1970 (9) TMI 100 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the assessee, a cooperative housing society, was liable to pay sales tax on the turnover of bricks sold to its members.
2. Whether the transactions between the society and its members constituted a sale under the U.P. Sales Tax Act.

Analysis:
The judgment pertains to a reference under section 11(1) of the U.P. Sales Tax Act involving a cooperative housing society and the sales tax levied on the turnover of bricks sold to its members during the assessment year 1957-58. The society contended that it acted in a supervisory role, distributing bricks to members without profit. The Sales Tax Officer assessed sales tax, which was annulled by the appellate authority but reinstated by the Judge (Revisions), leading to the reference on whether the society was a 'dealer' making sales to its members in the regular course of business.

The High Court found the Judge (Revisions)' approach erroneous, emphasizing that liability to pay tax hinges on being a 'dealer' engaged in buying and selling goods. Referring to a Supreme Court case, the Court highlighted the test of whether property was transferred for a price or if the entity acted as an agent for members. The society's plea that members funded the brick-kiln operation was supported by correspondence and statements, indicating the society did not invest its capital in the venture.

The Court noted that maintaining accounts did not establish the society as a dealer, as it could be consistent with members' contributions funding the operation. It was crucial to determine if the society sold its own goods or acted as an agent for members. Since the property in the bricks did not vest in the society, there was no sale. The Court distinguished a prior case involving a cooperative canteen, emphasizing the agency role of the society in providing the facility to manufacture and distribute bricks.

Ultimately, the Court answered the reference in favor of the assessee, concluding that the society did not engage in sales transactions with its members. The judgment highlighted the distinction between acting as an agent for members versus selling its own goods, leading to the decision against the department.