DECEMBER 05, 2015

By Suhrid Bhatnagar

THIS article is written with very limited purpose toanalyse the supposedly misplaced belief that when 'an activity which constitutes merely a transfer of title in goods or immovable property, by way of sale , gift or in any other manner' is not a service in terms of definition of 'service' given in section 65B(44) of the Finance Act, 1944 (hereinafter referred to Act only), then there was no need of an entry for 'trading of goods' which is given in clause (e) in section 66D of the Act, i.e. in the Negative List of Services. Here, therefore, we shall restrict the article to 'goods' and 'sale' only and shall not discuss 'immovable property' and 'gift or any other manner'.

In the pre-negative list era, the term 'service' was not defined and since there was only a 'positive list', what can be taxed was easier to count.Prior to 01.04.2011, there was no reference to "trading" in the definition of exempted service given in rule 2(l) of CENVAT Credit Rules, 2004 and therefore "trading" could not be said to be an exempted service which resulted in availment of input service credit for trading of goods along with manufacture of goods. Trading was included under the expression exempted services by Notification No. 3/2011-CE(NT) dated 01.03.2011 w.e.f. 01.04.2011 which amended rule 2(e) of the CENVAT Credit Rules,2004, to arrest availment of input service credit attributed to trading of goods. In the negative list regime, "trading of goods" is a service which falls in the Negative List of Services as given in clause (e) in section 66D of the Act.

In the above factual backdrop, it is essential to analyse whether the entry 'trading of goods' is superfluous or not.

I extend two thoughts of mine for the readers:

The LAYMAN THOUGHT

It firstly comes to me that those who believe that 'transfer of title in goods by way of sale' not being service also implies that there was no need of entry of 'trading of goods' in the Negative List, are equating 'sale' or 'selling' with 'trading'. How trading and selling are different is not given in any book of law (as far as the author knows), and is, therefore,discussed in the ensuing paragraphs by applying common sense and logic.

To begin with, let us see what meaning the different dictionaries assign to 'sale' and 'trading':

From the different meanings of 'sale' and 'trading', it occurs that t rading is the selling activity which can occur only after buying, generally without change of form, whereas in case of sale, buyingin the same form does not precedes the sale. When a manufacturer produces or manufactures the goods, he buys inputs, changes its form and then sells the final productby himself and, therefore, it is selling not trading. Therefore, in other words, it can be said that when goods are sold for the first time, it is sale.

For the cases where the goods are sold by the manufacturer through his agents, for academic purpose, we have to go back and look at the definition of 'business auxiliary service' given in section 65(19) of the Act (which existed upto 30.06.2012 only) part of which said that 'business auxiliary service' means any service in relation to promotion or marketing or saleof goods produced or provided by or belonging to the client. Here it is clear that although the goods are either produced or provided by or belong to the 'client', the service provider is selling these goods for the first time without having bought; therefore, it is termed as sale.

Same is the position of the meaning of commission agent, given at (a) in the Explanation to the above section, as any person who acts on behalf of another person and causes sale or purchase of goods, or... Here also, the commission agent is, on behalf of another person, selling the goods for the first time without having bought them; therefore, it is termed as sale.

However, any such subsequent transaction after the sale is affected is known as 'trading'. The buyer, to whom the goods have been sold by the manufacturer or his agent, is engaged in further selling the goods, therefore it is trading. In this case, the manufacturer is selling the goodsfor money and his buyer is trading the goods for money. It can be said that the act of buying and subsequent saleis trading. Since trading includes the act of selling and, therefore, it can be said that trading is re-selling.

Buying the goods, which are needed by public or a class of buyers, for subsequent sale, without change of form, by way of making them available in the market placefor being sold for consideration is trading.

Lastly, there may be a case where the person is not a trader and yet he sells the goods without change of form for money, sale of pre-owned goods.

The above makes it amply clear that 'trading of goods' and 'transfer of title in goods by way of sale are two different concepts', and, therefore, have been given separately in section 66D(e) and section 65B(44) of the Act respectively.

The Professional THOUGHT

This thought is that the phrase 'an activity which constitutes merely a transfer of title in goodsby way of sale' does not carry any meaning. The reason for this contention is that there is no sale where something more than mere transfer of title in goods is not involved. In case of tangible goods, the property in goods is also transferred by way of delivery or giving possession and in case of intangible goods, the right to use is also transferred. If the phrase refers to cases of bailment (which although it does not), for example the case where a seller sells the cloth and at the desire of the buyer keeps it for stitching, then it is a sum of sales and service and the possession of goods, though in changed form, is also transferred to the buyer and, therefore, this case also does not fit in the phrase 'an activity which constitutes merely a transfer of title in goods by way of sale'.

Further, the term sale here does not include deemed sale since the deemed sales are excluded from the definition of service by another clause.

Therefore, from the above, it can be safely concluded that the entry 'trading of goods' has been rightly placed in the Negative List of Services and it is not a superfluous entry.

(The author is Superintendent, Central Excise Audit Commissionerate, Jaipur and the views expressed are strictly personal.)