IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 24-06-2009 Coram THE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLA and THE HONOURABLE MR. JUSTICE B. RAJENDRAN T.C. (Revision) No. 33 of 2009 -o- The State of Tamil Nadu rep. By the Deputy Commissioner (T) Salem Division Salem .. Petitioner Versus Tvl. Pullicar Mills Limited Post Box No.7, Sankari Road Tiruchengode – 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 1995 on the file of the Sales Tax Appellate Tribunal (Additional Bench) Coimbatore against Appeal No.36 and 37/94 on the file of the Appellate Asst. Commissioner (CT) Erode dt.2.2.95 as against the order of the Deputy Commercial Tax Officer, Tiruchengode in TNGST No.767930/90-91 dated 10.01.1994. For Appellants : Mr. Haja Nazirudeen Special Government Pleader (Tax) For Respondents : Mr. N. Inbarajan JUDGMENT (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 circumstances of the case, the Tribunal is legally correct on holding that the cotton borrowed and returned on loan basis is not a sale as defined under Section 2 (n) of the Tamil Nadu General Sales Tax Act, 1959? ii) Whether the order of the Tribunal is right in affirming the deletion of consequential penalty 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 textile mill and the subject matter of the assessment relates to the year 1990-1991. In that year, a revision of assessment was made by the assessing authority by order dated 10.01.1994 determining the revised turnover in a sum of Rs.44,71,575/- by holding that the cotton received by the assesee from their sister concern is being treated as last purchase of cotton. The assessee preferred an appeal in CTA No. 36 of 1994, who also confirmed the order of the assessing authority by its order dated 02.02.1995, pursuant to which a further appeal went before the Tribunal in CTA No. 241 of 1995 in which the impugned order dated 18.10.2002 came to be passed allowing the appeal by setting aside the orders of the assessing authority as well as the Appellate Assistant Commissioner. 4. The Appellate Assistant Commissioner in its order dated 02.02.1995 stated that the assessee failed to produce any documentary evidence to show that loan was received due to scarcity or non- availability of particular variety of cotton during the relevant period and the same variety of cotton was returned in equal quantity. It was also pointed out that the assessee alleged to have borrowed cotton of 74359 kgs while the quantity of cotton returned was 75130 kgs. 5. The Tribunal has taken the view that when once it is proved that what was borrowed was cotton and that the borrowed cotton was returned, which was also shown to the satisfaction of the assessing authority, there was no element of sale involved as defined under Section 2 (n) of the Tamil Nadu General Sales Tax Act and therefore there can be no further tax liability as determined by the assessing authority and confirmed by the appellate Assistant Commissioner. 6. Assailing the order of the Tribunal, the learned Special Government Pleader (Tax) contended that unless the assessee has proved to the satisfaction of the assessing authority that there was real scarcity or non-availability of cotton and such cotton borrowed was returned in the same variety and to the extent of the same quantity, the transaction cannot be construed as one of loan transaction, but would fall within the definition of Section 2 (n) of the Act inasmuch as the transaction would fall within the expression “other valuable consideration” as mentioned in the said section. The learned Special Government Pleader therefore contended that the conclusion of the assessing authority as well as the Appellate Assistant Commissioner ought not to have been interfered with by the Tribunal. In support of his submission, the learned Special Government Pleader relied on the decision of the Full Bench of the Tamil Nadu Taxation Special Tribunal reported in (Sri Akilandeswari Mills Pvt Ltd vs. Commercial Tax Officer) 2004 Volume 138 STC 397. 7. As against the above contention, Mr. Inbarajan, learned counsel appearing for the respondent/assessee contended that the loan transaction is entirely a different concept, which would not fit in to the 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 as the assessee was able to show as to what was borrowed was duly returned to the satisfaction of the lender, in which event, there is no scope for construing the said loan transaction as one of sale for the purpose of levy of tax. The learned counsel for the respondent also referred to entry 2 of Second Schedule of the Act where the description of cotton is prescribed which does not differentiate between one variety of cotton to other variety except excluding cotton waste and contended that the assessee was therefore entitled to return the same value of cotton, which was borrowed by him and when the same was proved to the satisfaction of the assessing authority as well as the Appellate Assistant Commissioner, the conclusion arrived at by the Tribunal in setting aside the orders of the assessing authority as well as the Appellate Assistant Commissioner is fully justified and the same does not call for interference by this Court. In support of his submission, the learned counsel for the respondent relied on the decision reported in (The Deputy Commissioner (CT) Coimbatore vs. Lakshminarayana Textiles (P) Ltd.,) 28 STC 288 and (The State of Tamil Nadu, represented by the Dy. Commissioner (CT) Salem vs. Obli Spinning Mills (P) Ltd) 1993 (3) MTCR 121. 