GLORIOUS RIGHT TO SILENCE

(By P.R. Balachandran, Retd. District Judge)

"Can a system afford to concede to an indictee the right not to actively assist the adjudicator in the attempt to discover truth", asks R. Basant, J. in Abdul Nazar v. Dileepkumar, 2004 (3) KLT 264 at 267, and provides the answer too but in the form of a few more questions. It is a thought provoking question. All those who had occasion to try criminal cases would have felt at sometime or other the "disappointment about the inadequate tools in the truth discovery process". We must certainly be able to evolve a better system to suit the realities of the situation in India today. What is surprising is that our law makers do not seem to have, even after half a century of becoming a sovereign democratic republic, made a genuine attempt in that direction.

Is it not time for a change? In this context, I think, we can consider borrowing the French system of criminal Justice and adopt with suitable changes. In that system, the procureor (public prosecutor), brings a crime to the notice of the 'enquete', which is a Court of a Magistrate meant for investigating and finding out evidence against the accused in collaboration with the police. All evidence is scrutinized and assessed under some kind of inquisitional system and witnesses are also questioned. The Judge combines the functions of a prosecutor and Magistrate to discover the truth with the aid of the police and other connected agencies. He may call witnesses and ask them to give whatever information they have about the offence in question. The 'enquete' may open mail and tap telephone wires. If there is any divergence between the testimony of two witnesses, the Judge d'instruction as he is called, may call them for a confrontation and after a detailed examination try to arrive at the truth. After the Judge d'instruction is satisfied that there exists a clear case against the accused and the accused is the real offender, he sends the case to the Court. In case he finds otherwise the accused goes free.

In Court, the trial proceeds on the assumption that the accused is guilty till he is found innocent. This may be a little shocking to us but this presumption need not disturb our sense of justice since a thorough trial or investigation has been done by an independent body, unlike the unilateral investigation of the police and mechanical transmission by the Committal Court prevalent now. At the trial, the accused gets enough opportunity to prove his innocence but he cannot afford to keep silent and must necessarily explain his conduct or reveal his version of the incident and other relevant circumstances. S. 106 of the Indian Evidence Act recognizes this responsibility to prove the fact within his knowledge.

The advantage of this system is that it provides a more independent and reliable method of investigation and the Trial Court need not be confined to the evidence adduced before it. The Judge may not have to feel helpless as now, when the witnesses are won over or turn hostile for other reasons. The result, invariably is the acquittal of the accused even in sensational cases. Rarely it is realized by the press or the public that it is not the fault of the Judge.

We have brilliant and experienced lawyers and Judges and if this provokes a meaningful debate on the subject, the purpose of this note is served.

Specific Performance and Its Equity Principles

(V.K. Babu Prakash, Munsiff, Thrissur)

The age old concept of specific performance is clearly depicted in the following verses of Shakespeare in the Merchant of Venice (IV.1.297-298).

Portia: - A pound of that same merchant's flesh is thine, The Court awards it, and the law doth give it.

Pollock, Maitland tell us "that the oldest action's of the Common Law aim for the more part, not at damages but at what we call Specific Relief. By far the greater number of the judgments that are given in favour of plaintiffs are judgments which award them seisin of land, and these judgments are executed by writs that order the police to deliver seisin. But even when the source of the action is in our eyes a contractual obligation, the law tries its best to give specific relief. Thus if a landlord is bound to acquit a tenant from a claim for suit of Court, the judgment may enjoin him to perform this duty and may bid the police distrain him into performing it from time to time. In Glanvilla's day the defendant in an action on a fine could be compelled to give security that for the future he would observe his pact. The history of convenant seems to show that the judgment for the specific performance (Quod conventio teneatur) is at least as old as an award of damages for breach of contract. We may find a local Court decreeing that a rudder is to be made in accordance with an agreement and even that one man is to serve another. But there came a time when, the older forms having been neglected, an action which traced descent from breve de transgressions, seemed to be almost the only remedy offered by common law”.

An action for damages was novelty, but later it came to be looked upon as the common law panacea. At the same time it was this inability of older courts to give the specific relief that paved the way for the evolution of an equitable jurisdiction in the Chancery. With reference to this equitable remedy Lord Justice Fry wrote, "If a contract be made and one party to it makes default in performance, there appears to result to the other party a right of an election either to insist on the actual performance of the contract or to obtain satisfaction for the non-performance of it. It may be suggested from this that it follows, that it ought to be assumed that every contract is specifically enforceable until the contrary be shown. Be so board a proposition has never, it is believed been asserted by the judges of the courts though if prophecy were the function of a law writer it might be suggested that they will more and more approximate to such a rule". Unfortunately this prophacy has not been wholly realized. But the Courts are now more and more inclined to grant this relief. How to compel the other party to the contract to perform his contractual obligations or to secure an order of specific performance against him is the central point to ponder. Specific performance as is well known is an equitable remedy and no one can claim it as a matter of right.

