2010 (2) TMI 1073 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the petitioner s case, the Appellate Tribunal was right in dismissing the appeal filed by the peti-tioner and holding that consignment sale was not a sale as defined under section 2(1)(t) under the provisions of the Act? Held that - Answered in the affirmative and Tribunal was right in dismissing the appeal filed by the petitioner by holding that consignment sale was not a sale as defined under section 2(1)(t) of the KST Act, 1957. Revision petitions filed by the assessee are hereby dismissed

Summary

Issues Involved:
1. Whether the Appellate Tribunal was correct in dismissing the appeal and holding that consignment sale was not a sale under section 2(1)(t) of the Karnataka Sales Tax Act, 1957.
2. Whether the Appellate Tribunal was right in holding that the exemption notification did not grant exemption from payment of tax under section 6 of the Act on the purchase turnover of raw bathis used in the manufacture of agarbathi for consignment sale.

Detailed Analysis:

Issue 1: Consignment Sale as a Sale
The Appellate Tribunal dismissed the appeal, holding that consignment sale was not a sale as defined under section 2(1)(t) of the Karnataka Sales Tax Act, 1957. The court upheld this view, emphasizing that consignment sales do not constitute sales within the meaning of the Act. The court noted that the definition of "sale" under section 2(1)(t) involves the transfer of property in goods for cash, deferred payment, or other valuable consideration, which does not include consignment sales. The court referred to the principle of noscitur a sociis, meaning that the word should be known by the company it keeps, to interpret the term "sale" in the context of the exemption notifications. The court concluded that the consignment sales were not meant to be included within the definition of "sale" for the purpose of the exemption notifications.

Issue 2: Exemption Notification Interpretation
The court examined the exemption notification dated March 31, 1993, which exempted tax on the purchase of raw bathis consumed in the manufacture of agarbathi in the State for sale. The court interpreted the notification strictly, as required for exemption clauses, and concluded that the exemption was intended only for sales within the State of Karnataka. The court held that the exemption did not extend to consignment sales outside the State, as these do not generate revenue for the State. The court cited the Supreme Court's decision in Hotel Balaji, which supported the principle that exemption notifications should be interpreted strictly and that the State's policy of not taxing both raw materials and manufactured goods within the State was sound and consistent.

The court also addressed the argument that a subsequent notification dated March 31, 1997, which exempted tax on inter-State sales, should imply that consignment sales were also exempt. The court rejected this argument, stating that the earlier notifications did not extend similar exemptions, and thus the interpretation sought by the petitioner was incorrect.

Conclusion
The court affirmed the Tribunal's decision, holding that consignment sales were not sales under section 2(1)(t) of the Karnataka Sales Tax Act, 1957, and that the exemption notification did not grant exemption for consignment sales. The revision petitions filed by the assessee were dismissed, with no order as to costs.