1992 (6) TMI 175 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of tax liability on the value of tyres paid in the form of a used one and cash for replacement of defective tyres.
2. Whether the practice of granting deduction for replacement tyres affects tax liability.
3. Applicability of the explanation to section 2(i) of the Orissa Sales Tax Act, 1947 read with rule 4-A of the Orissa Sales Tax Rules, 1947.

Analysis:
1. The case involved a dispute regarding the tax liability on the value of tyres paid in the form of a used one and cash for replacement of defective tyres. The assessing officer raised a demand based on the estimated value of tyres returned and replaced by new ones, arguing that the state lost tax on the amount deducted for defective tyres. The dealer contended that tax should be levied on the amount actually charged from the customer, not on any additional amount for replacement tyres. The Tribunal held that the dealer was not required to pay extra tax beyond what was charged on the price of the replaced tyres, as there was no deduction from the sales tax charged on the initial transaction price. The Tribunal's decision was supported by a similar view taken by the Rajasthan High Court in a previous case.

2. The Revenue argued that the practice of granting deductions for replacement tyres constituted a barter transaction rather than a sale, affecting the tax liability. The dealer maintained that tax had been paid on the original cost of the tyre purchased by the customer, and any concession given for defective tyres did not warrant additional tax liability. The Tribunal found that the exchange of tyres was due to wear and tear or manufacturing defects, not a separate sale transaction. The Tribunal concluded that the dealer should not be required to pay tax on an amount not charged as the sale price during the tyre replacement process.

3. The Revenue contended that the explanation to section 2(i) of the Orissa Sales Tax Act, 1947, read with rule 4-A of the Orissa Sales Tax Rules, 1947, should be applied to determine tax liability in this case. However, the Tribunal found that the questions raised by the Revenue were not referable, as they did not directly arise from the Tribunal's order. Therefore, the Tribunal declined to answer the questions raised by the Revenue, and the reference was disposed of without any additional costs.

In conclusion, the judgment clarified that tax liability should be based on the actual amount charged from the customer during the sale transaction, and any deductions or concessions given for replacement tyres should not incur additional tax liability. The decision highlighted the distinction between a sale transaction and a barter transaction, emphasizing that tax should be levied on the sale price agreed upon with the customer.