The Commissioner of Sales Tax vs Purohit''s Hotel

Kania, J.—This is a reference u/s 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the said Act"), made at the instance of the Commissioner of Sales Tax. The question referred to us for our consideration is as follows :

"Whether having regard to the facts and circumstances of the present case, the Tribunal was correct in law in holding that there was a resale of ice and hence, purchase tax levied would have to be set aside ?"

The facts giving rise to this question are as follows :

The assessees run hotel where meals and snacks are served. In respect of the assessment periods from 21-10-1960 to 8-11-1961 to 28-10-1962 and 29-10-1962 respectively, in the course of the assessment of the assessees, the Sales Tax Officer found that the assessees had, inter alia, purchased ice, sauce and butter from unregistered dealers. In the assessment proceeding before the Sales Tax Officer the assessees claimed a set-off in respect of the purchase tax leviable on these items on the ground that the same had been used in the manufacture of goods which had been sold by the assessee. This claim was rejected by the Sales Tax Officer, although a similar claim in respect of papad purchased from unregistered dealers was allowed. The Sales Tax Officer levied purchase tax on the purchase of ice, sauce and butter made by the assessees from unregistered dealers during the aforesaid assessment periods. The assessees preferred appeals against the assessment orders passed by the Sales Tax Officer in respect of the aforesaid three periods. The contention of the assessees before the Assistant Commissioner of Sales Tax, who disposed of these appeals, was that the Sales Tax Officer had erred in not allowing the set off claimed by the assessee as we have already set out earlier. The Assistant Commissioner of Sales Tax accepted the contention of the assessees as far as the purchases of the butter from unregistered dealers were concerned, but rejected the assessee''s claim to a set off in respect of the other two items. The assessees then referred second appeals to the Sales Tax Tribunal. It is interesting to note that in the grounds contained in the memorandum of appeal, the assessees, inter alia, contended the such was supplied with certain dishes and presumably to urge on this basis that it was used in the manufacture of those dishes. The next ground of appeal shows that on the presumption that sauce was not used in the manufacture of goods for sale, it was alternatively contended by the assessees that the sauce purchased was resold and hence no purchase tax should have been levied on the purchases of sauce. As far as the purchases of concerned, the only contention raised in the memoranda of appeal was that ice was used mainly in preparing cold water and cooling soft drinks. This would show that all that the assessees contended, as far as the purchases of ice were concerned, was that the assessees were entitled to a set off in respect of the amount levied as purchase tax on the purchases of ice as aforestated as the ice purchased had been used in the manufacture of goods for sale.

At the hearing before the Tribunal the Department conceded that as far as the amount levied as purchase tax on the purchases of sauce was concerned, the assessees were entitled to a set off as the sauce purchased had used in the manufacture of goods for sale. However, curiously enough, as far as the amount levied as purchase tax on the purchases of ice from unregistered dealers was concerned, the Tribunal did not all go into the question as to whether the ice purchased had been used in the manufacture of goods for sale as contended by the assessees, but came to the conclusion that the ice purchased from unregistered dealers as aforesaid had been resold by the assessees with the result that no purchase tax on the purchases of the same, should have been initially levied at all. It is this decision of the Tribunal which is sought to be impugned by the Department by way of the question raised before us.

Section 13 of the said Act at the relevant time provided that where a dealer purchased any goods specified in Schedules B, C, D or E from a person or a Government who or which was not a registered dealer, then unless the goods so purchased were resold by the dealer within a period of three months or such extended period as referred to therein from the date of his purchase, there would be levied subject to certain provisions with which we are not concerned here a purchase tax on the turnover of the purchases at certain rates. The facts found clearly show that the assessees are registered dealers and that ice, with which we are concerned in this reference, is covered by entry 38 of Schedule C to the said Act. The set-off was claimed under Rule 41 of the Bombay Sales Tax Rule, 1959 on the ground that the assessees had used the ice purchased as aforesaid in the manufacture of taxable goods for sale. Sub-s.(26) of section 2 of the said Act, inter alia, provides that the expression "re-sale" for the purpose of section 13 means a sale of purchased goods in the same form in which they were purchased or without doing anything to them which amounts to or results in a manufacture.

It was urged by Mr. Dada, the learned counsel for the Department, that in the present case the Tribunal was clearly in error in coming to the conclusion that ice purchased by the assessees as aforesaid had been resold by them without there having been any such case made out by the assessees at any stage. We find that there substance in this contention of Mr. Dada. A transaction of resale must necessarily imply a sale and there can be no sale until the parties are ad idem and there is an agreement of sale. In view of this we find it difficult to appreciate as to how it could be said that the assessees had resold the ice purchased by them, when there was no case by the assessees of any sale of ice by them to their customers at all and, on the other hand the assessee had all along contended that the ice purchased by them had been used by them in the manufacture of taxable goods for sale. From the statement of facts given by the Tribunal it appears that the Tribunal has found that the assessees used to sell lunch at the relevant time at Rs. 2.50 per head and that along with lunch cold water was supplied to the customs. The Tribunal, has then observed that when cold water is supplied it is presumed that the ingredients which are necessary to render that water cool have been taken into account when the customers receive it as a finished product that said finished product being cold fold water. This observation of the Tribunal clearly militates against the conclusion arrived at by the Tribunal that the ice purchased by the assessees was resold by them. The aforesaid finding of the Tribunal of the Tribunal might well form the basis of a contention by the assessees that the ice purchased by them was used in the manufacture of cold water for sale as a part of the meals supplied but it militates against the conclusion that the ice purchased by the assessees was resold by the assessees to the customers. The same is the position regarding ice which might have been used for cooling soft drinks or butter milk. We may make it quite clear that it is possible that in a given case an assessee might lead evidence and show that the ice purchased by him or a part thereof has been resold to customers. But, in the present case there are no facts which would justify such a conclusion.

In the result, in our view the question referred to us must be answered as follows :

Having regard to the facts and circumstances in the present case, the Tribunal erred in law in holding that the assessees had resold the ice purchased by from unregistered dealers without there being any such plea taken by the assessees, instead of deciding the case of the assessees that they were entitled to a set-off in respect of the purchase tax leviable on the ice purchased by them from unregistered dealers as they used such ice in the manufacture of taxable goods for sale.

As far as the question of costs is concerned, in view of the fact the Tribunal has made out a new case, which was not the case of the assessees, instead of deciding the case of the assessees that the ice purchased by the assessees had been used by them in them manufacture of taxable goods for sale, which the tribunal should have determined, it seems proper that the parties should bear and pay their own costs of this reference and there will be an order accordingly.