REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2446 OF 2007
Commissioner of Commercial
Taxes, Thiruvananthapuram, Kerala …..Appellant
Versus
M/s K.T.C. Automobiles …..Respondent
J U D G M E N T
SHIVA KIRTI SINGH, J.
The Commissioner of Commercial Taxes, Thiruvananthapuram, Kerala has
preferred this appeal against judgment and order dated 20.3.2006 passed by
the High Court of Kerala in MFA No. 1000 of 2002. The High Court exercising
an appellate power allowed the appeal filed by M/s K.T.C. Automobiles, the
respondent herein and set aside the original order passed by the
Intelligence Officer under Section 45A of the Kerala General Sales Tax Act
(for brevity ‘KGST Act’) imposing a penalty of Rs.86 lakhs upon the
respondent dealer for the alleged non-maintenance of complete and true
accounts during the period 1.4.1999 to 31.3.2000. The High Court also set
aside the suo-motu order of Commissioner of Commercial Taxes dated
12.8.2002 passed under section 37 of the KGST Act whereby the Commissioner
had set aside appellate order of the Deputy Commissioner dated 8.1.2002 and
had restored the order of the Intelligence Officer.
The undisputed facts disclose that the respondent is in the business of
purchase and sale of Hyundai cars manufactured by Hyundai Motors Limited,
Chennai. As a dealer of said cars, both at Kozhikode (Calicut), Kerala
where their head office is located and also at Mahe within the Union
Territory of Pondicherry where they have a branch office, they are
registered dealer and an assessee under the KGST Act, the Pondicherry Sales
Tax Act as well as the Central Sales Tax Act. The dispute relates to
assessment year 1999-2000. Its genesis is ingrained in the inspection of
head office of the respondent on 1.6.2000 by the Intelligence Officer, IB,
Kozhikode. After obtaining office copies of the sale invoices of M/s K.T.C.
Automobiles, Mahe (branch office) for the relevant period as well as some
additional period and also cash receipt books, cash book etc. maintained in
the head office, he issued a show cause notice dated 10.8.2000 proposing to
levy Rs.1 crore by way of penalty under Section 45A by the KGST Act on the
alleged premise that the respondent had wrongly shown 263 number of cars as
sold from its Mahe Branch, wrongly arranged for registration under the
Motor Vehicles Act at Mahe and wrongly collected and remitted tax for those
transactions under the provisions of Pondicherry Sales Tax Act. According
to the Intelligence Officer, the sales were concluded at Kozhikode and
hence the vehicles should have been registered within the State of Kerala.
Therefore, by showing the sales at Mahe the respondent had failed to
maintain true and complete accounts as an assessee under the KGST Act and
had evaded payment of tax to the tune of Rs.86 lakhs and odd during the
relevant period. The respondent submitted a detailed reply and denied the
allegations and raised various objections to the proposed levy of penalty.
The Intelligence Officer by his order dated 30.3.2001 stuck to his views in
the show cause notice but instead of Rs.1 crore, he imposed a penalty of
Rs.86 lakhs only.
The respondent appealed against that order. Their appeal was allowed by the
Deputy Commissioner by a detailed order dated 8.1.2002 which has been noted
and examined with meticulous care by the High Court in paragraphs 9 to 11
of the impugned judgment and later approved. Against the appellate order in
favour of assessee, the Commissioner of Commercial Taxes initiated a suo-
motu proceeding in exercise of power under Section 37 of the KGST Act and
passed a final order on 12.8.2002 setting aside the appellate order and
restoring the original order of penalty passed by the Intelligence officer.
Against this suo-motu order the respondent preferred Miscellaneous First
Appeal before the High Court of Kerala which was numbered as MFA No. 1000
of 2002 and ultimately allowed by the impugned order dated 20.3.2006.
