1968 (8) TMI 165 - SC - VAT and Sales Tax

Supreme Court exempts rubber company from inter-State sales tax liability

The Supreme Court held in Civil Appeal No. 2234 of 1966 that the company, engaged in rubber production and sales, was not liable to pay tax on inter-State ... Definition of 'dealer' under the Central Sales Tax Act - onus of proof that an assessee is carrying on the business of selling or supplying - inter-State sales taxable under the Central Sales Tax Act - registration as dealer not conclusiveDefinition of 'dealer' under the Central Sales Tax Act - onus of proof that an assessee is carrying on the business of selling or supplying - registration as dealer not conclusive - inter-State sales taxable under the Central Sales Tax Act - Whether the respondent company, engaged in planting and converting latex into rubber sheets and regularly selling those sheets, was a 'dealer' within the meaning of section 2(b) of the Central Sales Tax Act and liable to tax on its inter State sales. - HELD THAT: - The Court applied the principle laid down in this Court's earlier decision in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co. and found the material facts in the present case to be substantially similar. Mere frequency and volume of sales, or registration under the Act, do not by themselves establish that a producer is carrying on the business of selling or supplying so as to become a 'dealer'. The burden rests on the sales tax authorities to prove that the assessee was carrying on such a business; where the authorities make no investigation into relevant indicia such as the intention behind the company's formation, the existence of a selling organisation or other material facts and rely only on conversion of produce into marketable form and the regularity of sales, that onus is not discharged. Applying that reasoning to the facts found - that the company planted and grew rubber, converted latex into sheets (a process necessary for transport and marketing) and sold those sheets - the Court held that the assessing authorities had not proved that the company was carrying on the business of selling or supplying so as to qualify as a 'dealer' and that the inter State sales were not taxable under the Act.The company was not a 'dealer' within section 2(b) of the Act; the onus on the sales tax authorities to prove carrying on the business of selling or supplying was not discharged; the inter State sales were not taxable.Final Conclusion: The appeals were dismissed; the High Court's conclusion that the respondent company was not a 'dealer' and that the inter State sales were not taxable was upheld, with no order as to costs. Issues:1. Whether the company is liable to pay tax on inter-State sales of rubber.2. Whether the company qualifies as a 'dealer' under the Central Sales Tax Act, 1956.Analysis:Civil Appeal No. 2234 of 1966:The appellant, a public limited company engaged in rubber production and sales, claimed exemption on its turnover for the year 1961-62. The Sales Tax Officer assessed the company on a net turnover, which was challenged in subsequent appeals. The Appellate Tribunal ruled in favor of the company, stating that it was not a dealer and hence not liable for tax on inter-State sales of rubber. The High Court upheld this decision, emphasizing the need for the sales tax department to prove that the company was indeed a dealer. The Supreme Court, referencing a similar case, held that the burden of proof lay with the tax authorities to establish the company's status as a dealer. As the authorities failed to provide sufficient evidence beyond the company's registration status, the appeal was dismissed, and the company was not liable for tax on the sales in question.Civil Appeals Nos. 2235 and 2236 of 1966:These appeals were based on similar grounds as Civil Appeal No. 2234 of 1966, with the same legal question and material facts. The Supreme Court, in line with its decision on the previous appeal, dismissed these appeals as well. The Court reiterated that the burden of proof rested on the tax authorities to demonstrate that the company qualified as a dealer under the Act. As there was insufficient evidence to support this claim, the appeals were dismissed, and no costs were awarded.In summary, the Supreme Court ruled in all three appeals that the company was not liable for tax on its inter-State sales of rubber as the tax authorities failed to establish the company's status as a dealer under the Central Sales Tax Act, 1956. The burden of proof was on the authorities to demonstrate the company's dealer status, which was not adequately proven beyond the company's registration. Consequently, all appeals were dismissed, and no costs were awarded.