Andhra HC (Pre-Telangana)
Vijaya Aluminium Industries vs State Of Andhra Pradesh on 26 October, 1995
Equivalent citations: [1996]103STC508(AP)
Author: V. Rajagopala Reddy
Bench: V. Rajagopala Reddy
JUDGMENT V. Rajagopala Reddy, J.
1. These two tax revision cases arise out of the common order dated May 25, 1987 of the Sales Tax Appellate Tribunal, in T.A. Nos. 33 of 1981 and 34 of 1981. The Tribunal dismissed the appeals and confirmed the orders dated July 22, 1988 of the Assistant Commissioner (C.T.), Appeals, Hyderabad II Division, Hyderabad, in Appeals Nos. 87/1980-81 and 88/1980-81, which in turn confirmed the assessments made by the Deputy Commercial Tax Officer I, Warangal, in his separate orders dated April 16, 1980. The petitioners in both the cases are two different firms, but their business were carried on in the same name. The assessments relate to the assessment year 1978-79.
2. In the words of Hilbery, J., in Dawson Ltd. v. Dutfield, reported in [1936] 2 All ER at page 232, "This is a troublesome case; troublesome not because of difficulty in ascertaining the principles of law which are applicable, hut because of the business relations between the parties". The line of business of the dealers is to convert aluminium scrap collected as such or in the shape of old aluminium articles, from customers and after converting them into new aluminium articles, to supply them to the same customers, charging the labour charges. The weight of old articles or the scrap will be the same as that of the new articles. The prices of the scrap or old articles or the new articles are not kept in mind, between the parties. The Deputy Commercial Tax Officer levied tax on the total amount of labour charges of Rs. 1,52,827.31 in T.A. No. 33 of 1981 and of Rs. 74,416.85 in T.A. No. 34 of 1981, taking the view that the transaction amounts to sale of finished goods, the "consideration being the value of old articles and the balance in cash". On appeal the assessments made were confirmed, accepting the view that the transfer of the new aluminium articles is for valuable consideration "part of the consideration being in kind and part of the consideration being in money. The appellant realised the price of the goods sold in the shape of the old aluminium scrap and in the shape of labour charges". On further appeal, the Tribunal, by a majority, disagreeing with the view of the Chairman, dismissed the appeals holding :
"I am of the clear view that the appellant made outright purchases of aluminium scrap and sold the finished articles separately. The two transactions are different and distinct. Purchase of old scrap from unregistered dealers attracts levy of tax under section 6-A of the APGST Act as the same was consumed in the manufacture of aluminium articles. The aluminium articles when sold also attract levy of sales tax on the entire value. The appellant in the instant case has combined these two transactions into one and camouflaged them to avoid payment of tax on the aluminium articles sold by it."
3. The Tribunal also held that the transactions did not amount to "barter" in strict sense. Jayarama Chettiar, In re [1948] 1 STC 168 (Mad.) and Devi Dass Gopal Krishnan v. State of Punjab were distinguished on facts, the Chairman of the Tribunal, however, rested his decision on their ratio.
4. On these facts, the only question that falls for consideration is whether the transaction of taking aluminium scrap or old aluminium articles and supplying new aluminium articles, of the same weight, collecting labour charges, by the dealer, amounts to sale within the meaning of section 2(n) of the Andhra Pradesh General Sales Tax Act (for short, "the Act").
5. The contention of Sri D. Ranganatha Kumar, the learned counsel appearing for the petitioners, is that there is no element of sale in the transaction and it is only an exchange of new articles for old articles of scrap of the same weight. "Sale" as defined under section 2(n) of the Act is transfer for cash or for other valuable consideration. The consideration was neither fixed nor contemplated between the assessee and the customers either for scrap, old articles or for the new articles. What is collected from the customers is the charges for converting the old articles into new articles. Hence the transaction does not fall within the meaning of section 2(n) of the Act. The learned Government Pleader for the Department of Commercial Taxes contends that the new aluminium articles are sold and the price is realised, partly by way of scrap or old goods and partly in cash. It is not essential that the consideration of sale need entirely be paid in cash.
