1982 (11) TMI 152 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of turnover relating to diesel oil supplied to lorries.
2. Treatment of supply of chemical fertilizers to shareholders as "sale."
3. Inclusion of sale of scrap and by-products in the turnover.
4. Inclusion of the value of gunny bags in the turnover.

Detailed Analysis:

1. Inclusion of Turnover Relating to Diesel Oil Supplied to Lorries:
The first issue concerns whether the turnover related to diesel oil supplied by the assessee to lorries hired by it should be included in its total turnover. The assessee engaged lorries on a permanent basis for its purposes, and while there was no contractual obligation to supply diesel, it did so from its private petrol bunk. The Tribunal included this turnover in the assessee's total turnover, reasoning that the supply of diesel, even at cost price, amounted to a "sale." The assessee argued that this situation was akin to a service contract, citing cases like *State of Andhra Pradesh v. Hotel Sri Lakshmi Bhavan* and *Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi*. However, the court found these cases inapplicable, as the supply of diesel was voluntary and constituted a sale. Therefore, the Tribunal's finding on this issue was upheld.

2. Treatment of Supply of Chemical Fertilizers to Shareholders as "Sale":
The second issue is whether the supply of chemical fertilizers by the assessee, a co-operative society, to its shareholders constitutes a "sale." The assessee argued that this supply was in line with the society's objectives to support its members in sugarcane cultivation, and hence should not be treated as a sale. The court referred to *Joint Commercial Tax Officer v. Young Men's Indian Association* and *Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat*, which held that supplies by a society to its members do not constitute sales if the society acts as an agent for its members. The court found that the assessee acted as an agent in procuring and supplying fertilizers, and thus, the supply did not amount to a sale. The Tribunal's decision to include this in the turnover was overturned.

3. Inclusion of Sale of Scrap and By-Products in the Turnover:
The third issue pertains to whether the sale of scrap and by-products like empty barrels, burnt lime, and bagasse should be included in the assessee's turnover. The Tribunal held that these sales were incidental and ancillary to the assessee's main business, showing continuity and regularity, and thus could not be termed as casual. The court found no error in the Tribunal's reasoning, agreeing that these sales were part of the business activities and should be included in the turnover, supported by the decision in *State of Tamil Nadu v. Burmah Shell Oil Company*.

4. Inclusion of the Value of Gunny Bags in the Turnover:
The final issue is whether the value of gunny bags used to transport sugar should be included in the turnover. The assessee argued that the gunny bags were merely a cheap and necessary means of delivery, with no express contract for their sale. The court referred to *Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh* and *State of Madras v. Cement Allocation and Co-ordinating Organisation*, which state that the inclusion of packing materials in the turnover depends on whether there was an implied contract for their sale. The court concluded that there was no implied contract for the sale of gunny bags, and the Tribunal's decision to include their value in the turnover based on the unauthorized collection of sales tax was incorrect. The value of the gunny bags should not be included in the turnover.

Conclusion:
The tax revision cases were partly allowed. The court held that the value of chemical fertilizers supplied to members and the value of gunny bags should not be included in the assessable turnover of the assessee. However, the inclusion of the turnover related to diesel oil supplied to lorries and the sale of scrap and by-products in the turnover was upheld. No order as to costs was made, and the advocate's fee was set at Rs. 200 in each case.