1983 (4) TMI 242 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of raw materials by the assessees to their customers on purchase orders were towards works contract not exigible to tax or whether they are sales exigible to tax.
2. Whether the dismissal of the enhancement petition filed by the State is right in respect of turnover where original invoices had been cancelled and fresh invoices raised for the sale of vehicles.
3. Whether the transactions amounting to Rs. 5,13,968.53 are sales in the course of import and are exempt from taxation.

Issue-wise Detailed Analysis:

Issue 1: Supply of Raw Materials - Works Contract vs. Sales
The primary issue is whether the supply of raw materials by the assessees to ancillary industries for the manufacture of component parts is a works contract or an outright sale. The Tribunal held that these transactions were works contracts and not sales, and thus not exigible to tax. The Tribunal's decision was based on the pattern of transactions, where raw materials were supplied by the assessees, and debit notes were issued, which were later cancelled by credit notes upon the return of finished products. The Tribunal relied on precedents such as *P.A. Raju Chettiar and Brothers v. State of Madras* and *South India Metal Works and Rolling Mills v. State of Madras*, which established that the essence of the transaction, rather than the nomenclature, determines its nature. The Tribunal's conclusion was deemed unassailable, as the transactions were found to be purely for services rendered by the ancillary manufacturers, with no element of sale involved.

Issue 2: Dismissal of Enhancement Petition - Turnover and Invoices
The second issue concerns the dismissal of the State's enhancement petition regarding the turnover where original invoices were cancelled, and fresh invoices were raised. The assessing authority initially disallowed the claim under sales returns for which credit notes had been issued. However, the Appellate Assistant Commissioner found that the original invoices were cancelled, and fresh invoices were raised, including the taxable turnover, and tax was paid under the local Sales Tax Act and the Central Sales Tax Act. The Tribunal upheld this finding, noting that the assessees did not act as agents for the original buyers and that the subsequent sales were genuine transactions. The Tribunal's conclusion was that the assessees had paid the appropriate taxes, and thus the exemption granted by the Appellate Assistant Commissioner was justified.

Issue 3: Transactions in the Course of Import
The third issue revolves around whether transactions amounting to Rs. 5,13,968.53 were sales in the course of import and thus exempt from taxation. The Tribunal held that these transactions were indeed sales in the course of import. The assessees had entered into contracts with Ashok Leyland, U.K., and the goods were imported against actual user's licenses held by the Tamil Nadu State Transport Department and Southern Railway. The Tribunal relied on several precedents, including *Voltas Ltd. v. Commercial Tax Officer* and *S.R.L.G.S. & W. Mills (P.) Ltd. v. State of Madras*, which established that if the import was occasioned by the sale, it would be deemed a sale in the course of import. The Tribunal concluded that the assessees acted as agents of the actual users and that the sales were inextricably linked to the import, thus qualifying for exemption under Section 5(2) of the Central Sales Tax Act.

Conclusion
The High Court upheld the Tribunal's findings on all three issues, ruling against the revenue. The supply of raw materials was deemed a works contract, the dismissal of the enhancement petition was justified, and the transactions in question were sales in the course of import, exempt from taxation. The tax revision case was dismissed, with no order as to costs.

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