Ubi jes ibi remedium is a universally recognized legal maxim. Where there is a right there is a remedy. Equity will not suffer a wrong to go without a remedy. In Ashby v. White, where a qualified voter was not allowed to vote and who therefore sued the returning officer, it was held that if the law gives a man a right, he must have a means to vindicate and maintain it and a remedy if he is injured in the exercise of and enjoyment of it. It is indeed a vain thing to imagine a right without a remedy for want of right and want of remedy are reciprocal. It was argued in that case that the candidate for whom the plaintiff wanted to vote was elected and that there was no precedent for such an action and if it was allowed that would lead to multiplicity of proceedings. But the contention was rejected and Lord Holt observed that if a man will multiply injuries action must be multiplied too, for every man that is injured ought to have his recompense.

The Four Equity Principles Underline Specific Performance

1.He who seeks equity must do equity

This doctrine means that the plaintiff who seeks equity must himself be prepared to do equity. In other words he must recognize and submit to the right of his adversary because, you must do unto your neighbour what you wish him to do unto you. As Maitland puts it, 'he who expects a benefit under a deed or will or other instrument must adopt the whole content of that instrument and must conform to all its provisions and renounce all rights that are inconsistent with it'.

2. He who comes to equity must come with clean hands

It is aptly said that 'he that hatch committed an inequity shall not have equity'. It is well known that ex turpi cause non oritur actio which means no cause of action arises from a base cause.

3. Equity treats as done what ought to be done

As between two persons where one of them had incurred an obligation and undertaken upon himself to do something for the other, court of equity looks on it as done and as producing the same result as if the obligation or undertaking had been actually performed. Equity treats a contract to do a thing as if the thing was already done, though only in favour of persons entitled to enforce the contract specifically and not in favour of volunteers.

4. Delay defeats equity or equity adds the vigilant and not the indolent

Delay which is insufficient to prevent a party from obtaining an equitable remedy is technically called latches. The leading case on this subject is Allcard v. Skinner. Miss Allcard wanted to devote her life for charitable works and became a member of the society of sisters for the poor. Within a few days of becoming a member, Miss Allcard made a will bequeathing all her properties to Miss Skinner, Lady Superior of the Sisterhood and in the succeeding years made several gifts to Miss Skinner. Miss Allcard left the sisterhood about 8 years later and immediately revoked her will but waited for a further period of 6 years before commencing the action to recover what was left of the money given by her to Miss Skinner. The trial Court dismissed her action. The Court of Appeal consisting of Lord Cotton, Lyndley and Bowan were of the opinion that at the time of the gifts the relationship between the donor and donee was such that in the absence of independent competent advice from others the gifts could not stand. According to the learned Judges Miss Allcard was not a free agent at the time of making the gifts and she was therefore entitled to set aside the transfers when she left the sisterhood. On the question whether the plaintiff was entitled to recover possession of the gifts there was a different opinion. Two Judges were of the opinion that Miss Allcard's inaction for 6 years after she left the sisterhood indicated her intention to confirm the gift. Latches and acquiescence thus disentitled her from claiming back the property. The maxim delay defeats equity has been well considered and recognized in the said case.

The law of Specific Relief is founded on these principles of equity enunciated by the courts of equity in England. As has been held by the Supreme Court, the Specific Relief Act, 1963 is not exhaustive enough to contain the whole law on the subject. As indicated by the preamble of the Act, it is an act to define and amend the law relating to certain kinds of specific relief. It does not purport to lay down the law relating to specific relief in all its ramification although on a matter it defines it might be exhaustive. The Act being passed on England law, the provisions may be interpreted in the light of the principles recognised by the English Courts unless the provisions in the Act expressly diverge from that law, in which case the provisions of this Act shall prevail. Specific Relief as a form of judicial redress belongs to the law of procedure and in a body of written law arranged according to the natural affinities of the subject matter, would find its space as a distinct part or other division of the Civil Procedure Code. It is called specific because in its procedure the plaintiff gets his relief in specific ie., the very thing which the other party was found to perform or to forbear. As Whitley Stokes observes, "the remedies for the non performance of a duty enforceable by law are either compensatory or specific, but compensatory remedy is by the award of damages. This remedy is often useless or inadequate unless the person is insolvent and inadequate, when for instance the duty is to transfer particular immovable property or movable to which special interest is attached. This specific remedy is enforced by directing the party in default to do or forbear the very thing which he is bound to do or forbear and in case of disobedience by imprisonment or attachment of his property or both". Specific performance is compelling a person to perform his contract or statutory obligations. The word specific requires careful scrutiny. To get the meaning of specific, we should look at the scope of object of the section of the statute as well as the terms of the contract. As laid down by the Supreme Court in Maru Ram v. Union of India in AIR 1980 SC 2147, the word specific is specific enough to avoid being vague and general. What is precise, exact, definite and explicit is specific. Sometimes what is specific may also be special. Yet they are distinct in semantics. In broader sense specific performance includes also compulsive performance of specific statutory duty, eg. restoration of possession to person dispossessed of immovable property otherwise than in due course of law by a suit within six months from dispossession vide S.6 of Specific Relief Act. Then restitution can be had vide S. 144 CPC, which is also a mode of specific performance available by statutes.

