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1983 (12) TMI 271
Issues:
Validity of assessment for the years 1966-67 and 1967-68 under the Central Sales Tax Act, consideration of quarterly returns filed under rule 21, applicability of time limitation under section 12-A of the State Act, inclusion of packing charges in taxable turnover, and examination of exemption under section 10 of the Central Act.
Analysis:
The judgment concerns the validity of assessments made under the Central Sales Tax Act for the years 1966-67 and 1967-68. The petitioner, a company manufacturing and selling cement, had submitted quarterly returns under rule 21 of the Karnataka Sales Tax Rules, which required dealers with annual turnovers exceeding Rs. 40,000 to file such returns. The company did not file annual returns, and assessments were made under both State and Central Acts by the Assistant Commercial Tax Officer. The company challenged the assessments under the Central Act, arguing that the quarterly returns filed under rule 21 could not be considered post its repeal and that the assessments were time-barred under section 12-A of the State Act. The High Court had previously upheld the assessments under the State Act in S.T.R.P. Nos. 17 and 18 of 1979.
The Court rejected the company's contention that the quarterly returns could not form the basis for assessment after the repeal of rule 21. It noted that the quarterly returns, filed under rule 21, were acceptable for assessment under the State Act, and therefore, could also be considered for assessment under the Central Act. The Court emphasized that the power to assess was derived from section 12 of the State Act, which allowed the assessing authority to assess dealers based on accepted returns or to use best judgment if returns were deemed incorrect or incomplete.
The Court further addressed the argument that the quarterly returns were filed only for advance tax purposes under section 12-B, stating that the form of the returns did not preclude their use for assessment under the Central Act. The Court highlighted the similarity in procedures for assessments under both Acts and emphasized the legislative intent behind the rules, urging against excessive technicalities.
Regarding the inclusion of packing charges in the taxable turnover, the Court disagreed with the Tribunal's decision and directed the assessing authority to examine whether the company had collected tax on packing charges. The Court highlighted the need to consider the exemption under section 10 of the Central Act, which required the dealer to prove that no tax was collected on the relevant turnover.
In conclusion, the Court partially allowed the revision petitions, setting aside the assessments related to packing charges and instructing a re-examination by the assessing authority. The Court dismissed the company's contentions regarding time limitation and upheld the validity of using quarterly returns for assessment purposes under the Central Act.
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1983 (12) TMI 270
Issues Involved:
1. Whether the activity of mixing herbs and kirana goods to prepare medicines constitutes "manufacture" under the U.P. Sales Tax Act.
2. Whether the dealers can be considered "manufacturers" for the purpose of sales tax liability.
3. Interpretation of the term "manufacture" under section 2(e-1) of the U.P. Sales Tax Act.
Issue-Wise Detailed Analysis:
1. Whether the activity of mixing herbs and kirana goods to prepare medicines constitutes "manufacture" under the U.P. Sales Tax Act:
The primary issue revolves around whether the activity of the two dealers, who mixed herbs and kirana goods based on a hakim's prescription, constitutes "manufacture" under section 2(e-1) of the U.P. Sales Tax Act. The Sales Tax Tribunal initially held that the dealers were not manufacturers because the medicines were prepared for individual patients and not on a large scale, relying on the precedent set in Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686. However, the High Court clarified that the definition of "manufacture" under section 2(e-1) includes activities such as producing, making, altering, and adapting goods. The Court emphasized that the definition does not require the creation of a new commercial commodity. Thus, the activity of mixing ingredients to prepare medicines falls within the ambit of "manufacture."
2. Whether the dealers can be considered "manufacturers" for the purpose of sales tax liability:
The Court examined whether the dealers could be considered "manufacturers" under section 2(ee) of the Act, which defines a manufacturer as the dealer who makes the first sale of the goods in the state after their manufacture. The Court concluded that since the dealers mixed various ingredients to prepare pharmaceutical preparations, they adapted the ingredients for specific use by patients, thereby engaging in a manufacturing activity. Consequently, when the dealers sold these manufactured medicines, they fell within the definition of "manufacturer" and were liable for sales tax on the turnover of such sales.
3. Interpretation of the term "manufacture" under section 2(e-1) of the U.P. Sales Tax Act:
The Court addressed the interpretation of "manufacture" under section 2(e-1) of the Act. It noted that the term has been given an artificial meaning in the Act, encompassing a wide range of activities beyond the common parlance understanding of the term. The Court rejected the argument that "manufacture" requires the creation of a new commercial commodity, stating that the legislative intent was to include various processes such as altering, ornamenting, and adapting goods. The Court referenced several cases, including Dr. Sukh Deo v. Commissioner of Sales Tax and Commissioner of Sales Tax v. Bechu Ram Kishori Lal, but clarified that these cases were decided before the definition of "manufacture" was expanded in the Act. The Court concluded that the activities of the dealers in preparing medicines constituted "manufacture" as defined in section 2(e-1) of the Act.
Conclusion:
The High Court allowed the revision applications, set aside the order of the Sales Tax Tribunal, and restored the orders passed by the Sales Tax Officer and affirmed by the Assistant Commissioner (Judicial), Moradabad. The Court held that the dealers' activities of mixing ingredients to prepare medicines constituted "manufacture" under the U.P. Sales Tax Act, making them liable for sales tax on the turnover of such sales.
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1983 (12) TMI 269
Issues involved: The issues involved in this case are the rejection of claim for exemption of packing and forwarding charges u/r 6(4)(f) and (ff) of the Karnataka Sales Tax Rules, 1957, and the disagreement between the authorities and the petitioner regarding the nature of these charges.
