2006 (11) TMI 601 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of diesel by the respondent to the contractors constitutes a "sale" under the Karnataka Sales Tax Act, 1957.
2. Whether the diesel supplied to contractors was from locally purchased stock or inter-State purchased stock.
3. Whether the assessment and levy of tax by the assessing authority were justified.

Issue-wise Detailed Analysis:

1. Whether the supply of diesel by the respondent to the contractors constitutes a "sale" under the Karnataka Sales Tax Act, 1957:

The court examined the contractual agreement between the respondent and the contractors, noting that the respondent supplied diesel for the contractors' vehicles and machinery used in mining operations. The cost of the diesel was recoverable from the contractors, indicating a transfer of property. The court highlighted the definition of "sale" under the Sales Tax Act, which includes any transfer of property in goods for cash, deferred payment, or other valuable consideration. The court concluded that the supply of diesel by the respondent to the contractors constituted a "sale" as the diesel was supplied for deferred payment, thus falling within the scope of section 2(t) of the Act.

2. Whether the diesel supplied to contractors was from locally purchased stock or inter-State purchased stock:

The respondent contended that the diesel supplied to contractors was from locally purchased stock, which had already suffered tax, and not from inter-State purchases. The court noted that the respondent maintained separate accounts for local and inter-State diesel purchases and supplied the contractors from the locally purchased stock. However, the court found that the respondent did not provide sufficient evidence to establish that the inter-State purchased diesel was used exclusively for its own vehicles. The court emphasized that the respondent failed to demonstrate that the inter-State diesel was not supplied to the contractors.

3. Whether the assessment and levy of tax by the assessing authority were justified:

The court reviewed the assessment and levy of tax by the assessing authority, which had reopened the assessments under section 12A of the Act, suspecting tax evasion. The assessing authority had levied tax on the diesel supplied to the contractors, considering it as a second sale of inter-State purchased diesel. The first appellate authority confirmed this assessment. However, the Tribunal had allowed the respondent's appeal, concluding that the diesel supplied to the contractors was from locally purchased stock. The court found that the Tribunal's decision was based on the assumption that the diesel supplied was from local purchases without sufficient evidence. The court held that the assessing authority's decision to levy tax was justified, as the respondent failed to prove the exclusive use of inter-State diesel for its own purposes.

Conclusion:

The court concluded that the supply of diesel by the respondent to the contractors constituted a "sale" under the Karnataka Sales Tax Act, 1957. The respondent failed to provide adequate evidence to prove that the diesel supplied to contractors was exclusively from locally purchased stock. Consequently, the court set aside the Tribunal's order and confirmed the assessing authority's decision to levy tax on the diesel supplied to the contractors. The appeal by the State was allowed, and the order of the Tribunal dated December 22, 2003, was set aside.