By TIOL News Service

MUMBAI, FEB 03, 2015: THE Applicant is a manufacturer of motor vehicles and also engaged in the business of hire finance of motor vehicles. As far as the first reference is concerned, the Applicant purchased a new Tata Diesel Chassis from M/s. India Automobiles, a registered Dealer of the Applicant, on payment of taxes for a total purchase price of Rs.5,08,180/-. The Chassis was sold by the Applicant on hire purchase basis to one Ajit Singh Bhimrao under sale invoice. As per the hire purchase agreement dated 7th February, 1996, entered into by the Applicant with the said Ajit Singh Bhimrao the buyer was to make initial payment of Rs.68,180/- and to pay the balance amount in 47 monthly installments. Thus, as against a purchase price of Rs.5,08,180/-, the Applicant was to receive an amount of Rs.8,34,781/- from the hirer. This consisted of the price of the Chassis, hire premium, insurance premium for three years and auction money.

An application was made u/s 52 of the BST Act by the Applicant to the Commissioner, regarding determination of the sale price in respect of this vehicle sold by the Applicant on hire purchase. It was the case of the Applicant that the hire charges receivable and received by them from the hirer in the context of the financial services will not form part of the sale price of the vehicle and that it is only the price of the vehicle at the time of delivery thereof to the hirer that will represent the sale price of the vehicle. That means, the sale price of Rs.5,08,180/- and not the amount of Rs.8,34,781/- should be taken as the sale price. This claim was denied.

In another matter, the “resale” claim was disallowed on the ground that the Applicants were holders of trademark.

Both the matters are before the High Court.

The following are the references made -

Sales Tax Reference No. 16 of 2003:

(i) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the amount of Rs.8,34,781/- as per hire purchase agreement dated 7.2.1996 hire financed in favour of Shri. Ajit Singh Bhimrao was liable to tax under Section 8 of the B.S.T. Act, 1959?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that an amount of Rs.3,27,601/ - out of Rs.8,34,781/ - which were option money, insurance charges for 3 years and hire premium recovered from Shri. Ajit Singh Bhimrao formed part of the Sale Price as defined in Section 2(29) of the B. S. T. Act, 1959?

(iii) Whether in absence of a definition of VAT in the B. S. T. Act, 1959, and on a correct interpretation of Section 12A(3) the Tribunal was legally justified in holding that Applicant was liable to pay Sales Tax on the total value of Rs.8,34,781/which comprised of a sum of Rs.5,08,180/ - of Truck purchased from a registered dealer and entitled to deduction under section 8(ii) and sum of Rs.1/- option money, insurance charges of Rs.45,000/- and Rs.2,81,600/ - being hire premium?"

Sales Tax Reference No. 3 of 2008:

(i) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in disallowing the resale claim of the appellant under section 8 of the Bombay Sales Tax Act with regard to the sale made on hire purchase basis?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that an amount of hire purchase premium in question formed part of the Sale Price as defined in Section 2(29) of the B. S. T. Act, 1959?

Amongst the plethora of submissions and case laws cited by the appellant, the central plea made is -

++ The hire purchase premiums are not taxable under the applicable provisions of the BST Act for both assessment years 1994-95 and 1995-96, in the light of the legal position emerging from the Judgment of three Judge Bench of the Hon'ble Supreme Court in the case of Association of Leasing Financial Services Companies vs. Union of India - 2010-TIOL-87-SC-ST-LB which holds that hire purchase transactions are essentially financial services. These are services and not sales on which Sales Tax may be levied.

++ Trademark is exhausted once the goods, in respect of which the trademark is held, are first sold. In the last leg or third sale, the Applicants do not affix the trademark on the goods. The trademark is thus not used in respect of that particular sale transaction. In the instant case, the trademark was already used when the Applicant sold the vehicles to their Dealers. This trademark was, therefore, exhausted and the Explanation to section 2(26) will then not come into play. In the present case, in the first leg the vehicles are sold to the Dealers, the trademark is used. Thereafter, these vehicles are re-purchased and then disposed of in favour of the customers. In these circumstances, there is no basis for the finding that the Applicants are holders of the mark. The interpretation placed by the Revenue will result in absurdity.