Specific performance of contract thus being an equitable remedy, no one can claim it is a matter of right and the grant of relief is in the sole discretion of the Court, though the discretion has to be exercised on well settled principles. The remedy is available to both the parties and either party may file a suit even before the due date of completion. A party also need not wait till the other breaks his promise, for the breach of contract is not an essential part of the cause of action inequity. Further since, it is a remedy in personam, the subject matter of the contract also need not be within the jurisdiction of the Court. However, specific performance does not in any way supplant the ordinary remedy of damages and it is open to a plaintiff to claim either specific performance with or without damages or damages alone. In an appropriate case even if the plaintiff fails in getting an order of specific performance, the Court may award him compensation in lieuof specific performance. If the contract cannot be specifically enforced, it is also open to the plaintiff to pray in the alternative for the cancellation of the contract by recession or delivery up of the contract under S.29 of the Act. The Court in such a case order the plaintiff to restore the benefit that he may have received from the other party or to lay compensation under S.30 of the Act.

In India the relevant provisions relating to specific performance of a contract are contained mainly in Ss.9 to 25 and 28 of the Specific Relief Act, 1963. Ss.l0 to 14 between them deal with eligible or non-eligible contracts. Ss.15 to 19 enumerate the person by and against whom contracts may be specifically enforced. S.9 provides for defences in suits based on contract. S.20 to 24 specify the jurisdiction and the powers of the Court regarding grant of relief. S.25 extents the scope of the relief to certain awards and directions contained in a Will. S.28 provides for post decree reliefs. As to specific performance by statute S.6 of the Specific Relief Act mandates that a person dispossessing the plaintiff from immovable property without his consent and without recourse to law should be compelled to restore the possession to plaintiff, if the suit is instituted within six months from dispossession. The object of this provision is to restore the status quo ante. As held by the Supreme Court in Nagarabalika v, Jagadeesh Singh, AIR 1995 SC 1377, this provision is a reprotection of a provision of the Roman Law under which by an inter dictum devi a person wrongfully dispossessed from properties should recover by proving previous possession without being required to prove his title. Again S. 144 CPC is another instance of specific performance of a statutory obligation. A person who has obtained a benefit under an order of Court or judicial verdict which is subsequently found to be wrong cannot be allowed to retain the benefit. He must restore the benefit to the aggrieved person. The principle is embodied in the dictum restitutioin integrain. Specific performance presupposes an executory, as distinct from an executed agreement, which means something remaining to be done such as the execution of a deed or conveyance, in order to put the parties in the position relative to each other in which by the preliminary agreement they were intended to be placed.

Requiem For a Legal Collosus

A tribute to Justice P. Subramanian Potti, his life and message

(By Advocate Govindh K. Bharathan)

What is one to write about a colossus who strode through annals of the judiciary and left his imprint forever on the legal psyche of the State? What is one to write in praise of a master craftsman who shaped several legal careers, into his mould of activism in the field of law and taught them to use it for the benefit of those to whom the courts were the last resort. What can I write about one who blazed a trail like a comet through my life when my legal career was at its infant stage and gave me courage and confidence to face a new path, a new future? Justice P. Subramanian Potti, my master in the field of law saw in me what I could not see in myself, the making of a lawyer and having set me on my path he gave me the boost which he had given many of his ex juniors, establishing them firmly in the legal firmament.

Justice P. Subramanian Potti lived a life which, though centered in law, with the severe restrictions placed on social contact and activities of Judges, was resplendent and many hued. As District Governor of the Lions he shattered the elitist image of the organization and started a revolution, which popularised the Lions movement, bringing its immense resources down to the realm of the common man. I was member of the Lions Club of Cochin East when he was elected District Governor after a bitter and hard fought election. The Club was understandably agog anticipating the Governor's visit, since one of its Past Presidents had become the District Governor. All of us turned up in formal suits. To our dismay, Justice P. Subramanian Potti appeared in a silk jubba and dhoti for the function. Never before had a District Governor attended a Club, which he was formally visiting, other than in formal attire. He also delivered the District Governor's address in Malayalam. With this he heralded an era where Club meetings throughout the District could be conducted in Malayalam. Needless to say, this threw open the Lions movement to several areas in Kerala where it would not have otherwise spread, since most of those who were imminently suited to be Lions were not conversant with English. I had watched him closely in the social and cultural organizations that he had headed and found this strain of compassion in every project he sponsored and executed. He had this inherent trait of leadership, which took him effortlessly to the top of any service, cultural or fraternal organization that he joined.

