1966 (9) TMI 120 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the giving of bullion by a dealer in exchange for ready-made ornaments manufactured by goldsmiths constitutes a "sale of bullion" under the U.P. Sales Tax Act.
2. Interpretation of the term "sale" under section 2(h) of the U.P. Sales Tax Act in the context of barter or exchange transactions.

Issue-wise Detailed Analysis:

1. Whether the giving of bullion by a dealer in exchange for ready-made ornaments manufactured by goldsmiths constitutes a "sale of bullion" under the U.P. Sales Tax Act:

The primary issue revolves around whether the transaction of giving bullion in exchange for ready-made ornaments is considered a "sale" under the U.P. Sales Tax Act. The assessee, a dealer in bullion and ornaments, disclosed turnovers for ornaments and bullion which were adjusted by the Sales Tax Officer. The assessee argued that the exchange of bullion for ornaments plus manufacturing charges did not amount to a sale and thus should not be taxed.

The court referred to the definition of "sale" under section 2(h) of the Act, which includes any transfer of property for cash, deferred payment, or other valuable consideration. The argument from the department was that bullion given in exchange for ornaments should be treated as a sale because it constitutes "other valuable consideration."

However, the court cited the Supreme Court's decision in the State of Madras v. Gannon Dunkerley & Co., which held that the definition of "sale" must align with the legal meaning under the Sale of Goods Act. The court concluded that the words "other valuable consideration" could not extend to cover barter or exchange transactions where no money is involved. The transaction in question was thus deemed an exchange or barter, not a sale, and therefore not liable to sales tax under the Act.

2. Interpretation of the term "sale" under section 2(h) of the U.P. Sales Tax Act in the context of barter or exchange transactions:

The court examined whether the definition of "sale" under section 2(h) of the U.P. Sales Tax Act is broader than that in the Sale of Goods Act. The department contended that the definition in the U.P. Sales Tax Act, which includes "other valuable consideration," should encompass transactions involving bullion as it is readily convertible into cash.

However, the court emphasized the principle of ejusdem generis, which restricts the interpretation of general terms following specific terms to items of the same kind. Here, "other valuable consideration" should be interpreted in line with "cash" and "deferred payment," implying negotiable instruments like cheques or promissory notes, but not barter transactions.

The court further noted that the concept of sale, as distinguished from barter, involves a transfer of property for a money price. The exchange of bullion for ornaments, even though it involves valuable consideration, does not constitute a sale as per the legal definition under the Sale of Goods Act. The court reiterated that the legislative intent was to tax sales in their ordinary legal sense, not to extend the definition to include barter transactions.

Conclusion:

The court concluded that the transaction of giving bullion in exchange for ready-made ornaments is not a sale but an exchange or barter. Therefore, it does not fall within the purview of section 2(h) of the U.P. Sales Tax Act. The department's appeal was dismissed, and the assessee's contention was upheld, resulting in the reduction of the turnover of bullion by Rs. 1,40,000. The department was ordered to pay the costs of the reference to the assessee, assessed at Rs. 100.