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TMI Blog1982 (1) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ry charges at destination, charges for iron strapping and lafa charges shown in the yellow bills were part of sale price under the Gujarat Sales Tax Act, 1969? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that packing charges charged in the white bills were part of the turnover of sale price under the Central Sales Tax Act, 1956? (5) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that charges for packing, handling, iron strapping, binding and lafa charges charged in the yellow bills form a part of sale price under the Central Sales Tax Act, 1956? (6) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the breach of declarations in form 19 was properly worked out by applying the proportion of total sales to consignment sales to the total purchases against form 19 and treating the breach of such declarations to the extent of proportion of consignment sales? (7) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that there was a breach of declarations in form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax or had not paid over to the Government on the ground that these charges were not part and parcel of the sale price. In the assessment period from 1st April, 1972, to 31st March, 1973, the assessee recovered an aggregate amount of Rs. 31,51,497 and Rs. 7,87,324 as the so-called after sale service charges under white bills and yellow bills respectively. It further appears that the assessee-company had purchased certain materials without payment of tax on giving declarations in form 19 under the Gujarat Act that the materials were required for the use in manufacture of taxable goods for sale in the sense that the sales were to be effected locally or in the course of inter-State trade and commerce. A part of the goods so manufactured was, however, sent on consignment basis by the assesseecompany to its branches outside the State of Gujarat and the amounts of such purchases effected on declarations in form 19 used in the manufacture of the goods consigned outside the State admittedly amounted to Rs. 95,925. The assessee-company had also purchased timber on the strength of similar declarations in form 19 for the purposes of preparing wooden boxes or crates which were used for packing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sales Tax as well on the two specimen bills, white as well as yellow, drawn by the assessee-company on Jaya Frame Works of Davangare and Associated Glass Corporation, Ahmedabad. It is not necessary to refer to the affidavit in details but the important point to which the managing director deposed to was that glass was sold in loose condition, and at the request and under the authority of the purchasers certain after sale services, as specified in the affidavit, were rendered by the assessee-company for and on behalf of the purchasers in their interest on no-profit basis. It could, therefore, not have been treated as a sale price proper as done by the sales tax authorities. It should be noted that the Tribunal, in order to ascertain the terms and conditions of the contract of sale, which the assessee claims to be ex-godown, called for specimen order forms of the up-country customers of the assessee-company, which could not be produced as the assessee-company expressed its inability because they pertain to a period 1972-73 the records of which were not available. However, the assessee-company had produced a few order forms obtained from the local dealers before the Tribunal. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate, or in the course of inter-State trade or commerce, held that the authorities were justified in determining the breach of declarations in form 19 by apportioning the consignment sales out of the total sales in proportion of the purchases made on the strength of the declarations in form 19 and treating the purchases to that extent as unauthorised. The third contention urged on behalf of the assessee was that the purchase of timber of the value of Rs. 7,470 on the strength of declarations in form 19 was authorised and legal since the assessee could not have put glass in a saleable condition without packing the manufactured product into solid wooden crates so as to ensure safe transit and delivery at the destination, and therefore, the wooden crates should be treated as consumable stores. The Tribunal, however, rejected this contention following its earlier decision in Vasuki Carborundum Works v. State of Gujarat, where the Tribunal had held in Second Appeal No. 361 of 1974 decided on 1st May, 1975, that packing materials could not be treated as consumable stores and consequently the Tribunal held that the levy of purchase tax on the purchases of timber of the value of Rs. 7,470 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges under the Gujarat Act while questions Nos. (4) and (5) pertain to the liability of the assessee to pay tax on the said charges under the Central Sales Tax Act, 1956. Shortly stated, the contention urged on behalf of the assessee was, that the Tribunal was clearly in error of law in drawing an inference on the facts established before it that the contract of sale effected by the assessee-company was delivery ex-destination and not delivery ex-godown as claimed by the assessee-company. In the submission of the learned counsel for the assessee, there were in fact two contracts, one for the sale of goods and another a service contract or a works contract. In so far as the Tribunal inferred that these so-called after sale service charges were part of the sale price, the Tribunal committed an error of law, inasmuch as it acted without any evidence in that behalf and contrary to the evidence adduced by the assessee-company in nature of the affidavit of the managing director, the specimen bills and certain order forms which remained uncontroverted since no other