1979 (1) TMI 220 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the compulsory sale of cement by a manufacturer to the State Trading Corporation (STC) under the Cement Control Orders amounts to a sale as defined in section 2(t) of the Karnataka Sales Tax Act, 1957, and is consequently liable to sales tax under section 5(3)(a) of the Act.
2. Whether the excise duty paid by the manufacturer is deductible from the sales turnover under rule 6(4)(j) of the Karnataka Sales Tax Rules, 1957.

Issue-Wise Detailed Analysis:

Issue 1: Compulsory Sale of Cement to STC
The primary question was whether the sale of cement by the manufacturer to the STC, as mandated by the Cement Control Orders, constitutes a "sale" under section 2(t) of the Karnataka Sales Tax Act, 1957, and is consequently liable to sales tax under section 5(3)(a) of the Act.

- Facts: The petitioner, a cement manufacturer, was required to sell cement to the STC at a fixed price under the Cement Control Orders. The assessing officer treated the sale by the petitioner as an agent of the STC to others as the first sale, thereby levying sales tax on these transactions.

- Contentions: The petitioner argued that the sale to the STC should be considered the first sale and thus liable to sales tax, not the subsequent sales as an agent. The department contended that the sale to the STC was not a sale under section 2(t) and that the first taxable sale was the one made by the petitioner as an agent of the STC.

- Supreme Court Precedents: The court referred to several Supreme Court decisions, notably Vishnu Agencies v. Commercial Tax Officer, which held that transactions under statutory compulsion could still constitute sales if there was some element of mutual consent.

- Judgment: The court concluded that the sale of cement by the manufacturer to the STC constituted a "sale" under section 2(t) of the Act. The court noted that despite statutory compulsion, there were areas of mutual consent, such as the place of delivery, mode of payment, and possible rebates or commissions. Therefore, the sale to the STC was the first sale and was exigible to tax under section 5(3)(a) of the Act.

Issue 2: Deduction of Excise Duty
The secondary issue was whether the excise duty paid by the manufacturer was deductible from the sales turnover under rule 6(4)(j) of the Karnataka Sales Tax Rules, 1957.

- Facts: The assessing officer did not allow the deduction of excise duty paid by the manufacturer from the sales turnover, arguing that the taxable sale was the one made by the petitioner as an agent of the STC.

- Contentions: The petitioner contended that as the manufacturer who paid the excise duty, they were entitled to deduct this amount from the sales turnover. The department argued that since the taxable sale was the one made as an agent, the excise duty paid earlier was not deductible.

- Judgment: The court held that since the sale to the STC was the first sale and was taxable, the petitioner, as the manufacturer who paid the excise duty, was entitled to deduct this amount from the sales turnover under rule 6(4)(j) of the Rules.

Conclusion
The court set aside the orders of the assessing officer, the appellate authority, and the Appellate Tribunal, and remanded the matters to the Commercial Tax Officer for fresh assessments in light of the judgment. The court held that the sale of cement by the manufacturer to the STC constituted a "sale" under section 2(t) of the Act and was the first sale exigible to tax. Consequently, the excise duty paid by the manufacturer was deductible from the sales turnover.