1992 (9) TMI 322 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transaction in question was a loan or a sale.
2. Whether the value of goods supplied should be included in the taxable turnover under the Kerala General Sales Tax Act, 1963.

Issue-wise Detailed Analysis:

1. Whether the transaction in question was a loan or a sale:

The revision-petitioner, a manufacturer and seller of paper cartons and duplex boxes, supplied goods worth Rs. 1,00,000 to M/s. Vimala Packaging Industries on August 16, 1979, with an agreement that the latter would return the goods along with interest at 15% per annum. The goods were returned on August 14, 1980, with interest amounting to Rs. 15,000. The petitioner contended that this was a loan transaction and not a sale, and thus, the amount should not be included in the taxable turnover. The assessing authority, however, included the Rs. 1,00,000 in the taxable turnover, holding that the provision for interest payment was inconsistent with a loan transaction and levied sales tax on the amount. This decision was upheld by the Assistant Commissioner and the Sales Tax Appellate Tribunal.

The Court examined the definition of "sale" under Section 2(xxi) of the Kerala General Sales Tax Act, 1963, which includes every transfer of property in goods for cash, deferred payment, or other valuable consideration, but excludes mortgage, hypothecation, charge, or pledge. The Court referred to previous judgments, including State of Madras v. Gannon Dunkerley & Co. and Commissioner of Income-tax v. Motors & General Stores (P) Ltd., to elucidate that a sale requires an agreement to transfer title supported by money consideration, and that other valuable consideration must be interpreted to mean negotiable instruments like cheques or bills of exchange.

The Court distinguished the present case from other cases cited by the petitioner's counsel, such as Sri Rani Lakshmi Ginning, Spinning and Weaving Mills Private Ltd. v. State of Tamil Nadu and Deputy Commissioner v. Lakshminarayana Textiles (P.) Ltd., where the transactions were held not to be sales due to specific circumstances like the impossibility of a valid sale or the nature of the agreement being forfeit of deposit rather than a sale.

2. Whether the value of goods supplied should be included in the taxable turnover under the Kerala General Sales Tax Act, 1963:

The Court considered whether the transaction in question constituted a sale, making the value of goods taxable. The Court noted that both the petitioner and M/s. Vimala Packaging Industries were engaged in the business of manufacturing and selling paper cartons and duplex boxes, and the purchase account showed that goods worth Rs. 1,00,000 were returned along with Rs. 15,000 as interest. The interest was credited to the paper purchase account, but there was no decrease in the physical stock of goods in M/s. Vimala Packaging Industries' books.

The Court highlighted two crucial factors: the absence of a stock register to show the receipt and issue of goods, and the provision for payment of interest. The lack of a stock register and the stipulation for interest payment suggested that the transaction was a sale with deferred payment rather than a loan. The Court emphasized that business practices require maintaining relevant records, and failure to do so can invite adverse inferences.

The Court concluded that the transaction was a sale and not a loan, as the provision for interest payment indicated deferred payment rather than damages for the use of goods. The Tribunal's finding that the loan was a "make-believe arrangement" was upheld, and the transaction was rightfully treated as a sale and included in the taxable turnover.

Conclusion:

The revision petition was dismissed, and the transaction was deemed a sale, making the value of goods supplied taxable under the Kerala General Sales Tax Act, 1963. The decision emphasized the importance of maintaining proper business records and the interpretation of "sale" within the context of the Act.