Scrap sale classification turns on commercial substance, and dismantled closed machinery was taxable as scrap, not old plant and machinery.

Closed plant and machinery sold through a scrap-disposal arrangement was treated as scrap, not as reusable old machinery, because the plant had ceased operations, the licence was surrendered, and the contemporaneous tender documents, acceptance letter and gate pass consistently described the transaction as scrap sale. The purchaser dismantled the machinery and removed it part by part as metal scrap, confirming the commercial substance and intention to dispose of scrap rather than transfer machinery for continued use. On that basis, the higher tax demand applicable to old plant and machinery was not sustainable, and the sale was taxable only as scrap.

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Issues: Whether the auction sale of the closed plant and machinery, which was dismantled by the successful bidder and removed as scrap, was liable to tax as scrap or as old plant and machinery.

Analysis: The plant had been closed, the licence surrendered, and the corporation had decided to auction the machinery through a scrap-disposal arrangement. The contemporaneous documents, including the acceptance letter, tender records, and gate pass, showed that the transaction was treated throughout as a sale of scrap and not as a sale of reusable machinery. The purchaser dismantled the machinery with explosives and transported it part by part as metal scrap. In these circumstances, the character of the transaction was determined by its true commercial substance and the intention underlying the sale, which was to dispose of scrap rather than to transfer old machinery for continued use.

Conclusion: The sale was taxable as scrap and not as old plant and machinery, and the demand for higher tax at 12 per cent with surcharge was not sustainable.

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