Rejected goods and taxable turnover: no completed sale arises when non-conforming goods are refused under contract

Goods rejected for non-conformity with contractual specifications do not form part of taxable turnover under the Central Sales Tax Act where no completed sale or transfer of property has occurred. The distinction between rejection and return is material: the section 8A(1)(b) deduction applies to goods returned by purchasers within the prescribed period, with proof of return and refund or adjustment, but not to goods never accepted as conforming goods. Where rejection negatives the transaction itself, the statutory time-limit for return does not apply, and tax and penalty cannot be levied on the rejected goods.

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Issues: Whether goods supplied under a contract but rejected for non-conformity with specifications could be included in taxable turnover under section 8A(1)(b) of the Central Sales Tax Act, 1956, and whether tax and penalty could be levied when no completed sale had taken place.

Analysis: The expressions "sale", "sale price" and "turnover" in the Central Sales Tax Act, 1956 contemplate a transfer of property in goods from seller to buyer for consideration. The deduction in section 8A(1)(b) applies to goods returned by purchasers within the prescribed period and on proof of return and refund or adjustment. Rejection of goods is different from return of goods: rejection is a unilateral act by the purchaser and, where the goods never conform to the contractual stipulation and are rejected, the supposed sale does not mature into a completed transfer of property. In such a case the time-limit in section 8A(1)(b) has no application, because the transaction itself stands negatived by the rejection.

Conclusion: The rejected stirrup pumps were not liable to be included in the taxable turnover and the levy of tax and penalty was improper.

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