2004 (8) TMI 648 - AT - VAT and Sales Tax

FCI not liable for sales tax as distributor, not dealer

The Tribunal concluded that the Food Corporation of India (FCI) did not have the authority to sell fertilizer independently but acted as a distributor ... - Issues Involved:1. Whether the Food Corporation of India (FCI) is a handling agent of the Government of India with authority to sell fertilizer to different State Governments and Government bodies.2. Whether FCI, Kolkata region, is a 'dealer' within the meaning of section 2(c) of the Bengal Finance (Sales Tax) Act, 1941.3. Whether the transactions of fertilizer by the FCI in favor of Government and Government bodies constitute 'sale' and if FCI is liable to levy of sales tax.Issue-Wise Detailed Analysis:Issue 1: Authority of FCI as Handling AgentThe petitioner challenges the order dated January 24, 2000, which upheld the assessment for the four quarters ending March 31, 1971. The main point of determination is whether FCI is a handling agent of the Government of India with the authority to sell fertilizer to State Governments and Government bodies. The petitioner contended that it merely carried out the Government of India's instructions and did not have ownership or authority to sell the fertilizer. The Assistant Commissioner, however, held that all transactions regarding fertilizers made by FCI are taxable, and the turnover was revised to a higher figure. The appellate and revisional authorities upheld this view, considering FCI as a 'dealer' due to its handling and sale of fertilizers.Issue 2: Definition of 'Dealer' under Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941The definition of 'dealer' under section 2(c) of the Bengal Finance (Sales Tax) Act, 1941, was crucial in this case. The definition includes handling agents who have the authority to sell goods. The petitioner argued that FCI acted as a bailee and not an agent with authority to sell. The respondent contended that FCI had full authority to deal with the imported fertilizer, including selling it to private parties and Government bodies. The Board upheld the appellate order, interpreting that FCI, as a handling agent, fell within the definition of 'dealer' due to its authority to sell the goods.Issue 3: Transactions Constituting 'Sale' and Liability to Sales TaxThe petitioner argued that the impugned order suffers from errors apparent on the face of it, as there was no evidence to conclude that FCI had the authority to sell fertilizers as a handling agent. The petitioner maintained that it was merely a caretaker of the fertilizer and delivered it as per the Government of India's instructions. The respondent, however, argued that FCI acted as a transferee and agent with full authority to sell the fertilizer, and the issue vouchers were considered sale documents. The Board did not properly appreciate the principle enunciated in the judgment reported in [1997] 105 STC 561 (SC); (1997) 30 STA 238 (SC) [State of West Bengal v. O.P. Lodha], which required proving that FCI had the customary authority to sell the goods.Analysis of Evidence and Previous JudgmentsThe Tribunal's previous judgment in Revision Case No. 656/1974-75 held that the 'issue voucher' does not authorize FCI to sell fertilizer to any party, including the Government of West Bengal. The Tribunal directed the Commercial Tax Officer (C.T.O.) to decide afresh with reference to the basic records of the petitioner. However, the C.T.O.'s reassessment order did not examine any such basic records and relied mainly on the document dated January 14, 1969. The Board also failed to properly examine the basic records and was influenced by the amendment in section 2(c) and the Supreme Court's decision in [1997] 105 STC 561.ConclusionThe Tribunal concluded that the FCI did not have unfettered authority to sell the fertilizer and acted only as a distributor as per the Government of India's instructions. The reassessment order and the appellate and revisional orders were set aside, holding that the transactions in question could not be deemed as 'sale' by FCI, and FCI was not a 'dealer' liable to sales tax. The assessment order concerning the sale of fertilizer to the State Government or Government bodies was annulled.Final OrderThe application was allowed, and the impugned revisional order, as well as the assessment order by the C.T.O., holding FCI as a 'dealer' and liable to sales tax, was set aside. The order of assessment was modified for the period ending March 31, 1971. There was no order as to costs.