High Court · 2009

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 24-06-2009CoramTHE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLAandTHE HONOURABLE MR. JUSTICE B. RAJENDRANT.C. (Revision) No. 33 of 2009-o-The State of Tamil Nadurep. By the Deputy Commissioner (T)Salem DivisionSalem.. PetitionerVersusTvl. Pullicar Mills LimitedPost Box No.7, Sankari RoadTiruchengode – 637 211.. Respondent Revision under Section 38 of the Tamil Nadu General Sales Act,1959 against the Order dated 18.10.2002 passed in CTA No. 241 of 1995on the file of the Sales Tax Appellate Tribunal (Additional Bench)Coimbatore against Appeal No.36 and 37/94 on the file of theAppellate Asst. Commissioner (CT) Erode dt.2.2.95 as against theorder of the Deputy Commercial Tax Officer, Tiruchengode in TNGSTNo.767930/90-91 dated 10.01.1994.For Appellants :Mr. Haja NazirudeenSpecial Government Pleader (Tax)For Respondents :Mr. N. InbarajanJUDGMENT(Judgment of the Court was delivered by F.M. IBRAHIM KALIFULLA, J) The revenue has come forward with this revision petition.2.The question of law raised in this revision reads as under:- i)Whether in the facts and circumstancesof the case, the Tribunal is legally correct onholding that the cotton borrowed and returned onloan basis is not a sale as defined under Section2 (n) of the Tamil Nadu General Sales Tax Act,1959?ii)Whether the order of the Tribunal isright in affirming the deletion of consequentialpenalty levied uner Section 12 (5) (iii) of the https://hcservices.ecourts.gov.in/hcservices/ Tamil Nadu General Sales Tax Act, 1959?3.The short facts are that the assessee is a cotton textilemill and the subject matter of the assessment relates to the year1990-1991. In that year, a revision of assessment was made by theassessing authority by order dated 10.01.1994 determining the revisedturnover in a sum of Rs.44,71,575/- by holding that the cottonreceived by the assesee from their sister concern is being treated aslast purchase of cotton. The assessee preferred an appeal in CTA No.36 of 1994, who also confirmed the order of the assessing authority byits order dated 02.02.1995, pursuant to which a further appeal wentbefore the Tribunal in CTA No. 241 of 1995 in which the impugned orderdated 18.10.2002 came to be passed allowing the appeal by settingaside the orders of the assessing authority as well as the AppellateAssistant Commissioner. 4.The Appellate Assistant Commissioner in its order dated02.02.1995 stated that the assessee failed to produce any documentaryevidence to show that loan was received due to scarcity or non-availability of particular variety of cotton during the relevantperiod and the same variety of cotton was returned in equal quantity.It was also pointed out that the assessee alleged to have borrowedcotton of 74359 kgs while the quantity of cotton returned was 75130kgs. 5.The Tribunal has taken the view that when once it is provedthat what was borrowed was cotton and that the borrowed cotton wasreturned, which was also shown to the satisfaction of the assessingauthority, there was no element of sale involved as defined underSection 2 (n) of the Tamil Nadu General Sales Tax Act and thereforethere can be no further tax liability as determined by the assessingauthority and confirmed by the appellate Assistant Commissioner.6.Assailing the order of the Tribunal, the learned SpecialGovernment Pleader (Tax) contended that unless the assessee has provedto the satisfaction of the assessing authority that there was realscarcity or non-availability of cotton and such cotton borrowed wasreturned in the same variety and to the extent of the same quantity,the transaction cannot be construed as one of loan transaction, butwould fall within the definition of Section 2 (n) of the Act inasmuchas the transaction would fall within the expression “other valuableconsideration” as mentioned in the said section. The learned SpecialGovernment Pleader therefore contended that the conclusion of theassessing authority as well as the Appellate Assistant Commissionerought not to have been interfered with by the Tribunal. In support ofhis submission, the learned Special Government Pleader relied on thedecision of the Full Bench of the Tamil Nadu Taxation Special Tribunalreported in (Sri Akilandeswari Mills Pvt Ltd vs. Commercial TaxOfficer) 2004 Volume 138 STC 397. 7.As against the above contention, Mr. Inbarajan, learnedcounsel appearing for the respondent/assessee contended that the loantransaction is entirely a different concept, which would not fit in tothe definition of sale. In the loan transaction, there has been no https://hcservices.ecourts.gov.in/hcservices/ incidence of transfer of goods from one party to the other so long asthe assessee was able to show as to what was borrowed was dulyreturned to the satisfaction of the lender, in which event, there isno scope for construing the said loan transaction as one of sale forthe purpose of levy of tax. The learned counsel for the respondentalso referred to entry 2 of Second Schedule of the Act where thedescription of cotton is prescribed which does not differentiatebetween one variety of cotton to other variety except excluding cottonwaste and contended that the assessee was therefore entitled to returnthe same value of cotton, which was borrowed by him and when the samewas proved to the satisfaction of the assessing authority as well asthe Appellate Assistant Commissioner, the conclusion arrived at by theTribunal in setting aside the orders of the assessing authority aswell as the Appellate Assistant Commissioner