REJECTION & RETURN OF GOODS - DISTINCTION

[Mr. BALRAM BHALLA]

Every Sales Tax Act or VAT Act provides for deduction from the taxable turnover, the value representing the return of goods. To determine the taxable turnover of a dealer, certain deductions and allowances are provided and then taxable turnover is determined.  Clause (i) of sub-section (1) of S.6 of HVAT Act provides for such return of goods and Rule 22 prescribes the conditions attached to it.

Under Haryana VAT Act, 2003, a period of 180 days is provided for claiming the return of goods from the gross turnover for the dealers not registered but no period has been specified for registered dealer. Other State Act also prescribe similar period for return of goods for determination of taxable turnove

 Section 8A of the CST Act provides for determination of turnover under the CST Act and sub-clause (ii) of clause (b) of sub-section (1) of section 8A provides six months time for claiming return of goods.

A dealer is required to furnish requisite proof in respect of goods return and credit or debit note as the case may in respect of such claim.

Normally, at Assessing Authority level as soon as it is discovered that the goods have been returned after the above statutory period, the disallowance is sought in respect of such goods. But the Calcutta High Court in the case of Metal Alloy Company Pvt Ltd. vs. Commercial Tax Officer - 39-STC-404 (Cal.) happen to discuss and decide about the terms rejection and return of goods.

In this case, the petitioner had agreed to supply certain goods to the State Governments of MP and Rajasthan. There were quality stipulations in respect of the goods and unless the goods were in accordance with the specifications, the goods were liable to be rejected and returned to the supplier. The goods were found to be defective and were rejected and returned to the petitioner company. The assessing authority as well as appellant authority did not allow the value of goods returned from the taxable turnover of the petitioner and created additional demand by way of tax and penalty.

The petitioner company challenged the said order before the High Court. The High Court after discussing the relevant provisions of s. 2 (g)  and 2 (j) of the CST Act, 1956 in respect of " sale " and "turnover" made a distinction between the goods "returned" and "rejected".

It was held that "the return of goods and rejection of the same admittedly stand on different footing. Section 8A(1)(b) has application when the goods are returned by the purchaser. Return of goods is a bilateral transaction brought about by the consent of the seller and the purchaser, which consent may have been effected either prior to the delivery of the goods or subsequent to such delivery. Rejection of the goods on the other hand is an unilateral transaction governed by the provisions of the Contract Act or the Sale of Goods Act, open only to the purchaser. The time-limit of section 8A(1)(b) thus has no application in case of rejection of goods because the very act of rejection gave a go-by to the transactions which were in furtherance of a supposed sale".

The court held that in the present case, since the goods were not in accordance with the stipulated specifications, there was no completed sale of the property as aforesaid and as such the rejected goods had not passed to the purchaser. In view of the fact that no property in the said goods was transferred or passed to the purchaser, there was no sale of goods within the meaning of the said Central Act or the Sale of Goods Act.

This is the only judgement making distinction between the goods returned consequent upon rejection and goods returned with mutual consent of the selling and purchasing dealer on account of various commercial considerations. There is no contrary judgement and the dealers should take benefit of this judgement in the event of rejections returned even after the close of the year and after the stipulated period - but before the assessment is completed.