TaxTMI 
TaxTMI 
2010 (8) TMI 880
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....ustries. It is the case of the assessee that, being a flagship company of Khoday Group of Industries, during the year 1994-95, they ran into serious financial difficulties, which compelled the Board of Directors of the group company to explore the several possibilities to tide over the financial difficulties and accordingly, the Board of Directors came out with an idea of sale-cumlease back of its assets of oakwood barrels and vats with the lease financing companies and raise the required funds. This lead to passing of resolution by the Board of Directors, which provided the necessary authorisation to the assessee to go ahead with this issue. The assessee entered into agreements with five financing companies and raised invoices on them for sale-cum-lease back of oakwood barrels and vats for value aggregating to Rs. 17,00,34,809. The assessee contended, under those circumstances, there was no actual sale and mere issuance of the sale invoices being paper transactions and in the absence of transfer of property in goods of the said oakwood barrels, there cannot be any sale and as such, no tax can be levied. However, the assessing authority acting on the invoices, which were not ....
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....re is a sale of goods as understood in the context of the Sales Tax Act, the liability under section 5 of the Act is not attracted. In support of their contention, they relied on a judgment of the apex court in the case of Sundaram Finance Limited v. State of Kerala reported in [1966] 17 STC 489 (SC); AIR 1966 SC 1178 wherein, the apex court granted the relief to the assessee. Aggrieved by the two orders, the Revenue is in appeal. 4. The learned counsel for the Revenue assailing the impugned order of the Tribunal, contended that, the material on record shows that, these invoices are raised for sale of these oakwood vats and barrels for a consideration. Corresponding entries were made in the account books showing the receipt of consideration. Further, admitting the ownership of transfer of the very same materials have been taken on lease by executing lease deeds, agreeing to pay rent. There is a provision for renewal of lease also. The recitals in the lease deed make it clear that the goods, which are subject-matter of the sale were delivered to the purchasers and the purchasers in turn has leased the said property to the assessee. In the other case, the assessee has categoricall....
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....tax under section 5B, section 17(6) has no application. In both the cases, labour charges received are not taxable under the Act. Therefore, the Tribunal was justified in granting the relief to the assessee. 6. In the light of the aforesaid material on record and the rival contentions, it emerges that the assessee, M/s. Khoday India Limited incorporated under the Companies Act and the dealer registered under the provisions of the KST and CST Act and it is carrying on the business of distilleries for manufacture and sale of liquor. It is a flagship company of Khoday Group of Industries. In reply to an endorsement issued by the Department calling upon the companies to substantiate their claim, the assessee has set out his case in the reply, which is as under: "During the year 1994-95, the flagship company was facing severe financial problems and was required to raise funds by entering into lease-cum-sale agreements with the financial companies. In order to enter into the above type of financial transactions, the assessee was asked to file sales bills issued by a third party in respect of the fixed assets already hold by it. The company therefore, passed two entries in its books....
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.... right of seizure of the goods, the property ostensibly passes under the documents embodying the transaction, but subject to the terms of the hiring agreement, which become part of the buyer's title, and confer a licence to seize. When a person desiring to purchase goods and not having sufficient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hire-purchase agreement is a more complex transaction. The owner under the hire-purchase agreement enters into a transaction of hiring out goods on the terms and conditions set out in the agreement, and the option to purchase exercisable by the customer on payment of all the instalments of hire arises when the instalments are paid and not before. In such a hirepurchase agreement there is no agreement to buy goods; the hirer being under no legal obligation to buy, has an....
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.... not even hampered for a day. There was no handing over of the goods and receiving back the goods under the lease deed. It is in this context, the case pleaded by the assessee is more probable. In view of the financial constraint, when they were unable to raise funds, they raised the invoices in the names of the financial institutions and banks as the lessors/hirers, after obtaining permission from the Board of Directors. In substance, it is a financial arrangement entered into between the assessee and financier and yet another group company to raise the requisite funds for carrying on the business and therefore, there is no sale of any goods. If there is sale of goods, there is no liability to pay tax under the Sales Tax Act. It is true that an invoice is raised. It is also disclosed that, sale was inclusive of all taxes. A lease agreement has come into existence, which clearly disclosed the lessor is the absolute owner of these goods. He has leased the same to the assessee for consideration and what is to be paid is rent and not interest. The lease deed also contains a clause for renewal of lease. When admittedly, there is no demise of the property, no lease in the eye of law can....