1996 (6) TMI 337 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Section 9(2) of the Rajasthan Sales Tax Act, 1954.
2. Determination of whether the transaction in tractor spares worth Rs. 16,45,497 between EGL and ETL was a transfer of ownership of part of EGL's business.
3. Liability to pay tax on the transaction in tractor spares.

Detailed Analysis:

1. Applicability of Section 9(2) of the Rajasthan Sales Tax Act, 1954:
The core issue was whether the transaction in tractor spares worth Rs. 16,45,497 was covered under Section 9(2) of the RST Act. Section 9(2) stipulates that when a dealer liable to pay tax transfers ownership of part of his business, the transferor remains liable to pay tax on the stock of goods transferred unless the transferee holds or obtains a certificate of registration within the prescribed period. The Tribunal emphasized that the transfer of ownership of part of the business is a prerequisite for invoking Section 9(2).

2. Determination of whether the transaction in tractor spares worth Rs. 16,45,497 between EGL and ETL was a transfer of ownership of part of EGL's business:
The Tribunal examined the agreement between EGL and ETL to determine if it constituted a transfer of ownership. The agreement allowed ETL to run, operate, and work the factory, with ETL agreeing to pay EGL a fee and take over the stock of finished goods, work-in-progress, raw materials, stores, tools, and spare parts. However, the Tribunal found that the agreement was a temporary arrangement and did not confer ownership rights to ETL. According to Salmond's jurisprudence on ownership, the essential incidents of ownership, such as the right to possess, use, enjoy, consume, destroy, or alienate the business, and the indeterminate duration of ownership, were retained by EGL. Therefore, EGL retained ownership, and the agreement did not qualify as a transfer of ownership of the business.

3. Liability to pay tax on the transaction in tractor spares:
Given that there was no transfer of ownership, the Tribunal concluded that the provisions of Section 9(2) of the RST Act were not attracted. Consequently, EGL remained liable to pay tax on the Rs. 16,45,497 worth of tractor spares transferred to ETL. The Tribunal upheld the Commercial Taxes Officer's (CTO) original assessment, which treated the transaction as a sale and assessed tax accordingly. The judgments of the Deputy Commissioner (Appeals) and the Board, which had accepted EGL's contention and set aside the tax, were set aside.

Conclusion:
The Tribunal upheld the CTO's order dated November 26, 1990, holding that EGL had not transferred ownership of part of its business to ETL and was liable to pay tax on the Rs. 16,45,497 worth of tractor spares transferred to ETL. The judgments of the DC (Appeals) dated March 27, 1991, and the Board dated November 22, 1994, were set aside to the extent they contradicted this finding.