Case: Dhampur Sugar Mills Ltd Vs. Commissioner Of Trade Tax, U.P

3. The basic facts are not in dispute. One M/s. Swaroop Vegetables Products Industries Ltd. (the Company, for short) owned and possessed a sugar mill known as Sir Shadilal Sugar and General Mills situated at Mansurpur District, Muzaffarnagar in U.P. A Deed of Licence was executed by the said Company in favour of the appellant herein on 3.9.1987; pursuant whereto and in furtherance whereof, the appellant herein executed a performance guarantee to ensure performance of the said Deed of Licence dated 3.9.1987. In terms of the said agreement dated 3.9.1987, a performance guarantee was executed by the appellant herein, wherein it was agreed to by and between the parties that a major part of the licence fee would be paid in the shape of molasses. The contention of the appellant all along was and still is that it is in lieu of the consideration for the right to use the said sugar mill, i.e., the licence fee. The appellant was required to handover molasses to the said Company for an amount equivalent to the licence fee and such a transaction would not constitute a sale of molasses so as to attract the provisions of the Act4. It is not in dispute that for the assessment year 1987-88, the appellant was held to be liable to pay trade tax to the extent of Rs. 3,19,699.12p. by an order of assessment dated 30.7.1991 passed by the Assistant Commissioner, Trade Tax, Najibabad. The Company, however, preferred an appeal thereagainst as it was said to be the person aggrieved by the said order of assessment dated 30.7.1991 on the premise that in the terms of the agreement between the parties, the Company would be ultimately held liable for reimbursing the appellant to the extent of the amount of tax paid. In appeal No. 128/91, the Deputy Commissioner, Trade Tax, Moradabad held by order dated 9.1.1992, that molasses having been supplied in lieu of rent, the same would not fall within the definition of sale and it was a barter or exchange. However, it was directed that in the pending appeal preferred by the appellant, the amount assessed on molasses would be reduced5. In the meantime, the appellant also preferred an appeal against the said order of assessment and by an order dated 6.2.1992, the Deputy Commissioner granted the benefit of his earlier order dated 9.1.1992 to it, but in other respects, the said appeal was dismissed. Aggrieved by and dissatisfied with the said order dated 9.1.1992, an appeal was preferred thereagainst by the respondent herein before the Trade Tax Tribunal. The said appeal was found to be barred by limitation and on the said ground alone it was dismissed by an order dated 26.8.1992. However, the respondent preferred another appeal before the Trade Tax Tribunal against the order dated 6.2.1992. An appeal was also preferred by the appellant herein before the said Tribunal questioning the order dated 6.2.1992 passed by the Deputy Commissioner (Appeal), Trade Tax in so far as it refused relief to the petitioner on various other grounds. Both the appeals were heard together. By an order dated 26/28.6.1993, the appeal preferred by the Revenue was dismissed on the premise that the issues stood concluded by the dismissal of the second appeal of the department against the order dated 9.1.1992. However, the Company was proceeded against by the Revenue for imposition of tax for the assessment year 1988-89 purported to be in terms of Section 3F of the Uttar Pradesh Trade Tax Act, 1948 on the licence fee of Rs. 56 lakhs on the ground that the said sum was paid to it by the appellant herein by way of consideration for the right to use the goods. A writ petition was filed by the Company questioning the validity of the said order. The Revenue also filed a revision petition, being Sales Tax Revision No. 1866/93, before the High Court against the order dated 26/28.6.93 in Second Appeal No. 446/92 (87-88) U.P., Second Appeal No. 447/92 (87-88) Centre and Second Appeal No. 283/92. The writ petition filed by the Company was allowed by an order dated 17.2.1998 holding that sugar mill was not goods and hence licence fee for its use was not exigible to trade tax6. However, revision petition filed by the Revenue herein was allowed by the High Court by reason of the impugned order. The appellant is, thus, before us.

Reasoning: Molasses manufactured in the sugar mills, was the property of the appellant and it answers the description of goods. In view of the terms and conditions of the Deed of Licence, the appellant was the owner thereof. The Company was to use the molasses for the purpose of manufacture of sugar in its factory. Transfer of such molasses by the appellant to the Company, would not be a transfer by way of transfer of stock. It is transfer of the ownership in goods wherefor the Company was to pay the price to the appellant. The transaction, therefore, beyond any doubt, answers the description of sale within the meaning of the provisions of the U.P. Trade Tax Act, 1948. For each supply of molasses the appellant would be entitled to the price thereof. The amount towards the price of the goods could be paid either by way of cash or deferred payment. Instead of cash, the price of molasses was to be adjusted from the amount payable by the appellant to the owner by way of consideration for use of the mill. Such a mutual arrangement is merely one for the purpose of adjusting the accounts. The transactions between the parties are in effect and substance involve passing of monetary consideration. It would, thus, come within the purview of the expression any other valuable consideration, which expression would take colour from deferred payment being a monetary payment, but does not loose its character of some other monetary payment by way of mutual arrangement. The parties are not bartering or exchanging any goods so that the element of monetary consideration is absent. Money is a legal tender. Cash is, however, narrower than money. The words deferred payment and other valuable consideration enlarge the ambit of consideration beyond cash only. Entry 54 of List II of the Seventh Schedule to the Constitution of India provides for sale of goods. Once a sale of goods takes place, the State becomes entitled to impose tax on sale or purchase of goods. For construction of the words sale of goods, now the Court is not necessarily required to fall upon the definition of sale of goods, as contained in the Sale of Goods Act, 1930. It has to be governed by its enlarged definition under Clause (29-A) to Article 366 of the Constitution of India. Once an essential component of sale takes place, Sales tax would, indisputably, be payable. By reason of such an arrangement by the parties, the State is not creating a new taxable event nor imposing a new tax which was unknown in lawIn fact, the transaction entered into by the parties even does not provides for any camouflage to evade tax. They are clear and unambiguousWe, therefore, are of the opinion that the High Court cannot be said to have committed any error in passing the impugned judgmentIn regard to the submissions of the learned counsel for the parties that as no appeal was preferred from the order dated 30.7.1991, wherein the Company was the appellant, the respondent must be held to have accepted the order, is not acceptable to us, as, admittedly, the appellant itself is liable to pay the tax. The contentions of the appellant that having regard to the transaction entered into by and between the parties and no sale having taken place, they are not liable to pay any tax, will not be correct. Non-filing of the appeal against the said order dated 30.7.1991, would not take away the effect of order of assessment passed as against the appellant by the Assessing Authority.