The Counsel for the Revenue countered the submissions made by the appellant and justified the department stand.

++ It is submitted that the transactions are nothing but sale of vehicles, in which, the purchase price is tendered in installments. It is a deemed sale. The price is paid in installments and because the price is paid in installments, the Applicants are charging interest to the customers. The price then paid by them includes this interest. Therefore, it is nothing but a sale. It does not fall within the term re-sale also because of the Explanation. The speech of the Finance Minister, which has been pressed into service will never control the interpretation of the provision. These are nothing but devices to get over the BST Act and avoid paying taxes. In the present case, there has been no transaction between the Dealer and the customer admittedly. The customer has approached the Applicants, who are manufacturers. It may be that there is a paper sale of the vehicles to the Dealers earlier and repurchase from the Dealers thereafter, but all this is to avoid the consequences under the BST Act. The Explanation which has been introduced in section 2(26) in 1988 would, therefore, govern the case.

The High Court traced the amendments made to Section 2(26) of the BST Act and the statements of objects and reasons leading to the same and observed:

++ The Explanation [substituted by Maharashtra Act, 22 of 1988 stated that for the purposes of Clauses (i) (ii) and (iii) of section 8 of the BST Act, a sale of purchased goods other than declared goods shall not be deemed to be a resale] is deemed to have been substituted w.e.f. 22nd April, 1988 and that is to take care of the sale of purchased goods other than declared goods, in which the seller holds the trade mark or a patent or the seller is entitled to use a trade mark or a patent either in the goods or in the process or method of manufacture of the goods sold. That is to take care of the tendency to effect a sale of purchased goods without divesting the seller of his right in the trade mark or patent. As has been set out in the statement of objects and reasons leading to the amendments that the same were proposed to prevent unintended loss of Revenue. Certain amendments were necessitated for the purpose of effective implementation of the BST Act. Some of the amendments were given retrospective effect. Once this intent is noted and in the light of the plain language of the Explanation, then, there is no scope for limiting the words as desired by the Applicant.

++ The Explanation in the definition of the term "re-sale" refers to the sellers who hold a trade mark or a patent in respect of the goods sold and the transactions and dealings of the nature referred to in the definition, by a seller of purchased goods of this class are deemed not to be a re-sale so as to classify the Dealers into those holding a patent or a trade mark and those not holding so. The classification has been held to be reasonable and founded on intelligible differentia having nexus to the object sought to be achieved. …We are of the view that the Explanation refers to a sale of purchased goods other than declared goods. That would ordinarily fall within the definition of the term "re-sale" if that is satisfying the criteria, namely, the sale of purchased goods in the form in which they were purchased or without doing anything to them, which amounts to or results in a manufacture can be termed as a re-sale. However, even when this criteria or test is satisfied, still, if the sale of purchased goods is by a seller who holds a trade mark or a patent or is entitled to use the trade mark or patent in respect thereof, then, the transaction of sale of purchased goods by him is not deemed to be a re-sale. The language of the Explanation being plain, clear and unambiguous the Tribunal committed no error in relying on it. If the admitted factual position is noted, then, the Explanation applies with full force.In other words, the Explanation refers to the category or class of dealers holding a trademark or patent.

