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TMI Blog2020 (8) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 on the ground that the gold jewellery deposited by his relatives with permission to melt the said ornaments and use them as the assessee deems fit and to receive a compensation at the rate of 5% on the value of such gold jewellery, amounts to purchase of such gold jewellery from unregistered dealers and therefore, the assessee is liable to purchase tax, on the same. 3. The relevant findings of the assessing authority in this regard are quoted below for ready reference. 'It is clear from the records the deposit by family members of 1,726.000 grams and 4,157.000 grams and by the proprietor himself of 1,753.000 grams. The proprietory at liberty to melt any ornaments and use them as he deems fit. It is thus clearly proved that the deposited goods were liable to be utilized in the conduct of business or practically used by the dealers. Though the dealers have stated that the deposits were returned on 11.3.98 and 14.3.98 there was no evidentiary proof to substantiate the claim and even if it is so, it has not passed through the accounts. And can be termed only an after thought by creating the consorted records to that effect. Further the dealers have got deposits of gold and go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of gold jewellery based on borrowing contract shown in the quantity of the goods received by them. They have also entered into an agreement of memorandum of deposit of Gold Jewellery and pure gold to their relatives and their main terms and conditions are as follows;- I) That the Deposited Gold Jewellery of 22 carrot Jewellery and pure gold with the borrower for use in his business. The borrower is free to melt the above ornaments and use them as they deem fit. II) The borrower shall pay every year a compensation calculated at the rate of Rs. 5% of the gold jewellery pure gold deposited. The compensation may be either in the form of gold jewellery pure gold or in cash calculated at the market value of jewellery on the date of payment of compensation. III) Wherever the depositor wants the jewellery back he shall intimate the borrower atleast 15 days in advance. The borrower shall henceforth delivery gold ornaments of 22 carrots/pure gold 24 carrots purely of the equivalent weight which was deposited by the depositor. IV) In case the depositor wants a part of the jewellery the borrower shall return part of the jewellery pure gold of the same purity. V) The 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nough to assess the transactions in question, as there is no sale element involved. Therefore, in this case on hand, the assessment made on the value of the borrowed pure gold jewellery and gold ornaments is not correct as per the provisions of the Act. Therefore, the assessment made on the value of the borrowed pure gold and gold ornaments are liable to be set aside. Hence, it is deleted. Accordingly, the point is answered.' 6.The State preferred Second Appeal before the learned Sales Tax Appellate Tribunal, which allowed the appeal filed by the State reversing the order passed by the First Appellate Authority with the following reasons and the relevant portion of the order is also quoted below for ready reference. '4. In the grounds of appeal the State submitted before this Tribunal that according to the agreement made between the depositors of the respondent the respondent was permitted to made use of the deposited gold and gold jewels for business and also melting them for use in the manufacture of new gold ornaments and that such borrowed gold had been taken to the process of manufacture and the gold taken for manufacturing process by borrowing from the members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he salient features of the agreement which prompted the assessing officer to keep the disputed transaction as purchase as follows. I) There was no time limit for returning the pure gold or gold jewellery deposited by the borrowed by the dealer. II) The dealer is free to melt the above ornaments and use them as deemed fit. III) Pure gold or gold ornaments are meant only for the business of the dealer. IV) The borrower shall par every year a compensation at the rate 5% of the value of the gold jewellery deposited. V) The above said compensation may be either in the form of gold jewellery or in the form of cash calculated at the market value of the jewellery on the date of payment of such compensation. In view of the above features of the agreement the assessing officer has come to the conclusion that the above transaction is nothing but a purchase liable to be taxed under section 7-A of the Act and includable in the total turnover for the purpose of assessment under section 3E of the act. The claim of the respondent is that the dealer borrowed gold and gold jewellery and not purchased the same from his relatives. Further the Proprietor himself has brought in capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his family members as borrowing is only for business purpose and thus it is proved the pure gold and gold ornaments brought into the business as capital will amount to purchase from other source and is liable to be taxed under section 7A of the TAMIL NADU GENERAL SALES TAX ACT and includible in the total turnover for the purpose of assessment under section 3E of the Act. 8. In the result, the State Appeal stands ALLOWED.' 7. Learned counsel for the petitioner/assessee Mrs. Rekha Kumari urged before us that there was no contract of purchase, but only deposit of gold jewellery with the assessee by the relatives and they were entitled to return of the gold jewellery in whole or in part or even take a cash in compensation, if the jewellery was used by the assessee dealer by melting the same. She therefore submitted that there was no sale or purchase involved in the same and therefore the provisions of section 7-A of the Act were not attracted. 8. On the other hand, learned counsel for the Revenue supporting the impugned order of the tribunal, submitted that since the assessee dealer had right to use the deposited jewellery in the manner he liked and it was also agreed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ": Provided that this sub-section shall not apply to the purchases made on or after the 1st day of April, 1990. (3) Every dealer liable to pay purchase tax under sub-section (1) , shall, for the purposes of this Act, be deemed to be a registered dealer.' 12. There is no doubt that except in the case of purchase or sale made by unregistered dealers, in the circumstances, that on such sale, no tax is payable under section 3 or 4 of the Act, the liability of purchase tax is not attracted. Unless there is a basic contract of sale or purchase involved in the matter, mere loan, deposit, hypothecation of goods, cannot amount to sale or purchase, attracting levy of purchase tax under section 7A of the Act. From the Memorandum of Understanding or Agreements between the parties, we do not see even the use of the word 'sale' or 'purchase' in the same. On the contrary, the terms of the agreement clearly and explicitly bear out a deposit or borrowal of the gold jewellery between the parties. Clause 1 permitting the assessee to use, to melt the gold jewellery and use the same in the manner considered by him does not per se amount to the contract of purchase. Such melt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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