2007 (2) TMI 602 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of mustard oil by M/s. Shree Durga Industries was a sale on a principal-to-principal basis or if the dealer was liable to tax for the first sale after manufacturing.
2. Whether the Tribunal was justified in holding the turnover of plant and machinery to be non-taxable for the assessment year 1985-86.

Issue-wise Detailed Analysis:

1. Principal-to-Principal Sale of Mustard Oil:
The primary issue revolves around the nature of the transaction between M/s. Shree Durga Industries and the dealer. The dealer claimed that the mustard oil was purchased on a principal-to-principal basis under an agreement dated January 9, 1985, and thus, the sale was not liable to tax. The assessing authority, however, determined that M/s. Shree Durga Industries manufactured the oil as per the dealer's directions, making the dealer liable for the first sale after manufacturing. This view was initially upheld in first appeals but later challenged.

The Tribunal examined the agreement, which stipulated that M/s. Shree Durga Industries agreed to sell the mustard oil it manufactured to the dealer on a principal-to-principal basis. The agreement allowed M/s. Shree Durga Industries to sell any excess quantity to other parties, and the oil cake obtained during manufacturing remained the manufacturer's property. The Tribunal concluded that the oilseed and the manufactured oil always remained the property of M/s. Shree Durga Industries until the sale, indicating a principal-to-principal sale. The Tribunal's decision to delete the tax was upheld, confirming that the dealer was not liable for the first sale tax.

2. Non-taxable Turnover of Plant and Machinery for 1985-86:
For the assessment year 1985-86, an additional issue was whether the turnover of plant and machinery was taxable. The dealer had a contract with M/s. Ram Ganga Fertilizer Ltd., which involved supplying equipment and machinery. The dealer argued that the plant and machinery were either purchased within the State of U.P., supplied through inter-State sales, or provided by the contractee for use in manufacturing, and thus, were not liable to tax.

The assessing authority, however, treated the entire contract amount as the sale consideration for plant and machinery manufactured within U.P. and levied tax accordingly. The Tribunal found that the contract was divisible for material supply and labor, with some machinery purchased within U.P., some supplied through subsequent inter-State sales, and some directly through inter-State sales from the head office. These supplies were not liable to tax under the U.P. Trade Tax Act.

Even if the contract was considered a composite works contract, the value of goods involved in the execution of such a contract was not liable to tax for the year under consideration, as works contracts were taxable only from May 1, 1987, onwards. The assessing authority's decision to tax the entire contract amount of Rs. 89 lacs was without basis and erroneous. The Tribunal's decision to hold the turnover of plant and machinery as non-taxable was upheld.

Conclusion:
The High Court dismissed all three revisions, upholding the Tribunal's decisions on both issues. The supply of mustard oil was deemed a principal-to-principal sale, and the turnover of plant and machinery for the assessment year 1985-86 was correctly held as non-taxable.

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