6. In view of the dealer, its business comprises of a simple transaction. He receives aluminium scrap mostly in the shape of old articles and in exchange he supplies new aluminium articles of the same weight and collects the making charges from customers. His business is therefore making new articles out of the scrap, collecting the labour charges. In the strict legal sense, the transaction is not barter, since one will not exchange new articles of equal weight for scrap. In view of the department, if it is not barter or exchange, then it should be sale of new articles for the price of scrap and the "cash received". But the bills produced and examined in the case do not disclose the prices of the scrap or the new articles. There is no mention of the prices anywhere. The term "sale", either in the common parlance or in the sense it is used in Sale of Goods Act or the Transfer of Property Act or the Andhra Pradesh General Sales Tax Act, is defined as transfer of property for a "price or cash or other valuable consideration". It is well-settled that the consideration should be wholly in cash, and not partly in kind and partly in cash, as is the case here. In the absence of cash consideration, the transaction does not fall within the concept of sale. Now, we are left with the plausibility of the case put forth by the dealer, that is, it takes scrap and exchanges for new articles already made and collects the labour charges for making old articles into new articles. The scrap is not purchased, hence there is no sale in supplying the new articles. In the transaction, therefore, there is neither barter nor sale. If there is no sale there can be no tax liability. The Tribunal, therefore, without accepting the view of the department, came forward with the reasoning that the business should be taken to comprise of two transactions combined into one, one is purchase of scrap and another, sale of new articles, and both the transactions are taxable. This view, is wholly unsustainable. There is no basis for such assumption. The facts of the case do not reveal the cash consideration for the scrap or new articles, in the so-called two transactions. The bills are silent in this regard. There is no material on record even for the presumption that the parties have kept in mind the value of scrap or new articles. When value of scrap is not shown, there was no transfer of property in the scrap. It is difficult to understand the view of the Tribunal that the supply of aluminium articles amounts to sale. In view of the above circumstances, the reasoning of the Tribunal has to be held as clearly erroneous.
7. Having thus prefaced the case, we will now proceed to examine it in the context of statutory definitions and reasoning adopted by learned Judges of the Supreme Court and other High Courts, in similar cases.
"Sale" is defined under section 2(n) of the Act as follows :
"(n) 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (whether as such goods or in any other form in pursuance of a contract or otherwise) by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of or a charge on goods.
................"
It is seen that the essence of sale lies in transfer of property in goods "for cash or for deferred payment or for any other valuable consideration....." Unless the transfer of the new aluminium articles was for cash or for deferred payment or for any other valuable consideration, it cannot be termed as sale and the transaction is not liable for tax. The Assistant Commissioner, Commercial Taxes I (Appeals) has found :
"............as regards the value of the goods no bill was drawn up for the full value of the goods. Part of the value was recovered by way of old aluminium articles and the remaining in the shape of labour charges."
8. The values of scrap or new articles are also not shown in the bills. It is thus seen that the consideration for the new aluminium articles was not fixed or kept in mind by the parties to the transaction. In such an event it is difficult to accept the finding that the new articles were sold for a price or for cash or for any other valuable consideration. The finding of the Tribunal that the dealer made outright purchase of aluminium scrap and sold finished articles separately and the two transactions have been combined into one, to avoid payment of tax on the aluminium articles sold by the assessee, is untenable. In fact there was no sale of scrap by the customer in favour of the assessee since its price was not fixed. There is also no sale of the new articles for any fixed price by the assessee in favour of the customer. In fact the case of the department itself was that the sale price of the aluminium articles was partly obtained in kind, i.e., by way of old goods or scrap and partly in cash. It is a little difficult to accept the reasoning of the Tribunal that there were in fact two transactions and they were combined into one. With this conclusion, we cannot answer the question and dispose of the case. The larger question still remains. That is, whether the transaction would come within the meaning of "sale" under section 2(n) of the Act.
