North East Gases Pvt. Ltd. and Another vs State of Assam and Others

Ranjan Gogoi, J.—The action of the State in adding the rent earned by the petitioner Company on account of delayed return of gas cylinders, to its taxable turnover, has been called into question by means of the present writ application. The aforesaid challenge arises in the following facts and circumstances.

The petitioner No. 1 is a private limited Company engaged in the business of manufacture and sale of Industrial Oxygen, Nitrogen and dissolved Acetylene Gases. The aforesaid items are manufactured and supplied by the petitioner Company in cylinders and the same are reached to the eventual consumers through a net work of authorized dealers. The terms and conditions on which supplies are made to the authorized dealers, are embodied in the form of written agreements, the standard from of which has been enclosed to the writ petition. As the question arising for determination in the present case would call for a close scrutiny of the aforesaid terms and conditions under which the items in question are supplied, it would be appropriate to note, at this stage, the salient features of the said agreement.

Under the agreements in force between petitioner Company and its distributors, apart from the price of gas, a cylinder service charge at the rate of Rs. 2 per Cu.m. per cylinder is levied. The dealers/distributors are required to pay an interest free security, per cylinder basis, apart from a lump sum security deposit of Rs. 10,000. The agreement further contemplates that retention of the gas cylinder for a period of 15 (fifteen) days is free where after daily rent at the rate of Re.1 per cylinder is to be paid for the period between the 16th and 45th day. For the next slab, up to the period of 120 days, rent at the rate of Rs. 2 per cylinder per day is to be paid and for the balance period up to six months, rent is at the rate of Rs. 3 per cylinder. In the event of the failure to return the cylinder at the expiry of six months from the date of supply thereof, the agreement visualizes that the cost of cylinder would be recovered.

The assessment period that would be relevant to the present adjudication is the accounting years 1993-94 to 1996-97. The petitioner Company submitted its return of the aforesaid period and assessements u/s 8(1)(a) of the Assam General Sales Tax Act, 1993 (hereinafter referred to as ''the Act'') read with item 43 of Schedule II to the Act was duly completed by the authority. There is no dispute or demand raised in respect of the aforesaid assessment. However, subsequent to the aforesaid completed assessment, the assessing authority in exercise of power u/s 18(1) of the Act, carried out re-assessments of the turn over of the petitioner Company during the aforesaid periods by addition of the amount collected by the petitioner Company on account of rent received in respect of delayed return of the gas cylinders as per terms of the agreements, as noticed above. According to the primary authority as well as the appellate authority, to whom an unsuccessful approach was made by the petitioner Company, the aforesaid amount collected by the petitioner Company, by way of rent, would be exigible to Sales Tax under the provision of Section 8(1)(f) read with Schedule VII to the Act. As Section 8(1)(f) of the Act makes the turn over in respect of an operating lease exigible to tax at the rate specified in Schedule VII to the Act, the obvious stand of the authority is that retention of the gas cylinders after the expiry of the initial period of 15 (fifteen) days, is on account of a transfer under an operating lease and hence a sale by virtue of Section 2(33)(iv) of the Act. It is the correctness of the aforesaid stand of the Revenue that requires to be adjudicated in the present proceeding.

Mr. G.K. Joshi, learned Sr. Counsel appearing on behalf of the writ petitioners in the course of a very elaborate and painstaking argument, has contended that it would be evident from the orders of the assessing authority as well as the appellate authority that reliance has been placed on a judgment of the Hon''ble Andhra Pradesh High Court in the case of Industrial Oxygen Company Pvt. Ltd. Vs. State of Andhra Pradesh, in coming to the impugned finding that the amount received by way of rent would be exigible to tax. The learned Sr. Counsel has submitted that this Court, therefore, must proceed to examine the correctness of the view of the Hon''ble Andhra Pradesh High Court as expressed in the case of Industrial Oxygen Co, Pvt. Ltd. (supra). In his usual fairness, Mr. Joshi has placed before the Court, another decision of the Hon''ble Punjab and Haryana High Court, i.e., Harbans Lal and Another Vs. State of Haryana, wherein a similar view has been taken on more or less identical facts. Learned counsel submits that in contradiction to the above two views taken by the Hon''ble Andhra Pradesh and Punjab and Haryana High Courts the Hon''ble Orissa High Court in the case of Asiatic Gases Ltd. Vs. State of Orissa and Others, has taken a different view holding that such amount realized by way of rent or penalty on account of delayed return of cylinders would not make such returns liable for inclusion in the taxable turn over. Mr. Joshi, learned Sr. Counsel has argued that it is the view of the Hon''ble Orissa Court that should commend itself to this Court.

