arise where the transfer is complete: if the contract is oral at the place of the delivery of the goods in which the right to use is transferred but if the contract is in writing, subject to the terms and conditions of the contract evidencing the intention of the parties, where giving the control/domain of the goods is postulated. In other words, the transfer will be complete where the contract is executed and the control/ domain of the goods which are the subject-matter of the contract, is given to the hirer. Let us take an example - the hirer is in Delhi, the lessor is in Mumbai and the goods are in West Bengal, the contract of the transfer of right to use any goods is entered into in Mumbai. On the execution of contract on the lessor’s direction, the goods moved from West Bengal to Delhi to be delivered to hirer. As the deemed sale occasions movement of the goods from West Bengal to Delhi the deemed sale in Sub-clause (d) will be an inter-State sale in respect of each of the said State and the transaction cannot be taxed under any of the States Acts. Let us take another example, where by the contract the transfer of right to use car V is executed in Delhi; the car ’x’ is in Gurgaon (Haryana), the hirer is handed over the key of the car ’x’ in Delhi; as both the execution of the contract as well as the act of passing of the control/domain of the car takes place in Delhi, the transfer is complete in Delhi, so the deemed sale is within Delhi State and outside all other States; the taxable event will, therefore, be in Delhi no matter where the situs of the car ’x’ is at the time of transfer and no matter where the car ’x’ will be used in or out of India. If the hirer takes the car ’x’ to Bombay, Tamil Nadu or any part of India, no State in which it is used will be entitled to levy tax for in none of the States the taxable event under Sub-clause (d) arises. Regarding non-existent and unspecified goods, the following example will clarify the position. In the example referred to above - the contract of the right to transfer an unspecified equipment (which is not in existence or which may be with the supplier) is entered into in Gujarat. The Lessor places the order to the manufacturer/supplier who is in West Bengal. On the principle discussed above, the sale of the equipment itself will be complete only on delivery of the equipment to the lessor or on his instruction to the hirer at Delhi. The taxable event cannot, therefore, be at any earlier stage and at a place other than Delhi. 85. Here it will be apt to refer to the following principle in Halsbury’s Laws of England Halsbury’s Laws of England-Vol. 41-para: An appropriation takes place where the goods are situated at the time of the appropriation, not where the contract of sale is made, or where one party assents to an appropriation by the other. An authority given by one party to the other to appropriate the goods is an implied assent by the party giving the authority to a subsequent appropriation by the other,

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provided the appropriation is made in accordance with the contract. The principle deals with the sale of goods but there is no legal impediment or difficulty in applying the same to a deemed sale as well. 86. It may be noted that levy of tax under Sub-clause (d) is on transfer of right to use any goods. The tax is not on the actual use of the goods; the hirer may use the goods during the period specified in the contract in exercise of the right acquired thereunder or he may not use them at all. The taxable event does not depend on the actual use. For purposes of Sub- clause (d), actual exercise of the right to use the goods is not its ingredient and is irrelevant. 87. It will be convenient to deal with question Nos. 3 and 4 together as they are inter-connected. The impugned provisions of the Sales Tax Acts of seven States which are the subject-matter of some of the cases, are in pari materia being on the subject of levy of impost on the transaction specified under Sub-clause (d) of Clause (29-A). After the insertion of Clause (29-A) in Article 366 of the Constitution, many States, including the following States, amended their Sales Tax Acts by bringing the definition of the term ’sale’ in line with Clause (29-A) and also purported to fix the situs of the deemed sale in their respective States so as to tax the transaction of deemed sale when more than one State is involved. The impugned provisions of the Maharashtra Act, Haryana Act, Andhra Pradesh Act, Uttar Pradesh Act and Rajasthan Act are not in hear verba, but they attempted to achieve the same result by differently worded legislations which are set out in the statement hereunder: --------------------------------------------------------------------------- -------------------------- Maharashtra Haryana Act A. P. Act U. P. Act Rajasthan Act --------------------------------------------------------------------------- -------------------------- Act Section 2(e) - Amended Sec- Section 2 (h)- Section 2 (38) Section 2(10) Note (4). A sale tion 5. E - (a). Clause (ii) of Ex- Explanation Explanation falling under Every dealer who Explanation I. In a II. In a case - For the purchase Sub-clause (iv) transfers the case falling un- falling under sub- poses of this shall be deemed right to