Commr. of Commercial
Taxes & Ors. Vs Chitrahar Traders
O R D E R
Delay condoned.
Leave granted. This
appeal arises out of the judgment and order passed by the Division Bench of the
Madras High Court dismissing the writ appeal filed by the Appellants herein
whereby the Division Bench affirmed the judgment and order passed by the
learned Single Judge allowing the writ petition filed by the respondent herein.
Since the facts leading to filing of the aforesaid writ petition by the respondent
are not disputed, we are not required to set out herein the entire factual
position at length. However, for the purpose of deciding the present appeal,
whatever facts are required to be dealt with and stated are being stated
hereinafter.
The N.L.C., namely, Neyveli
Lignite Corporation is a Government of India enterprise and a company, and is
involved in the activity of generation and supply of electric energy to various
State Electricity Boards. The said company set up a plant to produce Leco,
which is a form of lignite in the year 1965. The said plant, however, was having
frequent breakdowns and was incurring huge losses. Consequently, an effort was
made to upgrade the plant which, however, turned out to be a failure due to
which the entire plant was closed down on 4.4.2001 as unviable. Thereafter the company
proceeded to dispose of the entire plant and machinery as according to the
company, the plant was of not marketable value and also because it had lost its
use and outlived its utility and had no value except as scrap.
The said company thereafter
appointed M/s. Metal Scrap and Trading Corporation Ltd. (hereinafter referred
to as 'MSTC') on 3.11.2004, a Government of India enterprise, engaged in the
business of scrap to arrange for disposal of condemned plant. An agreement was
entered into between the said company and MSTC. Clause 2.0 of the said
agreement reads as follows:- "2.0 Whereas MSTC has approached the
Principal with a request to engage MSTC as Selling Agent for disposal of Iron &
Steel Scrap and Rejected/Condemned/obsolete Secondary arisings (ferrous & non-ferrous)
as well as surplus obsolete Stores, equipments and miscellaneous articles
etc." Reference may also be made to Clause 4.1 which reads as follows:- "This
Agreement covers disposal of all scraps,secondary arisings, surplus stores and
equipment misc. items etc, as mentioned in Clause 2.0 before." Since reliance
was also placed on Clause 5.0, we extract the same as under:-
"Duration of
Contract The Contract will remain valid for Three years from 17-11-2004 to 16-11-2007
which could be extended for such further period on such terms and conditions as
mutually agreed upon by the parties hereto." Pursuant to the aforesaid agreement
arrived at, the aforesaid plant and machinery, which according to the company became
scrap as obsolete and unviable, was sold through the process of auction and the
respondent herein offered its bid which came to be accepted by the MSTC. The
acceptance letter is also placed on record. The said letter is dated 16.2.2005
which states that the tender offer of respondent was accepted on "as is where
is" basis for purchase of B & C Plant one lot and machinery as a whole
lot as per the terms and conditions of the e-auction. In the said document it
was also indicated that sales tax would be charged @ 12% with surcharge @ 5%.
It was also made
clear therein that the sales tax which is being levied would be provisional one
and subject to any change. It was also specifically indicated therein that the material
value along with taxes and duties including income tax and educational cess on
IT would be paid on total value of the scrap. However, a dispute arose
thereafter as to whether sales tax is leviable and payable on the said articles
@ 4% as the plant and machinery was sought to be sold as scrap or whether the
respondent is liable to pay sales tax @ 12% with 5% surcharge also. In view of the
aforesaid dispute which arose, the respondent wrote a letter dated 7.4.2005 to the
sales tax authorities mentioning 4therein about the details and manner of the
transaction that had taken place regarding purchase of the scrap by the respondent
pursuant to the e-auction conducted by MSTC. In the said letter the entire background
facts leading to the e-auction and acceptance of the tender were stated.
A Form being Form No.
XIV was also filled up by the respondent wherein it was mentioned by it that
they had purchased plant and machineries as a whole in one lot but the same also
enclosed another declaration made by the respondent herein indicating the full
particulars of the goods and stating therein that the total sale value ex-taxes
and duties as a whole in one lot is Rs.70,01,00,019.00. While giving the said particulars
of the case, it was also specifically mentioned by the respondent that what was
purchased was scrap material and thereafter the details of such scrap materials
were given in the said declaration.
