2011 (3) TMI 1420 - SC - VAT and Sales Tax

VAT / Sales tax on sale of scrap - whether sales tax is leviable and payable on the articles at four per cent as the plant and machinery was sought to be sold as scrap or whether the respondent is liable to pay sales tax at 12 per cent with five per cent surcharge also - appellants has submitted that what was sold was plant and machinery and not scrap at the agreement stage as is indicated from the acceptance letter and that it is only subsequently and during the post-contract period only, the said plant and machinery was removed as scraps after dismantling them and dividing the articles into several lots and taking away the same by getting 100 gate passes and challans issued Held that - plant and machinery had outlived its utility and had no value except as scrap, respondent has paid sales tax and surcharge at the higher rate of 12 per cent and five per cent while taking the goods out of the factory premises, respondent becomes entitled for refund of overpaid amount, appeal is dismissed

Summary

Issues Involved:
1. Whether the sale of plant and machinery by Neyveli Lignite Corporation (NLC) to the respondent was a sale of scrap or a sale of plant and machinery.
2. The applicable rate of sales tax on the transaction.

Detailed Analysis:

Issue 1: Nature of Sale - Scrap vs. Plant and Machinery
The primary issue was whether the sale by Neyveli Lignite Corporation (NLC) to the respondent was of scrap or plant and machinery. The NLC had sold its condemned plant and machinery through M/s. Metal Scrap and Trading Corporation Ltd. (MSTC) via e-auction. The appellants contended that the sale was of plant and machinery, not scrap, as indicated by the acceptance letter and subsequent dismantling and transport of the items. However, the court scrutinized the agreement between NLC and MSTC, which explicitly referred to the sale of "iron and steel scrap and rejected/condemned/obsolete secondary arisings." The court also noted that the acceptance letter mentioned the sale was on an "as-is-where-is" basis and referred to the total value as scrap. Furthermore, the use of explosives for dismantling the machinery and the subsequent transport of the items as scrap reinforced the conclusion that the sale was indeed of scrap.

Issue 2: Applicable Rate of Sales Tax
The second issue concerned the applicable rate of sales tax on the transaction. Initially, the sales tax authorities indicated that if the plant and machinery were sold as scrap, the applicable tax rate would be 4% without surcharge. However, they later changed their stance, asserting a tax rate of 12% with a 5% surcharge, treating the sale as one of plant and machinery. The respondent contested this, leading to the filing of writ petitions. The Madras High Court, both at the single judge and Division Bench levels, held that the sale was of scrap, thus attracting a tax rate of 4%. The Supreme Court affirmed this finding, emphasizing that the contemporaneous documents and factual position clearly indicated the sale of scrap. The court dismissed the appeal, finding no merit in the appellants' contention.

Conclusion:
The Supreme Court upheld the Madras High Court's decision that the sale by NLC to the respondent was of scrap, not plant and machinery. Consequently, the applicable sales tax rate was 4%. The court dismissed the appeal, directing the refund of the overpaid amount to the respondent along with interest as per law.