WA.No.852 of 2018 & OTA No.3 of 2018 (M/S Vismaya Advertising vs State of Kerala; M/S Drisya Advertising vs State of Kerala)

**CR** # **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **MONDAY, THE 13TH DAY OF JULY 2020 / 22ND ASHADHA, 1942** **WA.No.852 OF 2018** **AGAINST THE JUDGMENT IN WPC 11828/2018 OF HIGH COURT OF KERALA** ## **APPELLANT:** **M/S. VISMAYA ADVERTISING MANGALATH TOWERS, CHALIKKAVATTOM, VENNALA P.O., ERNAKULAM, REPRESENTED BY ITS MANAGER SUNIL S.MENON.** **BY ADVS. SRI.HARISANKAR V. MENON SMT.K.KRISHNA SMT.MEERA V.MENON** ## **RESPONDENTS:** - **1 THE INTELLIGENCE OFFICER (IB) DEPARTMENT OF COMMERCIAL TAXES, MATTANCHERRY AT ALUVA.** - **2 COMMISSIONER OF COMMERCIAL TAXES TAX TOWERS, KARAMANA, THIRUVANANTHAPURAM-695002.** **R1-2 BY GOVERNMENT PLEADER (B/O)** ## **OTHER PRESENT:** ## **SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 13.07.2020, ALONG WITH OT.Appeal.3/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Writ Appeal No.852/2018 & OTA No.3/2018 ::2::** **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **MONDAY, THE 13TH DAY OF JULY 2020 / 22ND ASHADHA, 1942 OT.Appeal.No.3 OF 2018** **AGAINST THE JUDGMENT IN O.NO. 61/2018 DATED 19-05-2018 OF KVAT APPELLATE TRIBUNAL** ## **APPELLANT:** **M/S. DRISYA ADVERTISING VI-104, SAVITHRY NIVAS, NEAR THURUTHY TEMPLE, MARADU P.O., ERNAKULAM, REPRESENTED BY N.RADHAKRISHNAN, MANAGER** **BY ADVS. HARISANKAR V. MENON SMT.MEERA V.MENON SMT.K.KRISHNA** ## **RESPONDENT:** **STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT. SECRETARIAT, THIRUVANANTHAPURAM, PIN - 695001** **R1 BY GOVERNMENT PLEADER OTHER PRESENT:** ## **SENIOR GOVERNMENT PLEADER SRI.MOHAMMED RAFIQ** **THIS OTHER TAX APPEAL HAVING BEEN FINALLY HEARD ON 13.07.2020, ALONG WITH WA.852/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Writ Appeal No.852/2018 & OTA No.3/2018 ::3::** **CR** ## **J U D G M E N T** ## **Dated this the 13[th] day of July, 2020** ## **Vinod Chandran, J** The other tax appeal is from an order under section 94 (7) of the Kerala Value Added Tax Act, 2003 ( for short "KVAT Act") and the writ appeal from the judgment of a learned Single Judge which followed the decision of a Division Bench of this Court. The issue raised is identical and the appellants before us seek to distinguish on facts the transaction which was the subject matter of the Division Bench decision in _**Delta Communications vs State of Kerala [(2016) 24 KTR 139(Ker)**_ . 2. Sri Harisankar V Menon, the learned Counsel appearing for the appellant would submit that the transaction of the appellants/assessees is quiet distinguishable on facts from the transaction as seen from the reported judgment. Though the business carried on by the revision petitioner in **Writ Appeal No.852/2018 & OTA No.3/2018 ::4::** the reported judgment and the aseessees are display of advertisements of third parties on hoardings erected by the assessees in leased out properties; the manner in which it is done is quiet distinct. The assessees do not at anytime transfer the right to use the hoardings. The hoardings are always in the possession and custody of the assessee's themselves. The agreement with the third parties is only for display of their advertisements in the hoardings erected by the assessee; the maintenance of which during the period of agreement is also carried on by the assessees. There is hence no transfer of right to use; is the specific contention taken. The learned Counsel also has a contention that the decision in _**Delta**_ _**Communications**_ is wrongly decided. **==> picture [362 x 13] intentionally omitted <==** Government Pleader on the other hand would contend that insofar as the appellant in W. A No. 852/2018 is concerned, the issue stands covered _inter partes_ **Writ Appeal No.852/2018 & OTA No.3/2018 ::5::** as per Ext.P11 judgment in W. P(C) No. 40312/2016 and connected cases. The appellants contention therein was with respect to the clarification issued under Section 94 of the KVAT Act, which application was moved by the appellant in OTA No. 3/2018. The said clarification stood cancelled based on which a Division Bench on a reference made had found the specific transaction of M/s.Vismaya Advertising to be covered by the decision in _**Delta**_ _**Communications**_ . It is pointed out that both Delta Communications and Ext.P11 are challenged before the Honourable Supreme Court which SLPs have also been converted as Civil Appeals. M/s.Vismaya Advertising, the appellant in W. A No. 852/2018 who was also the the petitioner in W. P(C) 40312/2016 did not choose to challenge Ext. P11 judgment. 