1967 (3) TMI 84 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of reassessment orders for assessment years 1960-61 to 1964-65 and original assessment for 1965-66.
2. Determination of whether transactions constitute sales of goods.
3. Justifiability of penalty levied under sections 12(3) or 16(2) of the Madras General Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Legality of Reassessment Orders:
The assessee sought to quash the reassessment orders for the years 1960-61 to 1964-65 and the original assessment for 1965-66, which brought certain transactions under tax as sales of goods. The Deputy Commercial Tax Officer reopened the assessment for 1960-61, determining a gross turnover of Rs. 1,28,14,809.76 and a taxable turnover of Rs. 21,85,393.74. The taxable turnover included sales of beedi leaves, fibre, and root flour, charged at 2%, resulting in a tax demand of Rs. 43,707.88. The assessee contended that there was no element of sale in the transactions, merely book entries for accounting purposes, and no passing of property in the goods to contractors or branch managers. The court noted that the assessing officer did not apply the correct principles in determining whether the transactions amounted to sales of goods liable to tax under the Act.

2. Determination of Whether Transactions Constitute Sales of Goods:
The court examined the essential elements of a sale under Section 4(1) of the Sale of Goods Act: goods, seller and purchaser, agreement, transfer of property, and price. The assessee argued that the materials were supplied only for assembling into beedies and delivering the finished products to the assessee. The court held that the assessing officer should have probed further to determine if the transactions contained all elements of a sale. The court referenced a Government Memorandum and previous cases, concluding that the transactions were not sales but part of a manufacturing process where the intermediaries acted as agents or employees of the assessee. The court found that the assessing authority was led by the use of the word "sale" in the account books without considering other relevant facts.

3. Justifiability of Penalty Levied:
The court found the penalty levied under section 12(3) or section 16(2) unjustifiable. The court noted that the penalty could not be levied under section 12(3) as the reassessment was a case of reopening, not a new assessment. The court held that section 16(2) would apply only if there was wilful default in not making a return or making an incorrect return. The court referenced its previous decision in State of Madras v. M.S.K. Shahul Hameed, stating that if a return is filed beyond the prescribed period but before assessment, the assessing officer must consider it. The court concluded that the penalty was unsustainable as the transactions were arguable as not constituting sales of goods.

Conclusion:
The petitions were allowed with costs, and the reassessment orders were quashed. The assessing officer was directed to re-examine the first category of transactions based on the evidence and the court's judgment. The court-fee was fixed at Rs. 250.