Real nature of sale-cum-lease back controls tax liability; financing devices and unsupported works-contract levies are not taxable.

Sale-cum-lease back transactions are taxed according to their real substance, not their form; where the surrounding facts show that the ostensible purchaser is only a financier, the consideration is inflated, the goods remain with the assessee, and the documents are used to raise funds, the arrangement is a financing device rather than a genuine sale and is not exigible to sales tax. Labour charges under a works contract are not taxable through the concession provision unless tax is otherwise payable under section 5B; absent that underlying liability, the levy does not arise. The Tribunal's view was upheld and the Revenue failed on both issues.

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Issues: (i) Whether the sale-cum-lease back transactions in oakwood vats and barrels were genuine sales exigible to tax under the Karnataka Sales Tax Act, 1957, or only a financial arrangement not amounting to sale. (ii) Whether labour charges received in the works contract transaction were taxable and whether the concession provision could be invoked in the absence of tax liability under section 5B of the Karnataka Sales Tax Act, 1957.

Issue (i): Whether the sale-cum-lease back transactions in oakwood vats and barrels were genuine sales exigible to tax under the Karnataka Sales Tax Act, 1957, or only a financial arrangement not amounting to sale.

Analysis: The true character of a transaction is determined from the terms of the documents read with the surrounding circumstances, and the Court may go behind the form to ascertain the real bargain. On the facts, the supposed purchasers were financiers or group concerns with no real use for the goods, the consideration was disproportionately high, the assets continued with the assessee, and the lease-back arrangement showed that the documents were executed to raise funds. The conduct of the parties and the absence of real transfer of goods established that the arrangement was not a genuine sale but a financing device.

Conclusion: The transaction was not a sale liable to sales tax and the finding of the Tribunal in favour of the assessee was upheld.

Issue (ii): Whether labour charges received in the works contract transaction were taxable and whether the concession provision could be invoked in the absence of tax liability under section 5B of the Karnataka Sales Tax Act, 1957.

Analysis: The liability to pay concession tax under the relevant provision arises only when tax is otherwise payable under section 5B. Since the works contract transaction did not attract tax under section 5B on the facts found, the basis for demanding tax on labour charges did not survive. The Tribunal's view that the receipts were not taxable was therefore consistent with the statutory scheme.

Conclusion: The labour charges were not taxable in the manner contended by the Revenue and the assessee succeeded on this issue as well.

Final Conclusion: The common order of the Tribunal was found free from infirmity, and the Revenue failed on both issues; the appeals were dismissed, leaving the assessee's relief intact.

Ratio Decidendi: In tax matters, the real nature of a transaction must be ascertained from the document and surrounding circumstances, and a document framed as a sale or hire arrangement will not attract tax if it is in substance only a financing device without a genuine transfer of goods; ancillary tax liability on works contracts cannot arise unless the primary statutory tax liability exists.

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