Kerala High Court
Southern Cable And Engineering Works vs State Of Kerala on 19 December, 2001
Equivalent citations: [2002]126STC178(KER)
Author: C.N. Ramachandran Nair
Bench: C.N. Ramachandran Nair
JUDGMENT S. Sankarasubban, J.
1. Assessee is the petitioner and the assessment year is 1989-90. Tax revision case is filed against the judgment of the Sales Tax Appellate Tribunal, Additional Bench, Thiruvananthapuram in T.A. No. 99 of 1998. The facts of the case are as follows :
2. Petitioner is the assessee. It was engaged in the manufacture and sale of aluminium wire. The assessing authority finalised the assessment for the year 1989-90 on March 10, 1997. It added an amount of Rs. 71,50,740 to the taxable turnover returned being the market value of 164.264 metres of aluminium rods given as material loan to Alind (Kundara) during the year 1981-82. A security deposit of Rs. 34,72,845.14 was collected by the petitioner towards the loan as evidenced by the book entries and continued effort for getting back the materials supplied by way of loan failed. Hence, security collected was forfeited in the year 1989-90.
3. The assessing officer took the stand that the loan when adjusted during the year 1989-90 must be treated as deemed sale during that year. He, therefore, estimated the sale value of the goods not returned at Rs. 71,50,740 based on the market value of the goods prevalent during 1989-90. The assessment was completed accordingly.
4. The contention of the petitioner is that there was no element of sale in the loan arrangement. The department has admitted the genuineness of the loan. The department also treated the transaction as loan during the assessment years 1981-82 to 1988-89. During the year 1989-90, the only incident that took place is the forfeiture of the security. Such forfeiture of security was only by way of liquidated damages and not as sales consideration. The amount so forfeited will not come within the definition of "turnover" under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the Act"). According to the petitioner, the term "turnover" under the Act, means the aggregate amount for which goods are either bought or sold. The petitioner's contention before the appellate authority failed. But the Appellate Tribunal restricted the addition to Rs. 34,72,845.
5. Before the Tribunal, the assessee relied on a decision of the Madras High Court and certain other decisions to contend that there was no sale. But the Appellate Tribunal relied on the decision reported in Radhas Printers v. State of Kerala [1993] 90 STC 201 (Ker) ; (1993) 1 KTR 104 and held that there was a sale in 1989-90. Learned counsel for the petitioner Sri Dr. K.B. Mohamed Kutty submitted that the question for consideration in this revision is whether the forfeiture of security deposit can be treated as taxable turnover and whether there was a sale of the goods as held by the Tribunal.
6. There is no dispute that the value of the raw materials was for Rs. 34,78,638. It is shown in the balance sheet as on March 31, 1989. This transaction was verified with the available materials. One is debit note 1/81-82 dated January 17, 1981 and despatched on December 19, 1981. It shows that 68.376 mtrs. of aluminium rods were despatched. The second is debit note 2/81 dated February 19, 1982 and despatched on February 19, 1982, which shows that 95.888 mtrs. of aluminium rods were despatched. Thus, on the whole, a total of 164.264 mtrs. of aluminium rods were despatched to the Aluminium Industries Ltd., Kundara, the value of which comes to Rs. 34,87,324. In turn, the Aluminium Industries Ltd., deposited an amount of Rs. 34,72,845.14 being the then existing ruling price during the year 1981-82. According to the assessee, the above transaction was a material loan given to the Aluminium Industries Ltd. According to the assessee the above transaction was the last transaction. Further development is seen only in 1989. In the letter dated October 20, 1989 the assessee requested the Aluminium Industries either to return the materials or give price difference of Rs. 36,48,542 at the prevailing rate as on March 31, 1984. This was replied by Aluminium Industries by letter dated December 11, 1989 stating that they are agreeing to return the materials if the full value of the materials, including excise duty, sales tax, freight, etc., at the ruling rate is deposited. Finally, the Aluminium Industries in the letter dated October 12, 1989 informed the assessee stating that they had set-off the deposit amount of Rs. 34,72,845.14 made by them against the loan and treated the account "as closed". The question is whether there is loan transaction or whether there is sale.
