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TMI Blog1995 (7) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessment order dated June 19, 1992 for the aforesaid period of 4 quarters ending April 30, 1988 under the 1954 Act and the appellate order dated January 18, 1994 passed by the Assistant Commissioner of Commercial Taxes, basically confirming the assessment, but modifying it to some extent. It is alleged that the assessment is based on a wrong interpretation of the provisions of the 1954 Act and Notification No. 106-FT dated January 15, 1955 as amended by Notification No. 1795-FT dated June 1, 1987 issued by the State Government under section 25 of the 1954 Act, declaring biscuits, manufactured, made or processed in a factory as defined in the Factories Act, 1948 as notified commodities for the purpose of subjecting it to taxation under the 1954 Act. 3.. The case of the applicants is that the applicant-company is a registered dealer under the 1954 Act as a manufacturer of various notified commodities including Horlicks malted milk food . It is also a registered dealer under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter mentioned as the 1941 Act ). The company had several changes of names. Originally, it was named Hindustan Milk Food Manufacturers Ltd. Next, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuits by observing that Royco was enjoying tax holiday under rule 3(66a) of Bengal Sales Tax Rules, 1941 (hereinafter mentioned as 1941 Rules) and that the applicant-company made business of the biscuits by avoiding revenue. An appeal was preferred from the assessment order. The assessment was mostly confirmed. The appellate officer, respondent No. 2, based his order on a new ground that supply of raw materials to Royco was not a sale but a bailment and the applicant-company caused the manufacture of biscuits through Royco by supplying the raw materials on bailment and, therefore, the sales of biscuits by the applicant-company were not the second sales (in other words, those were the first sales). According to applicants, respondent No. 2 could not hold so without referring the matter to the Commercial Tax Officer for enquiry (paragraph 19). Since Royco admitted that the supply of biscuits was by way of sale, it alone was liable to pay tax under the 1954 Act. If the first seller is liable to pay tax, as is the case of the applicants, but even if the first seller does not actually pay the tax, the second seller, namely, applicant-company, cannot be held liable for tax under the 1954 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Royco. Therefore, allegedly, the transactions of supplies by the applicant-company to Royco and also the transactions of supplies of biscuits by Royco to the applicant-company did not amount to sales under the 1954 Act. 5.. An affidavit-in-reply was used by the applicants, in which the main contentions in the affidavit-in-opposition were denied and it was reiterated that raw materials were sold to Royco and then Royco sold the biscuits to the applicant-company. Royco did not return Horlicks malted milk food, but sold Horlicks biscuits, which were different commodities. The raw materials were fully consumed in the course of manufacturing the biscuits. 6.. Since the concerned biscuits are undisputedly governed by the 1954 Act, if the sales by the applicant-company are found to be second sales or resales, those will not attract tax. The tax under the 1954 Act is a single-point one. The sales by the applicant-company will be second sales within West Bengal, if the transactions of supply of biscuits by Royco to the applicant-company partake the character of sales within the meaning of the 1954 Act which gave no definition of sale during the relevant period, namely, 1987-88. Defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials to Royco. But Mr. Goswami, learned State Representative, contended that there was no sale of raw materials. It was merely supply of raw materials for getting biscuits manufactured. Ownership in the goods was not transferred to Royco. He also contended that the documents produced by the applicant-company apparently showing the transactions as sales are mere paper transactions. Upon consideration of the various clauses of the agreement there is no doubt at all that it was not an agreement for sale of goods, but an agreement for supply of goods to Royco for causing manufacture of Horlicks biscuits in their factory. Although no definition of sale is given in the Sale of Goods Act, 1930, section 4(3) laid down that where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale . Therefore, transfer of property in the goods to the buyer is the sine qua non of a sale of goods. The first page of the agreement dated January 8, 1988 mentions the applicant-company as purchaser and Royco as seller and also mentions the transactions from the applicant-company to Royco and vice versa as sales. But mere nomenclatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of clause 12(e) which is as follows: However, the seller is entitled to manufacture its own products. 