1964 (8) TMI 62 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of sales tax on disputed turnover involving the sale of finished garments, determination of whether one contract or two contracts exist in the transaction.

Analysis:
The judgment by the Madras High Court in this case revolves around the turnover of Rs. 60,842 representing the value of finished garments sold by the assessee. The assessing authority, the Appellate Assistant Commissioner, and the Sales Tax Appellate Tribunal all held that the sale of finished garments took place. However, the Tribunal relied on a previous decision to determine that the sale is complete only after the garment is made and delivered to the customer, not at the time of selecting the material. The Tribunal categorized such transactions into four types, with the present case falling under the category where a customer selects material that is later made into a garment. This led to the Tribunal's conclusion that there was no transfer of property at the time of selection, but only upon delivery of the finished garment.

The crucial aspect analyzed by the Court was whether there existed one contract for making and delivering the finished garment or two separate contracts - one for purchasing the cloth and another for labor charges. The Court emphasized the significance of the order book in determining the nature of the contracts. In this case, the order book clearly demonstrated distinct bargains for the purchase of cloth and stitching charges, supporting the inference of two separate contracts being entered into. Even though the assessee did not sell cloth separately, the Court held that the evidence from the order book indicated the presence of two distinct contracts. As a result, the Court concluded that the assessment of the disputed turnover as representing the sale of finished garments was not sustainable, especially considering that cloth itself was not subject to sales tax during that period.

In conclusion, the Court allowed the revision petition, setting aside the assessment on the disputed turnover. The judgment highlights the importance of analyzing the specific terms of the contract and the documentary evidence, such as the order book, to determine the nature of transactions involving the sale of goods and services.