1966 (11) TMI 81 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the petitioner-assessee for sales tax on Rs. 24,713.90 for fabricated parts used in motor vehicle repairs.
2. Liability of the petitioner-assessee for sales tax on Rs. 2,408.43 for nuts and bolts used in motor vehicle repairs.

Issue 1: Liability for Sales Tax on Rs. 24,713.90 for Fabricated Parts

The petitioner-assessee operates a business with multiple departments, including the sale of motor spares and the repair and servicing of motor vehicles. For certain repair jobs, the petitioner fabricates parts using raw materials and labor, as existing spare parts are inadequate. The cost of these fabricated parts is itemized in the repair bills. The assessing authority treated these itemized costs as separate sales transactions, subjecting them to sales tax. The appellate authority and the Sales Tax Appellate Tribunal upheld this view, distinguishing the case from previous rulings.

The court reviewed the legal position, referencing the Supreme Court's decision in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., which established that a notional sale in works contracts is beyond the legislative competence of the State Legislature under Entry 54 of the Second List to the Seventh Schedule of the Constitution. The court also considered the Madras High Court's judgment in Sundaram Motors (Private) Ltd. v. The State of Madras, which held that the fabrication of parts for specific repair jobs does not constitute a sale of those parts. The court concluded that the fabricated parts used exclusively for repairs cannot be regarded as independent sales transactions.

Issue 2: Liability for Sales Tax on Rs. 2,408.43 for Nuts and Bolts

The petitioner also purchased nuts and bolts, which were used for various repair jobs. The assessing authority treated the utilization of these nuts and bolts as separate sales, subjecting them to sales tax. The court noted that, similar to the fabricated parts, the nuts and bolts were used exclusively for repairs, and their use was ad hoc. The court found that the incidental passing of these items in the repair process does not constitute a separate sale.

Conclusion

The court held that the sums of Rs. 24,713.90 and Rs. 2,408.43 should not be included in the assessable turnover for sales tax purposes. The court emphasized that the repair contracts did not involve separate sales of parts, but were contracts for work and labor. The appellate authority and the Sales Tax Appellate Tribunal's reasoning of an implied contract of sale was deemed inaccurate, as it represented a notional sale, which the State Legislature is incompetent to tax. The court ordered the excess tax collected to be refunded to the petitioner and awarded costs of the petition to the petitioner.

Judgment:

Petition allowed.