INDIRECT TAXES

Sales Tax Decisions
CA Prem T. Chhatpar

High Court

1. Classification of goods – Borosoft Natural and Borosoft cream, Itch Guard cream and "Dermicool" Prickly Heat powder

The Court ruled that Borosoft Natural and Borosoft cream were products which could be used to treat specific medical conditions and also could be used by persons not suffering from such problems. Hence, these products were to be considered as "Cosmetics" falling under entry 41 of Part III of the Schedule II of the M.P. Commercial Tax Act, 1994. Itch guard cream and Prickly heat powder were used for treating certain medical conditions and could not be used merely for cosmetic purposes and would fall in Entry 11 of Part IV of Schedule II (Medicines) following Puma Ayurvedic Herbal P. Ltd. v. Commissioner, Central Excise (2006) 145 STC 200 (SC).

Paras Pharmaceuticals Ltd. and Popular Sales v. State of M.P (2012) 48 VST 550 (M.P.)

2. Classification of goods – Paving bricks

Paving bricks used for floor, ground, footpath, garden and car parking areas have been held to be covered by expression "Bricks of all kinds" used in Entry 2 of the Third Schedule to the Karnataka Value Added Tax Act, 2003.

H.H. Cement Products v. Asst. Commissioner (Karnataka) (2012) 47 VST 264 (Karn.)

3. Classification of Goods – Scrap sales – Tax rate applicable

The dealer was purchasing old vehicles, dismantling the same and selling the spares as scrap. The scrapped portion of the vehicle was sold in the scrap yard itself but the usable spares were brought to the shop for sale as automobile spares. While most of the spares were items of iron and steel, it was common knowledge that the prices of scrap steel should not vary substantially because the price of scrap would depend on the recoverable metal content in it. Hence, although the scrap was being shown as sold by weight, the Court held that the products were fit for use as automobile spares and hence the normal tax rate was applicable to them.

Jainulavudheen v. State of Kerala (2012) 47 VST 363 (Ker.)

4. Composition of tax – Applicability to Banquet sales

The assessee was engaged in hotel business and inter alia, served food to guests at its banquet hall and served food in the restaurant. While sales at the restaurant were given the benefit of composition, banquet receipts were not granted the benefit of Section 17(4) of the KVAT Act in force at the relevant time and were subjected to higher rate of 10% u/s 5(3)(a) of the KVAT Act. After referring to the dictionary meaning of the "Hotelier", "Restaurateur" and "Caterer", the HC held that the entire turnover was eligible for the benefit of Section 17(4) as it was not the case of the Dept. that food was taken to a place outside the hotel for service. The entire turnover comprised of service of food within the same business premises and no splitting was possible.

Vijaya Samraj Hotels v. State of Karnataka (2012) 47 VST 292 (Karn.)

5. Inter-State sales – Sales of DEPB licences held to be inter state sales

DEPB licences were sold by the petitioner based in Andhra Pradesh to parties in U.P., Gujarat and Tamil Nadu. The petitioner’s contention that these sales took place in the respective States was not accepted as Tribunal inferred that it was unimaginable that the petitioner’s representatives went to these States carrying the DEPB licences with them and then located buyers for sales. No such documentary proof was also produced. Under the circumstances, the HC observed that the Tribunal, being the highest fact finding body had come to a reasonable conclusion that the buyers were found first and then the licences were sent either by person or through courier or post to the buyers and hence, the sales were rightly treated as inter state sales effected from A.P and taxed at 10% for want of Form C.

Hansa Overseas Enterprises v. State of A.P (2012) 47 VST 524 (A.P.)

6. Rate of Tax – Tax rate for Star Hotels – commencement date

The Kerala HC has held that the higher tax rate applicable to Star hotel was applicable only after the classification was granted by the Tourism Dept. of Government of India and not before that. The Act did not confer authority on any taxation authority to confer the star status and hence, tax rate applicable to Star hotels would be attracted after the status had been conferred by the Tourism Dept. and not before that date during the same financial year.

State of Kerala v. Yenkay Complex P. Ltd. (Ker) (2012) 47 VST 288 (Ker.)

7. Revision

While the Commissioner has no power to revise in respect of a matter which is the subject matter of an appeal filed, the Commissioner has the power to revise that portion of the appellate order which was in favour of the dealer and had not been appealed against. Hence, such a Revision was held to be valid.

