FEBRUARY 03, 2016

By Vishwanath K , ACA, LLB

THROUGH this article the author has attempted to discuss the plausible interpretation one can deduce from the expression "Such" as it appears in the term 'Service' under Section 65B(44) of the Finance Act, 1994 which reads as:

"service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -

(a) An activity which constitutes merely,-

(i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or

(iii) ……………….."

An analysis of Article 366(29A) reveals that that said article provides for an inclusive definition and has two limbs. The first limb says that the tax on sale or purchase of goods includes a tax on transactions specified in sub-clauses (a) to (f) which covers 3 types of transactions:

+ Tax of transfer (of property or right to use (any) goods) - Clauses (a),(b) and (d)

+ Tax of delivery of goods - Clause (c)

+ Tax of supply of goods - Clause (e) and (f)

The second limb provides that such transfer, delivery or supply of 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 purchase of those goods by the person to whom such transfer, delivery or supply is made.

Article 366 (29A) reads as "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;"

In this context, on a plain reading of the clause(a)of Section 65B(44), it can be easily construed that sub-clauses (i) and (ii) are mutually exclusive or rather disjunctive as the same is separated by the word "OR".

Clause (i) covers within its ambit an activity which constitutes only a transfer of title in goods or immovable property, by way of sale, gift or in any other manner.

Clause (ii) begins with the expression 'Such' and continues to provide that transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution.

As per Webster dictionary the term 'such' means 'of kind specified or understood' or 'of the character, quality, or extent previously indicated or implied'.

When the expression 'such' as appearing in clause (b)(ii) is read along with the ensuing words i.e. Transfer, Delivery or Supply, it presupposes that it refers or connotes "a transfer or delivery or supply" as it has been previously indicated in the said section. However, clause (i) covers only a case of "transfer" and not 'delivery' or 'supply' of goods.

Moreover, "such transfer" is again restricted only to transfer of title in goods which essentially covers Article 366(29A) (a) and (b) and not clause(c) as it covers transfer of right to use any goods which need not necessarily entail transfer of title in goods. Therefore, does this mean that only Article 366(29A)(a) and (b) are to be considered as deemed sales and would be excluded from the definition of the term "service"? The peril of such construction could be that the disjunctive sub-clauses (i) and (ii) in service definition might have to be constructed as conjunctive clauses.

Should the expression "such" as appearing in clause (a)(ii) be read as if it has been omitted or replaced by "a" in the said definition to augment the intention of the legislature or Should the entire sub-clause (ii) be read as if it is conveys the same meaning as provided in the second limb of the Article 366(29A)?

Perhaps, the Union Budget 2016 has some answers in this regard.