9. The argument of the learned Government Pleader, in substance is that the consideration was paid by the customers partly by way of old articles or scrap and partly by cash. Ex facie this argument is untenable as being contrary to the principle laid down by the Supreme Court in the following two cases, where it has been categorically held that the consideration in the transaction of sale should be paid only by way of cash or deferred payment or any other valuable consideration.
10. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353. The Supreme Court considered the vires of the words "other valuable consideration" contained in the definition of "sale" in the Madras General Sales Tax Act. After tracing the evolution of the law relating to the sale of goods from Roman Law to the time of the enactment of the Indian Sale of Goods Act, 1930, and the coming into existence of the Constitution of India, Venkatarama Aiyar, J., speaking for the court, held that the expression "sale of goods" occurring in Madras General Sales Tax Act must be construed in the sense which it has in the Sale of Goods Act. The words "other valuable consideration" which occurs in section 2(h) of the Madras General Sales Tax Act and which do not find a place in the definition of "sale" in the Sale of Goods Act, were held to be ultra vires the scope of the Provincial or State Legislature. It was further held that in order to constitute a sale it is necessary, among other things, that -
"..........there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, and that it must be supported by money consideration..........if the consideration for the transfer was not money but other valuable consideration, it may then be exchange or barter, but not a sale."
11. The Supreme Court had an occasion in Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 STC 430 to construe section 2(h) of the Punjab General Sales Tax Act, 1948, defining the expression "sale", which is analogous to section 2(n) of the Act. It was observed :
"Now, coming to the expression 'price', it is no doubt defined in the Sale of Goods Act as 'money consideration'. Cash or deferred payment in clause (ff) of section 2 of the Act satisfies the said definition. The expression 'valuable consideration' has a wider connotation, but the said expression is also used in the same collocation in the definition of 'sale' in section 2(h) of the Act. The said expression must bear the same meaning in clause (ff) and clause (h) of section 2 of the Act. It may also be noticed that in most of the Sales Tax Acts the same three expressions are used. It has never been argued or decided that the said expression means other than monetary consideration. This consistent legislative practice cannot be ignored. The expression 'valuable consideration' takes colour from the preceding expression 'cash or deferred payment'. If so, it can only mean some other monetary payment in the nature of cash or deferred payment."
12. Thus, the expression "cash or deferred payment or any other valuable consideration" used in the definition of "sale" under section 2(n) of the Act, has to be construed to mean cash and not any mode of payment other than cash.
13. The counsel for the petitioners has also cited several other decisions in which transactions of this nature were considered which are referred to hereunder :
In South India Metal Works and Rolling Mills v. State of Madras [1960] 11 STC 507 (Mad.), where the assessee collected scrap materials from its customers, melted the scrap, manufactured sheets and rings and gave back to the customers the new sheets and rings after collecting labour charges, the total weight of the scrap tallied with the total weight of the sheets and rings, the Madras High Court held that :
"..........there was no question of purchase when the scrap metal was entrusted by the customer to the assessee; nor was there any sale as such of the brass and copper sheets or rings......... Apparently, the assessee collected scrap from a number of customers, had all that scrap melted, manufactured sheets and rings, and gave back the customers the exact weight, but in new sheets and rings. That the identity of the new sheets and rings could not be correlated to and established with the scrap supplied by the customer is not really germane in deciding the real question at issue - was there a sale or purchase at any time, either when the assessee took over the scrap for the specific purpose of melting it and converting it into sheets and rings, or when there was a delivery of the finished product, that is, sheets and rings, by the assessee to the customer. The Tribunal found that the total weight of the scrap tallied with the total weight of the sheets and circles given to the customer. As we said, the quantitative tally was there. Only, the identity of the scrap with the new sheets and rings could not be established, and it was not necessary to establish it."
This is identical with the instant case. The decision in Raju Chettiar and Brothers v. State of Madras [1955] 6 STC 131 where a similar question arose was also relied upon by the Madras High Court. It was observed that :
"....... It was not a case of sale of the scrap by the customer to the assessee, and it was not a case of purchase of that scrap by the assessee. There was therefore no question of any transfer of property in the scrap from the customer to the assessee. If there was no purchase of the scrap by the assessee and no acquisition of property in the scrap metal, it is a little difficult to understand the basis for the view that, when the sheets and rings were made over to the customer, there was a sale involving an element of transfer of property."
