TMI Blog2010 (8) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... os. 25 of 2006 and S.T.R.P. Nos. 48 of 2008 - - - Dated:- 13-8-2010 - KUMAR N. AND KEMPANNA H.S., JJ. For the Appellant : T.K. Vedamurthy, High Court Government Pleader, For the Respondent : G. Sarangan, Senior Counsel for G. Rabinathan and N. Thirumalesh ORDER:- The order of the court was made by N. KUMAR J. As the question involved in both these petitions are one and the same, they are taken up for consideration together and disposed of by this common order. 2. In S.T.R.P. No. 48 of 2008, the assessee is a company incorporated under the Companies Act, 1956 and a dealer registered under the Karnataka Sales Tax Act, 1957 and the Central Sales Tax Act, 1956. The assessee/ appellant operates three separate divisions, namely, a distillery for manufacture and sale of liquor, a sugar factory for production and sale of sugar and a division of execution of works contracts. The assessee is a flagship company of the Khoday Group of Industries. It is the case of the assessee that, being a flagship company of Khoday Group of Industries, during the year 1994-95, they ran into serious financial difficulties, which compelled the Board of Directors of the group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax under section 5(3A) of the Karnataka Sales Tax Act, 1957, the assessee gave a reply stating that, it is not a first sale but it is a second sale. Accepting the case of the assessee, the assessing authority concluded the assessment reviewing turnover tax under section 6B of the Karnataka Sales Tax Act, on the sales effected by the assessee on these invoices and also levied penalty under section 12(4) of the Act. The assessee challenged the said order of the assessment. The appeal came to be dismissed. The assessee preferred an appeal before the Karnataka Appellate Tribunal, which set aside the order of both the parties and remitted the matter back to the assessing authority for fresh consideration. Aggrieved by the said order, the present appeal is filed. The Appellate Tribunal in both the appeals held that, the material on record clearly establishes that there is no sale of goods. It is only a device of a financial arrangement to raise funds. Therefore, unless there is a sale of goods as understood in the context of the Sales Tax Act, the liability under section 5 of the Act is not attracted. In support of their contention, they relied on a judgment of the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same does not represent the actual value of the property at all. The agreements that entered into between M/s. DLF Industries Limited, Delhi and the assessee were to take back the oakwood barrels and vats on lease basis for periods ranging from three to five years and to pay lease rentals. Though it is a case of sale-cumlease, in substance, it is a loan transaction and as a security for the repayment of loan, a document came into existence and what is paid to the financier is nothing but the interest on amount, and not the rent. The facts and the law in the aforesaid judgment of the apex court squarely applies to the facts of the case. The Tribunal was justified in granting the relief to the assessee relying on the judgment, which is the law of the land. In so far as non-payment of the tax on the works contract is concerned, the material on record clearly establishes that the Bangalore Water Supply and Sewerage Board supplied the labour. Unless, there is a liability to pay tax under section 5B, section 17(6) has no application. In both the cases, labour charges received are not taxable under the Act. Therefore, the Tribunal was justified in granting the relief to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar question, which is held as under: (pages 501 and 502 in 17 STC) The true effect of a transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances. In such case, the court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents. An owner of goods who purports absolutely to convey or acknowledges to have conveyed goods and subsequently purports to hire them under a hire-purchase agreement is not estopped from proving that the real bargain was a loan on the security of the goods. If there is a bona fide and completed sale of goods, evidenced by documents, anterior to and independent of a subsequent and distinct hiring to the vendor, the transaction may not be regarded as a loan transaction, even though the reason for which it was entered into was to raise money. If the real transaction is a loan of money secured by a right of seizure of the goods, the property ostensibly passes under the documents embodying the transaction, but subject to the terms of the hiring agreement, which become part of the buyer's title, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show what exactly the nature of the transaction in which event, if he is able to establish the said transaction, the transaction recorded in the agreement has no value. In this background, if we look at the facts of the case, in one case, the sale is in favour of a financier who is at Delhi. In another case, sale is in favour of a group company. The goods that are sold are oakwood, vats and barrels, which are of no use to the financier as well as the other group companies, which is not in the business of liquor. The value of the goods when compared to the consideration purported to have been paid under the said document makes it clear that it is a financial transaction for sale of a property, which is not worth a few lakhs in one instance, ₹ 17 crores and odd is a consideration and in another instance, ₹ 5 crores and odd is a consideration. It is not disputed after the so-called sale, the very properties are taken on lease. The manufacturing activities by the assessee is not even hampered for a day. There was no handing over of the goods and receiving back the goods under the lease deed. It is in this context, the case pleaded by the assessee is more probable. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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