2010 (2) TMI 1087 - HC - VAT and Sales Tax

Sale of scrap by Neyveli Lignite Corp. taxed at 4% not 12%. Importance of intention and facts emphasized.

Commissioner of Commercial Taxes, Chepauk, Chennai and others Versus Chitrahar Traders & Neyveli Lignite Corporation Ltd.

The court upheld the decision that the sale by Neyveli Lignite Corporation to Chitrahar Traders was of scrap, not old machinery, and therefore taxable at ... Whetehr the auction was to sell the machinery as scrap and even in the gate pass, it was described only as scrap and therefore, the successful bidder was liable to pay only the tax applicable to scrap? Held that:- It is the admitted case of the parties that the machinery was actually dismantled by the auction purchaser and it was transported out of the factory as metal scrap. Therefore, there was no question of repair or renovation of the machinery for the purpose of using it as machinery so as to take that transaction as one not coming within the purview of sale of scrap. The learned single judge has applied the correct test to determine the transaction involved in the matter. The learned judge was perfectly correct in his observation that the intention was to sell the machinery as scrap. The earlier communication of the sales tax authorities also confirms the said position. We do not find any material to take a different view in the matter. Appeal dismissed. Issues Involved:1. Determination of the nature of the sale: whether it was a sale of old plant and machinery or a sale of scrap.2. Applicable sales tax rate: whether the sale should be taxed at 4% applicable to scrap or at 12% applicable to old machinery with a 5% surcharge.Issue-wise Detailed Analysis:1. Determination of the Nature of the Sale:The primary issue was whether the sale by Neyveli Lignite Corporation (NLC) to Chitrahar Traders was of old plant and machinery or scrap. NLC had closed its briquetting and carbonization plant due to frequent breakdowns and losses, and decided to auction the plant and machinery in 'as is where is' condition. MSTC, a Government of India enterprise, was engaged to auction the scrap. Chitrahar Traders won the bid and dismantled the machinery using explosives and other tools, transporting it as scrap.The Commercial Tax Officer initially informed NLC that the sale of the plant and machinery as scrap was taxable at 4%. However, the Commissioner of Commercial Taxes later claimed that the sale was of old machinery taxable at 12% with a 5% surcharge. The learned single judge applied the 'intention of the parties' test, concluding that the intention was to sell the machinery as scrap. The judge relied on the description in the gate pass and other documents, which referred to the goods as scrap, and quashed the Commissioner's proceedings.The court found that the sale was intended to be one of scrap, supported by the fact that NLC allowed the purchaser to dismantle the machinery and transport it as scrap. The agreement between NLC and MSTC, and the subsequent actions, confirmed the intention to sell the machinery as scrap. The appellants did not dispute the dismantling of the machinery by Chitrahar Traders, further supporting the conclusion that the sale was of scrap.2. Applicable Sales Tax Rate:The second issue was the applicable sales tax rate. The Commercial Tax Officer initially indicated that the sale of scrap was taxable at 4%, which was later contradicted by the Commissioner, who stated that the sale was of old machinery taxable at 12% with a 5% surcharge. The learned single judge, relying on the intention of the parties and the description in the gate pass, concluded that the sale was of scrap, and thus taxable at 4%.The appellants argued that the sale order described the goods as 'B & C' plant and machinery on 'as is where is and no complaint' basis, justifying a 12% tax rate. However, the court found that the description and subsequent actions indicated a sale of scrap. The court noted that the machinery was dismantled and transported as scrap, and the initial communication from the sales tax authorities supported the 4% tax rate.The court distinguished the present case from Uma Devi Sizing Industries v. State of Tamil Nadu, where condemned machinery was transformed into scrap, creating a distinct commercial commodity. In the present case, the intention was to sell the machinery as scrap, and the transaction was treated as such throughout. The word 'scrap' was defined as something unusable for its original purpose, and the court found that the machinery was indeed dismantled and transported as scrap, confirming the 4% tax rate.Conclusion:The court upheld the learned single judge's decision, confirming that the sale was of scrap and taxable at 4%. The appeals were dismissed, and the excess tax collected was ordered to be refunded. The judgment emphasized the importance of the intention of the parties and the factual circumstances in determining the nature of the sale and the applicable tax rate.