4. In any event, it is argued relying on the judgment of the Honourable Supreme Court reported in _**[(2019) 4 SCC 376 Khoday Distilleries Ltd. v. Sri. Mahadeshwara Sahakara Sakkare Karkhane Ltd.**_ **Writ Appeal No.852/2018 & OTA No.3/2018 ::6::** that there could be no reference to a larger Bench as argued by the learned Counsel for the appellants. It is asserted that there is transfer of right to use since the hoardings unlike buildings can be detached from the land or from the buildings on which they are erected without demolition of the same as has been held in _**Delta Communications**_ . It has the character of goods and merely by reason of it being embedded to an immovable property, such character is not lost when the advertisement of a third-party is displayed on the hoardings and there is a transfer of right to use. On merits it is urged that even in cases where the goods are transferred with the employees of the owner/hirer in control, the Hon'ble Supreme Court has held that there is a transfer of right to use goods. _**[(2020) 3 SCC 354 Great Eastern Shipping Co. Ltd. v. State of Karnataka and others]**_ departs substantially and considerably from the earlier decisions is the forceful submission. **Writ Appeal No.852/2018 & OTA No.3/2018 ::7::** 5. The appellant in W. A No. 852/2018 points out that the clarification relied on in Ext. P11 judgment was set aside in Ext. P12. There is no finding on merits, as to the reasoning in the order dated 03.07.2017, relied on in Ext. P11 judgment. The order relied on by the Division Bench has been found to be _nonest_ and in such circumstances the subsequent order made by the Commissioner under section 94 (7) on grounds of the clarificatory order being prejudicial to revenue has to be considered independently. If the facts herein are distinguishable from that considered in _**Delta Communications**_ , necessarily a different view can be taken. 6. Ext.P11 judgment produced in the writ appeal did not consider the issue as raised before the clarificatory authority. We see from Annexure C order that the clarificatory authority after looking into the specific transaction, both on the **Writ Appeal No.852/2018 & OTA No.3/2018 ::8::** display of advertisement in hoardings and wall paintings found neither a transfer of right to use in the former nor a works contract in the latter. The assessee had pleaded in its application, as can be discerned from Paragraph 9 of Annexure C order, that there is no possession handed over to the advertiser and it is the obligation of the assessee to erect the flex board, keep it in good condition without any damage and to rectify any damage which is occasioned, during the period of the agreement. The clarificatory authority also found that the entire transaction was subjected to service tax under the Finance Act, 1994, till 01.07.2002, when inclusion of selling of space for advertisement was included in the negative list. 7. Annexure B was passed noticing _**Delta Communications**_ which was relied on by the Division Bench in Ext.P11 to reject the writ petitions filed on the basis of the clarificatory order. The Division Bench had not examined the reasoning in **Writ Appeal No.852/2018 & OTA No.3/2018 ::9::** the clarificatory order or its cancellation. The Division Bench merely found that there could be no ground raised on the basis of the clarification order since it has been cancelled. The said order relied on by the Division Bench was set aside by the learned Single Judge in Ext.P12. It cannot be said that the subsequent order passed by the Commissioner invoking Section 94(7) cannot be adjudicated in the OTA for reason of Ext.P11 judgment of the Division Bench. If that be so, then necessarily the order relied on by the Division Bench could not have been set aside by a Single Judge. Ext.P11 is only to the extent that there could be no contention raised on the basis of the clarificatory order. We are also appraised of the fact that even Ext.P11 is challenged before the Hon'ble Supreme Court by some other writ petitioners wherein also the SLP's have been converted to Civil Appeals. The appellant in the Writ Appeal did not challenge Ext.P 11 and contends **Writ Appeal No.852/2018 & OTA No.3/2018 ::10::** before us that there is a clear distinction from the facts in _**Delta Communications.