As against the
aforesaid letter written by the respondent, the sales tax authorities sent a letter
to the respondent on 29.4.2005 stating therein that if the plant and machinery
has been sold as scrap and the bidder was asked to dismantle and transport as
scrap, such sales of scrap is taxable @ 4% without surcharge under Entry IV (1)
(a) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959. However,
thereafter the Sales Tax Department appears to have changed their stand and
held that the respondent is liable to pay sales tax @ 12% along with 5% surcharge.
Being so situated, two writ petitions came to be filed before the Madras High
Court, one by the respondent herein and the other by Neyveli Lignite
Corporation Ltd. In the writ petition filed by the aforesaid Corporation, a
stand was taken that what was sought to be sold to the respondent company was
scrap of the condemned plant and machineries, but sales tax and surcharge was realized
from the respondent @ 12% and 5% on provisional basis, and subject to change at
later stage.
It was also pointed out
that the aforesaid parts of the machineries were removed by issuance of 100
delivery notes-cum-gate passes. In paragraph 11 of the affidavit enclosed with the
writ petition, the following statement was made by the said company: - "I state
that the items under Sale and Delivery relates to condemned plant and machinery
disposed as scrap. In the impugned order of the First Respondent, there is an
allegation that a few Delivery Notes issued by the Despatch Section, it was
noted that here was sale of B & C plant machinery on as-is-where-is basis, and
sales tax and surcharge was mentioned at 12% and 5% respectively. There is an alleged
reference to more than 100 Delivery Notes-cum-Gate Passes. This issue was never
discussed and the preponderance of materials is entirely to the contrary.
It is respectfully
submitted that initial delivery notes of the Despatch Section issued from
05.05.2005 to 19.05.2005 bearing upto Serial Nos. 52, the description was
mechanically states as B & C plant as-is-where-is with 12% S.T. (based on
the sale order). The Buyers were all along contesting the rate of tax since the
goods under sale was only condemned machinery disposed as scrap. Therefore, from
Delivery Note Nos. 53 dated 20.05.2005, apart from the pre- printed
words"B & C Plant & Machineries", it was, inter alia, specifically
remarked by hand "Iron Scrap". It was also mentioned that the goods
were delivered in lots even from Delivery Note No.1 dated 5.05.2005 with corresponding
loads in the lorry.
The finding that the sale
was a plant and machinery as if there was intention 6 to buy and sell plant and
machinery is perverse and overlooks the dispute with regard to 12% sales tax at
every stage between the Petitioners and buyers. Based on the communication of the
Commercial Tax Officer, Cuddalore, the Second Respondent dated 10.05.2005 to
the First Respondent, during the period of sale, only 4% tax was charged to the
Buyers in view of the protest of the Buyers. The Petitioners state that the
difference over and above 4% was subsequently recovered on 22.11.2005 from the
EMD of the Buyers and paid under protest to the Second Respondent, the Commercial
Tax Officer, Cuddalore, on 23.11.2005 consequent to later developments."
The Sales Tax
Department contested the writ petitions and the learned Single Judge after
hearing the counsel appearing for the parties allowed the writ petitions
holding that the respondent is liable to pay sales tax @ 4% only. Being aggrieved
by the aforesaid judgment and order passed by the learned Single Judge, the
Appellants herein filed two writ appeals which were registered and numbered as Writ
Appeal Nos. 639 and 640 of 2008. The Division Bench took notice of the
submissions made by the counsel appearing for the parties and thereafter dismissed
both the appeals holding that what was sold was scrap and not plant and machineries
as such and therefore the learned Single Judge was justified in holding that
the respondent is liable to pay sales tax only @ 4%.
The aforesaid findings
and conclusions of the Division Bench are being assailed in this appeal on
which we have heard the learned counsel appearing for the parties. Counsel appearing
for the Appellants has submitted that what was sold was plant and machineries and
not scrap at the agreement stage as is indicated from the acceptance letter and
that it is only subsequently and during the post-contract period only, the said
plant and machineries were removed as scraps after dismantling them and
dividing the articles into several lots and taking away the same by getting 100
gate passes and challans issued.