evidence was produced on record. It was further urged on behalf of the assessee-company that the Tribunal committed an er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Tribunal was justified in holding as it did that the so-called after sale service charges were part and parcel of sale price as defined in section 2(29) of the Gujarat Act. Before we deal with the respective contentions of the charges, it would be profitable to advert to the definitions of the terms "sale" and "sale price" in the Gujarat Act. Sections 2(28) and 2(29) of the Gujarat Act respectively define the terms "sale" and "sale price" as under: "(28) 'sale' means a sale of goods made within the State, for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge, and the words 'sell', 'buy' and 'purchase' with all their grammatical variations and cognate expressions, shall be construed accordingly; Explanation.-For the purposes of this clause, sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956; (29) 'sale price' means the amount of valuable consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, a representative of the appellant accompanied the transport vehicle and ensured safe delivery of the goods at the premises of the purchasing dealers........" (emphasis supplied) The Tribunal thereafter emphasised the statement made by the learned Advocate appearing on behalf of the assessee-company before the Tribunal, that the goods were necessarily required to be properly packed having regard to its fragile nature and also required to be accompanied by a representative of the assessee so as to ensure safe transit and delivery at the destination. Secondly, the Tribunal considered the various bills produced before it by the assessee-company to ascertain as to what was the amount of service charges recovered by the assessee-company. After examining the bills the Tribunal has recorded its finding in paragraph 17 as under: "17. We have gone through the copies of various bills produced by the appellant before us and we find that substantial amounts have been recovered by way of special packing charges and also by way of other charges in the nature of handling, loading, unloading, delivery, binding and lafa charges." (emphasis supplied) In order to substantiate its finding, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned that from the affidavit of the managing director as well as statements given by the assessee-company before the lower authorities that in all cases, except a few, the purchasers' representatives did not take delivery of the goods ex-factory, the Tribunal has recorded its finding in this behalf in paragarph 20 of its order as under: "20. Coming to the point of charges recovered through yellow bills, from the affidavit of the managing director as well as statements given by the appellant before the lower authorities, it would be clear that but for exceptionally few cases in respect of local sales and in all cases of inter-State sales, the purchasers' representatives did not take delivery of the goods ex-factory. Though there is a mention that the purchasers wanted to have the expert services of the appellant because it was difficult and costly for them to take delivery and remove the goods at the destination, the purchasers desired to have the goods delivered at their destination. From the conduct of the appellant as a selling dealer as well as the purchasing dealers, it is clear beyond all doubt that an implied agreement was there to deliver the goods at the destination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purposes of effecting the sales, or any other amount received for anything done in respect of the goods at the time of or before delivery. It should be recalled that the Tribunal has found, as a matter of fact, on appreciation of the evidence adduced by the assessee-company, or on admission made on behalf of the assessee that the delivery of the goods by the assessee-company to its various customers was at the destination. Till these findings of fact are there, it would be difficult, in our opinion, to successfully assail the conclusion which the Tribunal has reached on the basis of those findings. The reasons for our opinion are as follows: In the first place, we have to determine as to what was the nature of the contracts. It cannot be gainsaid, and in fact it was not seriously disputed on behalf of the assessee, that the contracts between the assessee-company and its purchasers were for unascertained goods by description. The goods which are not specific are unascertained goods. Section 2(14) of the Sale of Goods Act defines what is "specific goods". The said term means "goods identified and agreed upon at the time of contract". It is nobody's case that the goods in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied assent of the buyers and at what point of time the unconditional appropriation was so effected. In this connection, reference to section 23(2) of the Sale of Goods Act is also relevant. In effect and substance it provides that where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. The Tribunal has found as a matter of fact that in almost all cases with a few exceptions where the sales were to the dealers from within the State or from outside the State not only the transport had been arranged by the assessee-company but even the delivery at the destination of the purchasing dealers had been given by the assessee. The reason advanced by the learned Advocate for the assessee-company appearing before the Tribunal for adopting this course was that the goods being of fragile nature they had to be properly packed and delivered. It cannot, therefore, be said that the deeming fiction provided in section 23(2) would be attracted in the present case so as to construe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplier would send the logs by rail from different stations in the Central Provinces to Ambernath where the Western India Match