Mr. K. Radhakrishnan, learned senior advocate for the appellant made
detailed oral submissions on facts as well as law. The same has been
supplemented by way of written submissions also. The submission on behalf
of appellant is that the order imposing penalty is based upon proper
appreciation of all the facts and circumstances noted by the Intelligence
Officer in the show cause notice as well as in his final order. According
to submissions, there was no other conclusion possible except to hold that
the respondent dealer had created colorable device to evade sales tax in
Kerala by adopting questionable means such as providing incorrect addresses
of buyers for the purpose of facilitating registration of the motor
vehicles at Mahe. According to Mr. Radhkrishnan, the sales transactions
stood concluded in Kozhikode, Kerala and hence the respondent should not
have given any facilities to residents of Kerala in getting motor vehicles
registered at Mahe. By adoption of such means, the respondent had derived
advantage of paying sales tax in Pondicherry where the rate was lower and
evaded payment of lawful tax under the KGST Act in Kerala.
To elaborate and support the aforesaid factual stance, the learned senior
counsel has highlighted some facts which have been duly noticed by the
authorities under the KGST Act as well as the High Court. He highlighted
that in the “customer booking registration and necessary fitting
instructions” issued from main office at Kozhikode the respondent gave an
unwarranted option to the customers of registering the vehicle at Mahe. It
was contended on behalf of appellant that such option was not for lawful
purposes of promoting sales at Mahe but an offer to facilitate registration
of cars at Mahe against the provisions of Motor Vehicles Act and the Rules
which require registration at the place of residence or place of business
of the owner of the vehicle. Some allegations were highlighted to contend
that in some purchase orders the buyers had given Kerala addresses but the
respondent as a dealer raised sale invoices showing Mahe addresses which
were fictitious. This was alleged to be a deliberate act on the part of
dealer to escape tax liability in Kerala. It was also highlighted that same
cash receipt book in the head office at Kozhikode was at times used for
issuance of cash receipts for transactions where the sale and registration
was shown at Mahe. Letters of few buyers allegedly supported the allegation
that sometimes even the delivery of the vehicle was given at Kozhikode
although it was registered at Mahe.
A legal issue was raised on behalf of the appellant that as per Explanation
under Section 45 of the KGST Act, the burden is on the assessee to show
that penalty is not liable to be imposed on him. It is submitted that the
respondent had failed to discharge such burden imposed by law. Reliance was
placed upon Sections 39 and 40 of the Motor Vehicles Act along with Rules
46 and 47 of the Rules framed under the said Act, in support of the
contention that in law the obligation to register a motor vehicle is on the
owner and that necessarily implies that registration under the Motor
Vehicles Act is a post-sale event. In support of this proposition reliance
was placed upon a judgment of Bombay High Court in the case of Additional
Commissioner of Sales Tax v. Sehgal Autoriders Pvt. Ltd., 2011 SCC OnLine
Bom 872 = 43 VST 398 (Bom) and also upon a judgment of this Court in
Association of Registration Plates v. Union of India, (2004) 5 SCC 364.
Paragraph 28 of this judgment is as follows:
“28. Section 2(21-A) defines “manufacturer’ and it means a person who
is engaged in the manufacture of motor vehicles. Section 2(28) defines
“motor vehicles” or “vehicle” and it means any mechanically propelled
vehicle adapted for sue upon roads. A motor vehicle manufactured by a
manufacturer is sold without a registration plate. Thereafter the dealer
sells the motor vehicle to a customer again without the registration plate.
This position will be clear from the proviso to Section 39 of the Act
which says that nothing in the section shall apply to a motor vehicle in
possession of a dealer subject to such conditions as may be prescribed by
the Central Government. Section 41 also points to the same position as it
enjoins an application on behalf of the owner of a motor vehicle for its
registration. The question of issuing a certificate of registration and
assigning it a registration mark arises only after sale of a motor vehicle.
Therefore, until the motor vehicle has been sold to a person by a dealer,
the registering authority would not come into the picture and there is no
occasion for assigning it a registration mark…..”