Vishweshwaradass Gokuldass v. Government of Madras [1962] 13 STC 113 (Mad.), is also an identical case where the aluminium scrap collected was converted into aluminium circles and supplied in equal weight after collecting labour charges. It was held by the Madras High Court, following the decision in South India Metal Works and Rolling Mills [1960] 11 STC 507 (Mad.) that the transaction was not a sale. The question that arose in Sales Tax Commissioner, U.P. v. Ram Kumar Agarwal [1967] 19 STC 400 (All.) was "whether the giving of bullion by a dealer in exchange for purchase of ready-made ornaments manufactured by goldsmiths is a 'sale of bullion' or is a barter or exchange transaction". Following Gannon Dunkerley , Allahabad High Court held that the transaction was not a sale, but only exchange or barter. During the course of judgment it was observed :
"It cannot be denied that if a person has gold lying at home and he gives it to the goldsmith to convert it into ornaments, no sale of gold takes place. Then again, if the assessee in the present case, had given to the goldsmith the requisite quantity of gold lying with him before the ornaments were prepared, the transaction would not have amounted to a sale. Merely because gold ornaments when ready were brought to the assessee for purchase and he replaced the gold content thereof from his stock-in-trade will not alter the true nature or character of the transaction."
14. Commissioner, Sales Tax, M.P. Indore v. Kansari Udyog Sahakari Samiti [1979] 43 STC 176 (MP) is a case of old "kansa" goods, supplied for kansa utensils of equal weight. Following the principles laid in Gannon Dunkerley and Ram Kumar Agarwal [1967] 19 STC 400 (All.), the Madhya Pradesh High Court observed that the transaction wherein substantial consideration is the supply of an equal amount of raw material and money part represents only the labour charges cannot be treated as amounting to a sale, within the meaning of the Sale of Goods Act.
15. The principle that can be deduced from the above decisions, is that the collection of scrap or old utensils would only amount to receiving raw material for the preparation and supply of new utensils and the amount of cash received should be considered as making charges and should not be treated as price or cash consideration. Such a transaction cannot be treated as sale. The transaction involving the payment of consideration, partly in cash and partly in scrap or old utensils does not amount to sale.
16. The learned Government Pleader for department, in a vain bid to buttress his contention that though the consideration is other than valuable consideration, would still amount to sale as defined in the Sale of Goods Act, cited decisions of various High Courts. On a close scrutiny of the decisions, it does not show that they run contrary to the principle deduced from the Supreme Court decisions.
17. In Hyderabad Chemicals and Fertilizers Ltd. v. Deputy Commissioner, Commercial Taxes (Appeals), Kurnool [1962] 13 STC 812 (AP), there was an agreement by the assessee to supply to a sugar factory 1,300 tons of fertilizer mixture, comprising of certain chemicals and groundnut oil-cask and the sugar factory should supply the assessee 1,000 tons of groundnut oil-cake to be used in the mixture. The price of the fertilizer mixture was fixed at Rs. 308.98 per ton and the rebate shall be given in the bills for the value of the groundnut oil-cake at Rs. 186.48 per ton and the sugar factory should pay the balance of Rs. 122.50 per ton. The question that fell for consideration before this Court was whether the price of fertilizer mixture was Rs. 308.98 or Rs. 122.50 per ton, and whether the assessee was entitled to deduct from the turnover the value of the groundnut oil-cake supplied by the sugar factory. This Court observed :
"It is clear from the definition of 'sale' that the consideration of sale can be cash or deferred payment or any other valuable consideration. In the instant case, it is evident that the consideration for the supply of each ton of the fertilizer mixture was payment of Rs. 307.73 n.p., which consisted partly in cash, and partly in the value of groundnut oil-cake supplied by the sugar factory."