use any der sub-clause Clause (4), if the clause, the to have taken goods for any (iv), if the goods goods are used transfer of the place within the purpose whatsoever are used by the by the lessee right to use any State if the ever, whether or lessee within the within the State such goods shall in respect of not for a specified State during any whether or not be deemed to which right to specified period, to period, Notwithstanding for a specified have taken place use has been any lessee or li- standing that period, Notwithstanding in the State of transferred are cense for cash, the agreement standing that Maharashtra (if within the State deferred pay- for the lease has the agreement the goods are in at the time of ment or other been entered for the lease has the State of Ma- their use. valuable consideration into outside the been made out- Maharashtra at the operation, in the State or that the side the State or time of their use" course of his goods have been that the goods irrespective of business shall, delivered to the have been the place where on the total lessee outside moved from out the agreement amount realised the State. side the State on for such trans- or realisable by the goods have fer of the right to him by way of been delivered to use such goods payment in cash the lessee out is made, and or otherwise on side the State. whether the as- such transfer or sent of the party transfers of the is prior or sub- right to use such sequent to such goods from the transfer of the lessee or licensee right to use any see, pay a tax at such goods. the rate of five paise in every rupees of the aggregate of such amount realised or realisable by him, during the year. (b) the transfer of right to use any such goods entered into by any dealer, shall be deemed to have taken place in this State whether the goods are used within the State irrespective of the place where the agreement whether written or oral for such transfer or right is made. --------------------------------------------------------------------------- -------------------- 88. Since the subject-matter of the appeal under consideration is the impugned provisions of the Maharashtra Act which are similar to the provisions of the Acts of other States, noted in the statement, we shall

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examine the Explanation to Section 2(10) of the Maharashtra Act. The impugned Explanation says that for purposes of Sub-clause (d) the transfer of the right to use any goods shall be deemed to have taken place in the State of Maharashtra, if the goods are in the State of Maharashtra at the time of their use irrespective of the place where the agreement for such transfer of the right to use such goods is made and whether the assent of the party is prior or subsequent to such transfer. From the above provisions, it is evident that the taxable event in respect of the deemed sale under Sub-clause (d) is treated not at the place where the transfer the right to use the goods is complete but is fixed by a deeming provision contained in the impugned Explanation in the State of Maharashtra. From the above, it is also apparent that this deeming provision runs counter to the import of Sub-clause (d) of Clause (29A), discussed above; it has no nexus to the taxable event, that is, to the transfer of right to use any goods. Indeed, it appears to us that in the guise of fixing the situs of the sale by the legislation, which is held permissible by the decisions of the Constitution Benches of this Court in The Tata Iron & Steel Co. Ltd. v. The State of Bihar 1958 SCR 1355 : AIR 1958 SC 452 and in Gannon Dunkerley’s case (1993 AIR SCW 2621) (supra), the very taxable event has been altered from ’the transfer of the right to use the goods’ to the situs of the goods in the State of Maharashtra at the time of their use. In the example referred to above, namely, taking car ’x’ on rent by hirer though the contract of the transfer of the right to use the car was entered into in Delhi, the control/domain of the car was also given in Delhi by handing over key of the car and the delivery of the car was taken from Gurgaon (Haryana), thus, the taxable event, namely, the transfer was complete in Delhi, but if the hirer uses the car in Bombay, the Maharashtra Act treats such a deemed sale as taxable by that State on the mere use of the car in Maharashtra State which has no nexus to the taxable event under Sub-clause (d). 89. The impugned Explanation is sought to be saved on the following grounds: (i) the incidence of a deemed sale under Sub-clause (d) is delivery of possession and the goods can be delivered only at the place where they are located. We have discussed above the requirement of delivery of possession and held that physical delivery of goods is not required to be effected in Sub-clause (d) and that what all is required to complete the transfer in Sub-clause (d) is giving control/domain of the goods which can be effected at any place and for that situs of the goods is not a relevant factor. Here we may point out that there is a distinction between a case of giving control/domain of the goods and effecting the actual delivery of the goods; it is possible that a person has control of the goods but may not be in actual possession thereof. (ii) the second ground is that Sections 