The aforesaid issue need not detain us any further in view of cited
judgments and combined reading of Section 39 and 41 of the Motor Vehicles
Act, 1988. Section 41 in particular leaves no manner of doubt that
application for registration of a motor vehicle is required to be made by
or on behalf of the owner in the prescribed form along with prescribed fee
within a specified period. The registering authority after being satisfied
with all statutory compliances, has a corresponding duty to issue a
certificate of registration in the form prescribed by the Central
Government. But even after accepting the proposition that registration of a
motor vehicle is a post-sale event, the question as to when the property in
a motor vehicle actually passes to the buyer remains to be examined in the
light of provisions of Motor Vehicles Act and the Rules framed there under
as well as the other relevant provisions of law. According to submissions
advanced on behalf of appellant, for deciding the issue as to when and
where sale takes place in respect of motor vehicle bought by a buyer from a
dealer, the relevant provisions of law are in Article 286(2) of the
Constitution of India, Section 4(2) Central Sales Tax Act, 1956 and
Sections 4, 19 and 20 of the Sale of Goods Act, 1930. For the sake of
clarity those provisions are extracted below:
“Article 286(2) of the Constitution of India – Parliament may by law
formulate principles for determining when a sale or purchase of goods takes
place in any of the ways mentioned in clause (1).”
“Section 4(2) Central Sales Tax Act, 1956 – A sale or purchase of goods
shall be deemed to take place inside a State, if the goods are within the
State –
(a) in the case of specific or ascertained goods, at the time the
contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of
their appropriation to the contract of sale by the seller or by the buyer,
whether assent of the other party is prior or subsequent to such
appropriation.
“Sale of Goods Act, 1930-
Section 4 - Sale and agreement to sell
(1) A contract of sale of goods is a contract whereby the seller transfers
or agrees to transfer the property in goods to the buyer for a price. There
may be a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred
from the seller to the buyer, the contract is called a sale, but where the
transfer of the property in the goods is to take place at a future time or
subject to some condition thereafter to be fulfilled, the contract is
called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in the goods is to
be transferred.
Section 19 - Property passes when intended to pass
(1) Where there is a contract for the sale of specific or ascertained goods
the property in them is transferred to the buyer at such time as the
parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard
shall be had to the terms of the contract, the conduct of the parties and
the circumstances of the case.
(3) Unless a different intention appears, the Rules contained in sections
20 to 24 are Rules for ascertaining the intention of the parties as to the
time at which the property in the goods is to pass to the buyer.
Section 20 - Specific goods in a deliverable state
Where there is an unconditional contract for the sale of specific goods in
a deliverable state, the property in the goods passes to the buyer when the
contract is made, and it is immaterial whether the time of payment of the
price or the time of delivery of the goods, or both, is postponed.”
Before evaluating the impact of aforesaid legal provisions relied upon on
behalf of the appellant, it would be appropriate to notice the arguments
advanced and the stand adopted by Mr. K. Prasaran, learned senior advocate
for the respondent. According to him, the situs of first sale of a motor
vehicle by a dealer is only at the place of registration of the vehicle by
the authority empowered to register motor vehicles under Chapter IV of the
Motor Vehicles Act. This submission is founded upon a hypothesis that until
the vehicle is registered in accordance with the provisions in Chapter IV
of the Motor Vehicles Act read with the Central Motor Vehicles Rules, it
continues to have the character of an unascertained good. In other words,
till the engine number, chassis number is ascertained by the registering
authority on physical verification of the vehicle and entered into the
prescribed form for showing registration, the vehicle cannot be identified
as one belonging to the purchaser. Only upon valid registration, as per
submissions, the vehicle is appropriated to the purchaser. In support of
this proposition, Mr. Prasaran also referred to Section 4 of the Central
Sales Tax Act already noted earlier. He also referred to Section 2(xxi)
of the KGST Act which defines sale to include every transfer of the
property in goods by one person to another in the course of trade or
business except transactions of a mortgage, hypothecation, charge or
pledge. Particular emphasis was laid on explanation 4(a)(ii) to this
definition of ‘Sale’. This explanation is more or less similar in intent
and meaning as Section 4(2) of the Central Sales Tax Act, 1956 extracted
earlier. It conveys that for the purposes of KGST Act, the sale or purchase
of unascertained or future goods shall be deemed, if the goods are within
the State at the time of their appropriation to the contract of sale or
purchase. Reliance was also placed on Paragraph 8 of the judgment of this
Court in Tata Engineering and Locomotive Co. Ltd. v. Assistant Commissioner
of Commercial Taxes (1970) 1 SCC 622, which reads as under:-
“…There had been many instances where the vehicles had been actually
delivered from the stockyards prior to the issue of the allocation letter.