is fully justified andthe same does not call for interference by this Court. In support ofhis submission, the learned counsel for the respondent relied on thedecision reported in (The Deputy Commissioner (CT) Coimbatore vs.Lakshminarayana Textiles (P) Ltd.,) 28 STC 288 and (The State of TamilNadu, represented by the Dy. Commissioner (CT) Salem vs. ObliSpinning Mills (P) Ltd) 1993 (3) MTCR 121.8.Having heard the learned counsel for both sides and havingperused the orders of the lower authority as well as the Tribunal andalso the provisions of the Act, we are of the view that the orderpassed by the Tribunal does not call for interference. At the outset,we refer to Entry 2 of Second Schedule of the Act which is to thefollowing effect:-“Cotton that is to say, all kinds of cotton(indigenous or imported) in its unmanufacturedstate whether ginned or unginned, baled, pressedor otherwise, but excluding cotton waste.(The rate of tax was reduced to 2% from 5thMarch 1997 to 17th August 2001 by notification)”9.Therefore, when the Act itself describes cotton as includingof all of cotton, indigenous or imported, excluding cotton waste, weare not in a position to ascribe to the view of the AppellateAssistant Commissioner that to establish the said transaction as aloan transaction, the assessee should have established that the cottonreturned by it was the same variety of cotton borrowed. In theabsence of any allegation that what was borrowed was cotton while whatwas returned was other than cotton, the stand of the assessingauthority as well as the Appellate Assistant Commissioner cannot beaccepted.10.So far as the conclusion that in order to accept the claimof loan transaction the assessee should have shown scarcity of thematerial or non-availability of the required cotton are all notprescribed in any of the provisions of the Act or the Rules. Even ifthe assessee has made a statement in the grounds of appeal that non-availability made them borrow cotton, so long as that stand was not indispute or questioned by the Department, the assessee was not bound to https://hcservices.ecourts.gov.in/hcservices/ explain or demonstrate that there was non-availability of cotton asclaimed by them in order to persuade the authority to accept the claimthat it was a loan transaction. 11.When we examine the question as to whether the loantransaction would fall within the definition of sale, we find that thesame requires to be examined in the light of the definition clause ascontained in Section 2 (n) of the Act, relevant portion of the saidSection reads as under:-“2 (n) “Sale” with all its grammaticalvariations and cognate expressions means everytransfer of the property in goods (other than byway of a mortgage, hypothecation, charge orpledge) by one person to another in the course ofbusiness for cash, deferred payment or othervaluable consideration and includes (i)transfer, otherwise than in pursuanceof a contract, of property in any goods for cash,deferred payment or other valuable consideration;........ (iv)a transfer of the right to use anygoods for any purpose (whether or not for aspecified period) for cash, deferred payment orother valuable consideration.........and such transfer, delievery or supply ofany goods shall be deemed to be a sale of thosegoods by the person making the transfer, deliveryor supply and a purchase of those goods by theperson to whom such transfer, delivery or supplyis made.” 12.A close reading of the above definition disclose that inorder to bring the transaction under the definition of sale, at theoutset, there must be a transfer of the property in goods by oneperson to another in cash, deferred payment or other valuableconsideration. In a loan transaction, when there is no transfer ofproperty in respect of goods lent, inasmuch as such goods are to bereturned to the lender, to the extent to which such loan was borrowed,it is very difficult for us to accept that there was transfer ofproperty involved in such a loan transaction. When we consider therelevant definition as contained in Section 2 (n) (i) and (iv) whereagain specific requirement to be fulfilled is transfer of property ingoods,, which is not available in a loan transaction. Therefore,applying the definition of sale to a loan transaction, either thesubstantive definition or inclusive definition, the same will notcover the case of loan transaction as loan transaction stands entirelyon a different footing than that of the sale transaction wheretransfer of property in goods is a pre-condition. In a loantransaction, since there is no consideration at all, the import of"other valuable consideration" cannot also be made. In a loan https://hcservices.ecourts.gov.in/hcservices/ transaction, except the borrower's desire to borrow and the lender'swillingness to lend, there will be no other event. Therefore, thequestion of considering the concept of "other valuable consideration"to loan transaction will not arise.13.When we say that a transfer of the property in goods has nottaken place in a loan transaction, we are convinced that in a loantransaction, the lender retains his right over the property lent byit, which right ultimately gets protected when what was lent wasreturned back to the satisfaction of the lender without any deficiencyin the value of the goods lent by it. We have therefore no hesitationto hold that the loan transaction stands apart from the application ofdefinition of sale, which cannot be equated to a sale transaction. Ifunder the guise of loan transaction if a party has resorted to aclandestine transaction