On the Bench his decisions were flavoured with a subtle touch of humanism. The Westminister System of justice was, as far as he was concerned, only the background against which Indian Law had to find its own individual path and expression. Law as far as he was concerned was meaningless if it did not accommodate the aspirations of the common man. No litigant went empty handed from his Court. It was his concept that having come to the Court, which was the last resort of the common man, he should be given some relief however small it be. His mastery of the law was such that he used to shape it to meet new situations and moulded to fashion new reliefs. He was perhaps the only Judge to pronounce a Judgment in Malayalam.

Justice Subramanian Potti's landmark decision in what is known as "The Rajan Case" (Eachara Varrier v. Secretary, Ministry of Home Affairs -1977 KLT 335) forever changed the face of Habeas Corpus Petitions throughout the land. The Court was left with the momentous task of taking a decision whether evidence could be let in support of a Habeas Corpus Petition. This was because the Court was satisfied that Rajan, a young Regional Engineering College student had been taken into custody and that there was no positive averment from either the Police or the State as to his whereabouts. The Bench before whom the case came up, i.e., Justice P. Subramanian Potti and Justice V. Khalid found itself in the unenviable situation of finding no judicial precedent, where in a petition of Habeas Corpus, the High Court had to undertake the task of finding out the truth or otherwise of the very fact of detention itself. Instead of proclaiming the helplessness of the Court under these circumstances, Justice Subramanian Potti laid down as follows for the Bench:

"We have not been referred to any authority nor have we been able to locate any case where the court had to undertake the task of finding out the truth or otherwise of the plea of the detention itself. But such a situation has arisen here. But so long as it is the duty of this court to protect the freedom of a citizen and his immunity from illegal detention we cannot decline to exercise our jurisdiction merely because a dispute has arisen on the issue of the detention."

Relying on two decisions of the Supreme Court, Mohammed Hussain's Case (AIR 1964 SC 1625) and Jage Ram v. Hans Raj (AIR 1972 SC 1140) which had opened the way for an enquiry into facts in Habeas Corpus petitions, but which (with great respect) had not gone far enough, Justice. P. Subramanian Potti decided to take evidence in the matter and from the evidence established beyond doubt that Rajan was indeed taken into custody. The Court then issued a writ of Habeas Corpus to top ranking officials of the Police Department, the Secretary, Home Affairs and the Chief Minister to produce Rajan in Court on a particular day. The Court concluded by laying down that if for any reason the respondents were not able to produce Rajan on that day the Court would pass further orders and to that extent the Court need not treat the petition as closed. Justice Potti's Judgment ended with these momentous words :

"We know that we are adopting a very unusual procedure for which there is no parallel or precedent. But our power to do so cannot be in question, for, it is to enforce the object of finding out the truth and giving relief that we are adopting this procedure. We cannot think of a better device by which the Court's conscience would be satisfied:

"It is unfortunate that the respondents have not viewed the matter with the sense of responsibility expected of them at least when their attention was drawn to the serious situation. We once again reiterate that such responsibility cannot be disowned as if it is some stray act of some police officers somewhere. We do fervently hope that the guilty would meet with punishment though it is not our province to impose any."

What followed was history. The indomitable upsurge of public consciousness resulted in the Chief Minister of the State stepping down. The arrogance of the Executive had been reined in by the Judiciary, which stood by the citizens right to freedom, breaking new ground in the annals of the fight for human rights.

It was this capacity to mould the law to the cause of human dignity, freedom and justice that distinguished Justice P. Subramanian Potti's Judicial pronouncements. Sri. M.K. Damodaran,. Former Advocate General in his reference before the High Court after Justice Potti's demise said:

"When he entered the portals of the ivory tower that judiciary was, he threw open the doors to the citizens. He believed that Judges cannot and must not doubt their strength to conserve, without the sacrifice of any, all of the guarantees of justice and fairplay and simple human dignity, which have made our land what it is. Throughout his career on the Bench, he crusaded for the cause of the individual vis-a-vis the might of the State. This he did with his characteristic power of persuasion and personal charm - qualities that established his strong reputation - which he brought to bear on his colleagues in the Bench",

"There was a time, when the higher education in the State was in the grips of the elite of this land, who with their economic power could doctor even the mark lists of University examination. With his inimitable knack of cutting the Gordian knot, Justice Potti waded into the cess pool of University examinations and commenced a cleansing operation. Thanks to Justice Potti, the Entrance Examinations came to stay and the brilliant children of the not so rich, belonging to the common class, can also now aspire to realize their dreams of higher professional education."

Justice P. Subramanian Potti left Kerala albeit reluctantly to take over as the Chief Justice of the High Court of Gujarat. On his retirement he started practice before the Supreme Court of India. He had mellowed with age and his step was slower, but his spirit remained indomitable to the end. When he left us we felt the void of his physical absence but vowed to ourselves that we would carry on his legacy of courage to seek to shape the law if necessary to meet the ends of justice.