The vehicles delivered to the dealer from the stockyard were accounted for
against the allocation over the period. It was the stockyard incharge who
appropriated the required number of vehicles to the contract of sale out of
the stocks available with him and put down the vehicle engine and chassis
number in the delivery challan. This was done after a delivery order had
been addressed by the sales office at Bombay to the stockyard in-charge for
delivery of stated number of vehicles of specified model to a particular
dealer. Till such appropriation of vehicles through specification of the
engine and chassis numbers, it was always open to the company to “allot any
vehicle to any purchaser or to transfer the vehicles from the stockyard in
one State to a stock-yard in another State.”” (emphasis supplied)
According to the respondent the fact that the vehicles in question were
registered at Mahe, irrefutably leads to the conclusion of their being
produced before the Registering Authority at Mahe prior to registration, as
per requirement of Section 44 of the Motor Vehicles Act. It was pointed
out that Chapter III of the Central Motor Vehicles Rules deals with
registration of motor vehicles and as per Rule 33, a dealer is exempted
from the necessity of registration even though in possession of a motor
vehicle, if it obtains a Trade Certificate from the Registering Authority
of the area where he carries on his business. Form 16 under Rule 34 is a
form of application for grant or renewal of Trade Certificate whereas Form
17 contains the form of Trade Certificate. These forms show that only
general information as to class of motor vehicle is noted for the purpose
of Trade Certificate and not specific particulars of any vehicle such as
engine number or chassis number. Rule 40 places restrictions on use of
Trade Certificate by specifying that it shall be used only by the person to
whom it is issued. The exceptions indicated in this Rule also do not
permit use by a purchaser of a vehicle. Rule 41 enumerates the purposes
for which motor vehicle with Trade Certificate may be used. A perusal of
the purposes reveals that it is permissible for a dealer only who is holder
of a Trade Certificate to use a vehicle with Trade Certificate for test,
repair etc. including for proceeding to and from any place for its
registration. Rule 42 prohibits the holder of a Trade Certificate from
delivering a motor vehicle to a purchaser without registration, whether
temporary or permanent.
On behalf of respondent, reliance was placed upon a judgment of Bombay
High Court dated 17.1.2014 in First Appeal No. 166 of 2009 (entitled The
New India Assurance Co. Ltd. vs. Clancy Arcanjia Dias). That judgment shows
that a temporary registration number was obtained by the manufacturer of
Mahindera Jeep at Nasik where the vehicle was manufactured and the
manufacturer had also insured the vehicle during its transit by road from
Nasik to Goa. After the vehicle was handed over to dealer at Goa, as per
records, it was covered by a valid Trade Certificate and also insurance
cover in respect of vehicles with the dealer. It was held that since the
road accident leading to claim for compensation happened before the jeep
was delivered to the purchaser, the liability to pay the compensation was
upon the appellant, which had issued the cover note for vehicles held by
the dealer under the valid Trade Certificate.
On facts it has been submitted on behalf of the respondent that the
allegation by the Intelligence Officer that the assessee has not maintained
proper accounts for justifying imposition of penalty, is based upon a wrong
assumption that sales of 263 cars leading to their registration at Mahe
were actually sales in Kerala.
According to respondent, when the entire facts, relevant documents and
alleged evidence were before the authorities as well as the High Court, the
burden of proof under Section 45A of the KGST Act loses its significance.
The appeal to the High Court under Section 40 of the KGST Act is a
statutory appeal on questions of law as well as fact and hence, the finding
of facts returned by the High Court by confirming the findings of the
Appellate Authority, the Deputy Commissioner need no interference by this
Court. According to the respondent, the Deputy Commissioner and the High
Court have come to a concurrent finding that the materials do not lead to
any conclusive proof that the vehicles in question had been sold at
Kozhikode in Kerala. According to both the authorities, the materials, at
best, raise only some suspicion which can never take the place of proof
which is necessary for imposition of penalty upon the assessee.
