1969 (8) TMI 31 - SC - VAT and Sales Tax

Court determines company's sales meet tax act definition. Dealer status pending. Penalties unjustified. Tribunal to clarify.

The court concluded that the company did sell building materials to contractors, meeting the definition of 'sale' under the Orissa Sales Tax Act. Further ... Sale - dealer - business - profit motive - penalty for failure to register as a dealer - storage and incidental charges as non profit elementSale - Supply of building materials by the company to contractors constituted a sale. - HELD THAT: - The definition of 'sale' in the Act includes any transfer of property in goods for consideration, including transfers involved in execution of a contract. The company supplied building materials to contractors at agreed rates; there was mutual assent, competent parties, transfer of absolute property in the materials and a price adjusted against contractual dues. No serious argument to the contrary was advanced and the court accepted that these supplies satisfied the elements of a sale.The supplies to contractors during the quarters in question were sales.Dealer - business - profit motive - storage and incidental charges as non profit element - Whether the company was a 'dealer' carrying on the business of selling or supplying goods was not finally decided and was remanded for further factual elucidation. - HELD THAT: - To qualify as a dealer the activity must amount to a business - a course of dealing continued or contemplated with a profit motive. The Tribunal and High Court found the company carried on such business, noting markedups on prices charged to contractors. However, tender documents and the schedule annexed show that certain excesses (for cement and structural steel) were described as storage charges (a fixed percentage above cost), and the contractual terms controlled pricing and ownership, with materials remaining company property and recoverable against dues. The Tribunal's original statement of case was factually bald and omitted explicit findings on whether the excesses over cost represented profit or merely storage and incidental charges. Because that evidence is material to the existence of a profit making business, the matter was remanded to the Tribunal for a supplementary statement of facts addressing whether (a) the company charged any profit apart from expressly stated storage charges for cement and structural steel, and (b) the excess charged on bricks over the company's purchase price represented profit or storage/other incidental charges.Remanded to the Tribunal for a supplementary statement of facts on whether the excess charged was intended as profit or as storage/incidental charges; dealer status not finally determined.Penalty for failure to register as a dealer - Imposition of penalty for failure to register as a dealer was not justified on the facts. - HELD THAT: - An order imposing penalty for failure to register is quasi criminal and calls for judicial exercise of discretion; penalty is ordinarily imposed only where the default is deliberate, contumacious, dishonest or in conscious disregard of the duty. The persons managing the company's affairs acted in an honest and genuine belief that the company was not a dealer. Given the bona fide belief and the nature of the breach, the court found no case for imposing penalty.Penalty for failure to register should not be imposed.Final Conclusion: The court held that the supplies to contractors were sales, declined to sustain the penalty for failure to register because the company acted bona fide, and remanded the question of whether the company was a 'dealer' for supplementary factual findings by the Tribunal on whether the excess charges were profit or merely storage/incidental charges. Issues Involved:1. Whether the company sold building material to the contractors during the quarters in question.2. Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act.3. Whether the imposition of penalties for failure to register as a dealer was justified.Detailed Analysis:Issue 1: Whether the company sold building material to the contractors during the quarters in question.The court examined the definition of 'sale' under section 2(g) of the Orissa Sales Tax Act, which includes 'any transfer of property in goods for cash or deferred payment or other valuation, consideration.' The company supplied building materials to contractors at agreed rates, satisfying the four elements constituting a sale: competent parties, mutual assent, transfer of absolute property, and agreed price adjustment. The court concluded that the supply of building material for an agreed price constituted a sale, and no serious argument was presented against this conclusion.Issue 2: Whether the company was a dealer in respect of building material within the meaning of the Orissa Sales Tax Act.The term 'dealer' under the Act means any person who executes contracts or carries on the business of selling or supplying goods in Orissa. The court referred to the definition of 'business' as an occupation or profession aimed at making a profit. The sales tax authorities and the Tribunal had held that the company was carrying on the business of selling or supplying materials to contractors, a view with which the High Court agreed. The company charged a premium over the purchase price for materials supplied to contractors, suggesting a profit motive. The High Court observed that the company did not maintain separate accounts to prove that these transactions resulted in no profit. The Tribunal's findings were based on the company's activities, which included purchasing and selling materials to contractors, indicating a business operation. However, the court noted that the Tribunal ignored a crucial piece of evidence regarding the terms of the tender and schedule, which indicated that the company charged a fixed percentage above the cost price for storage and other incidental charges. The court required a supplementary statement from the Tribunal to determine whether the excess charges were intended as profit.Issue 3: Whether the imposition of penalties for failure to register as a dealer was justified.The court stated that under section 9(1) read with section 25(1)(a) of the Act, penalties may be imposed for failure to register as a dealer. However, the imposition of penalties is a quasi-criminal proceeding and should not be imposed unless the party acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct. The court emphasized that penalties should not be imposed merely because it is lawful to do so; the authority must exercise discretion judicially, considering all relevant circumstances. The court found that the company's failure to register was based on an honest and genuine belief that it was not a dealer, and therefore, no case for imposing penalties was made out.Conclusion:The court concluded that the company did sell building materials to contractors, satisfying the definition of 'sale' under the Orissa Sales Tax Act. However, the determination of whether the company was a dealer required further examination of whether the excess charges were intended as profit. The imposition of penalties was not justified as the company's failure to register was based on a bona fide belief. The Tribunal was directed to submit a supplementary statement of the case regarding the nature of the excess charges within three months.