Company Ltd.'s manager would inspect, measure and accept the same, if in his opinion they were of the description and quality agreed upon. The Supreme Court, therefore, held that the property in logs passed to the buyer in Ambernath and the sales in question did not take place in the Central Provinces and consequently were not sales within the meaning of and therefore liable to pay tax under the C.P. and Berar Sales Tax Act, 1947 (sic). It is an accepted position in the Sale of Goods Act that where in pursuance of a contract of sale the seller is authorised or required to send the goods to a buyer, or deliver the goods to a carrier, whether he is named by the buyer or not, for purposes of transmission to. the buyer, it is prima facie deemed to be a delivery of the goods to the buyer [vide section 39(1) of the Sale of Goods Act]. Sub-section (2) of section 39 casts an obligation on the seller unless otherwise authorised by the buyer, to make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er can take place before he has exercised or waived that right..." The Tribunal has rightly, in our opinion, inferred from the facts which had been found that having regard to the nature of the goods which was fragile, the purchasers were not prepared to take the risk of breakage during transit, and therefore, the purchasers wanted the goods to be delivered at their destination for which they were prepared to pay the charges made by the assessee-company, and having regard to the substance of the transaction and the facts and circumstances which were established, it was clear that the assessee-company undertook an obligation to deliver the goods at the purchasers' destination. The very fact that the purchasers had requested the assessee-company to provide them with services which, inter alia, included inspection and open delivery, makes it clear that till the goods were delivered at the destination to the purchasers after affording them inspection and open delivery thereof for which the assesseecompany was authorised by the buyers to charge them reasonably, it cannot be said, as has been rightly held by the Tribunal, that the property in goods passed to the buyers, and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court consisting of P.D. DESAI and B.K. MEHTA, JJ., in S.L.M. Maneklal Industries Ltd. v. The State of Gujarat (Sales Tax Reference No. 8 of 1978 delivered on 18th December, 1978) is printed below: ] S.L.M. MANEKLAL INDUSTRIES LTD. V. STATE OF GUJARAT The judgment of the Court was delivered by MEHTA, J.-At the instance of the assessee, the Gujarat Sales Tax Tribunal has made this reference and the following question has been referred to us for our opinion under section 69 of the Gujarat Sales Tax Act, 1969: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that timber sizes purchased by the applicant against form 19 were not items of consumable stores, and therefore, the applicant was liable to pay purchase tax under section 16 of the Gujarat Sales Tax Act, 1969, on the purchases of timber sizes made against declarations in form 19?" The reference has been made in the following facts and circumstances: The applicant is a manufacturer of heavy machinery, air-compressor and vacuum pumps. The case of the applicant was that these articles were manufactured as per specifications given by the customers and subject to test of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in J.K. Cotton Spg. Wvg. Mills Co. Ltd. v. Sales Tax Officer [1965] 16 STC 563 (SC) that there is no warrant for limiting the meaning of the expression "in the manufacture of goods " to the process of production of goods only. This Court said while disagreeing with the view of the Tribunal in Vasuki Carborundum Works v. State of Gujarat (Sales Tax Reference No. 13 of 1976 decided on 17th November, 1978) [1979] 43 STC 294, as under: "........The crux of the problem in the present reference is that are the articles in question such that they can be said to be consumable stores required in the manufacture of taxable goods for sale, since admittedly it is neither raw material nor a processing material. The Supreme Court has pointed out in J.K. Cotton Spg. Wvg. Mills Co. Ltd.'s case [1965] 16 STC 563 (SC) that a process or an activity may not be necessary theoretically for production of finished goods, but if it is such an integral part of the ultimate manufacture of goods that in its absence the manufacture may not be commercially expedient, that activity or process must be considered the manufacturing activity itself and the goods intended for use in that process or activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g regard to the nature of articles with which we are concerned in the present case, we must hold that having regard to its nature..." The pertinent question, therefore, before us is: are the crates necessary in the activity which is integrally connected with the manufacturing of machinery, etc., according to the specifications of the customers? It should be noted that the assessee-applicant before us is a manufacturer of air-compressor and vacuum pumps according to the specifications given by the customers and since in the very nature of articles they should have precision bearing, the applicant claims, they should be packed in crates so that when erected on site, they would be able to pass through the test performance so as to satisfy the specifications prescribed by the customer concerned. This is essentially a question of fact, and therefore, unless there is sufficient evidence to justify the conclusion that unless the machinery manufactured by the assessee-applicant herein are packed in crates at the point where they are manufactured so as to carry them to the site without disturbing the precision prescribed therefor by the customer, it would not be possible for us to answer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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