Summary:
Rejection of Claim for Exemption: The petitioner, a registered dealer under the Karnataka Sales Tax Act, claimed exemption of packing and forwarding charges at the rate of Rs. 4 per crate for the assessment period from 1st January, 1977. The assessing authority rejected this claim stating that the charges were incurred prior to the sales effected. The Deputy Commissioner of Commercial Taxes also did not grant any relief to the petitioner, emphasizing that there was no packing involved at the time of sales of liquor bottles. The Tribunal agreed with the assessing authority, mentioning that the charges were intended to cover expenses involved in pre-sale activities, such as sealing and signing bottles as per the requirements of the Karnataka Excise Rules. The Tribunal concluded that these charges increased the cost of liquor sold, leading to the rejection of the exemption claim.
Nature of Activities and Sale: The petitioner, a brewery business without a manufacturing unit in Karnataka, received stock from Kerala and sold it at a sales depot in Bangalore. The stock was unloaded, repacked, and sealed before delivery to customers. The authorities rejected the claim for deduction of packing and forwarding charges due to the absence of fresh packing at the sales depot and the uniformity of freight charges without considering actual handling or forwarding charges to each customer.
Legal Interpretation: The Supreme Court's interpretations in similar cases clarified that charges incurred before sale and included in the price of goods are not eligible for deduction. Freight and handling charges that become part of the sale price are not excluded under the relevant rules. The application of rule 6(4)(f) and (ff) depends on whether charges are incurred as incidents of sale or after the sale, highlighting the importance of the specific circumstances of each case.
Decision: The Court allowed the petition, setting aside the orders of the authorities and remitting the matter to the assessing authority for reconsideration in line with the observations and the law. The petitioner was granted an opportunity to produce evidence, if any, and the parties were directed to appear before the assessing authority for further orders on a specified date.
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1983 (12) TMI 268
Issues:
Interpretation of the term "turnover" in a notification under the Rajasthan Sales Tax Act, 1954.
Analysis:
The judgment of the Rajasthan High Court, delivered by Dwarka Prasad, J., pertained to three cases where a question of law was referred to the Court by the Board of Revenue for Rajasthan regarding the interpretation of the term "turnover" in a notification under the Rajasthan Sales Tax Act, 1954. The cases involved an assessee running a hotel who sold sweets, namkins, and prepared tea to customers without maintaining proper accounts or filing returns. The Assistant Sales Tax Officer estimated the annual turnover at Rs. 15,000 and imposed tax and penalty on the sale of prepared tea. However, the Deputy Commissioner (Appeals) set aside the assessments for all three years, stating that as the taxable turnover was below Rs. 12,000, no tax was justified. The State Government filed revision petitions against this decision, which were dismissed by the Board of Revenue. Subsequently, the Court was asked to determine whether the term "turnover" in the notification referred to gross turnover or taxable turnover for computing the license fee.
The notification dated 24th November, 1959, exempted hotel and restaurant keepers from tax under the Rajasthan Sales Tax Act if they obtained a valid exemption certificate based on their turnover. The Court analyzed that the turnover referred to in the notification should relate to the turnover of the assessee concerning taxable goods. Since no tax was payable on sweets and namkins, only the turnover of goods subject to tax could be considered for imposition of tax. The Court emphasized that if the taxable turnover was below the tax threshold, no tax liability existed, and hence, no exemption certificate was necessary. Referring to a previous case, the Court highlighted that the term "turnover" should be interpreted in context, indicating the part of the total turnover requiring a license or exemption certificate. Therefore, the Court concluded that the term "turnover" in the notification should be understood as part of the gross turnover requiring an exemption certificate.
In conclusion, the Court held that the interpretation of "turnover" in the notification under the Rajasthan Sales Tax Act should be linked to the part of the dealer's gross turnover necessitating an exemption certificate. The decision of the Deputy Commissioner (Appeals) and the Board of Revenue, stating no tax liability for the assessee, was deemed justified based on the interpretation of the term "turnover" in the notification.
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1983 (12) TMI 267
Issues Involved:
1. Validity of the exemption certificate without proper cancellation.
2. Directory nature of the 30-day period prescribed under rule 12 for filing renewal applications.
Issue-wise Detailed Analysis:
1. Validity of the Exemption Certificate Without Proper Cancellation:
The primary question was whether the assessing authority was justified in treating the exemption certificate as invalid even when it was not properly cancelled. The court examined the procedural requirements under the Rajasthan Sales Tax Rules, particularly focusing on rules 8, 9, 10, 12, and 14. According to rule 8, a valid certificate of exemption was necessary for claiming tax exemption. Rule 12 required the exemption certificate to be renewed within 30 days, but the court found this to be regulatory rather than mandatory.
The court held that the exemption certificate granted by the Sales Tax Officer on 3rd June, 1957, was not void despite being issued on an application filed beyond the prescribed 30-day period. The certificate was not cancelled or set aside by any competent authority, and thus, it retained its validity. The court emphasized that the assessing authority could not ignore the exemption certificate on procedural grounds unless it was lawfully cancelled or set aside. The court concluded that the assessing authority was not justified in treating the exemption certificate as invalid, answering the first question in the negative and against the revenue.
2. Directory Nature of the 30-Day Period Prescribed Under Rule 12 for Filing Renewal Applications:
The second issue was whether the 30-day period prescribed under rule 12 for filing renewal applications was directory and whether the assessing authority could ignore the renewal due to a delay in submission. The court analyzed the nature of the 30-day requirement and concluded that it was intended to regulate the process rather than impose a strict deadline. The court noted that the rule-making authority later amended rule 12 to allow for penalties and condonation of delays, further supporting the directory nature of the provision.
The court observed that the exemption certificate, once granted, could not be ignored by the assessing authority even if the application was filed late. The exemption certificate was effective from the commencement of the financial year, provided the renewal fee was paid within 30 days. The court found that the Board of Revenue erred in its interpretation that an exemption certificate could not be effective retrospectively. The court concluded that the 30-day period was directory, and the assessing authority was not justified in imposing tax on the turnover for the period from 1st April, 1957, to 5th May, 1957. The second question was answered accordingly.