3 and 4 of the Central Sales Tax Act or at any rate the principle involved therein will apply so the situs of goods will determine the taxable event. We have already noted above that a Constitution Bench of this Court in Gannon Dunkerley’s case (supra) took the view that Sections 3 to 5, 14 and 15 of Central Sales Act will apply to a deemed sale even in the absence of the amendment of definition of the ’sale’ in Section 2(g) of the Central Sales Tax Act and a State law can define a sale with reference to situs of a deemed sale. The observations of this Court in Gannon Dunkerley’s case appear to support this submission. But a definition of ’sale’ with reference to the situs of goods has to conform to the requirements of Articles 286 and 269 of the Constitution as also to the provisions of Section 3 to 5 of the Central Sales Tax Act. The State Legislature cannot so frame its law as to convert an outside sale or a sale in the course of import or export into a sale inside the State. The question whether a sale is an outside sale or an inside sale with reference to a State or whether it is a sale in the course of import or export, will have to be determined on the fads of each case in accordance with the principles contained in Sections 3 to 5 of the Central Sales Tax Act and a State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles. A legislation of a Stale which purports to fix situs of sale in that State cannot tax a deemed sale which is completed In another State and it cannot create a taxable event de

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hors the ingredients of deemed sale under Clause (29-A) of Article 366. We are of the view, having regard to the above discussion, that regard to the above discussion, that Sections 3 and 4 of the Central Sales Tax Act cannot save the impugned Explanation. (iii) The impugned Explanation has to be read subject to Section 8A of 1 he Maharashtra Sales Tax Act. That is no doubt a correct way of reading the said provisions because that section incorporates the mandate contained in Article 280(1) of the Constitution. But this can hardly remove the vice In the impugned Explanation which has already been adverted to in detail. 90. For the foregoing reasons, the impugned Explanation cannot be sustained being violative of Article 286(1)(a), Articles 269(1)(g) and 269(3) read with Sections 3 and 4 of the Central Sales Tax Act. 91. The same result follows in the case of the impugned legislation of the Haryana Act Note (4) of Section 2(e), Andhra Pradesh Act Clause (b) of Section 5-E of the Act, the U. P. Act Clause (ii) of Explanation I to Section 2 (h) and in the Rajasthan Act. the definition of sale contained in Section 2(38)-Explanation II given in the statement above. Though they are differently worded, they convey the same meaning as contained in the Explanation to Section 2(10) of the Maharashtra Act, discussed above, and for the same reasons, they are also illegal and unconstitutional. 92. The impugned provisions of the Tamil Nadu Act is contained in Clause (a) of Explanation (3) which reads thus: Explanation 3.- (a) The sale or purchase of goods shall be deemed for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State. The provision, unlike the impugned provisions of the Acts of the other States, discussed above, merely fixes the situs of the sale but. such fixation of situs has no co-relation to taxable event having regard to the nature of transaction contained in Sub-clause (d). Reverting back to the example of a hirer taking a car on rent; if the car happens to be in Tamil Nadu event though the transaction was completed in Delhi and the domain of the car by handing over the key or by doing some other overt act like delivery note was also complete in Delhi, the situs of the car having regard to the nature of the deemed sale, in Sub-clause (d), will be immaterial and the transaction cannot be made taxable under the Tamil Nadu Act. To the same effect is the impugned provisions of the Karnataka Act contained in Clause (d) of Explanation (3). Therefore, we hold that the impugned provisions of the Tamil Nadu Act and Karnataka Act also cannot be sustained. They are declared illegal and unconstitutional for the abovementioned reasons. 93. Inasmuch as the provisions of the Acts noted above are severable and do not affect the other provisions of the Act and if they are retained, they may cause confusion both in the minds of various authorities under the said Acts as well as the common citizens, in our view, it would be appropriate to strike down the said provisions. Accordingly, those impugned provisions of the said Acts are struck down. 94. One aspect, however, remains to be considered and that arises in C.A. No. 6218-6223 of 1995 from the Judgment of the Andhra Pradesh High Court reported in I.T.C. Classic Finance and Service v. Commissioner of Commercial Taxes (1995) 97 STC 330, The facts In that case are Identical with the facts in 20th Century Finance Corporation Ltd. v. State of Maharashtra case 1989 (75) STC 217 (Bombay) except for the fact that in cases before the High Court of Andhra Pradesh assessment of tax for the years 1989-90 to 1994-95 was in fact made under the provisions of the Andhra Pradesh General Sales Tax Act. The crucial question before the High Court was when on the basis of master lease, the contract to take the equipment on lease, entered into between the respondent and the hirer, the respondent placed an order with the supplier at Calcutta with instructions to deliver it to the hirer at Hyderabad, was the movement of the equipment from Calcutta to Hyderabad pursuant to the sale of the equipment or deemed sale under Sub-clause (d)? The Division Bench of the Andhra Pradesh High Court proceeded on the footing, following, among others, the judgment of the Bombay High Court in the 20th Century Finance Corporation (supra) as well as the earlier judgments of the Andhra Pradesh High Court, that the