**_ We hence find no difficulty in proceeding with the adjudication in OTA 3/2018 as also consideration of the Writ Appeal on the distinctive facts pointed out. 8. To understand the chronology of events we first look at Annexure C order produced in OTA No. 3/2018, which is dated 09.11.2015. True; by the time Annexure C was passed the judgment in _**Delta Communications**_ had already been delivered on 31.7.2015. Annexure C order did not notice _**Delta**_ _**Communications**_ . Annexure C considered the application filed by an assessee who had been displaying advertisements on flex boards mounted on hoardings as also by way of wall paintings. The walls on which the advertisements were made were taken on lease as was the right to erect the hoardings in landed properties or on existing buildings, from the owners. The clarificatory authority by Annexure C found that there is neither **Writ Appeal No.852/2018 & OTA No.3/2018 ::11::** transfer of right to use insofar as the rent received for mounting flex boards on hoardings; nor is there any works contract on the advertisements displayed on pre-existing walls. 9. Later to Annexure C, the clarificatory authority which passed Annexure C passed Annexure D withdrawing the clarificatory order after being confronted with the decision in _**Delta**_ _**Communications**_ . The said withdrawal was challenged in which Annexure E judgment was passed by a learned Single Judge. Learned Single Judge found that there was no warrant for invoking Section 94 (8) since there is no fraud practiced or misrepresentation of facts, by the assessee. Annexure D order passed was set aside for reason of the clarificatory authority having no power to review its own orders. In the context of Annexure E judgment the Commissioner issued Annexure H invoking Section 94 (7), and passed the order impugned in the OT Appeal. That order modified the **Writ Appeal No.852/2018 & OTA No.3/2018 ::12::** clarificatory order only with respect to the transaction of advertisements displayed on hoardings and retained the clarificatory order as against the advertisements displayed on walls. **10.** Now moving on to W.A No.852/2018, the appellant therein, relying on the clarificatory order issued in the application of Drisya Advertising, the appellant in OTA No.3/2018, filed a writ petition against the notice of penalty issued. In a connected matter, one of us sitting single, issued Ext.P8 Reference Order noticing the clarificatory order issued in favour of M/s.Drisya Advertising and the decision in _**Delta**_ _**Communications.**_ Considering the reference in a batch of writ petitions, Ext.P11 decision was pronounced. The Division Bench in Ext.P11 relied on the order dated 03.07.2017 passed by the clarificatory authority itself under Section 94(8) of the KVAT Act which order later was set aside by a learned Single Judge in a Writ Petition; as **Writ Appeal No.852/2018 & OTA No.3/2018 ::13::** noticed earlier. 11. It has been argued by Sri. Rafiq that Ext.P11 binds both parties as also this Court which is a Co-ordinate Bench. It is argued that Ext.P11 judgment categorically says that the issue is fully governed by the judgment in _**Delta Communications**_ and the challenge raised by the assessees cannot be sustained. On the contrary Sri. Harisankar would contend that the operative portion of Ext.P11 permits the assessees to file their replies to the notices impugned and also enables an opportunity of hearing before the concerned authority. In that circumstance the assessee was perfectly within its right to raise the distinction on facts as noticed ## from _**Delta Communications**_ . ## 12. Having read _**Delta Communications**_ we have our own doubts. Even if the hoardings are capable of being dismantled and transferred as such, the advertiser has no such right as per the agreement. Further the effectiveness of the **Writ Appeal No.852/2018 & OTA No.3/2018 ::14::** advertisement is inextricably connected with the particular spot or the situs of the immovable property on which the hoardings are situated; offering sufficient visibility for the advertisement to reach the maximum number of the general public. With all the respect at our command we express our inability to agree with the proposition declared. The proper course in that context would have been to make a reference to a larger Bench. However the decision in _**Delta**_ _**Communications**_ is already pending consideration in a Civil Appeal before the Hon'ble Supreme Court and a reference to a Larger Bench of this Court would be an unnecessary exercise. We hence bow to the dictum as laid down in _**Delta Communications;**_ which does not prohibit us from considering the distinction on facts as argued by the learned Counsel for the assessee. 13. In _**Delta Communications**_ the questions of law raised were: (i) whether 'hoardings' structures **Writ Appeal No.852/2018 & OTA No.3/2018 ::15::** erected and permanently attached to movable property could be deemed to be goods?