1978 (3) TMI 198 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of freight charges in the turnover.
2. Taxability of scrap sales.
3. Tax liability on the purchase of raw hides and skins.

Issue-wise Detailed Analysis:

1. Inclusion of Freight Charges in the Turnover:
The primary contention was whether the Tribunal erred in including freight charges in the turnover of the assessee. The petitioner argued that freight should be excluded based on Rule 6(c)(i) of the Tamil Nadu General Sales Tax Rules, 1959, which states that freight charges, when specified and charged separately, should be excluded from the total turnover. The Court noted that the rule implies freight forms part of the total turnover but can be excluded if separately specified and charged. However, the Court relied on the Supreme Court's decision in Hyderabad Asbestos Cement Products Ltd. v. State of A.P. [1969] 24 S.T.C. 487, where a similar clause was interpreted to mean that freight does not form part of the price payable if it is to be paid by the buyer and deducted from the invoice. The Court distinguished this case from Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 S.T.C. 827, where freight was included in the price. Consequently, the Court held that freight charges should not be included in the turnover.

2. Taxability of Scrap Sales:
The second issue concerned the taxability of sales of various scrap items by the assessee. The petitioner argued that the volume, frequency, continuity, and regularity of transactions must be considered to determine if the sales constituted a business activity. The Court referred to State of Tamil Nadu v. Burmah Shell Co. Ltd. [1973] 31 S.T.C. 426, where the Supreme Court held that sales of scrap items connected with the business are taxable. The Court found that the sale of drums, containers, gunny bags, iron scraps, brass scraps, car spare parts, and other sundry items were connected with the assessee's business and thus formed part of the taxable turnover. The Court rejected the petitioner's reliance on Board of Revenue v. Ansari [1976] 38 S.T.C. 577, as the facts differed significantly.

3. Tax Liability on the Purchase of Raw Hides and Skins:
The final issue was the tax liability on the purchase of raw hides and skins, which were later tanned and sold in inter-State transactions. The petitioner argued that the tax on raw hides and skins should shift to the sale of tanned hides and skins, inspired by Sadak Thamby & Co. v. Appellate Assistant Commissioner of Commercial Taxes. However, the Court clarified that this decision applied only when both items 7(a) and 7(b) of the Second Schedule were attracted, involving local purchases and sales. The Court found Gordon Woodroffe & Co. (Madras) P. Ltd. v. State of Tamil Nadu [1977] 40 S.T.C. 130 more relevant, which held that tanned hides and skins sold inter-State are not taxable under item 7(b). The Court concluded that the tax liability on the last purchase of raw hides and skins remains unaffected by subsequent tanning and inter-State sales.

Conclusion:
The Court ruled in favor of the assessee on the issue of freight charges, excluding them from the turnover. However, it ruled against the assessee on the taxability of scrap sales and the tax liability on the purchase of raw hides and skins. Each party was directed to bear its respective costs.