Sale versus manufacture contract: controlled supply arrangement held not to be a genuine sale, and second-sale exemption denied.

The Tribunal held that the arrangement between the applicant-company and Royco was not a genuine sale of goods but a manufacture contract under the applicant-company's control. It found that Royco had no real freedom of bargain, while specifications, rejection, pricing structure and disposal of goods were controlled by the applicant-company, so mere seller-purchaser labels and invoices could not change the legal character of the transaction. As no property in the raw materials passed to Royco, the biscuits manufactured by Royco and supplied back to the applicant-company were not second sales within the West Bengal Sales Tax Act, 1954, and no tax exemption was available.

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Issues: Whether the supplies of Horlicks malted milk food by the applicant-company to Royco amounted to sales, and whether the biscuits manufactured by Royco and supplied to the applicant-company were second sales not liable to tax under the West Bengal Sales Tax Act, 1954.

Analysis: The relevant concept of sale was taken to mean transfer of property in goods for money consideration, as understood from the Sales Tax law and the Sale of Goods Act, 1930. The written agreement between the parties was examined as a whole, and its clauses showed that Royco had no real freedom of bargain, that the applicant-company controlled specifications, rejection, pricing structure and the disposal of goods, and that the arrangement was one for manufacture under the applicant-company's control rather than a genuine sale of raw materials. Mere description of the parties as seller and purchaser and the issue of invoices could not determine the legal character of the transaction. Since there was no transfer of property in the raw materials to Royco, the downstream supply of biscuits to the applicant-company also did not amount to a sale.

Conclusion: The transactions were not sales within the meaning of the taxing law, and the applicant-company was not entitled to treat the biscuit purchases as second sales exempt from tax.

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