As a Judge, his commitment to the poor and the down trodden led him to add new facets to the law, to align it more with the realities of the life of those who were normally outside its precincts. To him the law was not a Procrustean bed but a rich pliable and highly adaptable base where reliefs could be moulded to suit situations to meet the ends of justice. He had experienced deprivation when he was young, and had perhaps sworn that he would prevent anyone else from experiencing the trauma of being unwanted.

His message was that the Constitution had placed authority in the Courts to protect the citizens rights to justice, liberty, equality and fraternity and it was the obligation of the Higher Judiciary of the land to act as sentinels of human rights whenever and wherever any serious threat arose to it. His Judgments will bear testimony to the fact that he had dedicated his life to upholding these principles.

‘VAT’ – LAW AND IMPLICATIONS

(By K.P. Pradeep, Advocate, High court of Kerala)

The French born value Added Tax System, in 1954, is much popular around more than 160 countries in all over the world. Its roots could be traced to the writings of F Von Siemens, who proposed it as a substitute for then newly introduced German Turnover Tax, in 1918.

Two significant features of progressive taxation systems are economic efficiency and transparency. A transparent tax system shows the correct incidence of tax and thus serves the objectives of equity of the tax. VAT assures the transparency and the transparency in the incidents of tax causes its popularity along with other features of taxonomy and administrative expediency.

Value Added Tax is an indirect tax on consumption. VAT is multi-stage tax levied as a proportion of the value added (i.e., sales minus purchases which is equivalent to wages plus interest plus rent plus profits) It contemplates rebating tam paid on inputs/(capital goods) and on account of this, it does not have any cascading effect. On account of the rebating system, which requires maintenance of accounts of tax paid on purchases and sales it has got a self-policing effect that may reduce the scope for tax evasion/avoidance. It is collected at each stage of the distribution process, and in principle, its burden falls on the final consumer.

The Indian scenario on VAT legislation stated recently, only in the late nineties of twentieth century. In 1995 a Committee of States’ Finance Ministers mooted the magnitude of VAT, which again came for much deliberation in 1998. The Committee of Chief Minister, in 1999 has put forth its proposals to replace the present sales tax by VAT In a conference of the Chief Ministers and Finance Ministers held on November 16, 1999, the need for an immediate VAT legislation was set out. That led the formation of a Central Empowered Committee of Finance Ministers of the3 States constituted by the Ministry of Finance, Government of India. The committee was convened under the leadership of Mr. Asim Kumar Dasgupta, the Finance Minister of West Bengal. Several State Legislatures drafted and enacted the VAT legislation. But lack of uniformity in the legislation belated its implementation. The Central Empowered Committee at last decided to implement the VAT throughout the nation from 1.4.2005 as declared in its white paper published on 17^th January, 2005.

The Kerala Legislative Assembly enacted the Kerala Value Added Tax Act, 2003 in parity with the national policy, subject to corrections and acquired assent form the President on 10^th December, 2004. The Kerala VAT Act, 2003 came into force as on 1st April 2005. However, the Act is in contravention with the National Policy declared in white paper, in certain extent.

The VAT system replaces the so long commodity taxation system by making taxation on value addition. The rate of taxation based on the commodities, dropped by a multiple rate of taxation of 1%, 4% and a residuary rate of 12.5% in all points according to the importance of goods. In Kerala, the goods like liquors, petroleum products will suffer a higher rate of tax at its single point sale under the Kerala General Sales Tax Act, 1963.

The VAT replaces disadvantage of commodity taxation in certain aspects. The existing scheme of commodity taxation with single point levy is based on the value addition only at the level of the first seller/manufacturer or the importers. The tax evasion at a particular point causes loss of State revenue in toto with respect to the concerned transaction. VAT enables levy in the subsequent level, which will prevent tax evasion at a greater extent.

In principle, the VAT replaces the existing multiple taxation on trade by a Single taxation system. The Task Force on Indirect Taxes with Mr. Vijay L. Kelkar as Chairman has submitted the Consultation Paper on 25th October, 2002 by recommendation of unification of state trade taxes, i.e., Sales Tax, Purchase Tax, Turnover Tax, Works Contract Tax, Entry Tax, Special Additional Tax, etc. The Task Force strongly recommended that VAT should be one tax to replace all taxes on goods and services. The removal of multiplicity of states taxes follows a zero rated tax on export and inter State sales. However, the Empowered Committee ratified the implementation of entry tax in vatable mode. The purchase tax is retained in VAT also, by enforcing payment of tax on the occasion of purchases from unregistered dealer.

In VAT, the incidence of tax is in all point and it will remove the difficulty in identification of the exact incidence of tax. The tax component in any transaction is easily identifiable/computable, thus helping analysis of tax effect on various options of investments/economic choices of producers or consumers.