Conclusion:
The court answered both questions in favor of the assessee. The assessing authority was not justified in treating the exemption certificate as invalid without proper cancellation, and the 30-day period for filing renewal applications was directory. Consequently, the turnover of the assessee relating to the sale of allopathic medicines during the period from 1st April, 1957, to 5th May, 1957, could not be taxed, and the imposition of tax was set aside.
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1983 (12) TMI 266
Issues Involved:
1. Whether "red ripe or fruit chillies" purchased by the assessees are "vegetables" within the meaning of the notification in G.O. Ms. No. 1764, Revenue, dated 5th April, 1960, issued under section 17 of the Tamil Nadu General Sales Tax Act, 1959.
Issue-Wise Detailed Analysis:
1. Definition and Interpretation of "Vegetables":
The primary issue revolves around the interpretation of the term "vegetables" as used in the notification G.O. Ms. No. 1764. The petitioners, dealers in chillies, argued that "red ripe or fruit chillies" should be classified as "vegetables" and thus be exempt from tax. However, the assessing authority, Appellate Assistant Commissioner, and the Tribunal all rejected this contention, stating that "red ripe or fruit chillies" are not recognized as "vegetables" in common parlance.
2. Common Parlance Interpretation:
The court emphasized that neither the Act nor the Rules provide a specific definition of "vegetables." Therefore, the term must be understood in its common, everyday sense rather than in a technical or botanical context. This principle is supported by various precedents, including Grenfell v. Inland Revenue Commissioners and Planters Nut and Chocolate Co. Ltd. v. The King, which state that terms in statutes should be construed in their popular sense.
3. Judicial Precedents:
The court referred to several cases to support its interpretation:
- Madhya Pradesh Pan Merchants Association v. State of Madhya Pradesh: The term "vegetables" should be understood as those grown in kitchen gardens and used for the table.
- Ramavatar Budhaiprasad v. Assistant Sales Tax Officer: "Vegetables" should be construed in their popular sense and not in a technical or botanical sense.
- Motipur Zamindary Co. (Private) Ltd. v. State of Bihar: Sugarcane is not a "vegetable" as it is not used for the table.
- State of West Bengal v. Washi Ahmed: The term "vegetables" should denote those grown in a kitchen garden or farm and used for the table.
4. Analysis of "Red Ripe or Fruit Chillies":
Applying the common parlance rule, the court found that "red ripe or fruit chillies" do not fit within the scope of "vegetables." These chillies are not used as a principal or subsidiary item in a meal, nor are they typically sold by vegetable vendors. The court also noted that housewives and vegetable vendors do not consider "red ripe or fruit chillies" as "vegetables."
5. Examination of Mangulu Sahu Ramahari Sahu v. Sales Tax Officer:
The petitioners relied heavily on this Supreme Court decision, which held that "chillies and lemons" are "vegetables." However, the court clarified that this case dealt with "green chillies," which are used for the table, unlike "red ripe or fruit chillies." Therefore, this precedent was not applicable to the current case.
6. Historical Context of Notifications:
The court examined the history behind the notifications granting exemptions to "vegetables." Initially, green chillies were treated as distinct from "vegetables" and were given separate exemptions. At no point were "red ripe or fruit chillies" considered "vegetables" under these notifications. This historical context further supported the court's conclusion.
Conclusion:
The court concluded that "red ripe or fruit chillies" do not fall within the meaning of "vegetables" as understood in common parlance and within the context of the notification G.O. Ms. No. 1764. Consequently, the authorities were correct in denying the exemption, and the tax revision cases were dismissed with no order as to costs.
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1983 (12) TMI 265
Issues:
1. Liability of sales tax on the turnover of a used car sold by a textile manufacturer.
2. Whether the sale of a used car can be considered a second sale and exempt from taxation.
3. Determining if the first sale of the car was a taxable sale by a dealer.
Analysis:
1. The petitioner, a textile manufacturer, was assessed for sales tax on the turnover from the sale of a Benz Car. The assessing authority held that even though the petitioner is not a car dealer, the sale was incidental to his business and thus taxable. The petitioner contended that being a second sale in the state, it should not be taxed. The Appellate Assistant Commissioner and the Tribunal both upheld the tax assessment. The petitioner appealed to the High Court challenging the decision.
2. The petitioner argued that based on precedents like State of Tamil Nadu v. Chamundeswari Enterprises, the sale should be exempt as a second sale. However, the Government Pleader contended that the earlier sale was not taxable, citing Govindan & Co. v. State of Tamil Nadu. The Court noted that the first sale must be a taxable one for subsequent sales to be exempt. In this case, the petitioner failed to establish whether the first sale by Hukami Chand was taxable or not. The Court emphasized the need to determine if Hukami Chand was a dealer as defined in the Act to ascertain the tax liability.
3. The Court highlighted that the purpose of exempting second sales is to tax the first sale in a series of transactions. Without confirming the taxability of the initial sale by Hukami Chand, granting an exemption to the petitioner's sale would defeat the Act's objective. As none of the authorities investigated Hukami Chand's dealer status, the Court remitted the matter to the Tribunal for a detailed inquiry. The Court emphasized the importance of establishing whether the first sale was taxable to determine the petitioner's tax liability accurately.
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1983 (12) TMI 264
Issues:
Assessment of taxable turnover, rejection of account books, legal question regarding nonproduction of account books during survey.
Analysis:
The case involved the assessment of taxable turnover for the year 1978-79 by the assessing authority, where the dealer disclosed a turnover of Rs. 45,772.59, but the authority determined it at Rs. 1,72,088, assessing tax at Rs. 12,700 based on best judgment assessment. The dealer appealed, and the Assistant Commissioner partly allowed the appeal, reducing the turnover to Rs. 1,18,180. The dealer then filed a second appeal, which was allowed by the Sales Tax Tribunal, accepting the disclosed turnover and ordering a refund of excess tax paid. The Commissioner filed a revision challenging this decision under section 11(1) of the U.P. Sales Tax Act.
