1969 (2) TMI 161 - SC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case, cloth given by the syndicate to its members on payment was a sale within the meaning of the U.P. Sales Tax Act? Held that - Appeal dismissed. The contention which has been pressed before us is that the syndicate and its members or shareholders happened to be one entity. Thus there could be no sale by one entity to itself. This point does not appear to have been agitated before the departmental authorities. Moreover the facts as they appear in the various orders are altogether meagre about the constitution of the syndicate. It is not even clear whether it got itself registered under the Indian Companies Act, 1913. In the absence of proper facts which could be established before the departmental authorities by the assessee the contention that the syndicate and its members constituted one entity cannot be entertained at this stage. On the findings on which the High Court based its conclusion it is not possible to hold that any other answer could have been returned to the question referred.

Summary

Issues:
Interpretation of the definition of "sale" under the U.P. Sales Tax Act, 1948 in relation to cloth distribution by a syndicate to its members.

Detailed Analysis:

The judgment by the Supreme Court of India pertains to an appeal from the Allahabad High Court regarding the interpretation of the term "sale" under the U.P. Sales Tax Act, 1948, in the context of cloth distribution by a syndicate to its members. The High Court had answered a specific question against the assessee, concluding that the syndicate had indeed effected a sale of cloth to its members. The syndicate, known as Kanpur Kapra Committee, was formed as an importing agency during a period of government control over cloth distribution. The syndicate consisted of 92 wholesalers who distributed cloth to retailers at controlled rates. After the control was lifted in 1948, the syndicate ceased to operate, and the members decided to distribute cloth among themselves based on their contributions at retail prices. The Sales Tax Officer assessed that the syndicate had sold the remaining stock to its members, a decision upheld by the Judge (Appeals).

The High Court based its conclusion on several key factors: the majority of transactions were for cash, there was no compulsion for members to take their quota, the price paid was the same as that charged to retailers, and the syndicate and its members were distinct entities. The appellant contended that the syndicate and its members constituted a single entity, precluding the possibility of a sale from one entity to itself. However, this argument was not raised before the departmental authorities, and the factual record was insufficient to establish the nature of the syndicate's constitution, including its registration status under the Indian Companies Act, 1913. Due to the lack of concrete facts presented by the assessee, the Court rejected the argument that the syndicate and its members were a single entity, affirming the High Court's decision that a sale had occurred.

Ultimately, the Supreme Court dismissed the appeal, upholding the High Court's finding that the syndicate had indeed engaged in a sale of cloth to its members. The parties were directed to bear their own costs for the proceedings. The judgment underscores the importance of factual evidence and legal arguments raised at the appropriate stages of a case to support or challenge legal interpretations under tax laws.