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K. Yegnasankaranarayana Iyer Vs. the Government of Madras - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 109 and 110 of 1963 (Revision Nos. 68 and 69)
Judge
Reported in[1965]16STC149(Mad)
AppellantK. Yegnasankaranarayana Iyer
RespondentThe Government of Madras
Appellant AdvocatePadmanabhan, Adv. of ;Subbaraya lyer, ;Sethuraman and ;Padmanabhan, Advs.
Respondent AdvocateG. Ramanujam, Adv. for ;Government Pleader
DispositionPetition allowed
Cases ReferredIndian Metal and Metallurgical Corporation v. State of Madras
Excerpt:
.....and treated such deliveries of copper scrap as sales for consideration, the consideration being the value of brass discs and circles plus manufacturing charges as well as the rebate just now referred to for the addition of zinc made during the process of melting. in both the years of assessment, copper scrap and brass scrap as well as zinc scrap have been supplied. apparently it was considered by the bench that when the rolling mills delivered manufactured sheets to the vessel merchants a valuation of the price of brass sheets as well as of the copper scrap supplied was made and for adjusting the difference, a cash credit was also given......there is no sale of scrap at this stage. no price or consideration or even the value of the scrap supplied is entered in the books of the rolling mills thereafter, when the mills have received similar scrap from other dealers, they are melted, and circles or sheets according to requirement, of equal weight, to the scrap supplied (up to the date of delivery of brass sheets or circles) are delivered to the vessel merchants. the rolling mills levy a fixed conversion charge therefor, the charge being for the conversion of copper scrap or brass scrap into brass sheets or brass dics. in the melting process, zinc and borax are added. when the brass scrap itself goes into the melting pot, no addition of zinc is required, but where the copper scrap goes into the melting pot a proportionate.....
Judgment:

Ramakrishnan, J.

1. These revision cases are filed against the order of the Sales Tax Appellate Tribunal in T.A. Nos. 1419 and 1338 of 1961 respectively. They relate to the assessment of the same assessee for 1956-57 and 1957-58 respectively. The nature of the business of the assessee has been described at more than one stage in the course of the assessment proceedings. It appears to be as follows: The assessee is a merchant dealing in brass and copper vessels. In the course of his business, he accumulates scrap out of old brass and copper vessels and these are delivered from time to time to a firm that is engaged in the melting of such brass and copper scrap and adding zinc to it wherever necessary in a prescribed proportion of copper to brass (roughly 60:40) to melt them into brass alloy, which is thereafter beaten into discs and sheets, according to the requirements of the vessel merchant, and supplied to him. The manufacturer (Nellai Metal Rolling Mills Private Limited) produced a running account for such supply of scrap and delivery of brass discs and sheets. The nature of the supply, the manner in which the running account is maintained, and the way in which the contract between the vessel merchant and the rolling mills is performed, are more clearly described in an affidavit which was filed before us by the assessee. In the course of the hearing of the revision cases, a copy of this affidavit was supplied to the learned Government Pleader. The facts stated in the affidavit are not now in controversy. The procedure adopted in this business, as revealed by the affidavit appears to be this:

2. The assessee sends scrap of copper and brass to the Nellai Metal Rolling Mills Private Limited for being converted into discs or sheets as required by him. When the scraps are received, the receipts are entered by the mills in 'own conversion account', and the name of the metal as also its weight are shown in the entry. In the assessee's folio also they are shown to the credit of the assessee. There is no sale of scrap at this stage. No price or consideration or even the value of the scrap supplied is entered in the books of the rolling mills Thereafter, when the mills have received similar scrap from other dealers, they are melted, and circles or sheets according to requirement, of equal weight, to the scrap supplied (up to the date of delivery of brass sheets or circles) are delivered to the vessel merchants. The rolling mills levy a fixed conversion charge therefor, the charge being for the conversion of copper scrap or brass scrap into brass sheets or brass dics. In the melting process, zinc and borax are added. When the brass scrap itself goes into the melting pot, no addition of zinc is required, but where the copper scrap goes into the melting pot a proportionate weight of zinc has to be added. If the zinc scrap supplied by the assessee is sufficient it is no doubt used, but where it is not sufficient, or if there is no supply at all of zinc scrap, the rolling mills add zinc of their own, to make up the quantity of zinc required in proportion to the copper supplied. After being melted, the metals are rolled in the mills and the required sizes of sheets, etc., have to be cut, and the pieces remaining after the required sizes are cut out, are again melted and the required sizes of sheets etc., are formed out of them also. When the mills deliver to the assessee the brass sheets and discs equal in weight to the scrap supply of the assessee, a debit is entered against the assessee in his folio wherein the scrap supplied by the assessee has already been entered to the credit of the assessee. The sheets and discs delivered by the mills will tally in weight with the scrap supply of the assessee. But in the making of the brass sheets etc., from deliveries of copper scrap, a proportion of zinc has to be used and the resultant brass weighs considerably more than the copper scrap that goes into it. But the assessee, whose copper scrap goes into the process of manufacturing brass sheets, is given brass sheets equal in weight to the scrap that is supplied by him. Therefore, a rebate, having reference to the increased weight in brass sheets consequent on the zinc used in the manufacture, is allowed to the customers according to a particular formula based on the quantity of scrap supplied by him. This rebate is credited to the assessee and is not a differential cost.