(ii) whether such 'hoardings' were at any time given to the possession of the person of the third party whose advertisement is displayed on it? And (iii) whether the Tribunal was justified in finding the transaction taxable under Section 6(1)(c) of the KVAT Act? 14. We have to specifically notice Paragraph 17 which considered the second question as to the person having possession of the hoardings which we extract hereunder:- ## Para 17 (OT Rev.103/2012): “But,according to us, so far as leasing out of hoardings in this case are concerned, once it is let out by entering into an agreement or work order, the owner of the goods ceases to have any control over the same for the reason that the advertisements are affixed on the hoarding by putting up and displaying necessary materials in accordance with the directions of the lessee and he has the effective control of the hoardings throughout the contract period entered into by him with the revision petitioner. The revision petitioner is unable to interfere with the nature of the advertisement carried out by the lessee in the hoardings since as per Annexure-D work **Writ Appeal No.852/2018 & OTA No.3/2018 ::16::** order, it is his absolute right to finalise the nature of advertisement that is put up on the hoardings. Therefore, according to us, the absolute control of the hoardings is transferred to the lessee by virtue of Annexure D work order. Therefore, we are of the definite opinion that the control of the hoardings once it is passed for erecting advertising materials is left with the lessee absolutely for the period specified and therefore there is transfer of right to use as provided under Sec.6(1)(c) of the Act. Therefore the second question raised by the assessee is also answered in the negative and in favour of the Revenue.” 15. The learned Judges were of the definite opinion that the control of the hoardings is passed to the third party, for erecting advertisement materials and the same is left with them absolutely for the period specified. It is in this context that the learned Judges found a transfer of right to use. The distinguishing facts are to be noticed from the agreements as produced in the OTA and Writ Appeal. 16. In the OTA, Annexures A & A1 are the agreements by which the assessee obtained the right to erect a hoarding respectively in a landed property and a building for a definite period. **Writ Appeal No.852/2018 & OTA No.3/2018 ::17::** Annexures B & B1 are agreements entered into with 3[rd] parties for the purpose of displaying their advertisements on the hoardings erected, on the strength of Annexures A and A1. The entire expenses for affixing and removing the advertisement on the hoardings has to be borne by the first party who is the assessee. The advertisements so displayed on the hoardings is exclusively that of the second party and obligation is on the first party _“to keep the hoardings to look after and effect periodical maintenance of its advertisement of the hoarding during the period of the agreement”(sic)_ . In such circumstances, Drisya Advertising, the appellant in OTA 3/2018, by the agreements do not effect any transfer of right to use. The mere fact that the advertisement of a third party is displayed on the hoarding does not warrant a finding of transfer of right to use the hoardings. It is an activity similar to that of a wall painting where the concept and idea is by **Writ Appeal No.852/2018 & OTA No.3/2018 ::18::** the party which advertises its business. The flex board with the advertisement is supplied by the 3[rd] party which is mounted on the hoarding and maintained during the period of the agreement, by the assessee. 17. Like wise in the Writ Appeal, Ext.P1 series are the agreements by which the assessee obtained the right to erect hoardings. Ext.P2 series agreements are executed with the 3[rd] party for display of their advertisements. The assessee is described as lender and the advertiser as lendee. The lender specifically mentions the dimension of the hoardings and assures its strength and capacity to withstand natural calamities. If any destruction is caused to the hoardings and consequentially to the advertisement, it is the obligation of the lender to rectify it within two days of such damage caused. The lender also has the obligation to provide lateral support to the flex, which has to be maintained intact during the period **Writ Appeal No.852/2018 & OTA No.3/2018 ::19::** of agreement. The lendee on providing the vinyl flex materials with the advertisement for display, it is the lender's responsibility to keep the board in a visible condition. The lender also has the obligation to appraise the advertiser of the condition of the hoarding and advertisement; maintained in a proper visible condition, by providing photographs every month. The lender-assessee thus has the obligation to maintain the advertisement in a proper condition so as to ensure its visibility during the entire period of the agreement. The hoarding along with the advertisement is hence in the possession of the lender. We do not find any transfer of right to use involved in the transaction which is the subject matter of consideration in W.A No.852/2018. 