Another Vs. M/S Asiatic Gases Ltd  Insc 605 (16 May 2007)
S.H. KAPADIA & B. SUDERSHAN REDDY
This civil appeal is directed against the judgment and order dated 21.9.2000
passed by the Orissa High Court in SJC No.157 of 1996 holding that the
consideration received by the manufacturer for over-retention of gas cylinders
did not constitute 'sale price' as defined under Section 2(h) of the Orissa
Sales Tax Act, 1947.
According to the impugned judgment there was no transfer of right to use the
cylinders and that the charge levied by the respondent-assessee for
over-retention of the gas cylinders was in the nature of penalty, and
therefore, the same did not form part of the sale price as defined in Section
2(h) of the 1947 Act. The impugned judgment has been challenged by the
(2) The short question which arises for determination in this civil appeal
is whether there was transfer of the right to use the goods for consideration
under the extended definition of the word 'sale' under Section 2(g) (iv) of the
said 1947 Act which incorporates the concept of transfer of the right to use
any goods from Article 366 (29A)(d).
(3) The assessee was a registered dealer during the assessment year 1986-87.
During that year it carried on business in manufacture and sale of medical
oxygen and industrial gases by filling in cylinders.
The assessee collected Rs.42,500 (approximately) from its customers during
the aforesaid year for over-retention of gas cylinders. The question before us
is whether the said amount was includible in the sale price as defined under
Section 2(h) of the said Act. In this connection we have examined the contract
between the assessee and its customers. In clause 3 of the contract it was
provided that the assessee shall deliver cylinders containing medical oxygen
and collect empty cylinders from the buyers after specified period of two
Clause (iv) of the contract stipulated that the consumer/ buyer (customer)
shall deposit by way of security certain amount which would be refunded on
termination of the contract. The said clause further stated that the return of
the security deposited was subject to the customer returning the cylinder in
good condition. Clause (v) of the contract provided that the cylinder was the
property of the assessee; that it was given on loan for 14 days free from
payment of any charges; that if the customers retained the said cylinders
beyond the period of 14 days then the customer was liable to pay 0.50 paise per
day in respect of each cylinder for certain number of days and thereafter Rs.2
per day. In the event of loss or damage of the cylinder the customer was
required to compensate the assessee such loss in terms of the schedule
mentioned in the contract. In terms of the said contract as stated above the
assessee collected Rs.42,500 (approx.) during the year 1986-87 as charges for
over-retention from its customers.
(4) We find merit in this civil appeal filed by the Department.
Firstly, in the present case the commodity in question is medical-
oxygen/industrial gases. The said commodity requires a container.
The said commodity cannot be sold without the containers. The property in
goods (oxygen/gas) cannot pass to the customers without such containers.
Therefore, containers constitute an integral part of the commodity in question.
The word 'goods' has been defined in Section 2(d) to mean all kinds of moveable
property other than the actionable claims shares, security and stocks and
include goods used in words "whether as goods or in some other form".
Therefore goods do have what is called 'composite personality'. In the present
case the said cylinders together with its content namely gas/oxygen constitute
'goods'. Secondly, it is not in dispute that under the contract in the present
case it was open to the customer to buy the gas cylinder or to borrow it on
loan from the assessee. For the first 14 days the loan was free from payment of
any charges. However, thereafter a fixed amount was levied by the assessee as a
charge for over-retention.
According to the impugned judgment the said charge for over- retention was
in the nature of penalty imposed on the customer in order to dissuade the
customer from retaining the cylinders. The assessee required empty cylinders to
be returned so that the said cylinders could be refilled and sold/transferred
by way of loan. In our view when the said goods (cylinder containing medical
oxygen) were given on loan to the customer the transfer of the right to use the
said goods came into existence. It may be that for the first 14 days the said
loan is free from payment of any charges. However, exemption from payment would
not militate against the concept of transfer of the right to use the goods.
Thirdly, in the impugned judgment the High Court has failed to notice the
provisions of Section 2(g)(iv) which states that the sale shall mean any
transfer of property in goods for cash or defer payment or for any other
valuable consideration and that it shall include transfer of the right to use
such goods for any purpose, whether or not for specified period for cash,
deferred payment or any other valuable consideration. Lastly, it is important
to bear in mind that Section 2(g)(iv) was placed on the statute in terms of
Article 366(29A)(d) of the Constitution. In the case of Aggarwal Brothers v.
State of Haryana and another (1999) 9 SCC 182) a Division Bench of this
Court has held that the provision under Section 2(l)(iv) of Harayna General
Sales Tax Act, 1973 (which was similar to Section 2(g)(iv) of this Act) expressly
spoke of "transfer of the right to use goods' and not 'transfer of goods'.
In that matter it was argued on behalf of the assessee that in the case of a
deemed sale within the meaning of Section 2(l) (iv) there must be a legal
transfer of goods.
This arguments was rejected by this Court stating that the levy of tax was
not on transfer of the goods itself but the levy was on the transfer of the
right to use such goods for consideration. In our view, the judgment of this
Court in Aggarwal case (supra) would squarely apply to the present case. In the
present case as stated above the cylinders filled with medical
oxygen/industrial gas were loaned to the customers. The loan was free from
payment of charges for 14 days.
The over-retention charges were levied after 14 days. In the circumstances
the levy was on the transfer of the right to use the goods for consideration.
(5) For the aforestated reasons, we set aside the impugned judgment and
hereby allow the appeal with no order as to costs.