1969 (9) TMI 95 - HC - VAT and Sales Tax

Summary

Issues:
Validity of assessments of sales tax on transactions involving import of art silk, dyes, and chemicals by a registered society and distribution to its members holding actual user's license.

Analysis:
The judgment delivered by the court concerned petitions filed by the National Chamber of Commerce, Madras, challenging the validity of sales tax assessments on transactions involving the import of goods and subsequent distribution to its members. The court noted that the petitioner, a registered dealer, had collected sales tax from its members who received the imported goods. The department based its assessment on the explanation to the definition of "dealer" and "sale" under the Act. The court observed that if the petitioner imported goods and transferred property to its members for consideration, it could be considered a taxable sale. However, upon examining the facts, the court found that the distribution process did not amount to a sale of goods. The court referred to a letter from the Director of Handlooms outlining the distribution scheme for dyes and chemicals, indicating that the petitioner acted as an agent or trustee for its members without having ownership of the imported goods.

The court highlighted the conditions imposed on the petitioner regarding the distribution of goods, emphasizing that the petitioner was not permitted to sell or dispose of the goods except to its members for bona fide consumption. The court concluded that the petitioner was merely facilitating the import and distribution process on behalf of its members and did not have ownership rights over the goods. The court similarly analyzed the import and distribution process of art silk yarn, reiterating that the petitioner acted as an intermediary without possessing property in the goods. The court emphasized that the distribution did not involve a transfer of property, thereby negating the application of sales tax on the transactions.

In its decision, the court clarified that for a transaction to be considered a sale attracting sales tax, there must be a transfer of property. Since the import and distribution process by the petitioner did not entail a transfer of property, it could not be deemed as sales attracting tax liability. The court specifically excluded local purchases made by the petitioner from mills from the scope of the judgment. Consequently, the court allowed the petitions, quashed the assessment orders, and awarded costs to the petitioner.