The key legal question was whether account books not produced for inspection during a survey could be rejected and if an adverse inference could be drawn against the dealer for nonproduction. The Tribunal held that account books could not be rejected solely for nonproduction during the survey, citing precedents and emphasizing careful scrutiny when subsequently produced. The Tribunal's decision was based on the lack of evidence of manipulation in the stock register and the legal principle that noncooperation during a survey does not automatically render account books unreliable.
The High Court further discussed relevant case law, emphasizing that the acceptance or rejection of account books is a factual determination within the authority's jurisdiction. The Court reiterated that unless a finding is without evidence or contrary to evidence, it does not raise a question of law for revision. The Court highlighted that the sufficiency of evidence and the correctness of inferences drawn from it are factual matters not subject to revision unless unsupported by evidence or based on inadmissible evidence.
Ultimately, the Court found that the Tribunal's decision to accept the dealer's account books was based on a thorough consideration of facts and material on record, without legal error. As such, the Court dismissed the revision, stating that the case was concluded by factual findings and did not involve any legal question warranting interference under section 11(1) of the Act. The Court directed each party to bear their own costs in the circumstances of the case.
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1983 (12) TMI 263
Issues Involved:
1. Classification of "neem ki khali" as manure (fertilizer) or oil-cake.
2. Exemption from tax under Notification No. ST-3470/X dated 16th July, 1956.
3. Applicability of Notification No. ST-II-2995/X-6(7)-73 dated 3rd April, 1975, and its amendment.
4. Interpretation of conflicting tax exemption entries.
Detailed Analysis:
1. Classification of "neem ki khali" as manure (fertilizer) or oil-cake:
The primary issue was whether "neem ki khali" (oil-cake of neem) should be classified as a manure (fertilizer) or an oil-cake for tax purposes. The Tribunal held that "neem ki khali" is a kind of manure and not an oil-cake, thus exempting it from tax. The learned Standing Counsel argued that "neem ki khali" falls under the category of oil-cake and should be taxed accordingly. The counsel for the assessee contended that "neem ki khali" is primarily used as manure and not as cattle feed, thus qualifying it as a fertilizer.
2. Exemption from tax under Notification No. ST-3470/X dated 16th July, 1956:
Notification No. ST-3470/X dated 16th July, 1956, exempts "fertilizers, other than chemical fertilizers" from tax. The learned Standing Counsel argued that "neem ki khali" does not fall under the category of fertilizer and thus should not be exempt from tax. However, the assessee's counsel argued that "neem ki khali" is generally used as a fertilizer and should thus be exempt under this notification.
3. Applicability of Notification No. ST-II-2995/X-6(7)-73 dated 3rd April, 1975, and its amendment:
Notification No. ST-II-2995/X-6(7)-73 dated 3rd April, 1975, made oil-cake liable to tax, which was later amended to increase the tax rate from 2% to 4%. The learned Standing Counsel argued that all types of oil-cakes, including "neem ki khali," are taxable under this notification. The Tribunal, however, noted that the exemption for fertilizers under Notification No. ST-3470/X dated 16th July, 1956, was never amended to exclude oil-cakes used as fertilizers. Therefore, "neem ki khali," being used as a fertilizer, should continue to enjoy the exemption.
4. Interpretation of conflicting tax exemption entries:
The Tribunal considered previous judgments to resolve the conflict between the two notifications. It was noted that if a commodity falls under two conflicting entries, the entry granting the exemption should be applied, as per the principle established in Diwan Rubber Industries v. Commissioner of Sales Tax and Commissioner of Sales Tax v. Onkar Nath Jagdish Prasad. The Tribunal found that "neem ki khali" is commonly known and used as a fertilizer, thus falling under the exemption provided by Notification No. ST-3470/X dated 16th July, 1956.
Conclusion:
The Tribunal's decision to classify "neem ki khali" as a fertilizer and exempt it from tax under Notification No. ST-3470/X dated 16th July, 1956, was upheld. The judgment emphasized that the exemption for fertilizers was never amended to exclude oil-cakes used as fertilizers, thereby allowing "neem ki khali" to continue enjoying tax exemption. The revision was dismissed, and both parties were directed to bear their own costs.
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1983 (12) TMI 262
Issues:
1. Imposition of penalty under section 15-A(1)(a) and (c) of the U.P. Sales Tax Act.
2. Burden of proof on the department to establish deliberate concealment of turnover.
3. Evaluation of mens rea in penalty proceedings.
4. Application of legal principles from Income-tax Act to Sales Tax Act penalty proceedings.
The judgment involves a revision under section 11(1) of the U.P. Sales Tax Act challenging the imposition of a penalty on a dealer for allegedly furnishing inaccurate particulars of turnover and concealing substantial turnover. The Sales Tax Officer inspected the dealer's shop and seized account books, leading to a penalty under section 15-A(1)(c) for deliberate concealment. The dealer contested, claiming the seized books were for a partner's separate business. The penalty was reduced on appeal but quashed in revision, prompting the Commissioner to challenge the decision. The revising authority found insufficient evidence to establish mens rea for concealment, emphasizing the burden of proof on the department. The court noted that a mere disagreement with the turnover submitted does not prove deliberate concealment. The judgment cited precedents emphasizing the quasi-criminal nature of penalty proceedings and the necessity of proving deliberate concealment. It highlighted the importance of mens rea in determining concealment and underscored the burden on the department to establish it. The court concluded that the dealer acted bona fide, and there was no evidence of deliberate concealment. The judgment upheld the revisional authority's decision, dismissing the revision and directing parties to bear their own costs.
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1983 (12) TMI 261
Issues Involved:
1. Nature of the contract: sale or works contract.
2. Interpretation of correspondence and terms of the contract.
3. Application of relevant case law to the facts of the case.
4. Determination of ownership transfer and tax liability.
Issue-wise Detailed Analysis:
1. Nature of the Contract: Sale or Works Contract
The primary question for consideration is whether the contract for supply, erection, and commissioning of a boiler constitutes a contract for sale or a works contract. The court noted that despite multiple adjudications, no definite principles have been established to determine the nature of such transactions. Each case is fact-specific, but broad guidelines exist to aid in this determination.
