2009 (10) TMI 839 - HC - VAT and Sales Tax

Summary

Issues involved: Whether acceptance of old gold ornaments as deposit and later return of the same in new ornament form can be treated as purchase of old gold ornaments and sale of new ornaments, respectively, attracting liability to tax on both purchase and sale.

Purchase of old gold ornaments: The Tribunal found that old gold ornaments taken as deposit are melted and converted into new gold ornaments by the petitioner, which are then sold as stock-in-trade. The petitioner is liable to pay interest or profit share for the gold deposit. The court referred to a previous decision where it was held that acceptance of gold deposit amounts to purchase for the purpose of liability for purchase tax. The court determined that the acceptance of deposit amounts to purchase of the old jewelry by the petitioner, as the petitioner gets absolute right over the gold jewelry deposited. The value of the old gold ornaments at the time of taking the gold under the deposit scheme is considered as the purchase price for payment of purchase tax.

Sale of new gold ornaments: When the deposit is returned in the form of new gold ornaments from the stock-in-trade, it is considered a sale. The new ornaments returned are not the old ornaments deposited or new ornaments made therefrom, but the equivalent quantity from the stock-in-trade. Even though the accounting pattern is not explicitly stated, it is clear that when the deposit is returned, depositors' account gets debited, and since the return of gold is from new ornaments held as stock-in-trade, the transaction is deemed a sale on which tax is payable by the petitioner.

Conclusion: The court did not find any merit in the revision, and the sales tax revision was dismissed accordingly.