He has specifically
drawn our attention to the acceptance letter which is annexed with the paper book
and also to the various communications issued between the parties to
substantiate his submissions that it was plant and machineries which was sold and
therefore the respondent is liable to pay tax @ 12% with 5% surcharge. Counsel
appearing for the Appellants also relies upon the decision of this Court titled
as Rainbow Steels Ltd. & Anr. Vs. The Commissioner of Sales Tax, Uttar Pradesh,
Lucknow and Anr. reported in 1981 (47) STC 298. Counsel appearing for the respondent,
however, drew our attention to the various documents on record and on the basis
thereof submitted before us that the documents on record clearly indicate that what
was sought to be sold was scrap and not the functional plant and machineries
and therefore there should be no interference with the judgment and order
passed by the Madras High Court.
In the light of the submissions
of the counsel appearing for the parties, we have ourselves scrutinized the
records. We have already extracted the relevant portion of the agreement between
Neyveli Lignite Corporation and MSTC. The said agreement clearly proves and
establishes that what was sought to be sold was iron and steel scrap and
rejected/condemned and obsolete secondary arisings, etc. The said position is
also reiterated in Clause 4.1 which also indicates that what was being sold through
the e-auction was scraps and secondary arisings. In the acceptance letter on
which heavy reliance was placed by the counsel appearing for the Appellants mentions
the goods sold as plant and machineries but it is also indicated therein that
it is sale of plant and machineries as per the terms and conditions of the e-auction.
Terms and conditions of e-auction indicated from the agreement indicates that
what was being sold was scrap.
The said position is also
reiterated in the said acceptance letter when it refers to the total value of the
scrap. In the clarification issued by the Department itself, at one stage,
i.e., by their letter dated 29.4.2005, it was clearly mentioned that if the
plant and machineries has been sold as scrap and the bidder was asked to
dismantle and transport as scrap, such sales of scrap would be taxable @ 4%
without surcharge. There is yet another important factor which should not be lost
sight of and that is using of explosives by the respondent for removing the aforesaid
scrap from the premises in question. An application was submitted by the respondent
to the District Collector for using explosives for the purpose of dismantling
the machinery.
The District Collector
vide communication dated 21.2.2006 permitted the use of explosives consequent upon
which machineries were dismantled by using the explosives and were transported
out of the premises in trucks as steel scrap. The sale in question was also made
by a public sector undertaking and the said sale was conducted for and on
behalf of another public sector undertaking. The selling agent is also engaged
in the business of metal scraps. The plant and machineries were installed as far
back as 1965 and have to be closed in the year 2001 as it was found that even
after updating it could not be made functional. The sale has taken place after about
36 years of the purchase of the machineries and the affidavit of the Neyveli
Lignite Corporation clearly proves and establishes that those machineries have
become obsolete and the plant and machineries have become condemned articles.
All these
contemporaneous documents and factual position make it abundantly clear that
what was sold and purchased by the respondent are nothing else but scrap and,
therefore, we find no reason to interfere with the findings and conclusions
arrived at by the Madras High Court. Consequently, we find no merit in this appeal,
which is dismissed. We have already referred to the judgment relied upon by the
counsel appearing for the appellants. A perusal of the aforesaid decision on which
reliance is placed would indicate that the factual situation in which the said judgment
was rendered was completely different than the facts of the present case. In
the said case, the decision was rendered in the context of sale of old thermal power
plant which was in perfect working and running condition. The same, however, is
not the case here. Here is a case of sale of a plant and machineries which were
condemned.
It is also established
from the contemporaneous documents that the plant and machineries had outlived its
utility and has no value except scrap. Therefore, the aforesaid decision is clearly
distinguishable on facts and has no application to the facts and circumstances
of the present case. The respondent has paid sales tax and surcharge at the higher
rate of 12% and 5% while taking out the goods out of the factory premises. In
view of the present order passed today, the respondent becomes entitled for refund
of overpaid amount which shall be assessed by the Department within a period of
three months from today and the amount found due and payable to the respondent shall
be refunded back to the respondent along with interest as payable in accordance
with law within two months thereafter. The appeal is dismissed with the
aforesaid observations.
......................J
(Dr. MUKUNDAKAM SHARMA)
......................J
(ANIL R. DAVE)
NEW
DELHI,
MARCH
16, 2011.
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