1969 (8) TMI 31 - SC - VAT and Sales Tax

Whether the company sold building material to the contractors during the quarters in question ? Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act ? Whether imposition of penalties for failure to register as a dealer was justified ? Held that - It is common ground that the rate mentioned against cement and structural steel is the price at which the goods were purchased by the company. If the company was charging a fixed percentage on the price paid by it for procuring such goods for storage and other incidental charges, it would be difficult to resist the conclusion that the company was not carrying on the business of selling cement and structural steel. There is, of course, no statement in the schedule that the price charged by the company in excess of the price paid by the company to its contractors for bricks was in respect of storage charges. But neither the Tribunal nor the High Court has referred to this important piece of evidence and we are unable to decide these appeals unless we have an additional statement of facts in the light of the relevant evidence as to whether the excess charged over and above the price which the company paid for procuring cement and steel (expressly called storage charge) and bricks was intended to be profit. To enable us to answer the questions referred, it is necessary that the Tribunal should be called upon to submit a supplementary statement of the case on the questions whether the company charged any profit apart from storage charges for supplying cement and structural steel, and whether the difference between the price charged to the contractors and the price paid by the company to its suppliers for bricks was not in respect of storage and other incidental charges.

Summary

Issues Involved:
1. Whether the company sold building material to the contractors during the quarters in question.
2. Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act.
3. Whether the imposition of penalties for failure to register as a dealer was justified.

Detailed Analysis:

Issue 1: Whether the company sold building material to the contractors during the quarters in question.
The court examined the definition of "sale" under section 2(g) of the Orissa Sales Tax Act, which includes "any transfer of property in goods for cash or deferred payment or other valuation, consideration." The company supplied building materials to contractors at agreed rates, satisfying the four elements constituting a sale: competent parties, mutual assent, transfer of absolute property, and agreed price adjustment. The court concluded that the supply of building material for an agreed price constituted a sale, and no serious argument was presented against this conclusion.

Issue 2: Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act.
The term "dealer" under the Act means any person who executes contracts or carries on the business of selling or supplying goods in Orissa. The court referred to the definition of "business" as an occupation or profession aimed at making a profit. The sales tax authorities and the Tribunal had held that the company was carrying on the business of selling or supplying materials to contractors, a view with which the High Court agreed. The company charged a premium over the purchase price for materials supplied to contractors, suggesting a profit motive. The High Court observed that the company did not maintain separate accounts to prove that these transactions resulted in no profit. The Tribunal's findings were based on the company's activities, which included purchasing and selling materials to contractors, indicating a business operation. However, the court noted that the Tribunal ignored a crucial piece of evidence regarding the terms of the tender and schedule, which indicated that the company charged a fixed percentage above the cost price for storage and other incidental charges. The court required a supplementary statement from the Tribunal to determine whether the excess charges were intended as profit.

Issue 3: Whether the imposition of penalties for failure to register as a dealer was justified.
The court stated that under section 9(1) read with section 25(1)(a) of the Act, penalties may be imposed for failure to register as a dealer. However, the imposition of penalties is a quasi-criminal proceeding and should not be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct. The court emphasized that penalties should not be imposed merely because it is lawful to do so; the authority must exercise discretion judicially, considering all relevant circumstances. The court found that the company's failure to register was based on an honest and genuine belief that it was not a dealer, and therefore, no case for imposing penalties was made out.

Conclusion:
The court concluded that the company did sell building materials to contractors, satisfying the definition of "sale" under the Orissa Sales Tax Act. However, the determination of whether the company was a dealer required further examination of whether the excess charges were intended as profit. The imposition of penalties was not justified as the company's failure to register was based on a bona fide belief. The Tribunal was directed to submit a supplementary statement of the case regarding the nature of the excess charges within three months.