1990 (11) TMI 385 - HC - VAT and Sales Tax

Determining Nature of Transactions: Substance Over Form

The court upheld the Sales Tax Appellate Tribunal's findings that the transactions were sales, not agency sales, and were inter-State sales taxable under ... - Issues Involved:1. Whether the conclusion of the Sales Tax Appellate Tribunal that the transactions are not agency sales is sustainable in law.2. Whether the transactions are really inter-State sales taxable under section 3(a) of the Central Sales Tax Act.Detailed Analysis:Issue 1: Whether the conclusion of the Sales Tax Appellate Tribunal that the transactions are not agency sales is sustainable in law.The assessee, a dealer in yarn and other products, claimed exemption of turnover effected through their Calcutta depot, arguing that the sales were not inter-State in character and that the depot keeper was merely an agent. The agreement dated August 13, 1975, between the assessee and the depot keeper described the latter as an agent, with specific clauses indicating the depot keeper's responsibilities, such as selling goods for cash, remitting sale proceeds, and receiving a commission of 2%. However, other clauses suggested a different relationship. Clause 11 held the depot keeper responsible for any loss incurred due to credit sales or damages, and Clause 14 required the depot keeper to insure the stock, with the petitioner bearing only transit insurance costs. These clauses indicated that the depot keeper had responsibilities typically associated with ownership rather than agency.The Supreme Court's rulings in Alwaye Agencies v. Deputy Commissioner of Agricultural Income-tax and Sales Tax and Bhopal Sugar Industries Ltd. v. Sales Tax Officer were cited, emphasizing that the substance of the agreement, rather than the terminology used, determines the nature of the relationship. The court concluded that the depot keeper was not an agent but a purchaser, responsible for the goods and their sale, as evidenced by the agreement's clauses and additional materials such as letters from the depot keeper.Issue 2: Whether the transactions are really inter-State sales taxable under section 3(a) of the Central Sales Tax Act.The assessee contended that the transactions did not constitute inter-State sales under section 3(a) of the Central Sales Tax Act, arguing that the movement of goods from Kerala to West Bengal was not in pursuance of the agreement. Section 3(a) stipulates that a sale is deemed inter-State if it occasions the movement of goods from one State to another. The Supreme Court's decisions in Oil India Ltd. v. Superintendent of Taxes and Balabhagas Hulaschand v. State of Orissa clarified that the inter-State movement must result from a covenant in the contract of sale or be an incident of the contract.The court found that the agreement between the parties included a stipulation for the transfer of goods from Kerala to West Bengal, with the depot keeper receiving the goods and remitting payment. The movement of goods was in pursuance of the agreement, making the transactions inter-State sales under section 3(a). The Supreme Court's rulings in Union of India v. K.G. Khosla and Co. Ltd., Sahney Steel and Press Works Ltd. v. Commercial Tax Officer, and English Electric Company of India Ltd. v. Deputy Commercial Tax Officer supported this conclusion, emphasizing that the decisive factor is whether the sale occasions the movement of goods from one State to another.Conclusion:The court upheld the Tribunal's findings on both issues, concluding that the transactions were sales and not agency sales, and that they were inter-State sales taxable under section 3(a) of the Central Sales Tax Act. The tax revision petitions were dismissed.