Purchase tax does not apply where gold jewellery is only deposited for use and ownership is retained by the lender.

Receipt of gold jewellery from relatives and the proprietor under an arrangement allowing melting and business use against 5% yearly compensation was treated as a deposit or borrowal, not a sale. Because the depositor retained ownership, the assessee had only a right of use, the lenders could reclaim the same quantity of gold or jewellery, and the payment functioned as compensation rather than sale consideration, the essential elements of transfer of property and price were absent. On that basis, the transaction did not amount to a purchase attracting purchase tax under section 7-A of the Tamil Nadu General Sales Tax Act, 1959, and the levy was not sustainable.

---

---

Issues: Whether the receipt of gold jewellery from relatives and the proprietor, under an arrangement permitting melting and use in business against 5% yearly compensation, amounted to a purchase attracting purchase tax under section 7-A of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The arrangement was examined as a deposit or borrowal rather than a sale. The terms did not use the language of sale or purchase, and the ownership of the jewellery was retained by the depositor. The assessee was entitled only to use or melt the jewellery, and the lenders retained the right to reclaim the same quantity of gold or jewellery, with the 5% payment operating as compensation or a substitute for interest. Since no price was paid and the essential elements of transfer of property and consideration were absent, the transaction could not be treated as a purchase. In the absence of a basic contract of sale or purchase, section 7-A was not attracted.

Conclusion: The levy of purchase tax was not sustainable and was set aside in favour of the assessee.

---