2. Interpretation of Correspondence and Terms of the Contract
The facts reveal that the petitioner, a dealer in reconditioned second-hand boilers, undertook to supply, erect, and commission boilers as per customer orders. For the assessment year 1974-75, the petitioner claimed exemption on a turnover of Rs. 1,00,228, arguing it represented receipts for executing works contracts. However, all authorities under the Sales Tax Act, including the Appellate Tribunal, rejected this claim, treating the transactions as contracts for sale.
The court examined the correspondence between the petitioner and a customer, which included a quotation for the supply and erection of a boiler and the customer's acceptance of the terms. The correspondence outlined specific terms such as supply, erection, commissioning, payment, and delivery, indicating a comprehensive agreement for both supply and service.
3. Application of Relevant Case Law to the Facts of the Case
The court referred to several precedents to determine the nature of the contract:
- State of Rajasthan v. Man Industrial Corporation Ltd.: The Supreme Court held that a contract for fabricating and fixing windows was a works contract, as fixing the windows was an essential term of the contract.
- Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax: The contract for fabricating and erecting shutters was deemed a works contract, as the erection was a fundamental part of the contract.
- Sentinel Rolling Shutters & Engineering Co. P. Ltd. v. Commissioner of Sales Tax: The Supreme Court found that the contract for fabrication, supply, erection, and installation of rolling shutters was a works contract, emphasizing the indivisibility of the contract.
- Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax: The fabrication and erection of a crane were considered a works contract, as the erection was integral to the contract.
4. Determination of Ownership Transfer and Tax Liability
The court analyzed the facts, noting that the reconditioned boilers had to be erected at the customer's site, involving skilled labor and compliance with Indian Boiler Regulations. The entire process, including the erection of the chimney and furnace construction, took considerable time and skill. The contract stipulated that the petitioner would obtain necessary licenses and test certificates, indicating that ownership transferred only after the boiler was installed and operational.
The court concluded that the contract was single and indivisible, with erection being an integral part. The Appellate Tribunal's decision was based on an erroneous impression, as it failed to consider the memo explaining the nature of the service. The court held that the contract was for work and labor, not for sale, and the petitioner was not liable to pay sales tax.
Judgment:
The tax revision case was allowed, and the orders of the lower Tribunals were set aside, holding that the assessee is not liable to pay sales tax. No costs were awarded, and the advocate's fee was set at Rs. 150.
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1983 (12) TMI 260
Whether the contract between the Union of India and the appellant for manufacture and supply of MIG engines was a contract of sale as contended by the revenue or a works contract as submitted by the assessee?
Held that:- Appeal allowed. In the case of a contract for sale, the thing produced as whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passes only under the contract relating thereto to the other party for price. This cannot be said to be in respect of any of the items involved in these transactions. These transactions were carried out in implementation of the entrustment job for the manufacture by H.A.L. and all payments and actions taken in this behalf were on behalf of the Government of India.
Therefore the Tribunal was in error in concluding that there was sale involved in these transactions.
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1983 (12) TMI 259
Whether the turnover apportioned from the job works undertaken by the appellant related to the sales of materials by the appellant to the Indian Air Force or other private parties, as the case may be, and as such whether these were taxable as held by the lower appellate authority?
Whether, in the case of job works undertaken from the private parties mainly on quotation on inclusive-price-basis, the sales tax authorities were right in apportioning a portion of the turnover as attributable towards sales of materials?
Held that:- Appeal allowed .High Court of Karnataka was not right in its conclusion on the taxability of the turnover of the spare parts and materials supplied in execution of appellant's job works. As a result except for the item on canteen sales which is not in dispute before us, these appeals are allowed. The necessary adjustments in the assessments should be made.
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1983 (12) TMI 244
Issues Involved:
1. Whether a conveyance is necessary to vest the property of a firm when the same was converted into a company.
2. Whether such conveyance is necessary to claim title by the company in respect of property acquired by the promoter before its incorporation.
3. Whether Exhibit A-1 is a permanent lease.
4. Whether the rights under Exhibit A-1 are heritable but not transferable.
5. Whether the transfer of the original lessee's interest to the firm is void.
6. Whether the partnership entered into by the original lessee with more than 20 persons is illegal under the Indian Companies Act, 1913.
7. Whether a conveyance is necessary to vest the property of the firm in the company upon conversion.
8. Whether a conveyance is necessary for the company to claim title in the leasehold interest acquired by the original lessee.
9. Whether the possession of the first defendant is that of a tenant holding over and terminable on quit notice.
10. Whether the first defendant is liable to be evicted for breach of covenant for non-payment of rent and committing waste.
11. Whether the plaintiffs are estopped from seeking eviction due to acquiescence.
12. Whether the first defendant has perfected title by adverse possession.
Detailed Analysis:
Issue 1: Necessity of Conveyance for Vesting Property upon Conversion into a Company
The court held that no conveyance is necessary when a partnership is converted and registered as a company under Part 9 of the Companies Act, 1956 (Part 8 of the previous Act). Upon registration, all property of the firm vests in the company statutorily. This statutory vesting does not require a separate conveyance.
Issue 2: Necessity of Conveyance for Claiming Title by the Company for Property Acquired by the Promoter
The court concluded that property acquired by a promoter before the incorporation of a company can become the property of the company upon its acceptance and adoption after incorporation. The promoter's declaration that the property is held for the company is sufficient to vest the property in the company without a separate conveyance.
Issue 3: Nature of Exhibit A-1 Lease
The court determined that Exhibit A-1 was a permanent lease, heritable and transferable. The terms of the lease and the conduct of the parties indicated an intention to create a permanent lease.
Issue 4: Heritability and Transferability of Rights under Exhibit A-1
The court found that the rights under Exhibit A-1 were both heritable and transferable. Section 108(j) of the Transfer of Property Act, 1882, which allows for the transfer of leasehold interest, was applicable.
