1957 (10) TMI 29 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether sales tax is payable for dyeing yarn of customers and selling dyed yarn.
2. Whether the petitioners are liable to pay sales tax for the transactions involving dyeing yarn.

Analysis:
1. The petition raised two points regarding sales tax liability. The first point was about the non-taxability of sales of dyed yarn, which was upheld based on the relevant schedule of the Central Provinces and Berar Sales Tax Act, 1947. The Act did not exclude dyed yarn from being tax-free, thus supporting the petitioners' contention on this issue.

2. The second point involved the difficulty arising from a previous Division Bench observation regarding the sale of dye-stuffs and chemicals used in dyeing yarn. The argument was based on whether the property in dye-stuff was transferred to customers along with the dyed yarn. However, the court distinguished this case from previous decisions and emphasized that the petitioners were not engaged in the business of selling dye-stuffs.

3. The petitioners' counsel relied on legal principles stating that the use of dye-stuffs and chemicals for dyeing yarn did not constitute a sale or supply of those materials. The definition of "sale" under the Act was discussed in detail, highlighting that an accession to the yarn did not amount to a transfer of property in the dye-stuffs.

4. The court also considered the aspect of being a "dealer" under the Sales Tax Act, emphasizing that none of the petitioners were engaged in the business of selling dye-stuffs. The argument that using dye-stuffs did not imply supplying them to customers was supported by the petitioners' claim that the dye-stuffs were eventually washed off during the dyeing process.

5. Reference was made to a relevant case law where a contract for work and labor was distinguished from a contract for the sale of goods based on the substance of the contract. Additionally, decisions of the former Board of Revenue were cited to support the view that the transactions in question did not amount to the sale of goods.

6. Ultimately, the court held that the transactions involving dyeing yarn did not constitute the sale of goods, thereby relieving the petitioners from the liability to pay sales tax. The petition was allowed, costs were awarded to the petitioners, and the security deposit was ordered to be refunded.

This comprehensive analysis of the judgment highlights the legal intricacies involved in determining the sales tax liability for transactions related to dyeing yarn and selling dyed yarn, providing a clear rationale for the court's decision in favor of the petitioners.