1971 (10) TMI 100 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the supply of goods to employees by the assessee company on hire and purchase basis without profit motive is liable to sales tax?
2. Whether the sale of scrap iron and waste material resultant on the main business activity of the assessee is liable to tax under the Punjab General Sales Tax Act?

Analysis:

Issue 1:
The case involved questions regarding the liability of sales tax on the supply of goods to employees by the assessee company on hire and purchase basis without a profit motive. The assessee, engaged in manufacturing cycles, also ran a provisions store supplying goods to employees on a "no-profit-no-loss" basis. The assessing authority included the price of these items in the gross turnover for taxation purposes, which the appellate authorities affirmed. However, the High Court referred to a similar Calcutta High Court decision and a Supreme Court decision, emphasizing that for sales tax liability, a commercial motive in selling goods must be established. As the assessee demonstrated no profit motive and provided goods as an amenity, the court ruled in favor of the assessee, concluding that the provisions were not part of the assessee's business for sales tax purposes.

Issue 2:
The second issue revolved around the tax liability of the sale of scrap iron, a by-product of the manufacturing process of bicycles by the assessee. The court considered previous decisions, including a Supreme Court ruling, which stated that if waste material is a regular by-product of the manufacturing process and sold continuously, it should be included in the taxable turnover. The court distinguished a Madras High Court case involving scrap aluminum, as it lacked a manufacturing process connection. Ultimately, the court held that the sale of scrap iron was incidental to the main business activity of manufacturing bicycles, and as it was regularly sold, it should be taxed. Consequently, the court ruled in favor of the department regarding the tax liability on the sale of scrap iron and waste material.

In conclusion, the High Court's judgment addressed the two key issues raised by the assessee, ruling in favor of the assessee on the first issue related to the supply of goods to employees without a profit motive. However, the court sided with the department on the second issue concerning the tax liability on the sale of scrap iron and waste material.