The expectation is that the wide spread taxation of inputs at every point of sale will encourage the industries to go in for in-house production of their requirements rather out sourcing, which may help the local industries. Though in VAT system in Kerala, the Kudumbasree and Khadi and Village Industries having annual turnover up to 25 lakhs are exempted from levy of tax, the Small Scale Sector is burdened with normal levy of tax. While the Empowered Committee permitted to continue the State incentives, as per the whims of the State, the Kerala Legislature come with a deferment scheme of taxation coupled with 5 years loan in case of small scale industries.

Under VAT, the administration of tax may be much effective than the sales tax system. In the later system, the collection of the major portion of taxes is at the first stage of sale and the concentration of administration is on small number dealers: manufacturers/first sellers in respect of imported goods. A large number of dealers who trade in these commodities in the subsequent levels of distribution get ignored, resulting in evasion too. VAT enables taxing of all dealers liable to be registered under the Act.

The mode of self-assessment replaces the compulsory assessment at the end of each assessment year. The self-assessment is based on the periodical return filed by the dealer. The mandate of statutory compulsory auditing and requirement of submission of audit certificate by the qualified practitioners on turnover limit of 25-40 lakhs and by Chartered Accountant more than `40 lakhs are other features. The dealers are subject to departmental audit, which will check the correctness of self-assessment.

The credit-invoice scheme is one of the main benefits of VAT. It provides an audit trail that makes tax administration easier and supports voluntary compliance with the tax. Documentation by way of issuance of tax invoice, cash memo or bills keeping serially dated, numbered and authenticated counterfoils and periodical filing of returns enables proper policing of collection of tax.

The dropping of multiplicity of rates, according to the nature of commodities will minimize the disputes in the fields of "manufacture" and classification of goods. The major inefficiency of the present taxation system is the multiplicity of rate of tax and the frequent changes in rate of tax according to the whims and fancies of the tax administration.

The system of recording data of entry and exit of goods through border check posts provides some information on inter State sales, consignment transfers, or imports. However the consumption of a commodity sourced from local production is not easily ascertainable. Under VAT, the tax officers are to be well informed on the quantum of tax mobilized on inputs or intermediaries, the likely tax credit or refund claims etc. It shall also be equipped to anticipate the tax receipts at later stages of the value chain of a commodity from an already determined input-output ratio. In VAT, a set off is given for input tax as well as tax paid on previous purchases. If the tax credited exceeds the tax payable on sales, the excess credit will be carriedover. However, the set off is subject to the criteria fixed by the Act.

The dealer having annual turnover upto `50 lakhs is eligible to opt for composition with payment of a percentage of tax, currently 1/2 percent on the gross turnover, called presumptive tax. However, no input credit is available on making such option. The Dealers opting payment of presumptive tax shall not collect tax on sales. Purchases from a presumptive tax dealer is not eligible to input tax credit.

The composition with respect to works contract is retained with some minor changes. Dealers in producing granite metals, Dealers in cooked food and beverages and Video Cassette, CD vendors are other groups eligible for composition. The works contractors other than importers or effecting the first taxable sales in the State is eligible for 2% composition and otherexcluding certain dealers engaged in installation and electrical contracts etc. are eligiblefor 4% composition. The monetary limits of rupees five lakhs and rupees ten lakhs are the major changes, with regard to the registrability and taxability, respectively. Under the former Sales Tax System, the monetary limits were rupees one lakhs and two lakhs respectively.

The time invites some changes. The traditional views may not apt for the current needs. The unification of Appellate and Revisional Authorities is the area needs consideration. The Appellate Authority in the assessment level and the revisional authorities in the other levels are the two different level and the revisional authorities in the other levels are the two different level quasi-judicial authorities under the Act. Such kind of classification is irrelevant considering the nature of works entrusted to them. Both authorities are quasi-judicial functionaries require independence from departmental obedience. However, in practice such authorities lack independence on the fear of departmental transfer or other actions on displeasure.

In the place of statutory appeals and revision the disputes may be brought before the independent arbitrator or such number of arbitrators appointed by the head of the State to avoid departmental bias and to assure proper administration of justice. An award of arbitrator may be subjected to the scrutiny of a pure judicial body.

Of course, Flexibility, Simplicity and Elasticity are the significant features of workable tax system. Flexibility assures modification of tax system according to needs. Simplicity and elasticity guarantees ability to meet the contingencies by way of raising additional revenue. However finality and stability are the predominant requirements for the better performance of a tax system. The recurrent changes in the provisions and numerous and conflicting notifications followed by numberless clarifications create annoyance to the business community to a large extent. Such kind of annoyance should be avoided.

The expectations of the State, Industries, Traders and common men regarding the newborn Value Added System are more. Let the time prove its efficiency.