8.. Mr. Bose contended by referring to this sentence that Royco was, thus, free to manufacture other products of its own. This point, however, is entirely irrelevant, because we are concerned here not with any other products of Royco, but only with products which are Horlicks biscuits. As far as these products are concerned, various sub-clauses of clause 12 give clear idea that Royco was acting not as a free manufacturer, but an agent or a works contractor of the applicantcompany, and in any case, the picture is not that of an independent seller. Clause 25 of the said agreement lays down that, in case of disputes, the matter should be referred to arbitration either by the managing director of the applicantcompany himself or by any person nominated by him. As I said earlier, all the clauses of the agreement taken together leave no room for doubt that the agreement was not for transfer of property of the goods, namely, the raw materials from the applicant-company to buyer. Had there been really any intention of transfer of the property in the said goods to Royco, then such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions which were legally permitted, and those were not inconsistent with sale of goods. In spite of certain conditions imposed by the authorities under the Iron and Steel (Control of Production and Distribution) Order, 1941 issued under the Defence of India Act, 1939, there was mutuality in the contracts of sale of iron and steel goods between different customers and the applicant-company, and therefore, it was held in that case, that the transactions were sales. In the present case, there is no question of any such statutory condition or control. The entire agreement dated January 8, 1988 is like a mandate from the applicant-company and no freedom was left to Royco. In the case reported in [1968] 21 STC 138 (Indian Steel Wire Products Ltd. v. State of Madras), it was held by the Supreme Court that there, the property in the goods was transferred to the buyers. Here, in the case before us, as already said, the property in Horlicks malted milk food did not pass and was not transferred to Royco. Therefore, [1968] 21 STC 138 (SC) (Indian Steel Wire Products Ltd. v. State of Madras), does not help the applicant. Next, Mr. Bose referred to [1979] 44 STC 491 (All.) (Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad.) and also Sree Narayan Timbers v. Joint Commissioner II (Commercial Taxes), Madras [1990] 78 STC 195 (Mad.). In these two cases, it was held that when it is established that the impugned sale was a second sale, and the first sale was taxable, irrespective of whether tax was paid by the first seller, the second seller could not be taxed over again. Mr. Bose then referred to [1995] 96 STC 379, the case of Emkay Investments (Pvt.) Ltd. v. C.T.O., Bhowanipore Charge. It was a decision of this Tribunal. There, the question was whether a particular trade mark of a product was the registered trade mark owned by a particular company. This question arose, like in the case of Moti Biscuit Company (R. No. 70 of 1993 decided on July 30, 1993 West Bengal Taxation Tribunal) discussed below in the context of a condition imposed by means of rule 3(66a) of Bengal Sales Tax Rules, 1941, regarding exemption from sales tax. 11.. Reference was made on behalf of the respondents to a decision of this Tribunal in the case of Moti Biscuit (P) Ltd., R.N. No. 70 of 1993, delivered on July 30, 1993. A copy of the judgment was annexed to the first affidavit-in-reply filed by the applicants. They also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Galvo-Aluminizing Engineering Works v. Additional Member, Board of Revenue [1976] 37 STC 262 (Cal) is also a case of same nature. The two cases of Hindustan Aeronautics Ltd. v. State of Karnataka reported in [1984] 55 STC 314 (SC) and Hindustan Aeronautics Limited v. State of Orissa [1984] 55 STC 327 (SC) are on the question of determination of the character of transactions either as sales or works contracts. The Supreme Court, highlighted the fact that the distinction is often a fine one. But the main object of a contract of sale, as pointed out in those cases, is the transfer of property in the goods. Mere delivery of possession or mere passing of the goods from one to another does not make a sale. There must be transfer of property in the goods from one person to another. In the present case, as I have already held, there was no such transfer of property in the raw materials, namely, Horlicks malted milk food from applicant-company to Royco. Therefore, consequently, there was no transfer of property in the Horlicks biscuits (manufactured by Royco in its factory) to the applicant-company. 13.. It may be noted that in view of the importance of the question involving Royco, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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