2013 (12) TMI 1334 - HC - VAT and Sales Tax

Imposition of penalty - Demand of tax - Whether the Sales Tax Appellate Tribunal is right in setting aside the assessment order on the ground that dyeing does not involve any sale of goods since levying tax on service charges attributing that dyes and chemicals are transferred during the time of processing is improper - Held that - Since by the operation of law, the transfer of goods involved in works contract would amount to sale taxable under Section 3-B. The assessee therein had purchased the dyes and chemicals from outside the State - there was no suppression of sale in the turnover - Following decision of ASSOCIATED CEMENT COMPANIES LIMITED v. COMMISSIONER OF CUSTOMS 2001 (1) TMI 248 - Supreme court of India and RAINBOW COLOUR LAB AND ANOTHER v. STATE OF MADHYA PRADESH AND OTHER 2000 (2) TMI 2 - SUPREME COURT OF INDIA - Decided partly in favour of Revenue.

Summary

Issues:
1. Whether dyeing involves the sale of goods for tax purposes?

Analysis:
The High Court of Madras dealt with a revision filed by the Revenue against the Sales Tax Appellate Tribunal's order concerning the assessment year 1998-99. The primary issue raised was whether dyeing constitutes a sale of goods for taxation purposes. The Tribunal had set aside the assessment order, arguing that dyeing does not involve the sale of goods, and taxing service charges attributing to the transfer of dyes and chemicals during processing is improper. The Revenue contended that the transfer of goods in works contracts amounts to a taxable sale under Section 3-B, post the amendment to the definition of 'sale' under Section 2(n)(ii). Referring to previous decisions, the Court held that such transfers are taxable, even if the dyes and chemicals were purchased from outside the State. The Court allowed the Tax Case Revision, setting aside the Tribunal's order, but deleted the penalty imposed, noting no suppression of sales turnover.

In conclusion, the High Court of Madras, through the judgment delivered by Justice Chitra Venkataraman, addressed the issue of whether dyeing constitutes a sale of goods for taxation purposes. The Court relied on previous decisions and statutory provisions to establish that the transfer of goods in works contracts, including dyes and chemicals, amounts to a taxable sale under relevant sections of the law. The Court allowed the Revenue's revision, setting aside the Tribunal's order, while also deleting the penalty imposed. This judgment clarifies the tax implications of dyeing processes involving the transfer of goods, providing guidance on the assessment and taxation of such transactions under the applicable legal framework.