++ We do not see how the provisions in the BST Act and particularly the definition "re-sale" as appearing in section 2(26) therein together with its Explanation can be construed contrary to Trade Marks Act, 1999 and the Trade and Merchandise Marks Act, 1958 or the Patent Act, 1970. The State legislature was aware of the parliamentary statutes namely, the Trade and Merchandise Marks Act, 1958 and the Patent Act holding the field. It did not in any manner legislate contrary to the said statutes. It was aware of the existence of the above statutes when it substituted the Explanation by Maharashtra Act 22 of 1988. The provision of neither Acts can be construed as interfering with the power of the State legislature to make or amend a law, namely the BST Act, 1959/the Maharashtra Sales Tax Act. The area and field covered by the two legislations is distinct. Moreover, for the purpose of classification of the Dealers and who would be subjected to the tax under the BST Act that the legislature inserted or substituted the Explanation in the said Act. It was fully empowered to do so. It referred to the trademarks and the patents only for the purpose of the classification. Beyond that, we do not find that the said Act in any manner enlarges the restricted rights conferred in a trademark or a patent holder under the parliamentary statutes. The said law therefore cannot be said to be containing any contrary stipulation or provision. The State never intended to travel beyond these parliamentary statutes and, therefore, the wording of the Explanation in the instant case cannot be said to be creating any right or authority unknown or not provided by the parliamentary statutes.

++ We have to go by the scheme of the Trade Marks Act, 1999 and the Trade and Merchandise Marks Act, 1958. In both statutes, we find that there is not a complete or absolute exhaustion of the mark. We do not find any provision which sets any limit. The trademark is not exhausted. All that is provided in the law is that the registration of a trademark shall be for a period of 10 years but may be renewed from time to time. Since the definitions of the 'mark', 'trade mark', 'registered trade mark', 'well known trade mark' are all incorporated so as to distinguish the goods or services of one person from those of the others, then, unless some provision is specifically made so as to exhaust the distinction and right therein, we cannot take assistance of the words referred above and read into the Indian law of trade marks and patents something which the law itself does not provide for or enact in any manner.

++ If the Act is read as a whole and the provisions thereof are construed harmoniously, it would be clear that the protection guaranteed by registration of the Trade Mark may have some limitations. The registered Trade Mark is thus not exhausted as the rights therein are protected so long as the registration is in effect and valid.

++ In the case of Jay Bharat Credit and Investment Co.the Supreme Court was considering as to whether transfer of goods on hire purchase can be included in the definition of the term "sale" under section 2(g) of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi. There, the issue was whether the Respondents, namely, the Commissioner of Sales Tax was justified in holding that the hire purchase transaction entered into by the Appellant (Jay Bharat Credit and Investment Co. Ltd.) was liable to imposition of Sales Tax on the consolidated proceeds. The Hon'ble Supreme Court dealt with the Judgment delivered by it in the case of K. L. Johar and Co. vs. Deputy Commercial Tax Officer (1965) 16 STC 213 (SC). It is after distinguishing it that the Hon'ble Supreme Court arrived at the conclusion that the hire purchase transaction can be brought within the purview of the term "sale". Similarly, in the Assessee's own case, the High Court of Jharkhand dealt with identical controversy. The High Court of Jharkhand in para 8 held that even in the State of Jharkhand, the position cannot be different than the one dealt with in Jay Bharat Credit and Investment Co.(supra).Therefore, we do not think that anything that is dealt with and covered by these decisions can be re-agitated much less the controversy therein re-opened.

Conclusion:

++ The questions in Sales Tax Reference No. 16 of 2003 are answered in favour of the Revenue and against the Assessee. Those are questions, whether the issue was of re-sale within the meaning of section 2(26) of the BST Act read with the Explanation thereto.

++ In Sales Tax Reference No. 3 of 2008, the question No. (i) is identical to the questions in Sales Tax Reference No. 16 of 2003. The additional question in para 3(ii) above in Sales Tax Reference No. 3 of 2008 is also answered against the Assessee and in favour of the Revenue, because a different view other than taken by the Hon'ble Supreme Court in the case of Jay Bharat Credit and Investment Co. (supra) and the High Court of Jharkhand in the Applicant's own case cannot be taken.

(See 2015-TIOL-256-HC-MUM-CT)