to subvert or defeat the liability of paymentof tax, that would be entirely a different situation which cannot beequated to a simple loan transaction claimed by the assessee and whichwas proved to the satisfaction of the authorities concerned. In thecase on hand, the Tribunal, on a detailed analysis of the borrowalmade by the assessee has concluded in para-11 thus:-“11.Thus, the learned AuthorisedRepresentative would emphasis the points thatthere is no element of purchase or sales in thesaid loan transactions held by them and as wellthere is no money consideration for the same.The learned Authorised Representative has alsofiled the details such as quantitativesparticulars for the years 1990-91, 1991-92statement of loan receipts from M/s. Jambai KNMTextiles, M/s. Krishnaswamy Mills, M/s.Kandaswamy Spinning Mills Private Limited, M/s.Obli Spinning Mills Limited etc., along with thecopy of the assessment order of Tvl. Jambai KNMTextiles relating to the assessment year 1990-1991 and the copy of the pre-assessment noticeissued to Tvl. Jambai KNM Textiles PrivateLimited for the assessment year 1991-1992, cottonstock regster etc., which go to prove that loantransactions were effected between the appellantmill and their sister concern during theassessment years 1990-91 and 1991-92.”14.We have already held that by virtue of the prescription ofcotton as set out in Entry 2 of Second Schedule of the Act, theassessee who had borrowed cotton to certain value was only obliged toreturn the same value in order to fulfil and conclude the said loantransaction. Once the documentary evidence in the form of registersof the assessee as well as that of its sister concerns disclose thatthe loan transaction was fully discharged by the assessee, there wasno occasion for the assessing authority to reopen the assessment underthe guise that the claim of loan transaction by the assessee was notfully established. Therefore, the conclusion of the Tribunal meritsacceptance for the simple reason that the loan transaction in the case https://hcservices.ecourts.gov.in/hcservices/ on hand, by any stretch of imagination, cannot be construed as a saletransaction in order to impose levy of tax. 15.So far as the decision of the Full Bench of Tamil NaduTaxation Special Tribunal is concerned we find that the factual matrixstated therein was lacking proof on very many factors. In suchcircumstance, we are not in a position to apply the said decision tothe facts of the case on hand. On the other hand, the decision ofthis Court reported in (The Deputy Commissioner (CT) Coimbatore vs.Lakshminarayana Textiles (P) Ltd.,) 28 STC 288 applies to the facts ofthis case. In the said decision, it was observed thus:-“It seems to us that the Tribunal took thecommon view. The facts found by the Tribunal arethese. The assessee borrowed certain amount ofcotton from one Valliappan Textiles, whichimported the same under the actual user'slicence. The borrowing was permitted by theTextile Commissioner who directed that the loanshould be returned in the shape of cotton andthat neither of the transactions would be treatedas a sale. It is not in dispute that the cottonimported under the actual user's licence cannotbe sold. That is apparently the reason why theTextile Commissioner gave permission to theassessee to take cotton on loan. The transactionnow sought to be taxed consisted of the return ofcotton to Valliappan Textiles. The transactionclearly does not amount to a sale and is not asale. The Tribunal was right in finding that itwas only a loan transaction. It may be, ascontended by the department, money was paid bythe assessee to Valliappa Textiles, Bangalore, inrelation to the cotton borrowed. But this is forthe purpose of clearing the security to which thecotton was subject in a bank. Without clearingthe security, cotton could not be released andValliappa Textiles, Bangalore, could not lend it.Such payment should not be taken as considerationfor sale. The tax case is dismissed. No costs.(Emphasis supplied)16. Similarly, the decision reported in (The State of TamilNadu, represented by the Dy. Commissioner (CT) Salem vs. ObliSpinning Mills (P) Ltd) 1993 (3) MTCR 121 also applies to the facts ofthis case in all force, wherein this Court held thus:-“We do not think that there is any substancein the revision filed by the State against theorder of the Appellate Tribunal wherein theTribunal has found as a fact that what transpiredfrom the nature of the transaction is that it isnot a sale but only a lon transaction. TheAppellate Tribunal has taken note of the https://hcservices.ecourts.gov.in/hcservices/ affidavits filed before it and has come to such aconclusion. We do not think that the Revenue canraise it as a point of law before us in arevision filed under Section 38 of the Tamil NaduGeneral Sales Tax Act, 1959 and since we do notfind any questino of law so as to interfere withthe order of the Appellate Tribunal. The TaxCase (Revision) is dismissed.”17.Having regard to our above conclusion, the questions of lawraised in this revision are answered against the petitioner and infavour of the assesee. Accordingly, the Tax Case (Revision) fails andis dismissed. No costs.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarrshTo1.The Sales Tax Appellate Tribunal,(Addl. Bench), Coimbatore.2.The Appellate Asst. Commissioner (CT),Erode.3.The Deputy Commissioner of Tax Officer,Tiruchengode.4.The Deputy Commissioner (T)Salem Division at Salem.+1cc to M/s.N.Inbarajan,Advocate Sr 25856+1cc to Govt. Pleader Sr 26035MBS(CO)km/13.7.TC (R) No. 33 of 2009