From the above submissions and counter submissions of the parties as well
as relevant statutory provisions in the Motor Vehicles Act, 1988, Central
Motor Vehicles Rules, 1989, Section 4(ii) of Central Sales Tax Act, 1956,
Sections 4, 19 and 20 of the Sales of Goods Act and relevant provisions of
the KGST Act and Rules noticed earlier, we find no difficulty in accepting
the submissions advanced on behalf of the appellant that the application of
registration is by law required to be made by or on behalf of the owner
whose name is to be mentioned in the registration form along with relevant
particulars of the vehicle such as engine number and chassis number and
hence, registration of a motor vehicle is a post-sale event.
But this legal proposition does not take the appellant far. It must be
carefully seen as to when the properties, particularly possession of a
motor vehicle passes or can pass legally to the purchaser, authorizing him
to apply for registration. Only after obtaining valid registration under
the Motor Vehicles Act, the purchaser gets entitled to use the vehicle in
public places. Under the scheme of Motor Vehicles Act, 1988 and the
Central Motor Vehicles Rules, 1989 the dealer cannot permit the purchaser
to use the motor vehicle and thus enjoy its possession unless and until a
temporary or permanent registration is obtained by him. Only thereafter,
the vehicle can safely be said to be no more under possession of the
dealer. Clearly, mere mentioning of engine number and chassis number of a
motor vehicle in the invoice of sale does not entitle the intending
purchaser to appropriate all the goods, i.e. the motor vehicle till its
possession is or can be lawfully handed over to him by the dealer without
violating the statutory provisions governing motor vehicles. Such transfer
of possession can take place only when the vehicle reaches the place where
the registering authority will be obliged to inspect for the purpose of
finding out whether it is a roadworthy and register-able motor vehicle and
whether its identification marks tally with those given in the sale invoice
and the application for registration. The possession can lawfully be
handed over to the purchaser at this juncture because law requires the
purchaser as an “owner” to make an application for registration but at the
same time the law also prohibits use of the motor vehicle by the owner
until it is duly registered by the Registering Authority. Hence, in order
to satisfy the requirement of law noticed above, the dealer can deliver
possession and owner can take possession and present the vehicle for
registration only when it reaches the office of Registering Authority. With
the handing over of the possession of a specific motor vehicle just prior
to registration, the dealer completes the agreement of sale rendering it a
perfected sale. The purchaser as an “owner” under the Motor Vehicles Act
is thereafter obliged to obtain certificate of registration which alone
entitles him to enjoy the possession of the vehicle in practical terms by
enjoying the right to use the vehicle at public places, after meeting the
other statutory obligations of Insurance etc. Hence, technically though
the registration of a motor vehicle is a post-sale event, the event of sale
is closely linked in time with the event of registration. Neither the
manufacturer nor the dealer of a motor vehicle can permit the intended
purchaser having an agreement of sale to use the motor vehicle even for
taking it to the registration office in view of the statutory provisions
already noticed. Hence lawful possession with the right of use is
permissible to be given to the intended owner only after reaching the
vehicle to the office of Registering Authority. Thus seen, in practical
terms though sale precedes the event of registration, in normal
circumstances and as the law stands, it is co-terminus with registration of
a new motor vehicle.
Article 286(2) of the Constitution of India empowers the Parliament to
formulate by making law, the principles for determining when a sale or
purchase of goods takes place in the context of clause (1). As per Section
4(2) of the Central Sales Tax Act, in the case of specific or ascertained
goods the sale or purchase is deemed to have taken place inside the State
where the goods happened to be at the time of making a contract of sale.
