2008 (3) TMI 642 - HC - VAT and Sales Tax

Court reduces tax rate on sale of scrap machinery, orders refund of excess tax

The court allowed both writ petitions, directing that the sale of plant and machinery as scrap be taxed at 4% instead of the initially ruled 12%. The ... Auction sale on 'as-is-where-is' basis - Condemned articles - Whether cannot be treated as scrap? - Held that:- In the present cases, B & C plant had become unusable and the factory had been closed and the factory licence had been surrendered and it had been sold only with the condition that the purchaser will dismantle and sell it. The fact that it is described as B & C plant and machinery will in no way, make it either as a plant in running condition or the plant should be shifted to any other place for use. The intention of the parties was to sell it only as a scrap and even in the gate pass, it is described only as a scrap. Further, the authorities themselves have initially directed that it was taxable at four per cent and accordingly, the parties have also paid that amount. Thereafter, without there being any real basis to describe it as first sale, to refuse to accept it as scrap by the impugned order is clearly impermissible. Writ petitions will stand allowed as prayed for and the respondents are hereby directed to restore the tax at four per cent and refund the balance to the appropriate parties. Issues Involved:1. Taxability of the sale of plant and machinery as scrap.2. Determination of the applicable tax rate.3. Interpretation of 'as-is-where-is' and 'no complaint' basis in the context of tax liability.4. Validity of the Commissioner's order and subsequent actions by the Commercial Tax Officer.Issue-wise Detailed Analysis:1. Taxability of the Sale of Plant and Machinery as Scrap:The petitioners, M/s. Chitrahar Traders and Neyveli Lignite Corporation (NLC), challenged the tax rate applied to the sale of plant and machinery from NLC's Briquetting and Carbonisation (B & C) plant. The plant, which was closed in April 2001 and deemed unusable, was sold as scrap through an auction conducted by M/s. Metals & Scrap Trading Corporation (MSTC). The key argument was whether the sale should be taxed as scrap or as plant and machinery.2. Determination of the Applicable Tax Rate:Initially, the Commercial Tax Officer (CTO) informed NLC that the sale of the plant as scrap was taxable at 4% under entry 4(xvi) of the Second Schedule of the Tamil Nadu General Sales Tax Act (TNGST Act). However, the Commissioner of Commercial Taxes later ruled that the sale was taxable at 12% under entry 20 of Part D of the First Schedule to the TNGST Act, as it was sold on an 'as-is-where-is' basis. This ruling was contested by the petitioners, who argued that the plant was sold as scrap and should be taxed at the lower rate.3. Interpretation of 'As-is-where-is' and 'No Complaint' Basis:The court examined whether the sale terms 'as-is-where-is' and 'no complaint' basis affected the taxability. The Commissioner argued that these terms indicated the sale of a whole plant rather than scrap. However, the court found that the plant was unusable, the factory license was surrendered, and it was sold with the condition that the purchaser would dismantle and sell it as scrap. Thus, the intention of the parties was to sell it as scrap, supporting the petitioners' argument for the lower tax rate.4. Validity of the Commissioner's Order and Subsequent Actions by the Commercial Tax Officer:The court reviewed the procedural history, including the initial clarification by the Commissioner that the sale was taxable at 4%, and the subsequent reversal to 12%. The court found that the initial ruling of 4% was correct, and the later demand for higher tax was unjustified. The court cited precedents, including judgments from the Gujarat High Court and the Supreme Court, supporting the view that unserviceable machinery sold as scrap should be taxed at the lower rate.Conclusion:The court allowed both writ petitions, directing that the sale be taxed at 4% and ordering a refund of the excess tax collected. The decision emphasized that the nature of the goods as scrap was determinative, and the initial tax rate of 4% was appropriate. The court also noted that the transaction between two public sector undertakings was transparent and the higher tax demand was unreasonable. The respondents were instructed to complete the refund process within eight weeks.