1973 (7) TMI 96 - HC - VAT and Sales Tax

Issues Involved:
1. Taxability of canteen sales.
2. Classification of cotton yarn sales as intra-State or export sales.

Issue-Wise Detailed Analysis:

1. Taxability of Canteen Sales:
The first issue revolves around whether the sales of refreshments in the canteen maintained by the assessee for the benefit of workers during the assessment year 1965-66 are taxable. The assessing authority and the Appellate Assistant Commissioner concluded that these canteen sales are liable to be taxed under the Madras General Sales Tax Act, 1959, as amended by Madras Act 15 of 1964. This amendment expanded the definition of "business" to include all transactions of sale incidental or ancillary to one's trade, commerce, manufacture, adventure, or concern. The Tribunal, however, initially ruled in favor of the assessee, referencing the decision in Thirumagal Mills' case, which stated that canteen sales were not part of the assessee's business of running cotton mills and thus not taxable. However, the Supreme Court's subsequent decision in State of Tamil Nadu v. Burmah Shell Co. Ltd. clarified that post-amendment, transactions incidental and ancillary to the assessee's trade or commerce could be taxed, even without a profit motive. Consequently, the canteen sales covered by the first item were held to be taxable.

2. Classification of Cotton Yarn Sales:
The second issue concerns whether the sales of cotton yarn amounting to Rs. 3,04,000 during the same assessment year were intra-State sales or sales in the course of export. The assessee claimed these sales were in the course of export and thus exempt from tax. The assessing authority and the Appellate Assistant Commissioner deemed these transactions as intra-State sales, making them taxable. However, the Tribunal found that the turnover represented eight transactions of cotton yarn sales to a local buyer, Keshavalal Talakchand, intended for export to Ceylon. The contracts specified f.o.b. terms and required the assessee to place the goods on board, with the bill of lading showing the assessee as the consignor and the buyer or his nominee in Ceylon as the consignee. The goods were also released under AR-4 forms without payment of Central excise duty and earmarked for export, preventing their sale in the local market. The Tribunal thus concluded that these were sales in the course of export.

The revenue argued that these transactions should be considered intra-State sales, citing the case of Erattamuthu Nadar v. Joint Commercial Tax Officer, where similar transactions were deemed intra-State sales. However, the court noted significant factual differences between the two cases. In Erattamuthu Nadar, the local dealer exported goods on behalf of the federation, which had exclusive export rights and had already received payment before the goods were shipped. Conversely, in this case, the contract between the assessee and the local buyer included explicit terms for export, with payment contingent upon delivery of the bill of lading. The property in the goods passed only upon delivery of the documents, long after the goods entered the export stream. This integral connection between the sale and export justified treating the transactions as sales in the course of export.

The court referenced several Supreme Court decisions, including Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer and Coffee Board v. Joint Commercial Tax Officer, which established that a sale in the course of export requires a direct and inextricable link between the sale and the export. The court concluded that the assessee's transactions met these criteria, as the export was the result of the sale and could not be dissociated without breaching the contract.

Conclusion:
The judgment resulted in a partial allowance of the tax case. The canteen sales were deemed taxable, while the cotton yarn sales were classified as sales in the course of export and thus exempt from tax. The court did not award costs and noted that the assessee could claim exemption for canteen sales based on G.O. No. 2238 Revenue dated 1st September 1964.

Petition partly allowed.

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