COMMR. OF COMMERCIAL TAXES AND ORS.versusCHITRAHAR TRADERS

                       [2011] 3 S.C.R. 910

A       COMMR. OF COMMERCIAL TAXES AND ORS.
                                 v.
                     CHITRAHAR TRADERS
                 (Civil Appeal No. 2686 of 2011)
                        MARCH 16, 2011
B
              [DR. MUKUNDAKAM SHARMA AND
                     ANIL R. DAVE, JJ.]

       Sa/es tax: Agreement between NLC, a government
C undertaking and assessee for sale of iron and steel scrap to
  the assessee - Dispute arose between the sales authorities
  and the assessee as to nature of the article - According to
  authorities, the article was plant and machinery taxable @
  12% with 5% surcharge while as per assessee, it was scrap
D and liable to tax @ 4% - Held: Assessee is liable to pay sales
  tax @ 4% only - In the agreement between the NLC and the
  assessee, what was sought to be sold was iron and steel scrap
  and rejected/condemned and obsolete secondary arisings -
  Terms and conditions of e-auction also indicated that what was
E being sold was scrap - Moreover, there was an application
  by assessee to District collector for using explosives for
  dismantling the machinery - Sale in question was made by
  public sector undertaking and the said sale was conducted
  for and on behalf of another public sector undertaking -
F Selling agent was a/so engaged in the business of metal
  scraps - Sale took place 36 years after the purchase of
  machineries - Affidavit of NLC clearly established that those
  machineries became obsolete and condemned - It was also
  established from the contemporaneous documents that the
G plant and machineries had outlived its utility and had no value
  except scrap.

        Rainbow Steels Ltd. and Anr. v. The Commissioner of
    Sa/es Tax, Uttar Pradesh, Lucknow and Anr. ·1981 (47) STC
    298 - Distinguished.
H                               910
  COMMR. OF COMMERCIAL TAXES AND ORS. v.                   911
            CHITRAHAR TRADERS
                      Case Law Reference:                         A
    1981 (47) ST.C 298           Distinguished        Para 13
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2686 of 2011.
                                                                  B
    From the Judgment & Order dated 26.2.2010 of the High
Court of Madras in W.A. No. 639 of 2008.

    R. Nedumaran for the Appellants.
    Shyam Diwan, B. Raghunath, Vijay Kumar for the C
Respondent.

    The following Order of the Court was delivered

                          ORDER
                                                                  D
    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 E
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 F
to set out herein the entire factual position at length. However.•
for the purpose of deciding the present appeal, wh·atever fact$'
are required to be dealt with and stated are being stated
hereinafter.
                                                                   G
      Th~ N.L.C., namely, Neyveli Lignite Corporation is a
Government of India :-""terprise 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 H
    912      SUPREME COURT REPORTS                 [2011] 3 S.C.R.


A 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
B 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 c:ippointed
  Mis. Metal Scrap and Trading Corporation Ltd. (hereinafter
C 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 reaC:~
D 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
E         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:-
F
          "This Agreement covers disposal of all scraps.secondary
          arisings, surplus stores and equipment misc. items etc, as
          mentioned in Clause 2.0 before."
G        Since reliance was also placed on Clause 5.0, we extract
    the same as under:-
          "{)i.Jration of Contract

          The Contract will remain valid for Three years from 17-11-
H
   COMMR. OF COMMERCIAL TAXES AND ORS. v.                  913
             CHITRAHAR TRADERS
     2004 to 16-11-2007 which could be extended for such A
     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 8
  became scrap as obsolete and unviable, was sold through the ·
  process of ""-auction and the respondent herein offered its bid
  which c.a111e 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 C
  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 D
  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      E
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      F
authorities mentioning therein 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 a-auction and acceptance of the tender were stated. A       G
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   H
    914      SUPREME COURT REPORTS                  [2011] 3 S.C.R.


A   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
B   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
C 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%
D 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
E   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.
F   It was aiso 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: -

G               "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 &
H         C plant machinery on as-is-where-is basis, and sales tax
  COMMR. OF COMMERCIAL TAXES AND ORS. v.                         915
            CHITRAHAR TRADERS

    and surcharge was mentioned at 12% and 5%                             A .
    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                    B
    05.05.2005 to 19.05.2005 bearing upto Serial Nos. 52, the
    de<>cr •..,::Jn 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                         c
    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 N'ote
                                                                          0
    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 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                 E
    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                       F
    subsequently recovered on 22.11.2005 from the EMO of
    the Buyers and paid under protest to the Second
    Respondent, the Commercial Tax Officer, Cuddalore, on
    23.11.2005 consequent to later developments." .
                                                                          G
     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 salf tax @ 4% only. Being
aggrieved by the aforesaid judgment and order passe~ by the               H
    916     SUPREME COURT REPORTS                 [2011) 3 S.C.R.

A 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
B 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
c 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
D 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
E 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.
F        Counsel appearing for the Appellants also relies upon the
    decision of this Court titled as Rainbow Steels Ltd. & Anr. Vs.
    The Commissioner of Sa/es Tax, Uttar Pradesh, Lucknow and
    Anr. reported in 1981 (47) STC 298.
       Counsel appearing for the respondent, however, drew our
G 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
H by the Madras High Court.
   COMMR. OF COMMERCIAL TAXES AND ORS. v.                     917
             CHITRAHAR TRADERS
        In the light of the submissions of the counsel appearing for A
  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 B
  and obsolete s~condary 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 c
  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 D
  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 E
  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.     F
 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           G
 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       H
    918     SUPHEME COURT REPORTS                 (2011] 3 S.C.R.


A 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
8
  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
C 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
D 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
E 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.
F 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
G 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
H
  COMMR. OF COMMERCIAL TAXES AND ORS. v.                 919
            CHITRAHAR TRADERS

which shall be assessed by the Departmentwithin a period of A
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.
                                                                 B
     The appeal is dismissed with the aforesaid observations.

D.G.                                      Appeal dismissed.