1979 (4) TMI 140 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Maintainability of writ applications under Article 226(3) of the Constitution.
2. Definition and interpretation of "sale" and "sale price" under the Central and State Sales Tax Acts.
3. Treatment of escalation claims in sales contracts.
4. Validity of assessment based on balance sheet and trading account entries.
5. Timing of tax liability accrual for escalated claims.
6. Acceptance of declaration forms for concessional tax rates.

Issue-wise Detailed Analysis:

1. Maintainability of Writ Applications under Article 226(3) of the Constitution:

The preliminary objection raised was that statutory appeals are provided against the assessments, and since the petitioner has not availed of these alternate remedies, the writ applications are not maintainable under Article 226(3) of the Constitution. The petitioner argued that the impugned demands infringed rights guaranteed under Article 19(1)(f) and (g) as well as Article 31 of the Constitution. The court agreed with the petitioner, stating that the bar on account of alternate remedy is not applicable in this case, thereby overruling the preliminary objection.

2. Definition and Interpretation of "Sale" and "Sale Price" under the Central and State Sales Tax Acts:

Section 2(g) of the Central Sales Tax Act defines "sale" as "any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration." The definition in the State Act is similar. "Sale price" is defined as "the amount payable to a dealer as consideration for the sale of any goods." The court referred to the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., emphasizing that for a transaction to constitute a sale, there must be an agreement for transferring title to goods, supported by money consideration, and the property must actually pass in the goods.

3. Treatment of Escalation Claims in Sales Contracts:

The court examined the escalation clause in the contracts, which allowed for price adjustments based on variations in costs. It was determined that the escalation claim does not become "sale price" until accepted by the buyer or adjudicated by an arbitrator. The court agreed with the petitioner that until acceptance or arbitration, the escalated demand is merely a claim and not payable. Therefore, the escalated amount was not "sale price" before 31st March 1975, and no tax was exigible under either the State or Central Act.

4. Validity of Assessment Based on Balance Sheet and Trading Account Entries:

The Sales Tax Officer had relied on the balance sheet and trading account, which included the escalated demand as part of the turnover. The court held that the conduct of the assessee could not convert the escalated demand into sale price. The court cited the Supreme Court decisions in Commissioner of Income-tax, West Bengal-I v. India Discount Co. Ltd. and Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax (Central), Calcutta, which supported the view that mere inclusion in the balance sheet does not alter the legal character of the amount.

5. Timing of Tax Liability Accrual for Escalated Claims:

The court determined that tax liability for escalated claims accrues when the buyer accepts the claim or when the arbitrator admits it. Upon either eventuality, the petitioner can draw up a bill, and the entire claim becomes sale price. If the assessment has not been made, the assessee can file a revised return within the stipulated period. Otherwise, the turnover should be assessed in the year when the bill is raised.

6. Acceptance of Declaration Forms for Concessional Tax Rates:

The court found merit in the petitioner's argument that the Sales Tax Officer was unjustified in refusing to accept declaration forms for the turnover of Rs. 13 lakhs, which was part of the escalated claim. The declarations were issued in the subsequent year, but the turnover related to the year 1974-75. The court held that it would not be possible for the buyer to issue a declaration before accepting the escalated claim.

Conclusion:

The court concluded that the present demands should be vacated, and the Sales Tax Officer should reframe the assessments, giving the petitioner full opportunity to represent its case. The assessments should be made in accordance with the law and guidelines provided regarding when the escalated claim becomes sale price and the acceptance of declaration forms. Both writ applications were allowed, with no order for costs.