1. In respect of the assessment year 1968-69, the assessee reported a total and taxable turnover of Rs. 28,20,167.02 and Rs. 1,93,869.86 respectively under the Tamil Nadu General Sales Tax Act, 1959. The assessee had claimed in this return a deduction of Rs. 1,06,239.96 as relating to inter-State purchases of cotton. Though the assessing officer rejected this claim on the ground that no proof was produced by the assessee to establish that they were inter-State purchases of cotton, on appeal, the Appellate Assistant Commissioner, accepted the contention and deleted the said turnover, accepting the return submitted by the assessee. Subsequently on the ground that certain turnover has escaped assessment, the assessing officer invoked his jurisdiction; under section 16 and after issuing notices and calling for objections, revised the assessment including a sum of Rs. 2,29,999.23 as a taxable turnover. But on appeal, the Appellate Assistant Commissioner held that it was an inter-State purchase not liable to tax in Tamil Nadu and, accordingly, set aside the revised assessment on 31st July, 1972.
2. The facts relating to the turnover of Rs. 2,29,999.23 as found in the orders of the Board, which is the subject-matter of this appeal, and the Appellate 'Assistant Commissioner and the assessing officer are as follows :
3. The assessee had initially obtained 76 bales of Egyptian cotton from Western India Spinning and Manufacturing Company, Bombay, as a loan by depositing Rs. 2,29,999.23. According to the agreement 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 calculated at Rs. 3,315 per bale f.o.r. destination would be forfeited and the loan would then be cancelled. Those transactions appear to have been entered into in July, 1968, and the cotton was actually received by the assessee on 29th July, 1968. It was the contention of the assessee that the cotton was consumed during August, 1968. Since the assessee had not returned the cotton within the period prescribed, the Bombay mills have forfeited the amount in full on 28th September, 1968. The assessing officer in his revised assessment under section 16 of the Act held that the description of the transaction as if it were a loan transaction was a make-belief arrangement and actually it was a sale. In that view, he held that the turnover was assessable under the Tamil Nadu General Sales Tax Act. While agreeing with the finding of the assessing officer that the loan transaction was a make-belief arrangement and that there was a real sale, the Appellate Assistant Commissioner however held that it was an inter-State purchase not liable to tax under the Tamil Nadu General Sales Tax Act and, accordingly, set aside the revised assessment. The Board of Revenue took suo motu revision of the order of the Appellate Assistant Commissioner and, after issuing notice and hearing the assessee, held that the loan transaction was a make-belief arrangement and that there was a sale. However, it was of the view that the sale could be said to have taken place not in July, 1968, when the original arrangement between the parties was entered into in pursuance of which the goods were transported from Bombay to Coimbatore, but on the date when the sum of Rs. 2,29,999.23 deposited was forfeited by the Bombay mills. The Board was of the further view that since on the date when the forfeiture took place the cotton was within the State, the sale shall be deemed to be a local sale attracting the provisions of the Tamil Nadu General Sales Tax Act. In that view the order of the Appellate Assistant Commissioner deleting the turnover of Rs. 2,29,999.23 was set aside and the order of the assessing officer under section 16 of the Act was restored. It may be mentioned that one of the points that was raised by the assessee before the Board of Revenue was that the proceedings would not be initiated by the Board on the ground that five years had elapsed from the date of the original assessment order dated 10th December, 1969. This contention was raised on the assumption that the Appellate Assistant Commissioner's order dated 2nd May, 1972, the revised assessment under section 16 of the Act dated 25th May, 1972, and the appellate order against the revised assessment dated 31st July, 1972, all merged in the original order dated 10th December, 1969, and the period of five years under section 34 of the Act will have to be calculated from 10th December, 1969. This contention was rejected by the Board of Revenue holding that the suo motu revision is against the order of the Appellate Assistant Commissioner dated 31st July, 1972, and the Board's proceedings initiated within five years from that date was in order. The learned counsel for the appellant did not question this finding of the Board of Revenue that the suo motu proceedings were not barred by limitation. But he questions the finding of the Board that the transaction was a sale and much less a local sale, which could be subjected to tax under the Tamil Nadu General Sales Tax Act. As already stated the finding of the assessing officer in the revised assessment proceedings as well as that of the appellate authority and the Board of Revenue was that the loan transaction was a make-belief arrangement and it was not a real loan transaction. If these findings 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. On the failure of the assessee to return the goods lent as promised, within a month, the remedy of the Bombay mill was either to ask for the return of the goods in specie or claim damages. Since it appeared that the sum of Rs. 2,29,999.23 represented the actual price of 76 bales of Egyptian cotton which were said to have been lent as provided in the contract itself, the Bombay mill had for feited and the loan transaction was cancelled. In such circumstances, therefore, the transaction could not be held to be a sale at any time and the realisation by forfeiture of the deposit would be in the nature of liquidated damages and for feiture under a contract of bailment. If the findings in the revision proceedings and the suo motu revision of the Board of Revenue that the loan transaction was a make-belief transaction are to be accepted, then we can only conclude that there was a sale in July, 1968, when the parties entered into an agreement relating to the deposit of Rs. 2,29,999.23 which represented the actual price of 76 bales of Egyptian cotton on condition of f.o.r. destination. In such a case the movement of the goods shall be deemed to have taken place in pursuance of the contract of Sale and, therefore, it is an inter-State sale. There could be no basis for holding that the goods were taken as loan in July, 1968, but only when the appellant did not return the same within a period of one month it would become a sale, as held by the Board of Revenue. There being no evidence as to how the goods were moved from Bombay and on the finding that the goods were not moved on the basis of loan transaction, we have necessarily to hold that the movement of the goods were occasioned under the contract of sale entered into in July, 1968, before the movement of the goods especially when the amount deposited is accepted to be the exact market price of 76 bales of cotton despatched. We are unable to agree with the finding of the Board of Revenue that the sale transaction should be deemed to have taken place on the date when the forfeiture took place and not on the date when the goods actually moved from Bombay to Coimbatore. We may also state that there is no evidence of any subsequent agreement of sale and that was not even the case of the revenue. We, accordingly, hold that the transaction is not liable to tax under the Tamil Nadu General Sales Tax Act either on the basis that it is on a loan transaction or on the basis that it is an inter-State sale.
4. The appeal is accordingly allowed and the order of the Board of Revenue is set aside with costs. Counsel fee Rs. 250.
5. Appeal allowed.