2010 (8) TMI 880 - HC - VAT and Sales Tax

Whether there was no actual sale ? Held that - The Tribunal on proper consideration of the entire material rightly held that, there is no sale, setting aside the orders passed by the authorities who appeared to have been carried away by the contents of the documents and the circumstances under which, the documents came into existence. Therefore, we do not see any justification to interfere with the said finding recorded by the Tribunal. In so far as the tax payable on the works contract is concerned, the liability to pay concession tax arises only after tax is liable to be paid under section 5B. No tax is liable to be paid under section 5B of the works contract, when there is no sale of goods. Therefore, the contention of the Revenue is that even though there is no sale of goods, when the assessee opt for concession of tax, the tax payable even on the labour works contract is unsustainable in law. The liability to pay tax is as clear from the words of section 76. Therefore, the Tribunal was justified in granting exemption in this regard also.

Summary

Issues Involved:
1. Whether the sale-cum-lease back transactions constituted actual sales liable to sales tax.
2. Whether the assessee was liable to pay tax on the works contract.

Issue-wise Detailed Analysis:

1. Sale-cum-Lease Back Transactions:
The primary issue was whether the sale-cum-lease back transactions of oakwood barrels and vats constituted actual sales liable to sales tax under the Karnataka Sales Tax Act, 1957. The assessee contended that these transactions were merely financial arrangements to raise funds and did not involve the actual transfer of property in goods. The assessing authority, however, based on the invoices, assessed the transactions as sales and levied taxes accordingly.

The Tribunal, upon reviewing the material on record, concluded that there was no sale of goods but rather a financial arrangement to raise funds. The Tribunal relied on the judgment of the apex court in Sundaram Finance Limited v. State of Kerala, which established that the true nature of a transaction must be determined from the terms of the agreement and surrounding circumstances. The apex court held that the court has the power to go behind the documents to determine the real nature of the transaction, even if it appears as a sale on paper.

In this case, the Tribunal found that the transactions were financial arrangements, as the goods were not actually transferred, and the consideration did not represent the actual value of the property. The Tribunal noted that the goods remained with the assessee and were essential for their business operations, indicating that the transactions were not genuine sales but merely a device to raise funds. The Tribunal's decision was upheld, affirming that there was no sale liable to sales tax.

2. Tax on Works Contract:
The second issue was whether the assessee was liable to pay tax on the works contract for laying water pipes for the Bangalore Water Supply and Sewerage Board. The assessee argued that the consideration received was only for job-work and did not involve the transfer of property in goods.

The Tribunal held that the liability to pay tax on the works contract arises only if there is a sale of goods under section 5B of the Karnataka Sales Tax Act. Since there was no sale of goods in this case, the Tribunal concluded that no tax was payable on the works contract. The Tribunal granted exemption from tax on the labour charges, as the liability to pay tax on the works contract does not arise when there is no sale of goods.

Conclusion:
The High Court upheld the Tribunal's findings on both issues. It affirmed that the sale-cum-lease back transactions were financial arrangements and not actual sales, thus not liable to sales tax. Additionally, it confirmed that no tax was payable on the works contract as there was no transfer of property in goods. The appeals were dismissed, and the Tribunal's order was upheld.