8. Having heard the learned counsel for both sides and having perused the orders of the lower authority as well as the Tribunal and also the provisions of the Act, we are of the view that the order passed 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 the following effect:- “Cotton that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state whether ginned or unginned, baled, pressed or otherwise, but excluding cotton waste. (The rate of tax was reduced to 2% from 5th March 1997 to 17th August 2001 by notification)” 9. Therefore, when the Act itself describes cotton as including of all of cotton, indigenous or imported, excluding cotton waste, we are not in a position to ascribe to the view of the Appellate Assistant Commissioner that to establish the said transaction as a loan transaction, the assessee should have established that the cotton returned by it was the same variety of cotton borrowed. In the absence of any allegation that what was borrowed was cotton while what was returned was other than cotton, the stand of the assessing authority as well as the Appellate Assistant Commissioner cannot be accepted. 10. So far as the conclusion that in order to accept the claim of loan transaction the assessee should have shown scarcity of the material or non-availability of the required cotton are all not prescribed in any of the provisions of the Act or the Rules. Even if the assessee has made a statement in the grounds of appeal that non- availability made them borrow cotton, so long as that stand was not in dispute 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 as claimed by them in order to persuade the authority to accept the claim that it was a loan transaction. 11. When we examine the question as to whether the loan transaction would fall within the definition of sale, we find that the same requires to be examined in the light of the definition clause as contained in Section 2 (n) of the Act, relevant portion of the said Section reads as under:- “2 (n) “Sale” with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes (i) transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; .... .... (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. .... .... and such transfer, delievery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made.” 12. A close reading of the above definition disclose that in order to bring the transaction under the definition of sale, at the outset, there must be a transfer of the property in goods by one person to another in cash, deferred payment or other valuable consideration. In a loan transaction, when there is no transfer of property in respect of goods lent, inasmuch as such goods are to be returned to the lender, to the extent to which such loan was borrowed, it is very difficult for us to accept that there was transfer of property involved in such a loan transaction. When we consider the relevant definition as contained in Section 2 (n) (i) and (iv) where again specific requirement to be fulfilled is transfer of property in goods,, which is not available in a loan transaction. Therefore, applying the definition of sale to a loan transaction, either the substantive definition or inclusive definition, the same will not cover the case of loan transaction as loan transaction stands entirely on a different footing than that of the sale transaction where transfer of property in goods is a pre-condition. In a loan transaction, 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's willingness to lend, there will be no other event. Therefore, the question 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 not taken place in a loan transaction, we are convinced that in a loan transaction, the lender retains his right over the property lent by it, which right ultimately gets protected when what was lent was returned back to the satisfaction of the lender without any deficiency in the value of the goods lent by it. We have therefore no hesitation to hold that the loan transaction stands apart from the application of definition of sale, which cannot be equated to a sale transaction. If under the guise of loan transaction if a party has resorted to a clandestine transaction to subvert or defeat the liability of payment of tax, that would be entirely a different situation which cannot be equated to a simple loan transaction claimed by the assessee and which was proved to the satisfaction of the authorities concerned. In the case on hand, the Tribunal, on a detailed analysis of the borrowal made by the