Taxability of 'Intangibles' Under Sales Tax

(By K.P. Pradeep, Advocate, High Court of Kerala)

The ever-large debates on tax avoidance in trade resulted the 46th Amendment to the Constitution of India, which amended the definition clause in Art.366 by the injection of C1.29A. C1.29A happen to be the part of the Constitution, right from the year 1982 widening the definition of sale irrespective of its traditional meaning approved in the Sale of Goods Act, 1930.

Even from the ancient days of our country, sale of goods by the trade community is one of the major revenue sources of the 'State'. The Parliament, with 46th Amendment to the Constitution, had sheltered the State's interest in revenue enhancement, by way of expanding the ambit of "sale", which was hardly curtailed in the celebrated decision of the Apex Court in Gannon Dunkerly Case ((1958) 9 STC 353 (SC).

Nevertheless a mere Constitutional guarantee could not resolve the problems of tax avoidance. The issues again appear for discussions, when the trade community tries to avoid the tax on transactions of intangible property and benefits, stating that these intangible properties and benefits does not appear the features of the "goods" as defined or under common parlance. The term goods defined in the Constitution as "goods" includes all materials, commodities and articles (Art. 366 (12) of the Constitution of India). In its wider meaning the goods are described as everything that is capable of ownership1. As well, anything, material or immaterial, which can satisfy the human needs, is treated as goods in economic parlance2.

Goods or commodity is interchangeable terms denote an article of trade, a movable article of value, something that can buy and sell3. A sale of movable property is subject to taxation if the property is transferred from the seller to buyer in the course of trade or business for cash or deferred payment or for other valuable consideration. It denotes every transfer of movable property is an incident of taxation under Sates Tax or Value Added Tax. Further it was explained that properties, which are capable of being abstracted, consumed and used, transmitted, transferred, delivered, stored or possessed, are goods for the purpose of sales tax4.

The property is defined as 'things and rights considered as having a money value'5. The extended meaning of the term 'property' is that 'every species of valuable right and interest'. It includes everything that subject to ownership6 and has an exchangeable value or which goes to make up wealth or estate irrespective of its nature that corporeal or incorporeal, tangible or intangible, visible or invisible or real or personal7.

The property in its larger import signifies things and rights as having money value, especially with reference to transfer or succession, which includes the rights such as trademarks and patents and other rights in rem8. An incorporeal right of copy right, intangible thing of electric energy9 and a mere chance for a prize or a right and beneficial interest to participate in a draw10 are treated as property of which its transfer is exigible to the levy of tax under respective sales tax statutes.

Yet, an interesting aspect is that whether the gas or steam is tangible or intangible property. Of course the gas supplied in the containers or cylinders is an article of merchandise subject to taxation, however cannot be considered as tangible property in its real form. However, steam is held to be as tangible property subject to levy of sales tax, as 'it is visible and it has weight and it can be felt at any rate to the detriment of the person venturing to feel it'11.

Differing from the above views, it was urged that transfer of technical know how will not subject to taxability12. Further, the technical know how is in the forms of drawings and designs, though for valuable consideration in the money form or not, is only constituted ideas, is an intangible property and not goods. However rejecting the above contention, the Apex Court held that at the moment the information or advice is put in media, whether paper or diskettes or in any other thing, and sold in lieu of money, the things become a chattel, exigible to tax13. The verdict is very obvious to say that the intellectual input is not free from taxation if it transferred to others in a commercial transaction by acquiring its value.

A series of instructions issued to the hardware of a computer enabling its performance, namely software, is nothing but an intangible thing, but certainly sold to the customers, housed in a tangible media such as floppy disk or CD ROM. Such encoded instructions and designed programs are perfectly goods14. Apparently an intellectual property when it is put on a media becomes goods.

In the strict interpretation of taxing statutes, the tangibility or intangibility of a thing is not a relevant criterion for the purpose of levying tax on the transaction of such things. In the taxing statutes of our country, the test to determine a property as 'goods' for purposes of sales tax is not whether the property is tangible or intangible or incorporeal15. The Apex Court invented the test is whether the thing is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored or possessed16 irrespective of its tangibility or intangibility.

When the cases on the subject of the sale element in mobile services and supply of SIM cards to the customers came up for consideration, the large stress was on the contention that passing of intangible benefit cannot be treated as sale but only services17. Though the supply of prepaid SIM cards is held as sale, the transfer of facilities and intangible right to use the wireless routes for the post paid customers are untouched by the Courts. If the capability test invented by the Apex Court is functional, the transfer of right to use the mobile route by the post-paid customers, though it is intangible property of the mobile service providers, is necessarily a sale with valuable consideration. Consequently, the transfer of right to use the cyber ways to a customer, by an Internet service provider, is nothing but a transfer of right to use an intangible benefit, amounts to sale, as maintained by the capability test.

