1968 (9) TMI 108 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the value of gunny bags used for packing sugar can be subjected to sales tax when the turnover of sugar itself is exempt.
2. Whether the petitioner can invoke the writ jurisdiction under Article 226 of the Constitution despite having an alternative remedy.
3. Whether there was a sale of gunny bags, either express or implied, that could attract sales tax.

Issue-wise Detailed Analysis:

1. Taxability of Gunny Bags:
The primary issue is whether the value of gunny bags used for packing sugar can be subjected to sales tax when the turnover of sugar itself is exempt. The petitioner, a limited company engaged in the manufacture and sale of sugar, argued that no extra or separate charge is made for the gunny bags, and sugar is always sold in packed condition without any option for the purchaser to return the gunny bags or supply their own. Previously, the turnover of sugar was exempt from sales tax under a notification issued under section 4(1)(b) of the U.P. Sales Tax Act, provided additional Central excise duty was paid. The Sales Tax Authorities later initiated proceedings under section 21 of the U.P. Sales Tax Act, claiming that the turnover of gunny bags had escaped assessment and levied sales tax on the estimated turnover of gunny bags for the relevant assessment years.

2. Invocation of Writ Jurisdiction:
The petitioner challenged the assessments through writ petitions, arguing that there was no sale of gunny bags and the levy of tax on their estimated turnover was unauthorized and without jurisdiction. The respondents contended that the petitioner had an alternative remedy through appeals, revisions, and references under the U.P. and Central Sales Tax Acts. However, the court noted that the existence of an alternative remedy is not an absolute bar to invoking writ jurisdiction under Article 226 of the Constitution. The court cited the Supreme Court's ruling in Calcutta Discount Co. Ltd. v. Income-tax Officer, Calcutta, and Another, emphasizing that it is the duty of the courts to provide relief in fit cases.

3. Existence of Sale of Gunny Bags:
The core issue was whether there was any sale of gunny bags. The court reiterated that for a sale to occur, there must be an agreement to transfer title to goods, supported by money consideration, resulting in the actual passing of property in the goods. The court referenced several Supreme Court cases, including State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., Government of Andhra Pradesh v. Guntur Tobaccos Ltd., and Commissioner of Taxes, Assam v. Prabhat Marketing Co. Ltd., to highlight that the existence of an implied contract of sale must be inferred from relevant circumstances and material on record.

In this case, the Sales Tax Officer relied on a judgment in the case of Kamla Pati Motilal Sugar Mills, without considering whether there was an implied contract of sale. The court found no material on record to support the inference that the gunny bags were transferred under an implied contract of sale. The cost of gunny bags was insignificant compared to the value of sugar, and there was no indication that the sale price of sugar included the value of gunny bags. Consequently, the court concluded that the essential elements of a sale were missing, and the assessment orders were without any material.

Conclusion:
The court allowed the writ petition, issuing a writ of certiorari to quash the assessment orders dated 31st May 1966, and 21st March 1967, passed by the Sales Tax Officer II, Kanpur, and the Assistant Commissioner (Judicial) Sales Tax, Kanpur, respectively. The court held that the impugned assessment orders were arbitrary and without any material, and thus, the petitioner was entitled to relief under Article 226 of the Constitution. The petition was allowed with costs.