1991 (4) TMI 377 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of Section 7-A(1)(b) of the Tamil Nadu General Sales Tax Act, 1959 regarding the liability to pay tax on the turnover of purchased goods disposed of other than by sale in the State.

Detailed Analysis:

The case involved an appeal by an assessee against an order passed by the Joint Commissioner of Commercial Taxes in a suo motu revision of the order of the Appellate Assistant Commissioner, Tiruchirappalli. The controversy centered around the purchases of dried plantain barks for Rs. 46,341 by the dealer from non-assessees, which were used for packing snuff. The assessing authority considered this turnover as liable to purchase tax under section 7-A of the Act. The Appellate Assistant Commissioner set aside the assessment, leading to the Joint Commissioner revising the order and restoring that of the assessing authority, prompting the appeal.

The main issue for consideration was whether the packing material, in this case, the dried plantain barks, was disposed of by the assessee other than by way of sale in the State. Section 7-A(1)(b) of the Act stipulates that if a dealer purchases goods on which no tax is payable under certain sections and disposes of them other than by sale, tax is applicable on the turnover of such purchases. The assessee argued that the packing material was essential for selling snuff, and its value was included in the sale price of the snuff, implying it was sold along with the product. The absence of a separate sale of the packing material was noted, and it was argued that its cost was factored into the snuff's price, thus not falling under "disposed of other than by way of sale."

The Court emphasized that whether the packing material was sold along with the product or separately, or disposed of other than by sale, depended on the transaction's nature and not just the contract between parties. It was crucial to determine if the packing material's cost was included in the sale price of the snuff. In this case, the nature of the transaction, where the packing material was essential for selling the snuff and its price was incorporated into the snuff's price, supported the assessee's argument. The Court concluded that the provisions of section 7-A(1)(b) did not apply to this transaction, and the Joint Commissioner erred in setting aside the Appellate Assistant Commissioner's order.

As a result, the tax appeal was allowed, the order of the Joint Commissioner was set aside, and that of the Appellate Assistant Commissioner was restored, with no costs awarded.