1970 (11) TMI 90 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Distribution of free samples and its implications under the Bombay Sales Tax Act, 1959.
2. Distribution of free samples and its implications under the Central Sales Tax Act, 1956.
3. Imposition of penalties under section 36(1) of the State Act and section 10-A of the Central Act.

Issue-wise Detailed Analysis:

1. Distribution of Free Samples under the Bombay Sales Tax Act, 1959:
The primary issue was whether distributing free samples of manufactured goods violated the certificate issued in form No. 15 under section 12(1)(b) of the Bombay Sales Tax Act, 1959. The applicant, a recognized dealer, had issued certificates in form No. 15 for purchasing goods for manufacturing taxable goods for sale. The Sales Tax Officer determined that distributing free samples did not constitute "use in manufacture for sale," thus breaching the conditions of the certificate. As a result, penalties were imposed under section 36(1) of the State Act.

Upon appeal, it was argued that the distribution of free samples was an integral part of the sales process, especially in the pharmaceutical industry, where samples are necessary to promote sales. The court held that the law does not require the manufactured goods to be actually sold but to be manufactured "for sale." Therefore, distributing free samples does not violate the certificate's conditions as it forms an essential part of the sales process.

2. Distribution of Free Samples under the Central Sales Tax Act, 1956:
Similarly, the issue was whether distributing free samples violated the declaration in form 'C' under section 8(4) of the Central Sales Tax Act, 1956. The applicant had issued 'C' forms for purchasing goods for manufacturing articles for sale. The Sales Tax Officer imposed penalties under section 10-A of the Central Act, arguing that distributing free samples was not a use "for sale."

The court noted that the provisions of the Central Act are in pari materia with the State Act. The court held that the distribution of free samples is an essential part of the sales process, especially in competitive industries like pharmaceuticals. Therefore, distributing free samples does not breach the declaration in form 'C' as the goods were still manufactured "for sale."

3. Imposition of Penalties:
The penalties were imposed under section 36(1) of the State Act and section 10-A of the Central Act for allegedly breaching the conditions of form No. 15 and form 'C,' respectively. The court analyzed the relevant provisions and concluded that the distribution of free samples is an integral part of the sales process and does not constitute a breach of the certificates or declarations.

The court also highlighted that section 10(d) of the Central Act exempts a dealer from penalties if the goods are not used as per the undertaking for a "reasonable excuse." The court found that distributing free samples to promote sales constitutes a reasonable excuse.

Conclusion:
The court answered the questions in the negative, holding that distributing free samples does not violate the conditions of form No. 15 under the Bombay Sales Tax Act, 1959, or form 'C' under the Central Sales Tax Act, 1956. Consequently, the penalties imposed were not justified.

References Answered in the Negative:
The opponent-Commissioner of Sales Tax was ordered to bear the costs of the applicant-assessee in both references.