1959 (4) TMI 19 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of sales tax on firms acting as manufacturing agents and exporters. Determination of whether the firms were dealers as defined in the Sales Tax Act. Analysis of whether the sales took place in the course of export of goods outside India.

Analysis:
The judgment delivered by the Allahabad High Court pertained to a joint reference submitted under section 11 of the U.P. Sales Tax Act by four firms involved in the carpet trade. The firms, based in Bhadohi, district Banaras, were assessed for sales tax as dealers for supplying carpets to specific entities. The firms contended that they were manufacturing agents and not dealers, as they manufactured carpets against orders on a commission basis and that no sales tax was payable as the carpets were exported outside India. The Sales Tax Authorities rejected their objections, leading to a reference to the High Court. Two questions were referred: (1) Whether the firms were manufacturing agents and not dealers; and (2) Whether the sales occurred in the course of export out of India as per Article 286(1)(b) of the Constitution.

The cases of two firms were initially heard, revealing a lack of crucial information for decision-making. The key factor was determining the ownership of the carpets from manufacturing to delivery to ascertain if the firms had sold the carpets. The cases were sent back for additional information on the ownership transfer of the carpets. The subsequent statement indicated that one firm acted solely as a manufacturing agent, while the other had two categories of carpets - those manufactured by the firm and those purchased from the market. For the manufactured carpets, the firms were not considered dealers and were not liable for sales tax. The second question was left unanswered due to the resolution of the first question.

The remaining two firms' cases were then addressed, with no representation from them. The court, after considering the previous answers and principles, concluded that if the firms only manufactured carpets to order and did not have ownership, they could not be deemed dealers and were not subject to sales tax. The second question did not apply in these cases. For any transactions involving purchased carpets, no opinion was provided as it was not part of the reference. The court answered the reference accordingly, with no cost order.

In conclusion, the judgment clarified the distinction between manufacturing agents and dealers for sales tax assessment purposes and emphasized the importance of ownership in determining liability. The court's decision was based on the specific circumstances of each firm's involvement in the carpet trade, ensuring a fair and accurate application of the Sales Tax Act provisions.