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The South India Metal Works and Rolling Mills Vs. the State of Madras - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 168 of 1958 (Revision No. 97/58)
Judge
Reported in(1960)IIMLJ257; [1960]11STC507(Mad)
AppellantThe South India Metal Works and Rolling Mills
RespondentThe State of Madras
Appellant AdvocateK.V. Venkatasubramania Iyer and ;V. Sethuraman, Advs
Respondent AdvocateThe Adv.-General and ;The Government Pleader
DispositionPetition allowed
Cases ReferredRaju Chettiar v. State of Madras
Excerpt:
- - there the learned judge was apparently satisfied that the course of transactions was that when a customer purchased the silver article from jayarama chettiar the purchaser paid for the purchase partly in cash and partly in silver.orderrajagopalan, j.1. one of the lines of business of the petitioner assessee was to convert the scrap metal entrusted to him into sheets and rings for the customers. in the assessment year 1955-56, the petitioner collected from his customers a sum of rs. 87,118-14-6 as labour charges for the supply of finished copper and brass sheets and rings. the department held in effect that there must have been a purchase of the scrap metal from the customers and that the subsequent transaction was a sale of the brass and copper sheets and rings. the department estimated the turnover of the second transaction at three times the labour charges and on an estimated turnover of rs. 2,61,356-11-6 the petitioner was assessed to sales tax. on appeal, the commercial tax officer confirmed that assessment,.....
Judgment:
ORDER

Rajagopalan, J.

1. One of the lines of business of the petitioner assessee was to convert the scrap metal entrusted to him into sheets and rings for the customers. In the assessment year 1955-56, the petitioner collected from his customers a sum of Rs. 87,118-14-6 as labour charges for the supply of finished copper and brass sheets and rings. The Department held in effect that there must have been a purchase of the scrap metal from the customers and that the subsequent transaction was a sale of the brass and copper sheets and rings. The Department estimated the turnover of the second transaction at three times the labour charges and on an estimated turnover of Rs. 2,61,356-11-6 the petitioner was assessed to sales tax. On appeal, the Commercial Tax Officer confirmed that assessment, The Tribunal confirmed that assessment when the assessee appealed, to the Tribunal. The assessee there upon applied to this Court under Section 12-B of the Sales Tax Act to, set aside the assessment on this item of his turnover which it should be remembered was ultimately sustained by the Tribunal.

2. At one stage, learned counsel for the petitioner assessee contended that if the Department and the Tribunal took the view that it was in essence a case of barter and applied Rule 17 of the Turnover and Assessment Rules then the definition of sale in Section 2(h) which in effect made a transaction of barter a sale would be beyond the legislative competence traceable to Entry 54 List II of 7th Schedule to the Constitution. On that, notice was issued to the Advocate-General. It is however unnecessary to go into the constitutional validity of the definition of 'sale' in the Sales-Tax Act as the petitioner can get the relief he wants in this case on other grounds.

3. On examining the facts of this case, particularly with reference to a bill which the assessee issued and which is taken as typical of the transactions the assessee entered into with his customers it is found 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. No doubt the Tribunal pointed out that the appellant admitted that it is not possible to correlate any given set of circles supplied to a customer to any particular quantity of scrap received from the customer.' That may not be strictly accurate because earlier the Tribunal found that the customer got back an exact equivalent in weight of the scrap that had been originally entrusted to the assessee. The nature of the business conducted by the assessee was-such that it was not possible to correlate the supply of the new sheets and rings to the very scrap entrusted to the assessee by the customer who got the new sheets and rings-in exchange. 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.

4. The Tribunal was of the view that the principle laid down by a. Division Bench of this Court in Raju Chettiar v. State of Madras [1955] 6 S.T.C. 131 did, not apply to the facts of this case but that the present case came within the scope of the decision in Jayarama Chettiar, In re [1948] 1 S.T.C. 168.

5. Raju Chettiar's case [1955] 6 S.T.C. 131 is certainly authority for the position, that, when the assessee received the scrap from his customer for the specific purpose of melting the scrap and converting it into new sheets and rings, there was no element of purchase or sale. 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. The assessee who had never any property could not transfer a non-existent right to the customer. The right was that of the customer all along only in lieu of the old scrap metal he received the new metal that is purified metal but cast into sheets and rings. The learned Advocate-General urged that this was the correct view to take of the transactions between the assessee and the customer and we accept that contention as sound in the circumstances established in this case and on the findings of the Tribunal.

6. Since there was no element of sale at all when the sheets and rings were handed over to the customer and what was collected from the customer was in substance and effect the charges for converting the old metal into new sheets and rings, there was no liability to pay any sales tax. Whether if there was a liability to pay sales tax the basis of the estimate was correct does not therefore arise for consideration.

7. We pointed out earlier that the Tribunal was of the view that the assessee's case fell within the scope of the principle laid down in Jayarama Chettiar In re. [1948] 1 S.T.C. 168. The facts of that case are easily distinguishable and it is not therefore necessary for us to go into the question whether correct principle of law was laid down in that case. There the learned Judge was apparently satisfied that the course of transactions was that when a customer purchased the silver article from Jayarama Chettiar the purchaser paid for the purchase partly in cash and partly in silver. As we said, the facts of that case are easily distinguishable and the principle laid down in that case cannot be extended to cover the transactions of the assessee.

8. Since we have come to the conclusion that there was no sale of sheets and rings to the customers of the assessee and what the assessee collected was only towards the labour charges the assessee was not liable to be taxed on the turnover of Rs. 2,61,356-11-6. That turnover shall be excluded from his assessment.

9. The petition is allowed to the extent indicated above. The petitioner will be entitled to his costs. Counsel's fee Rs. 100.


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