However, in the case of unascertained or future goods, the sale or purchase
shall be deemed to have taken place in a State where the goods happened to
be at the time of their appropriation by the seller or buyer, as the case
may be. Although on behalf of the respondent, it has been vehemently urged
that motor vehicles remain unascertained goods till their engine number or
chassis number is entered in the certificate of registration, this
proposition does not merit acceptance because the sale invoice itself must
disclose such particulars as engine number and chassis number so that as an
owner, the purchaser may apply for registration of a specific vehicle in
his name. But as discussed earlier, on account of statutory provisions
governing motor vehicles, the intending owner or buyer of a motor vehicle
cannot ascertain the particulars of the vehicle for appropriating it to the
contract of sale till its possession is handed over to him after observing
the requirement of Motor Vehicles Act and Rules. Such possession can be
given only at the registering office immediately preceding the
registration. Thereafter only the goods can stand ascertained when the
owner can actually verify the engine number and chassis number of the
vehicle of which he gets possession. Then he can fill up those particulars
claiming them to be true to his knowledge and seek registration of the
vehicle in his name in accordance with law. Because of such legal
position, prior to getting possession of a motor vehicle, the intending
purchaser/owner does not have claim over any ascertained motor vehicle.
Apropos the above, there can be no difficulty in holding that a motor
vehicle remains in the category of unascertained or future goods till its
appropriation to the contact of sale by the seller is occasioned by handing
over its possession at or near the office of registration authority in a
deliverable and registrable state. Only after getting certificate of
registration the owner becomes entitled to enjoy the benefits of possession
and can obtain required certificate of insurance in his name and meet other
requirements of law to use the motor vehicle at any public place.
In the light of legal formulations discussed and noticed above, we find
that in law, the motor vehicles in question could come into the category of
ascertained goods and could get appropriated to the contract of sale at the
registration office at Mahe where admittedly all were registered in
accordance with Motor Vehicles Act and Rules. The aforesaid view, in the
context of motor vehicles gets support from sub-section (4) of Section 4 of
the Sale of Goods Act. It contemplates that an agreement to sell fructifies
and becomes a sale when the conditions are fulfilled subject to which the
properties of the goods is to be transferred. In case of motor vehicles
the possession can be handed over, as noticed earlier, only at or near the
office of registering authority, normally at the time of registration. In
case there is a major accident when the dealer is taking the motor vehicle
to the registration office and vehicle can no longer be ascertained or
declared fit for registration, clearly the conditions for transfer of
property in the goods do not get satisfied or fulfilled. Section 18 of the
Sale of Goods Act postulates that when a contract for sale is in respect of
unascertained goods no property in the goods is transferred to the buyer
unless and until the goods are ascertained. Even when the contract for
sale is in respect of specific or ascertained goods, the property in such
goods is transferred to the buyer only at such time as the parties intend.
The intention of the parties in this regard is to be gathered from the
terms of the contract, the conduct of the parties and the circumstances of
the case. Even if the motor vehicles were to be treated as specific and
ascertained goods at the time when the sale invoice with all the specific
particulars may be issued, according to Section 21 of the Sale of Goods
Act, in case of such a contract for sale also, when the seller is bound to
do something to the goods for the purpose of putting them into a
deliverable state, the property does not pass until such thing is done and
the buyer has notice thereof. In the light of circumstances governing
motor vehicles which may safely be gathered even from the Motor Vehicles
Act and the Rules, it is obvious that the seller or the manufacturer/dealer
is bound to transport the motor vehicle to the office of registering
authority and only when it reaches there safe and sound, in accordance with
the statutory provisions governing motor vehicles it can be said to be in a
deliverable state and only then the property in such a motor vehicle can
pass to the buyer once he has been given notice that the motor vehicle is
fit and ready for his lawful possession and registration.
In view of discussions made earlier, there is no need to again traverse the
factual matrix, which led the Deputy Commissioner and the High Court to
decide the controversy in favour of the respondent. However, since we have
gone through the judgment of the High Court carefully, we are in agreement
with the contention advanced on behalf of the respondent that the
allegations and facts made or noted by the Intelligence Officer no doubt
create some doubts but they do not lead to a conclusive inference that the
sales under controversy had taken place at Kozhikode, Kerala. To the
contrary, in view of propositions of law discussed hereinbefore, the
judgment of the High Court gets reinforced and deserves affirmation. We
order accordingly. As a result, the Civil Appeal is found to be sans
merits and is dismissed as such. In the facts of the case there shall be
no order as to costs.
…………………………………….J.
[DIPAK MISRA]
…………………………………….J.
[SHIVA KIRTI SINGH]
New Delhi.
January 29, 2016.
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