Though the supply of branded software in corporeal forms are held to be sale, in case of unbranded software, indeed the same is an intellectual property satisfying the test of capability, but a product of service contract amenable to works contract tax. This issue is left open in the celebrated decision in Tata Consultancy18

A music composed is definitely an intellectual work by the artistry of a musician by itself is not a good for sale, on the other hand when the same is hosted in media of disc or cassette, become a readily mercantile commodity having the characteristics of property exigible to tax. A blank cassette, of course, is an article of merchandise. When an intellectual work of music is recorded in the blank cassette, a corporeal media, there is a value addition in the post recorded cassette and the value of the intangible artistry work is subjected to taxation, as held by the Apex Court in Gramaphone Co. 's case19.

Whether a license is tangible or intangible is widely discussed in various case laws particularly with reference to the replenishment license. The Court ruled out the contention that the license has no physical existence however is a bundle of fights. The Court held that the right of privileges of entitlement of any right conferred by a license is crystallised or incorporated in a physical document, hence has a corporeal existence, thus taxable as an article of merchandise20.

As a consequence, the current position is that the physical existence of property or any beneficial rights is immaterial to attract the levy of tax. It is every article of merchandise, even otherwise not excluded from the taxation, is subjected to sales tax. An article of merchandise whenever used in a taxation statute must always be understood in common parlance and must be given its popular sense, means the sense with which people are conversant and while dealing with the articles would attribute to it.21

The judicial wisdom is a matter of random transformations. In the fifties of last century the Judiciary was very keen in restraining the 'meadow of commodity taxation', with strict interpretation of terms as per the traditional trade meanings. That is why, in Rameshwar Jute Mills22, the Court without any hesitation held that the transfer of quota of 'loom hours' by members of Jute Mills Association, to other member mills is not a sale, but only transfer of abstract rights of intangible incorporeal property. However the Courts in current times is more conscience to sanctify the wider scope of tax incidence. The Legislature is also keen to elucidate the new areas to enlarge the tax revenue. Consequently, the new value added legislation has included all intangible goods23 under the purview of VAT.

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Foot Note:

1. Mohamed Kabir v. Government, 15 Deccan L.R. 60, cited in Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, 8 STC 61 at p. 67

2. Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, 8 STC 61 at p. 68

3. U.S. v. Sischo, D.C. Wash. 226 F. 1001 quoted in " Words and Phrases", Volume 7A, Permanent Edition at page 590.

4. Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, (1969) 1 SCC 200

5. Vikas Sales Corporation v. Commissioner of Commercial Taxes, AIR 1996 SC 2082. 4

6. Hoffmann v. Kinealy, 389 S.W. 2d. 745

7. Labberton v. General Gas Co. of Americia, 53 Wash.2d 180.

8. See Black's Law Dictionary, 6 Edn. 1990.

9. Commissioner of Sales Tax v. Madhya Pradesh Electricity Board, (1969) 1 SCC 200, also in 25 STC 188, See County of Durham Electrical Co. v. Commissioner of Inland Revenue, (1909) 2 KB 604. See also State of Andhra Pradesh v. NTPC Ltd, (2002) 5 SCC 203.

10H. Anraj v. State of Tamil Nadu (1986) 61 STC 165. This ratio was doubted in Sunrise Associates v. Government of NCT of Delhi, (2000) 10 SCC 420 and referred to Larger Bench.

11. Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, 8 STC 61 at p. 69.

12. See the arguments in Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593.

13Associated Cement Companies Ltd v. Commissioner of Customs, (2001) 4 SCC 593, para 33.

14. St. Albans City and District Council v. international Computers Ltd, (1996) 4 All. E.R. 481 at 493.

15. Tata Consultancy Services v. State of Andhra Pradesh, 2005 (1) KLT SN 13 (C.No.15) SC= (2004) 137 STC 620 at p 633.

16. Ibid.

17. Escotel Mobile Communications Ltd v. Union of India & Ors., 2002 (2) KLT SN  22 (C.No. 24)=-(2002) 10 KTR 318 (Ker.)

18Tata Consultancy Services v. State of Andhra Pradesh, 2005 (1) KLT SN 13 (C.No.15) SC= (2004) 137 STC 620 at p 633.

19. Gramaphone Co. of India Ltd v. Collector of Customs, JT 1999 (9) SC 275.

20. P.S. Apparels v. Deputy Commercial Tax Officer, 94 STC 139 (Mad.), Vikas Sales Corporation v. Commissioner of Commercial Taxes, AIR 1996 SC 2082.

21. Parle Biscuits (P) Ltd v. State of Bihar and Others, [2005] 139 STC 204 at p. 214.

22. State of Bihar v. Rameshwar Jute Mills, (1953) 4 STC 182 at p. 185 (Patna)

23. Item 3 of the Third Schedule to the Kerala Value Added Tax, 2003 covers all intangible goods like Copyright, Patent, REP License, DEPB License etc. to levy VAT at the rate of 4%.