18. Sri. Rafiq placed heavy reliance on the decision of the Hon'ble Supreme Court _**Great Eastern**_ _**Shipping Co. Ltd.**_ It is pointed out that even when a vessel was transferred under a charter party **Writ Appeal No.852/2018 & OTA No.3/2018 ::20::** agreement, with master and crew supplied by the owner of the vessel, it was held to be a transfer of right to use the goods. The contention of the owner of the vessel was that it was a mere contract of service since the complete control, ownership and possession of the vessel remained with them, through the master and crew supplied by the owner. The delivery if at all to the Port Trust was only a symbolic one. The learned Judges referred to the entire terms of agreement to find that the contractors/owners had 'let' and the charterer 'hired' the vessel for six months and the vessel had been placed at the disposal of the charterers and under their control in every respect. Merely for reason of providing the staff, insurance, indemnity and other responsibilities of bearing official costs, the effective control cannot be said to have been retained with the charterer/owner. It was further observed in Paragraph 44 that the decision does not turn upon **Writ Appeal No.852/2018 & OTA No.3/2018 ::21::** the terms “let, hire, delivery and re-delivery”; _“but on the other essential terms of the charter_ _party agreement entered in the instant case which clearly makes out that there is a transfer of exclusive right to use the vessel which is a deemed sale and is liable to taxed under the KST Act. In the instant case, full control of the vessel had been given to the charterer to use exclusively for six months, and delivery had also been made. The use by charterer exclusively for six months makes it out that it is definitely a contract of transfer of right to use the vessel with which we are concerned in the instant matter, and that is a deemed sale as specified in Article 366(29-A) (d)._ ”(sic.) 19. We have in fact referred to the specific agreements in this case to find that the effective control of the hoardings has not been transferred or delivered to the advertisers in the present case. The advertisers only provide the flex boards **Writ Appeal No.852/2018 & OTA No.3/2018 ::22::** with the advertisements, which are mounted on the hoardings, the possession of which is retained with the assessees who also have the obligation to ensure the display of the advertisement during the contract period. The exclusivity spoken of, in the agreement, is to ensure that the advertiser does not display any other advertisement in the flex board supplied other than that of their own business. We do not think the facts in the decision cited on the basis of the specific terms of the agreement therein has any parallel to the nature of the transaction herein; as discernible from the terms spelled out in the agreements produced here. The agreements here, stand on a different footing. 20. On the above reasoning we allow the OT Appeal, setting aside the order of the Commissioner and upholding the order of the clarificatory authority specifically on the facts herein above noticed. As far as the writ appeal is concerned we set aside the order of the learned Single Judge **Writ Appeal No.852/2018 & OTA No.3/2018 ::23::** finding the decision in O.T Rev.No.103 of 2012 to be on different facts from that arising in the writ appeal. On the basis of the finding entered by us, we set aside Ext.P14 order of penalty on merits since we have held that the transaction entered into by the appellant is not taxable under Section 6(1)(c) deeming it to be a sale of goods on transfer of right to use goods. We do not consider the further contention raised; of a penalty not being permissible on grounds of taxability of the transaction being a debatable issue, since on the terms of the agreements we have held the transaction to be not taxable as a transfer of right to use. The appeals are allowed leaving the parties to suffer their respective costs. Sd/- ## **K. Vinod Chandran,Judge** Sd/- **T.R Ravi, Judge** **jma**