Issue 5: Validity of Transfer of Original Lessee's Interest to the Firm
The court held that the original lessee's interest was validly transferred to the firm. The partnership deed (Exhibit B-53) clearly indicated that the leasehold interest was brought into the partnership stock.
Issue 6: Legality of the Partnership under the Indian Companies Act, 1913
The court ruled that the partnership formed with more than 20 persons was not illegal under the Indian Companies Act, 1913, as the offending clauses making such partnerships illegal came into force only in 1936, after the formation of the partnership in question.
Issue 7: Necessity of Conveyance for Vesting Property in the Company upon Conversion
The court reiterated that no conveyance is necessary for vesting property in a company upon conversion from a partnership. The statutory provisions under the Companies Act ensure automatic vesting of property.
Issue 8: Necessity of Conveyance for Claiming Title in Leasehold Interest
The court held that the leasehold interest acquired by the original lessee and subsequently transferred to the company did not require a separate conveyance. The promoter's declaration and the company's acceptance were sufficient.
Issue 9: Tenant Holding Over and Termination of Tenancy
The court found that the first defendant was not a tenant holding over. The lease was permanent and heritable, and there was no valid termination of the lease. The acceptance of rent by the lessor did not create a new tenancy.
Issue 10: Forfeiture of Lease for Non-Payment of Rent and Waste
The court concluded that there was no forfeiture of the lease due to non-payment of rent or waste. The rent was paid or deposited in court, and there was no evidence of material damage to the leased premises.
Issue 11: Estoppel by Acquiescence
The court held that the plaintiffs and their predecessors-in-title were estopped from seeking eviction due to acquiescence. The plaintiffs had accepted rent from the first defendant for several decades and treated the first defendant as the successor-in-interest of the original lessee.
Issue 12: Adverse Possession
The court determined that even if the assignment to the first defendant was invalid, the first defendant had perfected title by adverse possession. The first defendant's possession was continuous, exclusive, and to the knowledge of the plaintiffs for over the statutory period.
Conclusion:
The court dismissed the appeal, holding that the plaintiffs' suit for eviction was not maintainable. The first defendant was recognized as the successor-in-interest of the original lessee, and the leasehold interest was validly vested in the first defendant company. The plaintiffs were estopped from challenging the first defendant's title, and the first defendant had also perfected title by adverse possession. The appeal was dismissed without costs, and leave to appeal to the Supreme Court was granted due to the substantial question of law involved.
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1983 (12) TMI 243
Issues Involved:
1. Competence of the petitioners to challenge the validity of Article 24 (as amended in 1965) of the first respondent-company's articles of association.
2. Validity of Article 24 (as amended in 1965).
Detailed Analysis:
1. Competence of the Petitioners to Challenge the Validity of Article 24:
The appeals were filed under sub-section (4) of section 155 of the Companies Act, 1956, challenging the decision of the company to refuse registration of share transfers based on Article 24 of the articles of association. The petitioners sought rectification of the register of members to include their names as shareholders. The company had refused the transfers citing Article 24, which allowed the board to decline registration without assigning reasons.
The court held that the petitioners were not competent to challenge the validity of Article 24 in the proceedings before the company court. The court emphasized that the articles of association, once registered, bind the company and its members as per section 36 of the Act. The court also noted that the explanatory statement under section 173(2) to the notice of the special resolution for the 21st annual general meeting was scrutinized but found no substantial defect that would render the amendment invalid. The court concluded that the petitioners, as transferees, could not challenge the validity of the amendment when the original shareholders themselves were barred by limitation from doing so.
2. Validity of Article 24 (as amended in 1965):
Article 24, as amended in 1965, allowed the board of directors to refuse registration of share transfers without assigning any reason. The substantial difference between the old regulation 20 and the new regulation 24 was that the latter applied to fully paid shares as well. The petitioners argued that the explanatory statement under section 173(2) was insufficient, thus rendering the amendment invalid.
The court examined the explanatory statement and noted some defects but did not find them significant enough to invalidate the amendment. The court referred to legal precedents, including the Gujarat High Court's decision in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., which emphasized the mandatory nature of section 173. However, the court held that a minor defect in the explanatory statement would not render the amendment null and void.
The court also cited Gore-Browne's Handbook on Joint Stock Companies, which states that long-standing practices and articles, even if not formally adopted, can be recognized as valid. The court found no reason to declare the articles of association, including Article 24, void, especially given the passage of time and the numerous transactions conducted under the amended articles.
The court concluded that the scope of an enquiry under section 155 does not extend to scrutinizing the validity of long-standing amendments to the articles of association. The court emphasized that the articles registered with the Registrar of Companies are binding on the company and shareholders, and the directors were within their rights to refuse the transfer of shares without assigning reasons.
Conclusion:
The appeals were dismissed, and the court upheld the decision that the petitioners were not competent to challenge the validity of Article 24. The court also found no substantial reason to invalidate the amendment made in 1965. The request for leave to appeal to the Supreme Court was declined as the matter did not involve any substantial question of general importance.
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1983 (12) TMI 242
Issues Involved:
1. Whether the resolution dated March 22, 1974, violated section 3 of the Capital Issues (Control) Act.
2. Whether the conditional allotment as contended by the respondents is permissible in law.
3. What are the stages of creation, issue, and allotment of shares in relation to one another.
4. Whether the allotment of shares to the petitioner and respondents Nos. 11 to 14 is in breach of section 41(2) of the Companies Act.
5. Whether the allotment is hit by section 29 of the Contract Act due to vagueness and uncertainty in the resolution dated March 22, 1974.
