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1983 Supreme(Mad) 232
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE SHANMUGAM & THE HONOURABLE MR. JUSTICE RAMANUJAM
State of Tamil Nadu - Appellant
Versus
Ashok Leyland Limited` - Respondent
Case No : T.C. (Rev.) No. 1145 of 1977
Decided On : 13 April 1983
The essence of a works contract is the service rendered, not the transfer of property in the goods.
Headnote:
SALES TAX - Works contract - Whether transactions between assessee and ancillary product manufacturers are sales or works contract - Whether supply of raw materials by assessee to customers on purchase orders are sales exigible to tax or works contract not exigible to tax - Whether dismissal of enhancement petition filed by State is right in respect of turnover where original invoices had been cancelled in toto and fresh invoices had been raised for sale of vehicles either locally or outside the State and tax paid thereon under local Sales Tax Act and Central Sales Tax Act - Whether transactions amounting to sales in the course of import are exempt from taxation.
Fact of the Case:
The assessee, a manufacturer of automobile trucks, supplied raw materials to ancillary product manufacturers for the manufacture of component parts required by the assessee. The assessee issued debit notes and credit notes in respect of the supply of raw materials. The State contended that the transactions were outright sales and therefore exigible to tax. The assessee contended that the transactions were works contracts and not sales.
Finding of the Court:
The Tribunal held that the transactions between the assessee and the ancillary product manufacturers were works contracts and not sales. The Court upheld the Tribunal's finding, holding that the essence of the transactions was the service rendered by the ancillary product manufacturers in manufacturing the component parts, and not the transfer of property in the raw materials.
Issues: 1. Whether the supply of raw materials by the assessee to customers on purchase orders were all towards works contract not exigible to tax or whether they are sales exigible to tax? 2. Whether the dismissal of the enhancement petition filed by the State is right in respect of turnover of Rs. 2, 89, 002 where original invoices had been cancelled in toto and fresh invoices had been raised for the sale of vehicles either locally or outside the State and tax paid thereon under the local Sales Tax Act, and Central Sales Tax Act were paid? 3. Whether the transactions amounting to Rs. 5, 13, 968.53 are sales in the course of import and are exempt from taxation?
Ratio Decidendi: 1. The essence of a works contract is the service rendered, not the transfer of property in the goods. In the present case, the assessee supplied raw materials to ancillary product manufacturers for the manufacture of component parts required by the assessee. The ancillary product manufacturers returned the finished products to the assessee. The Court held that the transactions were works contracts and not sales, as the essence of the transactions was the service rendered by the ancillary product manufacturers in manufacturing the component parts, and not the transfer of property in the raw materials. 2. The Court held that the dismissal of the enhancement petition filed by the State was right, as the assessee had cancelled the original invoices in toto and raised fresh invoices for the sale of vehicles either locally or outside the State and paid tax thereon under the local Sales Tax Act and Central Sales Tax Act. 3. The Court held that the transactions amounting to Rs. 5, 13, 968.53 were sales in the course of import and were exempt from taxation, as the assessee had acted as agents of the actual users and the sales had occasioned the import of the goods.
Final Decision: The Court dismissed the tax revision case filed by the State.
The State of Tamil Nadu is the petitioner in this tax revision case. The assessment year is 1968-69.
Three points of dispute arise in this tax revision case and they are : (1) Whether the supply of raw materials by the assessees, viz., Thiruvalargal Ashok Leyland Ltd., Madras, to their customers on purchase orders were all towards works contract not exigible to tax or whether they are sales exigible to tax ? (2) Whether the dismissal of the enhancement petition filed by the State is right in respect of turnover of Rs. 2, 89, 002 where original invoices had been cancelled in toto and fresh invoices had been raised for the sale of vehicles either locally or outside the State and tax paid thereon under the local Sales Tax Act, and Central Sales Tax Act were paid ? and (3) Whether the transactions amounting to Rs. 5, 13, 968.53 are sales in the course of import and are exempt from taxation ?
It is convenient to refer to the facts relevant for every one of the questions stated above and to deal with them individually.
Question No. (1) :
At the outset, it is necessary to notice that in respect of five supplies made in the debit note for a total value of Rs. 40, 897.40 and also in respect of supplies to M/s. Southern Switchgear Ltd. covered by the debit note 132/68-69 dated 28th December, 1968, in the sum of Rs. 350 and in respect of supply of tools to the ancillary product manufacturers to the extent of Rs. 92, 345.93, the Tribunal held that they were outright sales and therefore exigible to tax. Such finding was not challenged by the assessees and it is thus, the revision is restricted to a sum of Rs. 1, 22, 889.66, though the assessees contested exigibility to tax for a sum of Rs. 2, 56, 464.39. Therefore, we avoid reference to the particulars of transactions relied on by the Tribunal to hold that they are outright sales.The facts relevant for the disposal of this question are as follows : The assessees are manufacturers of automobile trucks. For the purpose of such manufacture, raw materials like sheets, rods and other iron and steel materials are being allotted to them by the Government. The assessees placed orders with manufacturers of ancillary products for the manufacture of component parts required and used in the automobile trucks. They issued works orders to such manufacturers for the production of ancillary products; while so entrusting with such ancillary industries the manufacture of component parts, the assessees supplied raw materials like sheets, rods and steel materials. The ancillary industries ultimately returned the finished products. In the course of such transactions, debit notes are made against such ancillary industries in respect of the supply of raw materials by the assessees. After delivery of finished products, credit notes are also given with reference to the raw materials supplied by the assessees. It is the case of the assessees that the transactions between them on the one hand and the ancillary industries on the other are purely works contract, while it is the contention of the State that the entrustment by the assessees of raw materials to ancillary industries which were called upon to manufacture component parts required by the assessees are outright sales of such raw materials supplied by the assessees to ancillary industries and therefore exigible to tax. A great stress is made by the State to support its contention on the fact that the assessees issued debit notes and credit notes in respect of supply of raw materials made by the assessees to ancillary industries. On the above facts, it was contended by the State that the pattern of transactions would indicate that they are all only outright sales. Further, when debit notes are drawn by the assessees as against ancillary product manufactures, they are not shown in terms of weight, but in terms of the cost of the materials. This feature is taken advantage of by the State to support the contention that the transactions are only outright sa
