1976 (3) TMI 206 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transaction under the scheme constitutes a "sale" as defined under Section 4 of the Sale of Goods Act.
2. Whether the turnover of Rs. 1,36,665.00 is liable to tax under Section 3(1) of the Tamil Nadu General Sales Tax Act, 1959.
3. Whether the penalty of Rs. 6,149 levied under Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959, is justified.

Issue-wise Detailed Analysis:

1. Whether the transaction under the scheme constitutes a "sale" as defined under Section 4 of the Sale of Goods Act:
The court examined the scheme where participants paid Rs. 5 to receive a coupon and subsequently Rs. 15 to receive three more coupons by V.P.L. The participant then sold these three coupons to others, who in turn paid Rs. 16 each to the company. The court noted that the value of the articles received was much higher than Rs. 5, and the payments made by subsequent participants (B, C, and D) were not on behalf of the initial participant (A) but on their own behalf. The court emphasized that under Section 4 of the Sale of Goods Act, a "sale" requires a transfer of property in goods for a money consideration. The court cited the Supreme Court's ruling in State of Madras v. Gannon Dunkerley & Co., which established that a sale must involve an agreement to transfer title to goods for a price. The court concluded that the transaction did not meet these criteria as the consideration was not purely monetary but involved additional actions (canvassing others). Thus, the transaction was not a "sale" under the Sale of Goods Act.

2. Whether the turnover of Rs. 1,36,665.00 is liable to tax under Section 3(1) of the Tamil Nadu General Sales Tax Act, 1959:
The assessing officer had considered the turnover of Rs. 1,36,665.00 as liable to tax, treating the distribution of articles under the scheme as sales. However, since the court determined that the transactions did not constitute "sales" under the Sale of Goods Act, it followed that these transactions could not be taxed under Section 3(1) of the Tamil Nadu General Sales Tax Act. The court referenced the Supreme Court's decision in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, which reiterated that a transaction is a sale only when property in goods is transferred for a money consideration. Given that the scheme did not meet this definition, the turnover was not liable to tax.

3. Whether the penalty of Rs. 6,149 levied under Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959, is justified:
The penalty was levied because the assessee had not filed any return in form A-1. However, since the court found that the transactions were not sales, the basis for the penalty was invalid. The court thus set aside the penalty, aligning with its conclusion that the transactions were not taxable sales.

Conclusion:
The court allowed the tax revision case, setting aside the orders of assessment and the penalty. The court held that the transactions under the scheme did not constitute sales as defined under the Sale of Goods Act and were therefore not liable to tax under the Tamil Nadu General Sales Tax Act. The assessee was entitled to costs, with counsel's fee set at Rs. 250.