1975 (12) TMI 157 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supplies of goods made by the applicants under their debit notes to Navjivan Bobbin Industries constituted a transaction of 'sale' liable to tax.
2. Whether the transactions entered into by the applicants with Navjivan Bobbin Industries were sales in the course of imports and thereby protected under Article 286(1)(b) of the Constitution read with Section 46 of the Bombay Sales Tax Act, 1953.

Detailed Analysis:

Issue 1: Whether the supplies of goods made by the applicants under their debit notes to Navjivan Bobbin Industries constituted a transaction of 'sale' liable to tax.

The applicants were engaged in supplying bobbins to textile mills and were not manufacturers of bobbins. They purchased bobbins from manufacturers, including Navjivan Bobbin Industries. The manufacturers imported wood from abroad, specifically from Nanri Trading Company Limited of Japan, facilitated by George Wills and Sons (India) Private Limited, the agents of the Japanese suppliers.

In May 1958, the manufacturers placed an order with the foreign suppliers' agents for importing wood. The terms included a confirmed irrevocable letter of credit and an import license issued to the manufacturers. The contract was later amended to change the specifications of the wood.

Due to the manufacturers' lack of banking facilities, they requested the applicants to import the goods under their license, leading to the issuance of a letter of authority by the Joint Chief Controller of Imports. The applicants opened a letter of credit and imported the wood, which was subsequently delivered to the manufacturers.

The applicants submitted debit notes to the manufacturers for the expenses incurred. The Sales Tax Officer assessed these transactions as sales by the applicants to the manufacturers. The applicants contended that they acted as agents or financiers without privity of contract between them and the manufacturers.

The Assistant Commissioner of Sales Tax and the Deputy Commissioner of Sales Tax upheld the assessment, stating that the property in the goods passed to the applicants and then to the manufacturers, constituting two sales. The Sales Tax Tribunal also dismissed the applicants' revision application, incorrectly setting out the facts and emphasizing the rate discrepancy in the debit notes.

The High Court found that the sales tax authorities and the Tribunal misunderstood the real transaction and the roles of the parties involved. The applicants were not interested in buying and selling the wood but in ensuring the manufacturers obtained the raw materials to produce bobbins for them. The applicants recovered only the actual costs and expenses, without any profit motive, indicating no sale transaction.

The import license and letter of authority indicated that the goods were imported for the manufacturers' use, not for sale. The import policy and procedure under the Import Control Order, 1955, stated that imports under a letter of authority were for the licensee's benefit, not the agent's. The goods were delivered to the manufacturers, who used them to produce bobbins for the applicants.

The High Court concluded that the applicants acted as agents for the manufacturers, and there was no sale of goods by the applicants to the manufacturers. Therefore, the supplies under the debit notes did not constitute a transaction of 'sale' liable to tax.

Issue 2: Whether the transactions entered into by the applicants with Navjivan Bobbin Industries were sales in the course of imports and thereby protected under Article 286(1)(b) of the Constitution read with Section 46 of the Bombay Sales Tax Act, 1953.

Given the answer to Issue 1, the High Court found it unnecessary to address Issue 2. The transactions were not sales by the applicants to the manufacturers, so the question of whether they were in the course of imports did not arise.

Conclusion:
The High Court answered the first question in the negative, indicating that the supplies made by the applicants were not transactions of 'sale' liable to tax. Consequently, no answer was necessary for the second question. The respondents were ordered to pay the applicants' costs of the reference, fixed at Rs. 250, and the fee of Rs. 100 paid by the applicants was to be refunded.

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