Radha Printers vs State of Kerala

L. Manoharan, J.—The Assessee, manufacturer and seller of paper cartons and duplex boxes is the revision Petitioner. On 16th August 1979 the Petitioner-supplied goods valued at Rs. 1,00,000 to M/s Vimala Packaging Industries which also deals in similar goods on consideration that the latter shall return the goods together with interest at 15 per cent per annum on Rs. 1,00,000. The goods, according to the revision Petitioner were returned on 14th August 1980 together with interest Rs. 15,000. According to the Petitioner since the same was a loan transaction it did not include the said amount of Rs. 1,00,000 as its "taxable turnover in the turnover for the year 1979-80. The assessing authority as per Annexure A reckoned the said Rs. 1,00,000 also as taxable turnover holding inter alia that the provision for payment of interest on the amount of loan is inconsistent with the alleged loan transaction and levied sales tax on the said turnover. Petitioner preferred an appeal before the Assistant Commissioner who by Annexure B order dismissed the appeal. A further appeal was preferred before the Sales Tax Appellate Tribunal which also was dismissed by Annexure C. This revision is directed against the said order.

According to the Petitioner the transaction in question since is not a ''sale'' within the meaning of the Kerala General Sales Tax Act, 1963 (Act 16/1963) for short ''the K.G.S.T. Act'' the said amount is not exigible to sales tax. It was contended by the learned Counsel for the revision Petitioner, the view of the appellate authority that there '' was transfer of property in goods from the Appellant to M/s Vimala Packaging Industries for valuable consideration in the form of deferred payment is riot correct either on facts or law. It was maintained by the learned Counsel that inasmuch as the goods were given as loan to a sister concern of the revision Petitioner and the said goods were returned, the same as per law cannot amount to sale. According to the learned Counsel, since the transaction is only loan the same cannot be sale for the purpose of the Act; consequently the said amount could not have been treated as taxable turnover as has been done by the authorities.

On the other hand, the learned Government Pleader for the Respondent-revenue maintained that the loan transaction is a make believe one, the provision for payment of interest is totally inconsistent with a case of exchange or barter, and with due regard to the fact that the value of the goods in question was reckoned and since admittedly interest was charged on the said amount and was paid and received, the Assessee cannot maintain that the transaction was only a loan and not a sale within the meaning of the K.G.S.T. Act.

The rival contentions brings to focus two aspects: The first, whether in fact the Petitioner supplied goods on the terms alleged and was returned after an year; and the second, if so, whether the said transaction, in law, would amount to sale so that the same is taxable turnover.

Para 4 of Annexure C states the undisputed facts and then proceeds to hold that the alleged loan is a make believe arrangement. The further discussion in Annexure C would suggest that the character of the transaction is such that the same under law is ''sale''.

In the wake of the rival contentions, the first "question to be considered is what under the K.G.S.T, Act is sale. The definition of ''sale'' in Section 2(xxi) of the K.G.S.T. Act as it stood then reads:

2 (xxi) ''sale'' with all its grammatical variations and cognate expressions means every transfer (whether in pursuance of a contract or not) of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge:

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The vexed question whether a particular transaction would amount to a sale within the meaning of K.G.S.T. Act was the subject matter of several decisions. Though the effect of what is stated in the decision in The State of Madras Vs. Gannon Dunkerley and Co., (Madras) Ltd., , as to legislative competence to legislate for imposing tax in the matter of building contract,-a building contract being entire and indivisible there is no sale of goods and hence the legislature is not competent to tax, is taken away by the 46th amendment to the Constitution the statement of law as to what constitutes "sale" still holds good. In paragraph 16 of the said decisiori it is stated:

Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose I transferring title to goods which Of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods.... So also if the consideration for the transfer was not money but other valuable consideration, it may then be exchange or barter but not a sale. And if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale.

