Genuine first sale and turnover limits: resale price cannot be taxed on the seller absent proof of sham or colourable device.

For sales tax purposes, a genuine sale to an intermediary remains the first taxable sale where the assessee contracts with that buyer, invoices it directly, and receives only the agreed price, even if the goods are delivered to a third party under a separate downstream arrangement. The revenue cannot ignore that transaction or tax the assessee on the intermediary's higher resale price without proof that the arrangement is a sham or colourable device. A transaction may be disregarded only on material showing lack of commercial reality and tax-driven structuring; on the facts stated, brand value and goodwill explained the higher resale price, and the assessee's turnover was confined to the consideration actually received.

---

---

Issues: (i) Whether the sale by the assessee to the intermediary was the first taxable sale of Indian made foreign liquor within the State and whether the revenue could ignore that sale and assess the assessee on the resale price realised by the intermediary from the Beverages Corporation; (ii) Whether the arrangement between the assessee and the intermediary was a colourable device and whether the higher resale price realised by the intermediary could be treated as the assessee's turnover.

Issue (i): Whether the sale by the assessee to the intermediary was the first taxable sale of Indian made foreign liquor within the State and whether the revenue could ignore that sale and assess the assessee on the resale price realised by the intermediary from the Beverages Corporation.

Analysis: The assessment turned on the real nature of the transaction and the identity of the buyer from whom the assessee received the sale price. The record showed a contract of sale between the assessee and the intermediary, invoices raised by the assessee on that intermediary, and delivery of the goods under instructions of that intermediary. The goods were despatched to the Beverages Corporation, but that delivery was pursuant to a separate arrangement between the intermediary and the Corporation. There was no privity between the assessee and the Corporation, and no material to show that the assessee received any amount beyond the invoice price from the intermediary. The passing of title on delivery and the existence of two distinct sales were accepted on the evidence, and the legality of the first sale did not justify ignoring its factual and legal effect for sales tax purposes.

Conclusion: The sale by the assessee to the intermediary was the first taxable sale, and the revenue could not ignore that sale or assess the assessee on the resale price realised by the intermediary.

Issue (ii): Whether the arrangement between the assessee and the intermediary was a colourable device and whether the higher resale price realised by the intermediary could be treated as the assessee's turnover.

Analysis: A transaction can be disregarded as a device only when the revenue establishes, on material, that it lacks commercial reality and is entered into solely for tax mitigation. Here, the agreement had a business purpose: the intermediary owned the brand names and goodwill, the assessee manufactured and supplied goods bearing those labels, and the higher resale price was attributable to the brand value and goodwill of the intermediary. The material did not show any under-invoicing by the assessee, any extra receipt from the Corporation, or any preordained sham. The statutory provisions relied on by the revenue did not alter the fact that title passed to the intermediary and that the assessee was paid only the agreed price. Section 19B was also inapplicable on the facts found.

Conclusion: The arrangement was not a colourable device, and the higher resale price realised by the intermediary could not be treated as the assessee's turnover.

Final Conclusion: The revisions failed because the assessee's sale to the intermediary stood as a genuine first sale liable to tax on the amount received by the assessee, and the subsequent resale price of the intermediary was outside the assessee's taxable turnover.

Ratio Decidendi: For sales tax purposes, a genuine sale cannot be disregarded merely because the goods are delivered to a third party pursuant to a separate downstream arrangement, and the assessee's turnover is confined to the consideration actually received unless the revenue proves that the transaction is a sham or colourable device lacking commercial reality.

---