2013 (8) TMI 297 - HC - VAT and Sales Tax

Demand of trade tax on excess amount - LEVY of tax on right to enter the earmarked forest for the purpose of collection of lichen - Held that - Intention of the parties was not to grant a right or privilege to the revisionist, but to make the revisionist work for the Forest Department to collect lichen for and on behalf and for the use of the Forest Department in order to enable the Forest Department to transfer the proprietary right therein to the revisionist upon obtaining appropriate consideration in respect thereof. Though the word royalty was used in the instant case, but, in fact, the same was nothing but consideration for transfer of proprietary right in the movable property of lichen upon payment of consideration fixed by the Forest Department. Knowing that it was a consideration for transfer of proprietary right in the movable property of lichen by the Forest Department to the revisionist, the Forest Department, as duty bound, charged trade tax as it was liable to do under the U.P. Trade Tax Act - Decided in favour of Assessee.

Summary

Issues:
Interpretation of trade tax liability on the collection and sale of lichen by a cooperative society in forest areas.

Analysis:
The judgment involves the interpretation of trade tax liability on the activities of a cooperative society involved in collecting and selling lichen from forest areas under a license granted by the Forest Department. The revisionist cooperative society was permitted to collect lichen upon payment of a security deposit and other charges to the Forest Department. The Forest Department would weigh the lichen collected and hand it over to the revisionist upon payment of royalty, trade tax, and other charges. Initially, the revisionist did not pay trade tax on the sale of lichen, as they claimed it was not a taxable activity. However, the Assessing Authority reopened the case, considering the collection of lichen as a manufacturing/production activity subject to trade tax under the U.P. Trade Tax Act.

The revisionist did not respond to the show-cause notice or appear before the Assessing Officer, leading to the assessment orders being passed against them. Appeals were made, but the Appellate Authority and the Tribunal upheld the assessment, citing a judgment of the Allahabad High Court and the Supreme Court. The courts considered the payment of royalty as a consideration for the privilege to collect lichen, making it liable for trade tax. The revisionist contended that the payment was not for a privilege but for the transfer of proprietary rights in the lichen by the Forest Department.

The High Court analyzed the nature of the transaction and concluded that the payment made by the revisionist was not a royalty for a privilege but a consideration for the transfer of proprietary rights in the lichen collected. The Forest Department intended to sell the collected lichen to the revisionist, who collected it on behalf of the Department. Therefore, the payment was subject to trade tax as it was a consideration for the transfer of proprietary rights. The judgment set aside the decisions of the lower authorities and directed the assessment to be based on the pronouncement made by the High Court.

In summary, the judgment clarified that the payment made by the revisionist cooperative society was not a royalty for a privilege but a consideration for the transfer of proprietary rights in the collected lichen. This made the transaction subject to trade tax under the U.P. Trade Tax Act. The High Court allowed the Revision Applications, overturning the decisions of the lower authorities, and directed the assessment to be conducted based on the interpretation provided in the judgment.