1999 (8) TMI 942 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Levy of tax on cylinder holding charges.
2. Tax assessment on the cost of lost cylinders.

Detailed Analysis:

1. Levy of Tax on Cylinder Holding Charges:

The appellant, a dealer in gases and oxygen, disputed the levy of tax at 10% on cylinder holding charges collected on the sales of gas and oxygen for the years 1986-87 to 1988-89. The appellant argued that the cylinders were loaned to customers for the use of the gases contained in them, and the charges collected were not for the sale of cylinders but for their temporary custody. The assessing authority, however, treated these charges as taxable under section 3-A of the Tamil Nadu General Sales Tax Act, 1959, at 4%, and the cost of lost cylinders at 10%.

The first appellate authority upheld the tax rate of 10% but remanded the matter to reassess the correct turnover. The Sales Tax Appellate Tribunal agreed with the first appellate authority that the cylinder holding charges should be assessed under section 3(2) of the Act as part of the price of the gas sold, at 10%. The Tribunal justified this by stating that the charges collected were essentially part of the gas price, despite being labeled as "cylinder holding charges."

However, the appellant's counsel argued that the Supreme Court in [1989] 72 STC 118 (Collector of Central Excise, Madras v. Indian Oxygen Limited) had held that cylinder rentals were not subject to excise duty, as there were two distinct supplies: the supply of gases and the incidental supply of cylinders for rent. The Special Tribunal agreed with this view, concluding that the cylinder holding charges were indeed hire charges and should be taxed under section 3-A of the Act, not as part of the gas price under section 3(2).

2. Tax Assessment on the Cost of Lost Cylinders:

The cost of lost cylinders was assessed to tax at 10% for the assessment year 1987-88. The first appellate authority upheld this assessment, citing previous cases where similar costs were deemed taxable. The Sales Tax Appellate Tribunal, however, reduced the tax rate to 5% and remanded the matter to reassess the correct taxable turnover.

The Special Tribunal upheld the decision of the Sales Tax Appellate Tribunal to tax the cost of lost cylinders at 5%, remanding the matter to the assessing authority to determine the correct turnover as per the books.

Conclusion:

The Special Tribunal concluded that the cylinder holding charges should be taxed under section 3-A of the Tamil Nadu General Sales Tax Act, 1959, as hire charges, not as part of the gas price under section 3(2). The cost of lost cylinders should be taxed at 5%, as determined by the Sales Tax Appellate Tribunal. The remand order to reassess the correct turnover for both disputed items was upheld, with instructions to allow deductions as per law under section 3-A of the Act. The revision petitions were dismissed, and the order was to be executed accordingly.