2010 (7) TMI 936 - HC - VAT and Sales Tax

Whether, in the facts and circumstances of the case, the Tribunal which is the final fact finding authority is legally correct in having concluded that the assessee after having purchased frames have sold them as such without fitting them into spectacles while the assessing authority has given categorical finding that the frames had not been sold as such without fitting them in spectacles? Whether the order of the Tribunal in not having restored the penalty levied under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959 is legally sustainable? Held that - The conduct of the respondent/assessee in having raised two separate bills, one for the frame and other for lens while delivering the spectacles to its customers, cannot be held to be an act of evasion of tax by the respondent/ assessee. It is well known canon of construction in taxation field that avoidance is not evasion. It will also be relevant to state that in a spectacle the lens being detachable, the customer can always use the frame separately by getting a different lens fixed depending upon the need, may be due to any change in the power of the lens. Therefore, treating the frame as a separate article of spectacle cannot be faulted. We therefore, hold that the action of the respondent/assessee in having raised two separate bills, one for the frame and the other for the lens and thereby, there would be collection of tax on sale of lens alone and not on the frame was permissible and cannot be questioned. No merit in these tax case revision and the questions of law are answered against the Revenue.

Summary

Issues:
1. Interpretation of tax liability on the sale of spectacles by a dealer in opticals.
2. Legality of the penalty imposed under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959.

Issue 1: Interpretation of tax liability on the sale of spectacles by a dealer in opticals:
The Revenue challenged the Sales Tax Appellate Tribunal's order regarding the tax liability on the sale of spectacles by an optical dealer. The Tribunal concluded that the frames were sold separately from the spectacles without fitting them into spectacles. The respondent argued that the manufacture of spectacles based on specific prescriptions should be considered a "works contract" under section 3B of the Tamil Nadu General Sales Tax Act. The Tribunal set aside the assessing officer's order, granting exemption to the frames used in the manufacturing process. However, the High Court disagreed with the respondent's contention, stating that the sale of spectacles is not a works contract. The Court noted that the spectacles were predominantly manufactured by the respondent, and the necessary elements of a works contract were absent. The Court analyzed the tax liability on different parts of the spectacles, concluding that the lens, when transformed based on customer prescriptions, attracts tax at the point of first sale in the State. The Court upheld the respondent's practice of issuing separate bills for frames and lenses, ensuring tax collection on the lens alone.

Issue 2: Legality of the penalty imposed under section 12(3)(b) of the Tamil Nadu General Sales Tax Act, 1959:
The second issue raised was the legality of the penalty under section 12(3)(b) of the Act. The Tribunal did not restore the penalty, leading to the question of its legal sustainability. However, the High Court did not delve into this issue specifically in the judgment, focusing primarily on the interpretation of tax liability on the sale of spectacles by the optical dealer. Consequently, the Court's decision did not address the penalty imposed under section 12(3)(b) of the Act, as the judgment primarily dealt with the tax aspects of the case.

In conclusion, the High Court of Madras analyzed the tax liability on the sale of spectacles by an optical dealer, emphasizing the separate treatment of frames and lenses in the sale process. The Court rejected the works contract argument, upheld tax collection on lenses, and dismissed the Revenue's challenge. The judgment did not extensively address the penalty issue under section 12(3)(b) of the Act, focusing primarily on the tax implications of the sale of spectacles.