THE A.P. STATE HANDLOOM WEAVERS CO-OPERATIVE SOCIETY LIMITED Vs. STATE OF ANDHRA PRADESH

JUDGEMENT

(1.) THIS appeal is preferred against the order of the Joint Commissioner (CT)(Legal), Hyderabad, dated 30.12.2009. The appellant is A.P. State Handloom Weavers Co -operative Society Ltd., (APCO) floated by Government of Andhra Pradesh is Co -operative Society to alleviate the suffering of weavers community and give breather to the Handloom Industry in A.P. The society buys Hank, Cone Yarn etc., and supplies the same to its constituent Weavers Co -operative Societies in the Districts. Members of the weaver society will convert the yarn into livery cloth as per specifications and return the same to the APCO. The weavers societies are members of the Apex organization i.e., the APSHWCS., and they are integral part of the main body. APCO merely effects transfer of yarn and receives back the resultant livery cloth. As it is an internal transfer of yarn, the society claimed exemption in Form VAT 200 return filed for the months of April, May June and July, 2005. The Commercial Tax Officer, Narayanaguda, verified the records on 19.8.2005. He served VAT 305A Dt. 19.08.2005 and 22.8.2005 for the first 3 months and the 4th month respectively and issued another Form 305A on 26.8.2005 for 4 months enhancing the penalty from 15% to 25%. Inspite of filing their objections, the C.T.O., confirmed the proposal and levied tax, penalty and interest in one single order dated 26.9.2006. Aggrieved by the said order, they preferred an appeal before the Appellate Deputy Commissioner (CT), Secunderabad and he allowed the same in an order dated 6.1.2006. But, the Joint Commissioner (CT) (Legal), revised it under Sec. 32(2) of APVAT Act and set aside the order of the appellate authority. When they received pre -revision show cause notice dated 18.5.2009, they submitted detailed objections relying on the bye -laws of the society. But, the revisional authority observed that the dealer and member societies are two different and distinct legal entities. The dealers sell yarn to the societies and purchases cloth from them. The sales of yarn to the societies are taxable in the hands of the dealer. The dealer while supplying yarn to the societies debits their account with the value of the yarn and after receiving cloth credits the societies account with the value of the cloth. These entries also prove sale of yarn to societies first and purchase of cloth from societies later. He relied upon a citation reported in N.M. Goel & Co., v. Sales Tax Officer (7 APSTJ 269) in which it was held by the Apex Court that where a contractee supplies cement, steel etc., to the contractor on cost recovery basis, the transaction constitutes a sale and is liable to tax and accordingly he rejected the objections of the dealer society and set aside the order of the appellate authority. Aggrieved by the said order, they preferred appeal and also submitted their written arguments. The Id. State Representative supported the orders of the revisional authority. He relied upon bye -law 34(a) and argued that as per the above bye -law and the business practice of the dealer, the appellant is making deduction of the price of yarn entered in the books from the price to be paid on the cloth sold by the member societies and is paying the net amount due to the dealer. Therefore, the amounts which are credited to the account of the primary societies are nothing but sale consideration exigible to tax under APVAT Act, 2005. He also relied upon citations reported in : 147 STC 57 (SC),, 39 APSTJ 150 (SC) and : 72 STC 368 (SC), in support of his contention. The counsel for the appellant argued that the revisional authority relied upon the entries of the books of accounts and treated it as sale to the member societies. Though they are maintaining it in the books of accounts, there is no receipt of consideration from the society either in cash or any form. He reiterated objects of the society as per bye -law 3 and further stated that there is only transfer of yarn to the society for conversion into livery cloth on job work basis and the same has to be returned to the society and thus there is no element of sale or receipt of consideration in any form to attract sale within the meaning of Sec. 2(28) of the VAT Act, 2005. In the absence of any sale consideration either in cash or in any form the imposition of tax by the 2nd respondent as confirmed by the first respondent is contrary to the provisions of the VAT Act, 2005. He also filed additional documents on 4.4.2013 and 6.11.2013 before the Tribunal and requested the Tribunal to consider the same.

(2.) THE points for consideration are:

(3.) AS per terms of the Memorandum of Understanding between the A.P.S.H.W.C.S., (APCO) and The Mydukur Society Ltd., dated 27.1.2005 APSHWCS Ltd., supplies the material (such as yarn etc.) to the society for the purpose of conversion of yarn into livery cloth varieties as specified in the work order/schedule. The society shall execute the work order as per the terms and conditions specified therein. The APCO transfers the specific quantities of Cone/Hank/others yarn to the society for doing the job work of weaving and returning the livery cloth varieties to the APCO. 2) The yarn so received by the said society shall be used exclusively for weaving the livery cloth varieties as specified in the schedule. 3) It is the property of the APCO and it should be marked with division code and the name of APCO. 4) APCO is the owner and title holder of the yarn transferred and the resultant livery cloth varieties in any form. 5) The society shall receive the labour charges for weaving the livery cloth varieties. 6) In case of any loss, damage, mutilation of the yarn/the resultant goods, the actual cost of the goods and incidental charges if any shall be recovered from the society. 7) The Society does not have rights on the yarn/resultant goods including diversion of goods to other society, without the express permission of the transferor.