- Bookmark
- Share
- CaseIQ
Aggarwal Brothers v. State Of Haryana And Another
Factual and Procedural Background
The appellants are assessees who own shuttering material that they hire out to builders and contractors for use in the construction of buildings. The Sales Tax authorities issued notices to them under the Haryana General Sales Tax Act, 1973, demanding sales tax on the hire charges received. Assessment orders followed, one of which expressly recorded that the hire charges constituted “sales” within Section 2(l)(iv) of the Act.
The assessees challenged these assessment orders before the High Court of Punjab and Haryana via writ petitions, contending that the impugned statutory provision was unconstitutional. The High Court dismissed the petitions, holding that the transactions involved a transfer of the right to use goods and therefore fell within the expanded definition of “sale.” Aggrieved, the assessees obtained special-leave and filed the present appeals before the Supreme Court.
Legal Issues Presented
- Whether giving shuttering material on hire to builders amounts to a “transfer of the right to use goods” under Section 2(l)(iv) of the Haryana General Sales Tax Act, 1973, and Article 366(29-A)(d) of the Constitution.
- Consequently, whether such hire transactions are liable to sales tax under Entry 54, List II, Schedule VII of the Constitution.
Arguments of the Parties
Appellants’ Arguments
- Entry 54 of List II authorises only a tax on a sale of goods; therefore, the expression “transfer of the right to use” in Article 366(29-A)(d) must be read as a legal and generally permanent transfer of the goods themselves, akin to a lease.
- Mere hiring does not amount to such a transfer; the assessees never parted with ownership of the shuttering.
- Reliance was placed on paragraph 40 of Builders’ Association of India v. Union of India, (1989) 2 SCC 645, for the proposition that the State’s taxing power over “deemed sales” is rooted solely in Entry 54 and must be strictly construed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Builders’ Association of India v. Union of India, (1989) 2 SCC 645 | State power to tax “deemed” sales arises only under Entry 54, List II. | The Court acknowledged the citation but held that the present dispute concerns the interpretation of “transfer of the right to use goods,” not the existence of taxing power. |
Court's Reasoning and Analysis
1. The Court noted that Sections 2(j)(iv) and 2(l)(iv) of the Haryana Act adopt verbatim the language of Article 366(29-A)(d), which deems a “transfer of the right to use any goods” for consideration to be a sale.
2. The provision speaks of transferring the right to use goods, not the goods themselves; therefore, the appellants’ insistence on a permanent or ownership transfer was misplaced.
3. Once shuttering material is handed over to builders for consideration, the builders obtain effective control and use during the contractual period. That suffices to constitute a “transfer of the right to use.”
4. Because these elements are present, the statutory deeming fiction is triggered, and the hire transactions are taxable as sales. The constitutional challenge thus collapses into an interpretive issue, which is resolved against the appellants.
Holding and Implications
Appeals Dismissed with Costs.
The assessees remain liable to pay sales tax on hire charges for shuttering materials. The decision affirms the validity and applicability of Section 2(l)(iv) of the Haryana General Sales Tax Act, 1973, but creates no new doctrinal departure beyond reinforcing that temporary transfer of the right to use goods is taxable as a “deemed sale.”
1. These appeals by special leave impugn the judgment and order of a Division Bench of the High Court of Punjab and Haryana whereby writ petitions filed by the appellants and others were dismissed.
2. The assessees (appellants) hire shuttering to builders and contractors who use it in the course of construction of buildings. The assessees were served with notices under the Haryana General Sales Tax Act, 1973 (“the said Act”) requiring them to pay sales tax on such hire charges and assessment orders were then so made. The assessment order in the case of M/s DD Shuttering recorded that the assessee dealt in shuttering materials used in the construction of buildings and received hire charges from its various customers. The hire charges received by it were sales within the meaning of Section 2(l)(iv) of the said Act. The writ petitions were filed to quash these assessment orders and it was contended that the aforementioned provision of the said Act was unconstitutional. The High Court repelled the challenge to constitutionality. It found that the possession of the shuttering material was transferred by the assessees to their customers for use during the construction of buildings. The customers were in effective control of the shuttering during the periods it remained in their possession. The transactions, therefore, fell within the amended definition of the word “sale” as there was a transfer of the right to use the shuttering.
3. The argument of learned counsel for the assessees goes thus: Entry 54 of Part II of Schedule VII of the Constitution enables the State to levy “taxes on the sale or purchase of goods other than newspapers …”. Article 366 sets down definitions for the purposes of the Constitution. Clause (29-A) thereof refers to “tax on the sale or purchase of goods” and it includes
“(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”.
In the submission of learned counsel, having regard to Entry 54 of Part II of Schedule VII, the transfer contemplated by sub-clause (d) of clause (29-A) of Article 366 is a legal transfer of the right in the goods. It has to be a transfer of goods. It has to be permanent. It has to be something like a lease. The giving of goods on hire is not such a transfer and, therefore, falls outside the ambit of sub-clause (d) of clause (29-A) of Article 366. Learned counsel referred to para 40 of the judgment of this Court in Builders' Assn. of India v. Union of India (1989) 2 SCC 645 which says:
“As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the ‘deemed’ sales and purchases of goods under clause (29-A) of Article 366 is to be found only in Entry 54 and not outside it.”
4. The language used in Section 2(j)(iv) and 2(l)(iv) of the said Act is the language used in Article 366(29-A)(d), Section 2(j) dealing with purchase and Section 2(l) with sale. The argument before us is, therefore, not an argument on the constitutionality of these provisions of the said Act but of their interpretation and the application thereof to the facts of the present case.
5. The said Act defines “sale” to mean the transfer of property in goods for cash or deferred payment or other valuable consideration and includes 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”.
Such transfer of the right to use goods for consideration is “deemed” to be a sale. The provision expressly speaks of “transfer of the right to use goods” and not of transfer of goods. There is, therefore, no merit in the submission that to be a deemed sale within the meaning of the above-mentioned provision of the said Act there must be a legal transfer of goods or that the transaction must be like a lease.
6. Where there is a transfer of a right to use goods for consideration, the requirement of the above-mentioned provision of the said Act is satisfied and there is deemed to be a sale. In the instant case, the assessees owned shuttering. They transferred the shuttering for consideration to builders and building contractors for use in the construction of buildings. There can, therefore, be no doubt that the requirements of a deemed sale within the meaning of the above-mentioned provision of the said Act are satisfied.
7. The appeals are dismissed with costs.
Alert