Home › GST Law › Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax, U.P. (2006) 5 SCC 624/(2006) 147 STC 57 (SC)

Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax, U.P. (2006) 5 SCC 624/(2006) 147 STC 57 (SC)

Uttar Pradesh Trade Tax Act, 1948
S. 2(h): Sale- Section 2(h), U.P. Trade Tax Act, 1948 after amendment in consonance with Art. 366(29-A) of the Constitution – Concept of “barter” and “exchange” explained – Since in terms of the Act the manufacturer is a dealer, held, it could not be said that the supply of molasses is the present case was a mode of payment of licence fee [Constitution of India, Article 246, 366(29-A) and Schedule VII List II Entry 54]

Facts

Swaroop Vegetables  Products Industries Ltd. (company) owned and possessed    a  sugar mill. A  Deed of Licence was executed by the company in favour of   the appellant on 3.9.1987; pursuant whereto, the appellant herein executed a performance guarantee to ensure performance of the said Deed of Licence dated 3.9.1987, 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. For AY 1987-88, the Department held the appellant liable to pay trade tax under the U.P.  Trade Tax   Act, 1948 (for short “the Act”) on payment made in terms of molasses. The appellate authority held that the molasses having been supplied in lieu of rent,    the same did not fall within the definition “sale” and it was a barter or exchange. Theappeals, after passing through different levels, reached the Apex Court.

 

Issue

Whether the adjustment of price of molasses from the amount of licence fee would amount to “sale” within the meaning of Uttar Pradesh Trade Tax Act, 1948 (‘the Act’, for short)?

 

View

The court was of the view that the deed of licence did not contain any provision requiring the appellant to  transfer to  the company,  the molasses produced by  it, by exercising its exclusive right to use the sugar mill, in lieu of the licence       fee or otherwise. The performance guarantee deed entered into by the appellant herein was a mechanism to pay the licence fee. By reason of the said performance guarantee, only a provision has been made in terms whereof the appellant was required to hand over the entire quantity of molasses to the company and the appellant had no right to sell it to any other person. In terms of the deed of licence, the appellant wasresponsible to manufacture  in the same capacity  as that of the owner.  It had to pay the licence fee in the manner laid down in the deed      of licence. The performance guarantee was not a part of the deed of licence in

 

 

the sense that by reason thereof the terms and conditions for grant of the licence including that of payment of the licence fee, were not controlled by it.

A licence fee cannot be the subject-matter of barter or exchange. A barter or exchange indisputably is distinct and different from a sale. A contract of sale denoted a transfer of property in goods by mutual consent. Such a transfer of ownership must be a price in the form of money. Only when the consideration     for transfer consists of other goods, it may be an exchange or barter. Such is not   the position here. The transaction in the present case answers the description of “sale” within the meaning of the provisions of the U.P. Trade Tax Act, 1948. It comes 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 loses its character of some other monetary payment by  way of mutual arrangement.

 

Held

There is no barter or exchange in as much as there is no transfer of property in goods for valuable consideration. However, the Court cautioned that adjustments would be subject to tax. The words “deferred payment” and “other valuable consideration” enlarge the ambit of consideration beyond cash only. However, only when there is sale of goods, the State becomes entitled to impose tax on the sale    or purchase of goods. (CA No. 2635 of 2006 (Arising out of SLP (C) No. 1811 of 2005 dt. 12-5-2006)

Editorial: Section 7 of  the CGST Act  provides for scope of  supply.  Tax  is  on supply. Sale or transfer of property in goods is a form of supply. Hence, article 366(19-A) would not be  of  relevance under GST  regime. Further, there  is no definition of “sale price” or “dealer” or “turnover” under the CGST Act. Section 2(31) defines consideration. It may be in money or otherwise. Thus, barter would also be subject to GST. Adjustments are; even otherwise, well known methods of payment. Hence, the above ruling may not be of much significance under the GST regime. However, what would be the value of such barter is a question to be decided in as much as, according to me, the valuation rules do not provide for valuation of barter of goods or services or both.

 

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