The lease of a factory as a whole, including both movable and immovable properties, is not subject to sales tax under Section 3A of the TNGST Act.

ORDER

(Order of the Court was made by Mohammed Shaffiq J.)

The present writ petition is filed challenging the order of the Sales Tax Appellate Tribunal, insofar as it confirms the order of the Appellate Assistant Commissioner finding that the lease agreement entered into between the petitioner and M/s. Grace Oils Private Limited would constitute transfer of right to use goods, inside the State of Tamil Nadu, thereby attracting levy of sales tax under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as TNGST Act, 1959)

2. BRIEF FACTS:

2.1. Petitioner is a public limited company and was registered under the TNGST Act, 1959. During the year 1997-98, petitioner entered into a lease agreement dated 01.04.1997 with M/s. Grace Oils Private Limited for the lease of a Vanaspathi factory. Subject matter of lease i.e., factory includes lands, building, factory, plant and machinery installed therein along with other movables. Agreement was executed at Ludhiana. Agreement is one single contract for lease of the factory as a whole including land, building, plant and machinery and other movables. Consideration is a lumpsum consideration and not divisible into one for land, building, immovable properties and other for movable properties.

3. Before proceeding further, it may be relevant to set out briefly the order of the lower authorities:-

3.1. Order of Assessing Authority, dated 29.10.1999:

3.1.1. The order of assessment proceeded to levy tax after finding that the plant and machinery have been given on lease and the petitioner had not proved that such plant and machineries had suffered taxes under TNGST Act earlier. The relevant portion is extracted herein under, “The dealers have not proved that the plant and machinery given for lease have already suffered single point tax at earlier stages. Even though the lessor continues to be responsible for liabilities attaching on the leased property by virtue of the use of the property as alleged, they used to collect rental charge for using the plant and machinery given for leasing. Even though the said plant and machinery permanently affixed to the land for the purpose of operation, they cannot be said to be immovable properties which cannot be assessed under Section 3A of the Act. The plant and machinery listed out in the Annexure II of the agreement are only movable items and hence the rental charges collected for leasing these item will certainly attract levy of tax under Sec.3A of the Act.”

3.2. Order of First Appellate Authority, dated 16.05.2001:

3.2.1. First Appellate Authority, i.e., the Appellate Assistant Commissioner, found that the plant and machinery listed in Annexure II to the lease agreement, though permanently fixed to land, would only be movable in nature. The relevant portions are extracted hereunder:

“As rightly mentioned by the Assessing Office, even though the said plant and machinery are permanently fixed to land for the purpose of operation, they are liable to be removed at any point of time. Hence, the Plant and Machinery listed out in the Annexure II, of the Lease agreement are only movable items.

There is no agreement between the Appellants and the Lessee. But the Appellants have collected rent towards leasing of plant and machinery. Therefore, the decision reported in 119 STC

182, cannot be applied in the case of Appellants.”

3.3. Order of Tribunal, dated 08.02.2008:

3.3.1. After finding that the entire factory was given on lease, it was found that there