3. We were also supplied with copies of the resolutions of the directors of the rolling mills, who appear to have met periodically and resolved about the rate of rebate to be allowed consequent on the addition of zinc required for melting copper scrap into brass sheets, for which the credit notes are given to the merchants who supply copper scrap.

4. The department has picked out the occasions in the respective assessment years where the vessel merchant has supplied copper scrap only and treated such deliveries of copper scrap as sales for consideration, the consideration being the value of brass discs and circles plus manufacturing charges as well as the rebate just now referred to for the addition of zinc made during the process of melting. So far as deliveries of brass scrap are concerned, the department, relying upon the decision of this Court in South India Metal Works and Rolling Mills v. Stale of Madras [1960] 11 S.T.C. 507, has exempted them from assessment. In both the years of assessment, copper scrap and brass scrap as well as zinc scrap have been supplied.

5. But as mentioned above, only the deliveries of copper scrap have been picked out for assessment and treated as sales, and this is the subject-matter of the dispute before us. The Sales Tax Appellate Tribunal was of the opinion that in the case of copper scrap, the principle laid down by this Court in South India Metal Works and Rolling Mills v. State of Madras [1960] 11 S.T.C. 507 will not apply and it has to be assessed as sales effected by the vessel merchants to the rolling mills. The assessee aggrieved against this decision has filed these revision cases before us.

6. Learned Counsel for the petitioner before us has pointed out that the nature of the transaction between the assessee and the rolling mills is the same whether it was brass scrap that was supplied or copper scrap that was supplied. The crux of the matter is to find out whether, at the time of every delivery by the assessee of scrap, whether it be copper or brass, the bargain was one of sale or was only one for conversion and manufacture into brass sheets or discs. If the bargain was one of sale, it could be only on the assumption that at the time of supply the brass scrap that was delivered was given a value, and also the brass sheets or discs at the time of their supply were also given a value, together with manufacturing charges, by the rolling mills, and that the contract therefore was to supply, one item of goods valued at a certain amount against another item of goods valued at a certain amount plus cash. Such a contract will be a sale of goods for valuable consideration, according to the principle laid down in Halsbury's Laws of England, Third Edition, Volume 34, where at page 5 it is observed:

If the goods are to be paid for by money and other goods, on which a fixed value is put, the contract may be treated as one of sale for the aggregate sum as the price.

7. There will be transfer of property in the scrap at the moment of its delivery by the vessel merchant to the manufacturer. But, in this case, there is no evidence that the vessel merchant bargained, every time the scrap of a particular weight (whether of brass or copper) was delivered to the rolling mills, to sell the scrap for an equal weight of brags sheets and discs plus cash. The accounts of the rolling mills, whose accuracy is not in dispute, show that at the time of delivery, no calculation of the price was made and no adjustment was made also for any difference in weight on account of the fact that what was supplied is copper scrap and not brass scrap. The accounts are settled only periodically and at that time, brass sheets or discs of weight equal to the scrap supplied up to that date are given to the vessel merchant. An amount is debited for manufacturing charges. A rebate is granted for delivery of copper alone by the vessel merchant for the excess quantity of zinc supplied by the manufacturer besides the manufacturing charges. The said running account must be construed as establishing a contract for the manufacture and delivery of brass sheets and discs in lieu of the brass scrap or copper scrap, periodically supplied by the vessel merchant to the manufacturer, after levying certain justifiable charges for the purpose.