assessee has concluded in para-11 thus:- “11. Thus, the learned Authorised Representative would emphasis the points that there is no element of purchase or sales in the said loan transactions held by them and as well there is no money consideration for the same. The learned Authorised Representative has also filed the details such as quantitatives particulars for the years 1990-91, 1991-92 statement of loan receipts from M/s. Jambai KNM Textiles, M/s. Krishnaswamy Mills, M/s. Kandaswamy Spinning Mills Private Limited, M/s. Obli Spinning Mills Limited etc., along with the copy of the assessment order of Tvl. Jambai KNM Textiles relating to the assessment year 1990- 1991 and the copy of the pre-assessment notice issued to Tvl. Jambai KNM Textiles Private Limited for the assessment year 1991-1992, cotton stock regster etc., which go to prove that loan transactions were effected between the appellant mill and their sister concern during the assessment years 1990-91 and 1991-92.” 14. We have already held that by virtue of the prescription of cotton as set out in Entry 2 of Second Schedule of the Act, the assessee who had borrowed cotton to certain value was only obliged to return the same value in order to fulfil and conclude the said loan transaction. Once the documentary evidence in the form of registers of the assessee as well as that of its sister concerns disclose that the loan transaction was fully discharged by the assessee, there was no occasion for the assessing authority to reopen the assessment under the guise that the claim of loan transaction by the assessee was not fully established. Therefore, the conclusion of the Tribunal merits acceptance 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 sale transaction in order to impose levy of tax. 15. So far as the decision of the Full Bench of Tamil Nadu Taxation Special Tribunal is concerned we find that the factual matrix stated therein was lacking proof on very many factors. In such circumstance, we are not in a position to apply the said decision to the facts of the case on hand. On the other hand, the decision of this Court reported in (The Deputy Commissioner (CT) Coimbatore vs. Lakshminarayana Textiles (P) Ltd.,) 28 STC 288 applies to the facts of this case. In the said decision, it was observed thus:- “It seems to us that the Tribunal took the common view. The facts found by the Tribunal are these. The assessee borrowed certain amount of cotton from one Valliappan Textiles, which imported the same under the actual user's licence. The borrowing was permitted by the Textile Commissioner who directed that the loan should be returned in the shape of cotton and that neither of the transactions would be treated as a sale. It is not in dispute that the cotton imported under the actual user's licence cannot be sold. That is apparently the reason why the Textile Commissioner gave permission to the assessee to take cotton on loan. The transaction now sought to be taxed consisted of the return of cotton to Valliappan Textiles. The transaction clearly does not amount to a sale and is not a sale. The Tribunal was right in finding that it was only a loan transaction. It may be, as contended by the department, money was paid by the assessee to Valliappa Textiles, Bangalore, in relation to the cotton borrowed. But this is for the purpose of clearing the security to which the cotton was subject in a bank. Without clearing the security, cotton could not be released and Valliappa Textiles, Bangalore, could not lend it. Such payment should not be taken as consideration for sale. The tax case is dismissed. No costs. (Emphasis supplied) 16. Similarly, the decision reported in (The State of Tamil Nadu, represented by the Dy. Commissioner (CT) Salem vs. Obli Spinning Mills (P) Ltd) 1993 (3) MTCR 121 also applies to the facts of this case in all force, wherein this Court held thus:- “We do not think that there is any substance in the revision filed by the State against the order of the Appellate Tribunal wherein the Tribunal has found as a fact that what transpired from the nature of the transaction is that it is not a sale but only a lon transaction. The Appellate Tribunal has taken note of the https://hcservices.ecourts.gov.in/hcservices/ affidavits filed before it and has come to such a conclusion. We do not think that the Revenue can raise it as a point of law before us in a revision filed under Section 38 of the Tamil Nadu General Sales Tax Act, 1959 and since we do not find any questino of law so as to interfere with the order of the Appellate Tribunal. The Tax Case (Revision) is dismissed.” 17. Having regard to our above conclusion, the questions of law raised in this revision are answered against the petitioner and in favour of the assesee. Accordingly, the Tax Case (Revision) fails and is dismissed. No costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar rsh To 1.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 26035 MBS(CO) km/13.7. TC (R) No. 33 of 2009 https://hcservices.ecourts.gov.in/hcservices/