2017 (5) TMI 1548 - HC - VAT and Sales Tax

Taxability of works contract of Bleaching and dying - sales tax levied or not - Transfer of property in goods - Held that - The Division Bench in the case of The State of Tamil Nadu rep. By the Deputy Commissioner Versus S. SM Processing Mills 2013 (10) TMI 486 - MADRAS HIGH COURT held the fact that the chemicals used for bleaching is washed away in the process, by itself, would not be a justifiable ground to accept the case of the assessee that there was no transfer of property of any goods. The very fact of the yarn being bleached by a chemical process by applying the chemical will clearly point out that there is transfer of property of the chemicals, hence, bleaching contract attracts sales tax as in the case of dyeing contract, when the chemicals are purchased from outside the State. Penalty - Held that - penalty set aside on the ground that there was no suppression of sale in the turnover. Revision allowed.

Summary

Issues:
1. Challenge to the order of the Sales Tax Appellate Tribunal by the revenue.
2. Interpretation of the law regarding sales tax on bleaching and dyeing contracts.

Analysis:
1. The revision petition was filed by the revenue challenging the order of the Sales Tax Appellate Tribunal in various cases, specifically related to M/s. Vanavil Colours, Karur. The key contentions raised by the revenue included the alleged perversity of the Tribunal's order and the failure to examine Cross Appeals and Enhancement Petitions filed by the State. The Tribunal's acceptance of the respondent's version regarding pollution caused by dyes and chemicals was also disputed.

2. The Tribunal's failure to distinguish between dyes and chemicals and consumables like fuel or welding electrodes, as well as its alleged disregard for relevant precedents and scientific evidence, were highlighted as grounds for challenge. The revenue contended that the Tribunal did not adequately consider the permanent deposition of dyes and chemicals on yarn or cloth, leading to a change in color and shade. The petitioner argued that the Tribunal should have applied the statutory exemption of 50% in dye contracts as per specific provisions of the TNGST Act 1959.

3. The High Court referred to a previous decision involving S.S.M. Processing Mills, Komarapalayam, where it was held that the mere washing away of chemicals used for bleaching does not negate the transfer of property in the context of sales tax liability. The Court emphasized that the process of bleaching by applying chemicals signifies a transfer of property, making bleaching contracts subject to sales tax akin to dyeing contracts involving chemicals purchased from outside the State.

4. In light of the precedents and legal interpretations, the High Court allowed the Tax Case Revision filed by the revenue while canceling the penalty levied on the grounds of no suppression of sale in the turnover. The decision was aligned with previous rulings and principles established in similar cases, ensuring consistency in the application of sales tax laws. The judgment upheld the legal position regarding the taxation of bleaching and dyeing contracts, providing clarity on the matter for future reference.