1995 (7) TMI 418 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of Horlicks biscuits under the West Bengal Sales Tax Act, 1954.
2. Interpretation of the agreement between the applicant-company and Royco Biscuit Company.
3. Determination of whether the transactions constituted sales or bailment.

Detailed Analysis:

1. Taxability of Horlicks Biscuits:
The primary issue was whether the sales of Horlicks biscuits made by the applicant-company during the period of four quarters ending April 30, 1988, were taxable under the West Bengal Sales Tax Act, 1954 ("the 1954 Act"). The applicant-company argued that these were second sales within West Bengal and thus not taxable, as the first sales were made by Royco Biscuit Company. The Tribunal held that the sales by the applicant-company were not second sales, as the transactions between the applicant-company and Royco did not constitute sales under the 1954 Act. Therefore, the sales of biscuits by the applicant-company were taxable.

2. Interpretation of the Agreement:
The Tribunal examined the written agreement between the applicant-company and Royco dated January 8, 1988. The applicant-company supplied raw materials to Royco, which then manufactured biscuits exclusively for the applicant-company. The Tribunal noted that despite the terms of the agreement, the relationship between the parties did not amount to a sale of raw materials. The agreement was characterized by strict control and conditions imposed by the applicant-company on Royco, indicating that the raw materials were supplied for manufacturing purposes under the applicant-company's specifications, not for sale.

3. Determination of Sales or Bailment:
The Tribunal analyzed whether the transactions were sales or bailment. The applicant-company contended that the raw materials were sold to Royco, and the biscuits manufactured were then sold back to the applicant-company. However, the Tribunal found that the raw materials were supplied on a bailment basis for the specific purpose of manufacturing biscuits, which were then supplied back to the applicant-company. The Tribunal concluded that there was no transfer of property in the raw materials or the biscuits, and thus, the transactions did not constitute sales under the 1954 Act.

Conclusion:
The Tribunal dismissed the application, upholding the assessment order dated June 19, 1992, and the appellate order dated January 18, 1994. The Tribunal found that the transactions between the applicant-company and Royco did not constitute sales, and therefore, the sales of biscuits by the applicant-company were taxable under the 1954 Act. The Tribunal emphasized that the agreement between the parties indicated a bailment arrangement rather than a sale, leading to the conclusion that the applicant-company's sales were not second sales and were subject to tax. The application was dismissed with no order for costs, and the operation of the judgment was stayed for eight weeks on oral prayer of the applicant's advocate.