The Hon''ble Andhra Pradesh High Court in the case of Industrial Oxygen Co. Pvt. Ltd (supra) held that amounts, received by way of rent on delayed return of cylinders to be exigible to tax upon a finding that under the contract agreement in force between the parties, there was a transfer of goods possession of which remained with the buyer so as to attract the provisions of Section 5E of the Andhra Pradesh General Sales Tax Act. The Hon''ble Punjab and Haryana High Court in the case of Harbans Lal (supra) came to a similar conclusion on a somewhat different basis. It held that retention of the cylinders beyond the initial period was in continuation of the sale originally made and, therefore, the proceeds arising out of such retention by way of rent/penalty has to be included within the taxable turn over. The Hon''ble Orissa High Court in the case of Asiatic Gases Limited (Supra), on consideration of the contract agreement between the parties, took the view that the transfer of the goods or right of user of such goods was for a period of (fourteen) days and retention beyond the said period was not contemplated by the agreement or the intention of the parties. As the parties to the agreement had contemplated transfer of the goods or property in the goods for a period of fourteen days and retention beyond that period, invited payment of rent by way of penalty, the amount of such penal rent received would not be on account of transfer of the goods or property therein so as to make the same exigible to tax. In each of the above decisions, the conclusions reached with regard to liability of the amounts in question to tax were reached on the basis of the primary conclusion with regard to the intent of the parties as evident from the contract agreements in force. No law of general application is discernible in any of the aforesaid decisions. This Court must, therefore, proceed to record its own conclusions in the matter on the basis of the terms of the agreement of the present case.

A perusal of the contract agreement between the parties would amply reveal that the transfer of the property in the cylinder was not for any period of fixed duration. Though the property in the cylinders always remained with the manufacturers/sellers, what was intended is, transfer of the right of use of such property subject to payment as per terms of the agreement. The parties contemplated that there would be initially a rent free period of 15 days, whereafter rent would be charged at the rates, stipulated in the contract agreement. That the transfer of the right to use the property was for a period of 15 days, has not been spelt out clearly by terms of the agreement and has sought to be advanced only in the pleadings made in the writ petition. Such an intention must be clear from the terms of the contract agreement so as to enable this Court, as in the case of Asiatic Gases Limited (Supra), to hold that the parties had intended to transfer the right to use the goods only for 15 days and any retention of the cylinders beyond the period of 15 days would be in breach of the agreement between the parties entailing payment of penalty/penal rent.

The question relating to the transfer of the right to use the goods is essentially a question of fact, which has to be determined in each case having regard to the terms of the contract under which such a transfer has been made. As already held, the decisions relied upon by the learned counsel for the petitioner not having laid down any law of general application and decisions being on the basis of the facts of each case, it will not be necessary for this Court to go into the question as which of the views expressed by the Hon''ble High Courts is the correct view. Insofar as the facts of the present case is concerned, the terms of the contract elaborately discussed hereinabove, lead to the irresistible conclusion that the transfer of the right to use the goods was not limited for any specified duration of time and the parties having intended such transfer for an indefinite duration of time, subject to payment of rent, as envisaged in the contract agreement between the parties, the amount of rent derived must be construed to be on account of a sale within the meaning of the definition clause contained in Section 2(33) of the Act and that the said amount has been rightly included in the taxable turnover of the petitioner company.

The writ petition shall stand accordingly dismissed. However, having regard to the facts and circumstances of the case, there shall be no order as to cost.