7. The word "sale" is defined under Section 2 (xxi) of the Act, which is as follows : " 'Sale' with all its grammatical variations and cognate expressions means every transfer, whether in pursuance of a contract or not, of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge". According to the assessee, the records will disclose that actually the goods were sent to Aluminium Industries, Kundara and that as security, the amount of Rs. 34 lakhs and odd was retained. Unfortunately, in this case, we don't find any agreement or other evidence explaining the nature of the transaction. The authorities below, on the basis of the letter of the Aluminium Industries, Kundara in 1989 that they were not prepared to return the goods, held that the transaction is sale of goods. Finally, the assessee intimated the Aluminium Industries that the amount given as security was forfeited and adjusted towards the loan.
8. Learned counsel for the assessee brought to our notice a decision reported in Sri Rani Lakshmi Ginning, Spinning and Weaving Mills Private Ltd. v. State of Tamil Nadu [1981] 48 STC 406 (Mad). There, the assessee, a cotton mill in Coimbatore obtained Egyptian cotton from a mill in Bombay as loan by depositing an amount equal to the price of the cotton. According to the agreement entered into between the parties, the cotton that was received on loan had to be returned by the assessee within a month failing which the deposit amount would be forfeited and the loan would then be cancelled. Since the assessee did not return the cotton lent within the period prescribed, the Bombay mill forfeited the amount in full. The assessing officer in his revised assessment under Section 16 of the Tamil Nadu General Sales Tax Act, 1959, held that the description of the transaction as if it were a loan transaction was a make-believe arrangement and actually it was a sale liable to tax under the Act. The Appellate Assistant Commissioner, while agreeing with the assessing authority that there was a real sale, held that it was an inter-State purchase not liable to tax under the State Act and accordingly set aside the revised assessment. The Board of Revenue in suo motu revision set aside the order of the Appellate Assistant Commissioner and restored the order of the assessing officer passed under Section 16 of the Act. The Madras High Court held that "if the findings of the assessing officer and the Board that the loan transaction was a make-belief arrangement and not a real loan transaction were not accepted, then unless a subsequent agreement of sale and purchase was found, the transaction by either efflux of time or breach of agreement could not be held to have become a sale transaction and the realisation by forfeiture of the deposit would be in the nature of liquidated damages and forfeiture under a contract of bailment". The above decision clearly shows that the contract entered into has to be looked into.
Learned Government Pleader brought to our notice a decision of the Kerala High Court reported in Radhas Printers v. State of Kerala [1993] 90 STC 201 ; (1993) 1 KTR 104. In that case, the petitioner supplied goods valued, at Rs. 1 lakh to a sister concern V, which dealt in similar goods, on the consideration that the latter would return the goods together with interest at 15 per cent per annum. The goods were returned a year later with interest of Rs. 15,000 which was credited to the purchase account. The petitioner however maintained no stock register. The Tribunal held that the transaction was a "make-believe arrangement" and treated it as a sale liable to tax. The revision petition filed by the assessee was dismissed. But certain observations were made by the Division Bench. In paragraph 15, the Division Bench held as follows :
"The genuineness of the transaction has to be tested against two important features which in the circumstance have crucial bearing in deciding the said question. They are, no stock register was maintained to show the receipt and issue of goods except the purchase account which contained only details of purchase ; and the other, provision for payment of interest and receipt of the same. Interest also is credited in the paper purchase account. Stock register principally is for ensuring the authenticity of the accounts and other connected records. If Vimala Packaging Industries returned the goods as is claimed, the same would have found a place in the stock register. The stipulation for payment of interest has added significance when it is remembered the same usually could be on purchase price, indicative of deferred payment rather than damages for the user of the goods."
Thus, in that case, the assessee's case was not accepted because it found that the receipt of interest was not towards damages and further the stock register did not contain anything about transaction.
9. It cannot be said that forfeiture of security does not amount to damages. Further, if as a matter of fact, the amount was paid towards sale consideration, it would have been treated as sale in the year 1981-82. Thus, on the basis of the above facts and circumstances, we are of the view that the alleged transaction is a loan transaction and hence there was no sale. Further, in this case, the Tribunal-itself has reduced the original consideration fixed by the assessing officer from Rs.73 lakhs to Rs. 37 lakhs. This itself shows that, the price was fixed as in 1981-82 and not in 1989-90. The mere fact that the consideration was appropriated subsequently does not mean that sale took place in 1989.
Accordingly, we allow this tax revision case and set aside the order of the Tribunal.