Issue-wise Detailed Analysis:
1. Violation of Section 3 of the Capital Issues (Control) Act:
The court examined whether the resolution dated March 22, 1974, violated section 3 of the Capital Issues (Control) Act, 1947. Section 3(2)(a) of the Act states that no company shall make an issue of capital without the consent of the Central Government. The definition of "issue of capital" includes the creation of any securities. The court found that the resolution dated March 22, 1974, which allotted shares, was in violation of section 3 as it was done without prior consent from the Central Government, which was obtained only on April 22, 1974. Therefore, the allotment was void ab initio.
2. Permissibility of Conditional Allotment:
The court addressed whether conditional allotment of shares is permissible. The respondents contended that the allotment on March 22, 1974, was conditional and only implemented after obtaining the necessary consent. The court held that even a conditional allotment implies the creation of shares, which is forbidden under section 3 without prior consent. Thus, conditional allotment is not permissible under the Capital Issues (Control) Act, 1947.
3. Stages of Creation, Issue, and Allotment of Shares:
The court elaborated on the stages of creation, issue, and allotment of shares. It cited judicial precedents, including the dictum of Farwell L.J. in Mostly v. Koffyfontein Mines, Ltd., which distinguishes between creation, issue, and allotment of shares. Creation of shares must precede their issue and allotment. The court found that the resolution on March 22, 1974, constituted an allotment, which was void due to the lack of prior consent, thereby violating the Act.
4. Breach of Section 41(2) of the Companies Act:
The court did not delve into whether the allotment of shares breached section 41(2) of the Companies Act, 1956, as the primary issue of the allotment's validity under the Capital Issues (Control) Act was sufficient to decide the case. The learned judge had not addressed this issue due to the conclusion reached on the first issue.
5. Vagueness and Uncertainty under Section 29 of the Contract Act:
Similarly, the court did not address whether the allotment was hit by section 29 of the Contract Act due to vagueness and uncertainty in the resolution dated March 22, 1974. This issue was not considered necessary to resolve given the finding that the allotment was void ab initio.
Conclusion:
The court concurred with the decision of Shanmukham J. that the allotment of shares on March 22, 1974, was void ab initio due to the violation of the Capital Issues (Control) Act, 1947. The appeal was dismissed, and the petitioner was granted the reliefs sought for rectification of the register of members. The court also rejected the new contention that the actual allotment was made only on September 28, 1974, after obtaining consent, as the factual materials did not support this claim. The plea of estoppel was also dismissed, as the allotment was void from the beginning.
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1983 (12) TMI 241
Issues:
- Challenge against legality of summons under section 209A of the Companies Act, 1956
- Scope of inspection of books of account under section 209A
- Application of ejusdem generis principle in determining the type of documents for inspection
- Distinction between inspection under section 209A and investigation under section 237 of the Act
Analysis:
The judgment of the High Court of Kerala involved multiple writ petitions challenging the legality of summons issued under section 209A of the Companies Act, 1956. The petitioners contended that the inspection of books of account by the authorities should be restricted to that of the books of account only. The court examined the provisions of section 209A, emphasizing the duty of directors and officers to produce books of account and other documents during inspection. The court noted the argument that the scope of inspection must be limited to documents with the character of books of account, applying the principle of ejusdem generis. It was held that the inspection under section 209A should not extend to a roving inquiry into all aspects of the company's affairs, distinguishing it from the investigation under section 237 of the Act.
The court acknowledged the argument that inspection should be confined to specific ledgers, documents, and vouchers, and directed that a notice listing the items to be inspected should be served on the company in advance. The judgment outlined directions for the inspection process, including completing the inspection expeditiously and seeking appropriate directions from the company court for inspecting additional books and documents beyond the specified items. The court left open the question of privilege if the inspection exceeded the scope of section 209A and encroached into the realm of investigation under section 237, to be determined based on the facts of the case.
In conclusion, the writ appeal and petitions were disposed of with the outlined directions, emphasizing the limitations of inspection under section 209A and the distinction from the broader investigation provisions of the Act. The judgment did not award costs and allowed for the provision of a carbon copy to the counsel for the Central Government and the petitioners upon request.
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1983 (12) TMI 240
Issues:
1. Relief sought under Section 403 of the Companies Act, 1956 rendered infructuous due to disposal of appeals by the Company Law Board.
2. Allegations of motive behind share transfer to capture company's management and potential harm to public interest.
3. Background of company facing financial difficulties, government intervention, and liabilities.
4. Dispute over registration of shares purchased by Khaitan group, potential impact on company's management.
5. Legal proceedings before the Company Law Board and Company Court regarding the registration of shares.
6. Company's resistance to share registration, concerns over potential takeover by Khaitan group.
7. Analysis of transferability of shares in public limited companies and protection of shareholder rights.
8. Differentiation between private and public limited companies regarding share transferability and shareholder rights.
Analysis:
The judgment pertains to a petition under Section 403 of the Companies Act, 1956, which became infructuous as the relief sought could no longer be granted after the Company Law Board disposed of appeals related to the transfer of shares. The petitioner, Ganesh Flour Mills Co. Ltd., sought to restrain the Board from proceeding with the appeals, which were subsequently allowed, leading to the transferees being entitled to be registered as shareholders. The company's opposition to the transfers was negatived, resulting in a writ petition against the Board's decision being dismissed.
The background of the company reveals financial struggles, government intervention, and significant liabilities. Despite efforts to rehabilitate the company, it continued to face challenges, with liabilities amounting to approximately 6 crores. The company remained under the management of authorized persons, with potential nationalization on the horizon, indicating a complex financial and regulatory environment.
The dispute arose from the purchase of shares by the Khaitan group, raising concerns about potential management takeover and conflicts of interest due to their ownership stake. Legal proceedings before the Company Law Board and Company Court revolved around the registration of these shares, with the company resisting registration, fearing adverse consequences on its affairs.
The judgment emphasizes the fundamental principle of share transferability in public limited companies, highlighting that shareholders have the right to freely transfer their shares. It underscores that public companies cannot be treated as personal or family affairs, and any attempts to restrict share transferability go against the core principles of company law.