18. This Court held that the assessee received groundnut oil-cake towards part price of the fertilizer mixture, the price of the fertilizer mixture having already been fixed, and the transaction could not be anything but a sale of the fertilizer mixture. Therefore, the assessee was not entitled to deduct from the turnover the value of the groundnut oil-cake. This case is adverse to the department. The price of the fertilizer mixture has already been fixed at Rs. 308.98 and towards the said price, the groundnut oil-cake also valued at Rs. 186.48 was supplied to the assessee. This satisfied the requirement of the definition "sale" since the fertilizer mixture has been sold at a price fixed. It is not the case of the assess that the consideration has been paid by the purchaser in the shape of groundnut oil-cake partly. In the instant case, admittedly no price has been fixed either for the new articles, or for the scrap or old articles. Cash was paid not towards consideration, but towards labour charges. The fundamental difference lies in the fixation of consideration and nature of payment of the same.
19. G. J. Dawson (Clapham) Ltd. v. H. & G. Dutfield [1936] 2 All ER 232 is the "troublesome case", dealt with by Hilbery, J. The plaintiff sold two second hand lorries to the defendant for a price of Pounds 475. Pounds 250 was paid in cash and as to the balance of Pounds 225, two other lorries have been given. The price of the lorries was mentioned in the agreement and the transaction was held to be a concluded bargain of sale. Again in Ariyaputhira Padayachi v. Muthukumaraswami Padayachi [1914] 37 ILR Mad. 423 it was held by the Madras High Court that :
"If the price is fixed in the conveyance in current coin, I think that the words 'price paid' will cover cases where the vendors claim for the receipt of the price is satisfied by giving him what he accepts as tantamount to such payment........
If two persons mutually exchange two things (neither of which is 'money only') it may be an exchange or barter and not a sale. But if they mentally fix the values of the exchanged things in current coin and then exchange them as of equal value, I think they might be held to effect 'sales', and not to pay 'prices' and not merely to effect an exchange or barter."
20. It will be seen that in these two cases also the price of the goods has been fixed, which is not the case in the instant case and in payment of price some goods are paid of equal value. They do not detract from the principle of Gannon Dunkerley and Devi Dass Gopal Krishnan .
21. V. P. Vadivel Achari v. Madras Sales Tax Appellate Tribunal [1969] 23 STC 273 (Mad.) is a case where gold jewels are supplied in consideration of equal weight of gold and labour charges for making the jewels. The Madras High Court held that the transaction amounts to sale of goods under the Madras General Sales Tax Act. Having noticed Devi Dass Gopal Krishnan , Veeraswami, J., speaking for the court observed :
"..........What is in the nature of cash need not necessarily be cash itself. Money is not necessarily confined to coins or currency notes..........
Gold being, therefore, in the nature of money, as we are inclined to understand the expression, payment by gold may be regarded, in our opinion, as a payment in the nature of cash or as a money consideration in the context of sale of goods."
22. The learned Judge drew support for his view from the decision reported in Jayarama Chettiar, In re [1948] 1 STC 168 (Mad.) where the Madras High Court held that "payment in silver was payment in money consideration". We do not agree with the above view, in view of the rule laid down by the Supreme Court. In Sales Tax Commissioner, U.P. v. Ram Kumar Agarwal [1967] 19 STC 400 (All.) already considered by us, bullion was exchanged for ready-made ornaments manufactured by goldsmith. The Allahabad High Court held it as not of sale of bullion within the meaning of Uttar Pradesh Sales Tax Act, 1948 but was only a barter or exchange transaction.
23. Some other decisions have been cited by the learned Government Pleader for the department, but in view of the above Supreme Court decisions, we do not feel there is any good reason to consider them.
24. We, therefore, hold that the transaction in question, i.e., collecting from customers aluminium scrap or aluminium old articles and supplying new aluminium articles of the same weight, collecting labour charges, would not amount to sale within the meaning of section 2(n) of the Act. Hence, the respondent is not entitled to levy tax on the turnover in question in both the cases. The tax revision cases are, therefore, allowed, with costs.
25. Petition allowed.