1963 (11) TMI 63 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sales of old machinery, consumable stores, scrap, and raw materials by textile manufacturers are liable to be included in taxable turnover and subjected to sales tax.
2. Whether the rebate allowed by the petitioners to their customers should be deducted in arriving at the taxable turnover.

Issue-Wise Detailed Analysis:

1. Sales of Old Machinery, Consumable Stores, Scrap, and Raw Materials:
- Facts: The petitioners, textile manufacturers, sold old machinery, consumable stores, scrap, and raw materials during the assessment period. The sales tax was collected on 12 out of 16 sales, and the petitioners contended that the remaining 4 sales should not be subjected to sales tax.
- Tribunal's Findings: The Tribunal concluded that the sales fulfilled the test of volume and degree of frequency, were made as part of the petitioners' business, and that charging sales tax indicated an intention to treat the sales as part of their business.
- Petitioners' Argument: The petitioners argued that their business was manufacturing textile goods, not dealing in machinery. The sales were necessitated by a modernization program and were incidental, not intended for profit.
- Court's Analysis: The court examined the definitions under the Bombay Sales Tax Act, 1953, and relevant case law. It emphasized that only sales made in the course of business are taxable. The court found that the sales of old machinery were not made with a profit motive but were realizations of assets due to modernization. The test of volume and frequency was not conclusive in this context.
- Conclusion: The sales of old machinery, consumable stores, scrap, and raw materials were not part of the petitioners' business activity and thus, not liable to be included in the taxable turnover.

2. Rebate Allowed by the Petitioners:
- Facts: The petitioners allowed a rebate in the contract price to their customers due to a fall in prices, which was given by way of credit notes. The rebate amounted to Rs. 1,37,907, out of which Rs. 68,953 was allowed by the Deputy Commissioner.
- Tribunal's Findings: The Tribunal found that the rebate was given to induce customers to take delivery of goods after a fall in prices, and thus, the original contract price remained the sale price.
- Petitioners' Argument: The petitioners argued that the rebate constituted a novation of the original contract, and the sale price should be the actual price received after the rebate.
- Court's Analysis: The court held that the rebate did not constitute a novation as there was no consideration from the purchasers. The remissions were given after the contracts were performed, indicating that the original contract price was still the sale price. The court concluded that the sale price relevant for turnover calculation was the price receivable under the contracts.
- Conclusion: The rebate allowed by the petitioners could not be deducted from the taxable turnover. The sale price for turnover calculation remained the original contract price.

Separate Judgments:
- Reference No. 34 of 1963: The court answered in the negative, indicating that the sales of old machinery were not liable to be included in the taxable turnover.
- Reference No. 3 of 1962: The court answered the first question in the negative, the second question in the negative, and the third question in the affirmative, indicating that the sales of stores and old machinery were not taxable, and the rebate could not be deducted from the taxable turnover.
- Reference No. 20 of 1962: The court answered the first question in the negative and found that the sales of scrap goods were not includible in the total turnover.
- Reference No. 6 of 1963: The court answered the second question in the negative and found that the sales of stores were not taxable.

Final Orders:
- The court concluded that the sales of old machinery, consumable stores, scrap, and raw materials were not part of the petitioners' business activity and thus, not liable to be included in the taxable turnover. The rebate allowed by the petitioners could not be deducted from the taxable turnover.
- Costs were awarded to the petitioners in some references, while in others, no order as to costs was made.