2020 (8) TMI 781 - HC - VAT and Sales Tax

Restoration of assessment order - levy of purchase tax - Gold Jewellery - transfer of property or not - section 7 A of the TNGST Act 1959 - HELD THAT - The writ petition filed by the assessee dealer deserves to be allowed and the order of the learned assessing authority as well as the tribunal uphelding the levy of purchase tax under section 7-A of the Act is liable to be set aside. There is no doubt that except in the case of purchase or sale made by unregistered dealers, in the circumstances, that on such sale, no tax is payable under section 3 or 4 of the Act, the liability of purchase tax is not attracted. Unless there is a basic contract of sale or purchase involved in the matter, mere loan, deposit, hypothecation of goods, cannot amount to sale or purchase, attracting levy of purchase tax under section 7A of the Act. From the Memorandum of Understanding or Agreements between the parties, we do not see even the use of the word 'sale' or 'purchase' in the same. On the contrary, the terms of the agreement clearly and explicitly bear out a deposit or borrowal of the gold jewellery between the parties - Neither any advance is taken by the depositors of gold jewellery, nor any price, as such, is shown to have been paid by the assessee to such depositors or relatives of such gold jewellery. Therefore, the elements of transfer of property and passing on of the consideration for the same are completely absent in the present case. Therefore the said transaction cannot amount to a sale or purchase of gold jewellery of such relatives of the assessee to him. The provisions of Section 7A of the Act, are not at all attracted in the present case. The learned tribunal with respects, seems to have hurried in arriving at a conclusion of purchase in the present case, but, no such case of actual user of goods or no such user of the gold jewellery by the dealer, has even been noted in the present case during the year in question. Petition allowed.

Summary

Issues Involved:
1. Imposition of purchase tax under Section 7A of the Tamil Nadu General Sales Tax (TNGST) Act, 1959.
2. Interpretation of the transaction as a purchase or deposit of gold jewellery.
3. Validity of the assessment order and the appellate tribunal's decision.

Detailed Analysis:

1. Imposition of Purchase Tax under Section 7A of the TNGST Act, 1959:
The primary issue concerns whether the gold jewellery deposited by the relatives of the assessee should be considered a purchase, thereby attracting purchase tax under Section 7A of the TNGST Act. The assessing authority imposed purchase tax on the grounds that the gold jewellery was deposited with the assessee, who had the liberty to melt and use it as deemed fit, and compensated the depositors at 5% of the value of the jewellery. The tribunal upheld this view, considering it a purchase from unregistered dealers.

2. Interpretation of the Transaction as a Purchase or Deposit of Gold Jewellery:
The first appellate authority reversed the assessing officer's decision, holding that the transaction was a deposit or loan of gold jewellery, not a purchase. The Memorandum of Understanding (MoU) between the parties explicitly stated that the jewellery was deposited for use in business, with the borrower free to melt and use it, and the depositor entitled to compensation. The tribunal, however, considered the transaction as a purchase due to the absence of a time limit for returning the jewellery and the liberty to melt and use it.

3. Validity of the Assessment Order and the Appellate Tribunal's Decision:
The High Court examined the provisions of Section 7A of the TNGST Act, which levies purchase tax on goods purchased in circumstances where no tax is payable under Sections 3 or 4. The court emphasized that a basic contract of sale or purchase is necessary to attract purchase tax, and mere loan, deposit, or hypothecation does not constitute a sale or purchase. The MoU did not use the terms 'sale' or 'purchase' and clearly indicated a deposit or borrowal of jewellery. The court found no evidence of transfer of property or consideration, essential elements for a sale or purchase.

Conclusion:
The High Court concluded that the provisions of Section 7A were not applicable as the transaction did not constitute a sale or purchase. The tribunal had erred in its interpretation, and the assessment order imposing purchase tax was set aside. The writ petition was allowed, and the orders of the assessing authority and the tribunal were quashed.