1973 (6) TMI 59 - HC - VAT and Sales Tax

Summary

Issues:
- Taxable turnover of gunnies supplied by assessees to Food Corporation of India.
- Whether the turnover of gunnies should be treated as a taxable turnover.
- Interpretation of the contract between assessees and Food Corporation of India regarding the supply of gunny bags.
- Determining if there was an implied contract for the sale of gunny bags by assessees to the corporation.

Analysis:
The dispute in the case revolved around the turnover of Rs. 2,43,651, representing the value of gunnies supplied by the assessees to the Food Corporation of India. The assessing authority initially added this turnover to the taxable turnover of the assessees, which was challenged through appeals. The Tribunal, upon reviewing the agreement between the assessees and the Food Corporation of India, concluded that there was no agreement for the sale of old or new gunnies. Consequently, the Tribunal deleted the addition of Rs. 2,43,651 to the turnover. The State appealed against this decision.

The State contended that there was a sale of old gunnies from the Food Corporation of India to the assessees and a resale by the assessees to the corporation when delivering wheat products. Regarding new gunnies, the State argued that the assessees purchased them for resale and sold them to the corporation along with wheat products. The terms of the contract specified that the assessees were to convert wheat into various products and deliver them packed in gunny bags to the corporation. The assessees were paid a flat rate per ton for these services, and they used both old and new gunny bags for packing the products.

The assessees maintained that there was no express or implied agreement for the sale of gunny bags to the corporation. The agreement focused on converting wheat into products and delivering them in packed condition, without mentioning the supply of gunny bags. The court analyzed the contract terms and determined that there was no contractual obligation to supply gunny bags for a price separate from the wheat products. The passing of property in the gunny bags during the works contract did not imply a sale unless there was a specific agreement for the sale of the goods.

Citing a Supreme Court case, the court emphasized that for a transaction to be considered a taxable sale, there must be an independent term for the sale of goods for a money consideration. Applying this test to the case at hand, the court found that the agreement did not include a separate provision for the sale of gunny bags, indicating that the assessees' actions were part of fulfilling their obligation to provide wheat products in packed condition. Therefore, the Tribunal's decision to delete the turnover of gunnies was upheld, and the tax case was dismissed with costs.