2006 (5) TMI 182 - SC - VAT and Sales Tax

Whether the adjustment of price of molasses from the amount of licence fee would amount to sale within the meaning of the Uttar Pradesh Trade Tax Act, 1948? Held that - Appeal dismissed. For construction of the words sale of goods , now the court is not necessarily required to fall upon the definition of sale of goods, as contained in the Sale of Goods Act, 1930. It has to be governed by its enlarged definition under clause (29A) to article 366 of the Constitution of India. Once an essential component of sale takes place, sales tax would, indisputably, be payable. By reason of such an arrangement by the parties, the State is not creating a new taxable event nor imposing a new tax which was unknown in law. In fact, the transaction entered into by the parties even does not provide for any camouflage to evade tax. They are clear and unambiguous. Therefore, are of the opinion that the High Court cannot be said to have committed any error in passing the impugned judgment. The contentions of the appellant that having regard to the transaction entered into by and between the parties and no sale having taken place, they are not liable to pay any tax, will not be correct. Non- filing of the appeal against the said order dated July 30, 1991, would not take away the effect of order of assessment passed as against the appellant by the assessing authority.

Issues Involved:
1. Whether the adjustment of the price of molasses from the amount of license fee constitutes a sale under the Uttar Pradesh Trade Tax Act, 1948.
2. The applicability of the definition of "sale" under the U.P. Trade Tax Act, 1948.
3. Whether the transaction between the parties amounts to a barter or exchange.
4. The implications of the Forty-sixth Constitution Amendment Act on the definition of "sale".
5. The relevance of the performance guarantee deed in determining the nature of the transaction.
6. The impact of the non-filing of an appeal against the assessment order dated July 30, 1991.

Issue-wise Detailed Analysis:

1. Whether the adjustment of the price of molasses from the amount of license fee constitutes a sale under the Uttar Pradesh Trade Tax Act, 1948:
The main question was whether the adjustment of the price of molasses from the license fee amounted to a sale under the U.P. Trade Tax Act, 1948. The court held that the transaction involved a transfer of property in goods and thus constituted a sale. The adjustment of the price of molasses was considered "other valuable consideration," fulfilling the definition of sale under the Act. The court emphasized that the transaction was not a barter or exchange but involved monetary consideration.

2. The applicability of the definition of "sale" under the U.P. Trade Tax Act, 1948:
The court analyzed the definition of "sale" under Section 2(h) of the U.P. Trade Tax Act, 1948, which includes any transfer of property in goods for cash, deferred payment, or other valuable consideration. The court found that the transaction met this definition, as the molasses were transferred for valuable consideration, even though it was adjusted against the license fee.

3. Whether the transaction between the parties amounts to a barter or exchange:
The court concluded that the transaction was not a barter or exchange. A barter involves the exchange of goods without monetary consideration, whereas the transaction in question involved the adjustment of the price of molasses against the license fee, which constituted monetary consideration. The court clarified that a license fee cannot be a subject-matter of barter or exchange.

4. The implications of the Forty-sixth Constitution Amendment Act on the definition of "sale":
The court discussed the impact of the Forty-sixth Constitution Amendment Act, which expanded the definition of "sale" to include the transfer of the right to use goods for any purpose for cash, deferred payment, or other valuable consideration. The court held that the transaction fell within this expanded definition, as it involved the transfer of the right to use the sugar mill and the supply of molasses for valuable consideration.

5. The relevance of the performance guarantee deed in determining the nature of the transaction:
The court examined the performance guarantee deed, which required the appellant to hand over the entire quantity of molasses to the company and prohibited the appellant from selling it to any other person. The court found that this arrangement was a mechanism to ensure the payment of the license fee and did not alter the nature of the transaction as a sale. The deed provided for the adjustment of the price of molasses against the license fee, reinforcing the conclusion that the transaction was a sale.

6. The impact of the non-filing of an appeal against the assessment order dated July 30, 1991:
The court rejected the appellant's argument that the non-filing of an appeal against the assessment order dated July 30, 1991, indicated acceptance of the order by the respondent. The court held that the appellant was liable to pay the tax, and the non-filing of an appeal did not affect the assessment order's validity. The court emphasized that the transaction involved the sale of molasses, making the appellant liable for trade tax.

Conclusion:
The Supreme Court dismissed the appeal, holding that the adjustment of the price of molasses against the license fee constituted a sale under the U.P. Trade Tax Act, 1948. The court found that the transaction involved monetary consideration and fell within the expanded definition of "sale" under the Forty-sixth Constitution Amendment Act. The performance guarantee deed was a mechanism to ensure payment and did not alter the transaction's nature. The court also rejected the argument that the non-filing of an appeal affected the assessment order's validity. Consequently, the appellant was liable to pay the trade tax.

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