Furthermore, the judgment distinguishes between private and public limited companies, emphasizing the openness of public companies to public subscription of shares. It rejects the notion of monopolistic defenses against share acquisition, asserting that the interests of the public shareholders must prevail over individual or group interests.
In conclusion, the judgment dismisses the application, affirming the principles of share transferability and shareholder rights in public limited companies, while underscoring the importance of upholding these principles for the growth and development of such entities.
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1983 (12) TMI 213
Issues Involved:
1. Stay of proceedings in Company Petition No. 577 of 1983 u/s 34 of the Indian Arbitration Act, 1940.
2. Applicability of section 10 read with sections 141 and 151 of the CPC, 1908.
3. Jurisdiction of the court under sections 397 and 398 of the Companies Act in the presence of an arbitration award.
Summary:
1. Stay of proceedings u/s 34 of the Indian Arbitration Act, 1940:
The applicants sought to stay further proceedings in Company Petition No. 577 of 1983 u/s 34 of the Indian Arbitration Act, 1940. The disputes between the Chitnis group and the Srivastava group were referred to arbitration, resulting in an award directing the Srivastava group to transfer their shares to the Chitnis group. The award was challenged by Sudha Srivastava, and the petition was pending. The court noted that Mr. Zaiwalla, counsel for the applicants, conceded that section 34 of the Indian Arbitration Act was irrelevant to this matter.
2. Applicability of section 10 read with sections 141 and 151 of the CPC, 1908:
Mr. Zaiwalla argued for a stay of the proceedings based on section 10 read with sections 141 and 151 of the CPC, 1908, to avoid conflicting decisions. Mr. Bhatt, counsel for respondent No. 2, contended that section 10, CPC, pertains to the stay of suits pending in a court of competent jurisdiction, and no such pending suits existed. He further argued that the court's powers under sections 397, 398, and 402 of the Companies Act are wide and cannot be restricted by arbitration clauses. The court agreed, stating that sections 397 and 398 deal with extraordinary circumstances requiring court intervention, which cannot be subject to arbitration.
3. Jurisdiction of the court under sections 397 and 398 of the Companies Act:
Mr. Bhatt argued that matters under sections 397 and 398 cannot be left to arbitration, as the court has exclusive jurisdiction to address issues of oppression and mismanagement. He cited cases like Surendra Kumar Dhawan v. R. Vir and Gupta v. Shiv General Finance (P.) Ltd., which held that arbitration clauses cannot debar the court's jurisdiction under sections 397 and 398. The court concurred, emphasizing that the scope of inquiries under sections 397 and 398 is different from that of setting aside an arbitration award. The court's jurisdiction under these sections remains unfettered by arbitration proceedings or awards.
Conclusion:
The court dismissed the company application, stating that section 10, CPC, read with section 141, and the powers under section 151, CPC, were inapplicable. The court's jurisdiction under sections 397 and 398 of the Companies Act could not be restricted by arbitration clauses or awards. The costs of the application were to be costs in the cause.
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1983 (12) TMI 211
Issues Involved:
1. Whether the official liquidator can part with possession of the premises on a caretaker basis.
2. Whether the appellants are entitled to immediate possession of the premises.
3. The status and rights of respondent No. 2 concerning the premises.
4. The appellants' entitlement to arrears of rent and other dues.
Issue-wise Detailed Analysis:
1. Whether the official liquidator can part with possession of the premises on a caretaker basis:
The appellants argued that the official liquidator's intention to part with the premises on a caretaker basis was impermissible under the Bombay Rent Act, referencing the Supreme Court decision in Ravindra Ishwardas Sethna v. Official Liquidator, High Court, Bombay. The court observed that the arrangement contemplated by the official liquidator did not fall within the provisions of section 457 of the Companies Act, which allows the liquidator to carry on the business of the company only to the extent necessary for its beneficial winding-up. The Supreme Court had previously ruled that entering into a caretaker's agreement was a facade to circumvent the Rent Act, which prohibits sub-leasing or licensing the premises if the company no longer requires them. The High Court concluded that the official liquidator's plan to use the premises on a caretaker basis was unfair and impermissible, as it was not necessary for the winding-up process.
2. Whether the appellants are entitled to immediate possession of the premises:
The court noted that since the official liquidator did not require the premises for the winding-up of the company, the appellants, as landlords, were entitled to possession. However, considering the possibility of the company being revived under a proposed scheme, the court ordered that the official liquidator would hand over possession to the appellants if no order for reviving the company was passed by December 31, 1984. This decision balanced the interests of the appellants and the potential revival of the company.
3. The status and rights of respondent No. 2 concerning the premises:
Respondent No. 2 claimed to be in occupation as sub-tenants or permitted licensees with the knowledge and consent of the appellants. However, the court found that respondent No. 2 had given an undertaking to the official liquidator to vacate the premises upon demand, which was a condition set by the court. The court held that respondent No. 2, having accepted the status of licensees from the official liquidator, could not now claim sub-tenant rights. Therefore, respondent No. 2 was required to vacate the premises as per the undertaking given to the official liquidator. The court directed that respondent No. 2 should not be dispossessed before March 31, 1984, but must vacate by November 30, 1984, if required by the official liquidator.
4. The appellants' entitlement to arrears of rent and other dues:
The appellants sought arrears of rent and other dues amounting to Rs. 6,16,810.47. The court noted that for dues prior to the winding-up order, the appellants would rank as creditors along with others. For dues after the winding-up order, the official liquidator was prevented from paying rent directly to the appellants due to an attachment order by the sales tax authorities. The court directed the official liquidator to provide the appellants with an account of the amounts credited to the sales tax authorities within four weeks, along with copies of the challans.
Conclusion:
The appeal was allowed, and the summons made absolute in terms of prayer clauses (a), (b), and (c), with specific directions regarding the handing over of possession and the provision of accounts for the rent paid to the sales tax authorities. The court ensured that the interests of all parties, including the potential revival of the company, were safeguarded. There was no order as to costs.
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