O. P. Developers v. State of Karnataka (2012) 47 VST 207 (Kar.)

8. Sale in the course of import – Mere back to back contracts not sufficient

The appellant imported a bank note processing system from Germany after an order was placed on it by Canara Bank. The appellant had placed the order on German supplier after receiving the order from Canara Bank. Despite there being back to back contracts, the claim u/s 5(2) of the CST Act was disallowed as there was no legal obligation to sell the system only to Canara Bank – the goods imported could have been diverted to another third person without violation of the contract between the dealer and the Canara Bank. Moreover, pending the supply of the System, Canara Bank was provided a standby machine under the terms of the contract. Under the circumstances, it could not be said that the import was occasioned by contract and qualified for exemption u/s 5(2).

Giesccke & Debrient I. P. Ltd. v. Commissioner, S.T. (Delhi) (2012) 47 VST 343 (Delhi)

9. Sale – Sales by adjustment of Security deposit

Supply of deep freezers by manufacturers of ice-cream against security deposit to be adjusted subsequently in 4 equal instalments towards charges for wear and tear amounts to "outright" sale although the sale consideration was sought to be camouflaged as security deposit. The supply was charged tries v. State of Kerala (2012) 47 VST 487 (Ker.)

10. Sale – Supply of spares during warranty period by authorized for consideration received from the Manufacturer

The dealer was an authorized dealer of vehicle manufacturer and was engaged in the business of selling vehicles and spare parts purchased from manufacturers. The dealership agreement stipulated that the defective parts which could not be repaired immediately be replaced during the warranty period and the consideration therefor was recoverable from the manufacturer. The Tribunal’s decision to treat the transaction as a sale was confirmed by the High Court following Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax (2004) 136 STC 515 (SC) and the attempt to distinguish the SC ruling on the ground that the dealer was not an agent of the manufacturer was not accepted.

Navnit Motors P. Ltd. v. State of Maharashtra (2012) 47 VST 511 (Bom.)

11. Sale price – Excise duty forms part of Sale price even if deferred to be paid at a later stage

The assessee manufactured petroleum products at Mathura, U.P and sold the same to other Oil marketing companies outside the state of U.P. and transferred the goods to bonded warehouses outside U.P. without payment of excise duty. The assessee did not include central excise duty in the sales price on the ground that central excise duty had been allowed to be deferred. The HC held that excise duty is leviable on the manufacturer and duty is payable at the point of removal. Although in the present case, the liability to pay excise duty was deferred to the date of removal from the bonded warehouses outside the State, it did not have any impact on the prime liability to pay excise duty which is saddled onto the manufacturer. Hence, following Macdowell & Co. Ltd. 59 STC 277 (SC) excise duty was liable to form part of sale price under the CST Act. However, as the assessee had been disputing its tax liability and there was no earlier decision of the Court on the issue, interest u/s 8(1) of the CST Act was set aside but interest u/s 8(1B was confirmed

Indian Oil Corporation Ltd. v. CCT (All-HC) – (2012) 47 VST 66 (All-HC) and 47 VST 81 (All.)

12. Set-off – Whether holding of registered trademark necessary for grant of set off u/r 42H of the BST Rules?

The Tribunal had denied set off u/r 42H by taking the view that "holding a trade mark" in Explanation to Section 2(26) of the BST Act referred to holding a registered trademark. The Tribunal had refused to make a reference. The HC held that the question would depend on the construction to be placed on the provisions of Section 2(26) of the BST Act read with the Explanation which adverts to a seller holding a trademark, which was a question of law and ought to have been referred to.

National Dairy Development Board. V. CST 48 VST 255 (Bom.)

13. Trade mark – Sales of goods under unregistered trademarks

Sales of lubricating oils in sachets bearing the company’s name were held to be first sales subject to grant of set off on tax paid on purchases. The petitioner’s contention that the marks on the sachets were not registered trademarks was not accepted as on a plain reading of Section 5AA of the APGST, it was not a requirement that the trademarks should be registered.

Vicrocil Oil Company v. State of A.P. (2012) 47 VST 546 (A.P.)

Central Sales Tax Appellate Authority (CSTAA)

1. Branch Transfer or Inter State sales

Goods were manufactured by the appellant in Andhra Pradesh as per indents placed by its branches at Kolkata. The goods were sold by the branches to IISCO and TISCO against purchase order that indicated its monthly requirements. Upon gathering this information from IISCO and TISCO, the STO denied the claim for branch transfers and treated the despatches as inter state sales from Andhra Pradesh. The appellant’s contention that it was not aware of the contract entered into by the Kolkata branch was not accepted by the CSTAA. The High Court observed that the lower authorities could not be faulted for reaching to the conclusion that these were inter state sales since orders placed by IISCO and TISCO were firm orders for specific quantities of the products although there were slight variations in the actual delivery. The states of West Bengal and Jharkhand were directed to transfer refundable amount of tax collected by them to the State of Andhra Pradesh to which the tax was due.

Hindustan Zinc Ltd. v. State of A.P. (2012) 47 VST 1 (CSTAA)