And in the decision in Commissioner of Income Tax, Andhra Pradesh v. Motors and General Stores (P) Ltd. AIR 1968 S.C. 200, the difference between ''sale'' and ''exchange'' stated in Chitty on Contracts 22nd Edition, Vol. II page 582 is quoted with approval. The same reads: "The difference between a sale and an exchange is thus, that in the former the price is paid in money, whilst in the latter it is paid in goods by way of barter. Thus the presence of money consideration is an essential element in transfer of sale. If consideration is not money but some other valuable consideration it could either be exchange or barter but not a sale.

Learned Counsel for the revision Petitioner relied on the decision of the Madras High Court in Sri Rani Lakshmi Ginning, Spinning and Weaving Mills Private Ltd. Vs. State of Tamil Nadu, to contend even when goods were given on loan on deposit of the value of the same with an agreement to forfeit the said amount on failure to return the goods within the stipulated period and the amount was forfeited in full on failure to return the goods in time, the transaction in question is not a sale. In Sri Rani Lakshmi Ginning, Spinning and Weaving Mills Private Ltd. Vs. State of Tamil Nadu, , the Assessee, a cotton mill in Coimbatore, obtained Egyptian cotton from a mill in Bombay as loan by depositing an amount equal to the price of the cotton. According to the agreement entered into 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 world be forfeited. The Assessee did not return the cotton lent within the period prcsscribed the Bombay mill forfeited the amount in full. The assessing officer took the view that the loan transaction was a make-believe arrangement and actually the same was a sale liable to tax under the Act. The Madras High Court held that unless a subsequent agreement of sale and purchase was found, the transaction could not be held to be a sale and that the realisation by forfeiture of the deposit in the circumstance could, be in the nature of liquidated'' damages and forfeiture under the contract of bailment. "Learned Counsel also relied on the decision in The Deputy Commissioner (C.T.) Vs. Lakshminarayana Textiles (P.) Ltd. and Another, There the Assessee borrowed cotton from the person who imported the same on an agreement that the same should be returned in the shape of cotton. The Assessee had paid money for the purpose of clearing the security to which the cotton was subject in a bank. The revenue treated the transaction as sale liable to sales tax. The Tribunal held that there was no sale liable to sales tax. The revenue preferred a revision. The Madras High Court held that the transaction did not amount to sale. But one significant factor to be noted is, there the Textile Commissioner permitted the borrowing as cotton imported under actual user''s licence could not be sold. The said decision is distinguishable inasmuch as there could have been no valid sale at all as the subject matter of the transaction could not be sold.

The decision in Devi Das Gopal Krishnan and Others Vs. State of Punjab and Others, brings out that when goods are obtained unless there is payment of " money as consideration the transaction cannot be sale. Now the pertinent and important question for consideration in the context is whether "other valuable consideration" can . have a meaning to include anything valuable-which need hot be money. Learned Government Pleader maintained, there need not be simultaneous payment of cash on delivery of goods to constitute sale; according to him it could as well be "deferred payment" or other valuable consideration. Learned Government Pleader relied on the decision in V.P. Vadivel Achari Vs. Madras Sales Tax Appellate Tribunal (Second Additional Bench), . In that case Madras High Court considered the question whether payment by gold be "other valuable consideration" within the meaning of Madras General Sales Tax Act (1 of 1959). The Court held that money need not necessarily be confined to coins or currency notes but has a wider connotation. It was held, payment of gold could be treated as payment in the nature of cash or money consideration. That was based on the reasoning that the monetary system both national and international is based on gold and silver reserves, and that when currency is used, it is as representing its value in gold or silver.