8. Such a transaction came up before this Court in Raju Chettiar and Brothers v. State of Madras [1955] 6 S.T.C. 131. It is a case where the plaintiff-firm carrying on business as jewellers and merchants in gold and silver bullion, supplied from time to time silver to manufacturers of silverware and silver jewellery at Kumbakonam, and in the accounts, the Kumbakonam merchants were debited with the weight of such silver in tolas. And when finished articles were received from the Kumbakonam manufacturers, they were credited with the weight of the finished articles. The manufacturers were credited with the wages or making charges from time to time, that is, when the finished articles were received, and were debited when they were paid in cash. The account books showed that the above was the actual procedure adopted between the plaintiff and the Kumbakonam manufacturers. At the time of the delivery of the bullion, the manufacturers were never debited in cash representing the price of the silver supplied. In fact, there was no indication of the price anywhere. Periodically, balances were struck in respect of silver but only in weight. Even then, there was no conversion of the balance into cash calculated at a price. In such circumstances, the Bench of this Court held that there was no transaction of sale of the silver bullion by the plaintiff to the Kumbakonam manufacturers and that the manufacturers were really in the position of bailees for the silver and there was no transfer of property in the silver supplied to them, and there was no cash or other consideration either.

9. The principle of this decision was followed by this Court in South India Metal Works and Rolling Mills v. State of Madras [1960] 11 S.T.C. 507, which was a case of a transaction, as in this case, between a merchant dealing in brass vessels and a manufacturer, who melted the scrap supplied by the vessel merchant and gave to the vessel merchant periodically brass sheets and rings. The manufacturer was assessed to sales tax. In that case, only brass scrap was supplied and there was tally between the total weight of the brass scrap and the finished manufactured sheets and discs supplied by the manufacturer. There was no identity between the scrap supplied by the merchant and the new sheets supplied by the manufacturer. Obviously, such identity was impossible because the very nature of the business was such that the scrap supplied by different vessel merchants were mixed together and went into the melting pot and the manufacturer manufactured new sheets and rings. The decision proceeded not on the ground that the brass sheets and brass discs were supplied for an exact quantity of brass scrap delivered by the customer, but the Bench adopted the principle laid down in Raju Chettiar's case [1955] 6 S.T.C. 131, that according to the contract between the customer and the assessee there was no contract of sale and no transfer of property in the scrap from the customer to the assessee, at the time of delivery of the scrap. The Bench observed that if there was no purchase of the scrap by the assessee and no acquisition of property in the scrap metal, it was 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. That was a case, of course, where the assessee was the manufacturer and not the vessel merchant, as in this case. But the principle expressed in that decision will be the same whether we consider it from the point of view of the merchant who delivers the scrap on the one hand and the manufacturer, who periodically delivers to him the finished sheets and discs after melting the scrap in his rolling mills, on the other.

10. There is another decision of this Court in Indian Metal and Metallurgical Corporation v. State of Madras [1963] 14 S.T.C. 788, where also the assessee was the rolling mill and not the vessel merchant. It was a case of assessment for delivering of brass sheets and discs supplied by the rolling mill, against the copper scrap supplied by the vessel merchants. Venkatadri, J., who delivered the decision of the Bench, pointed out that while supplying brass sheets, the assessee also gave a credit note to its customers for the difference in values between the two metals. Apparently it was considered by the Bench that when the rolling mills delivered manufactured sheets to the vessel merchants a valuation of the price of brass sheets as well as of the copper scrap supplied was made and for adjusting the difference, a cash credit was also given. But the facts made out in the present case are different. They show that at no time was there any agreement that the vessel merchant was selling scrap to the mill or that the mill was selling brass sheets and discs to the vessel merchant. As we have already mentioned, the accounts were kept as a running account, and there is no suggestion made that the accounts were bogus accounts intended to camouflage transactions which were really sales. There was only a credit of scrap by weight at the time of delivery, debited by supply of brass sheets and discs of equal weight periodically; at the time of supply of the sheets and discs an extra rebate in addition to the usual manufacturing charges was given based upon the additional requirement of zinc when copper scrap alone had to be melted. We are of the opinion that the fact that copper scrap was supplied instead of brass scrap, would not make any difference in the nature of this transaction. We hold, following the decision in Raju Chettiar's case [1955] 6 S.T.C. 131, that there was no transfer of property in the scrap from the assessee to the rolling mills when it was delivered, that none of the elements of sale was present in the transaction and that the contract was only for manufacture and supply of brass discs and sheets out of scrap delivered.

11. We allow the revision cases and set aside the assessments on the assessee on the disputed turnover before us in both the cases. There will be no order as to costs.


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