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transaction referred to in Sub-clause (d) is a specie of bailment and on the interpretation of the contract of the master lease, It held that the transfer of right to use the equipment (deemed sale) was complete on execution of the master lease and that the deemed sale occasioned the movements of the goods from Calcutta to Hyderabad and it being an inter- State transaction was not liable to be taxed within the State of Andhra Pradesh. Here two points arise: (i) when and where the transfer of right to use the equipment was complete; and (ii) was it an inter-State transaction? 95. In the light of the above discussion, as the equipment involved was unspecified goods and indeed an order for purchase of an unspecified equipment was made by the respondent after the lease, the respondent did not become owner of the equipment till the same was despatched to the hirer so the transaction under Sub-clause (d) could be complete only after the completion of the sale of the equipment which happened only when the equipment was actually delivered to the hirer in Hyderabad (Andhra Pradesh). Therefore, the transaction of deemed sale under Sub-clause (d) cannot be said to be complete on the execution of the contract of master lease. If that be so, the question of the deemed sale being an Inter-State sale would not arise. On this aspect, the Andhra Pradesh High Court has referred to the view of the Bombay High Court in 20th Century Finance Corporation (1989 (75) STC 217) and differed from the same. But the Andhra Pradesh High Court failed to take note of the fact that though the deemed sale is subject to the same limitations as the sale, in view of the provisions of Article 286 of the Constitution and the provisions of Sections 3 and 4 of the Central Sales Tax Act, and the State is denuded of the power to tax an inter-State transaction, yet in this case there has been no inter-State deemed sale. The fact that the master lease agreement refers to hiring of the equipment and the fact that at the instance of the hirer the appellant placed the order for purchase are immaterial. There is always a difference between purchasing any goods for the reason that hirer wanted to hire it and the hirer himself ordering purchase of the goods. In the Instance case, the purchase of the equipment was by the respondent, the fact that the hirer wanted to hire the equipment might have prompted the respondent to place an order for its purchase but that fact is irrelevant in arriving at the conclusion whether the lease in respect of non-existent unspecified equipment would be complete on the execution of the master lease. On this aspect, we have held that before an unspecified equipment reaches the hirer, the sale of the equipment by the respondent itself would not be complete. The deemed sale under Sub-clause (d) is only a consequential transaction which follows the completion of the sale in favour of the respondent and cannot precede it. 96. The transaction in question, namely, entering into master lease between the hirer and the respondent and placing the order for purchase of an equipment desired to be taken on lease by the hirer as an order for purchase of an equipment at the instance of the hirer is an attempt to save sales tax either on sale of the equipment or on the deemed sale. The Revenue can have no grudge against a person who so arranges his affairs as to minimise his tax liability under the provisions of a taxing statute. Indeed, it is expected of the Revenue to ensure that correct tax as ordained by the Statute is paid by every assessable person-no more no less. But that does not mean the tax evasion should be equated with tax planning. The tax evasion has to be dealt with promptly under the provisions of the relevant taxing statute. It appears to us that clubbing of the two transactions-the master lease and the purchase of the equipment pursuant thereto purporting to be at the instance of the hirer with instructions to the manufacturer/supplier to deliver the same to the hirer, to wit, as if the transaction under Sub-clause (d) is also an inter-State transaction whereas the sale alone will be an inter-State transaction - cannot but be an attempt to evade the tax leviable on transaction under Sub-clause (d) of Clause (29-A) of Article 366 of the Constitution. 97. The civil appeals, writ petitions and transferred case are disposed of accordingly as indicated above. 98. Before parting, we wish to record our thanks to Mr. C. S. Vaidyanathan, the learned Additional Solicitor-General who so readily assisted the Court as amicus curiae.

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