Learned Government Pleader also relied on the decision of the Madras High Court in Premier Electro Mechanical Fabricators Vs. The State of Tamil Nadu, . That was a case where a proprietary concern sold its items of machinery to a private limited company. They agreed, the liability of the company for payment of the sale consideration has to be discharged by the issue to the vendor of the fully paid up shares in the company. It was held, on the reasoning that the processes of allotment of shares in consideration of the payment of value of goods or services could not be regarded as "transfer" of property, but it involved the admission of the vendor as a member of the company, and therefore there was hardly any scope for treating the shares allotted as being given in exchange for the properties transferred, and that the consideration since was shown as a cancellation of one debt by another the consideration must be held as equivalent or akin to cash and could not be treated as a mere exchange or barter. This case as well as V.P. Vadivel Achari Vs. Madras Sales Tax Appellate Tribunal (Second Additional Bench), are distinguishable as they rest on the special features of the case.

These decisions therefore cannot be treated to hold that "other valuable consideration" could be goods or other property and that consideration need not be money consideration. In the decision in Sales Tax Commissioner Vs. Ram Kumar Agarwal, , the Allahabad High Court held, that "other valuable consideration" which occurs in Section 2(h) of the U.P. Sales Tax Act, 1948 must be interpreted on the basis of the rule of ejusdem generis to mean cheques, bills of exchange or such other negotiable instruments and that they cannot cover a case where no price is paid. The Supreme Court in the decision in Devi Das Gopal Krishnan and Others Vs. State of Punjab and Others, held that the expression "valuable consideration" takes colour from the preceding expression cash or deferred payment. Thus to constitute ''sale'' within the rnealiing of the K.G.S.T. Act, the same should be for consideration either in cash or deferred payment, or other valuable consideration; and other valuable consideration in the context must be interpreted to mean cheques, bills of exchange or any such negotiable instruments.

The question now for consideration is whether the transaction in question is sale, so that the valu of the goods could be treated as taxable turnover. The order Annexure C itself states that both the Petitioner as well as M/s Vimala Packaging Industries, Umayanalloor are engaged in the business of manufacturing and sale of paper cartons and duplex boxes. The purchase account showed that the goods worth Rs. 1,00,000 was returned along with interest of Rs. 15,000. The interest also was credited to the paper purchase account, but there was No. increase in physical stock of goods in the books maintained by M/s Vimala Packaging Industries, Umayanalloor.

The thrust of the argument by the learned Government Pleader is, payment of Rs. 15,000 as interest in, the facts and circumstances would show that the transaction is sale whose consideration was deferred payment. On the other hand according to the learned Counsel for the Petitioner the payment of interest was only as damages for the user of the goods.

It must at once be noted the same goods were not returned, only goods for the same value was returned. If the transaction was as maintained by the Assessee it is not sale for there was no consideration in cash, deferred payment or other valuable consideration within the meaning of the K.G.S.T. Act, But the important question in the circumstances is whether the transaction was as maintained by the revision Petitioner.

The genuineness of the transaction has to be tested against two important features which in the circumstance have crucial bearing in deciding the said question. They are, no stock register was maintained to show the receipt and issue of goods except the purchase account which contained only details of purchase; and the father, provision for payment of interest and receipt of the same. Interest also is credited in the paper purchase account. Stock register principally is for ensuring the authenticity of the accounts and other connected records. If M/s Vimala Packaging Industries returned the goods as is claimed, the same would have found a place in the stock register. The stipulation for payment of interest has added significance when it is remembered the same usually could be on purchase price, indicative'' of deferred payment rather than damages for the user of the goods. In a case such as the one maintained by the Petitioner stock register was very much important and relevant. Business practice requires to keep relevant records; omission to maintain such records cannot operate to the advantage of the Assessee and in appropriate cases failure to maintain the same would invite adverse inference. The circumstances cumulative support the argument of the learned Government Pleader that the whole exercise was a vain attempt to wrap the real transaction which was ''sale'' whose consideration was deferred payment. In the circuihstance there is nothing wrong when the Tribunal held that the alleged loan is "a make believe arrangement" and treated the transaction as sale and brought the same to assessment. The revision is liable to be dismissed.

In the result the revision fails and the same is dismissed. In the circumstance there will be no order as to costs.