Indirect Taxes

Sales Tax

P. C. Joshi & Prem T. Chhatpar

1. The Supreme Court, after considering the provisions of notification granting incentives, observed that whenever the period up to which exemption was to be obtained by the assessee, it was expressly stated. However, when no period was mentioned, the entry concerned has to be liberally construed.

State of Orissa & Others vs. M/s Tata Sponge Iron Ltd. (2008) 52 S. T. A. – 133.

2. The Supreme Court, while considering the Package Scheme of Incentive announced by the Union Territory of Pondicherry, held that once the Industry Department had recognised and certified a Unit as a Small Scale Industrial Unit engaged in the activity of repacking edible oil, the State later on cannot be allowed to turn around and take a stand that the assessee was not entitled to the exemption on the ground that the assessee did not manufacture any goods.

M/s Pondicherry State Co-op. Consumer Federation Ltd. vs. Union Territory of Pondicherry (2008) 52 S. T. A. – 142.

The Madras High Court held that if an earlier order was not appealed against by the revenue and the same had attained finality, it was not open to the revenue to accept the judgment in one case and question the correctness in yet another case.

The State of Tamil Nadu vs. M/s Vaikundam Rubber Co. Ltd. & Others 2008-09 (14) TNCTJ – 195.

1. Marker Ink

The Hon’ble Supreme Court, while considering the classification under Central Excise Tariff Act, held that different kind of inks used in manufacturing various kinds of marker pens and sketch pens was similar to other inks mentioned in Chapter 32.15 under heading 3215.10 as writing ink. According to the Hon’ble Apex Court, when the entries in the HSN and the tariff entry were not aligned, reliance cannot be placed upon the HSN classification for the purpose of classification under the Central Excise Act. The order of the tribunal, therefore, impugned before the court was held to be vitiated and therefore was set aside.

M/s Camlin Ltd vs. Commissioner of Central Excise, Mumbai JT 2008 (10) SC 49.

2. Fertilizer

The Haryana Tax Tribunal held that Castor deoiled cakes, Neem deoiled cakes and Mahua deoiled cakes were organic manure and therefore covered by entry 27 of Schedule B of the Haryana VAT Act and not liable to tax. The Tribunal reversed the opinion of the Financial Commissioner while replying to the questions posed under section 56(3) of the State Act.

M/s T. R. Solvent Oils Pvt. Ltd., Faridabad vs. State of Haryana (2008) 32 PHT 389 (HTT).

1. The Supreme Court, while construing the notification under the Central Excise Act, 1944, held that the exemption having been granted to the fabrics processed without the aid of power, no such benefit can be availed of by the assessee even where the power was used in certain ancillary and incidental areas. The Supreme Court, however, upheld the decision of the Tribunal and held that the benefit was correctly denied.

M/s Mathania Fabrics vs. Commissioner of Central Excise, Jaipur (2008) 52 S. T. A. – 147

2. The Allahabad High Court held that the Unit enjoying the benefit under Incentive Scheme have not only to manufacture the goods during the exemption period, but also sell the same before expiry of the eligible period. In other words, any goods manufactured during the exemption period and sold after expiry of the said period, would not be eligible to any exemption and was liable to tax.

The Commissioner, trade Tax, U. P. vs. M/s Mercury Lighting Fixtures. 2008 NTN (Vol. 38) – 73.

Rule 28A of the Haryana General Sales Tax Rules provided that the backward area units after having obtained Exemption / Eligibility certificate should continue its production for at least 5 years not below the average production of the preceding 5 years failing which the certificate was liable to be withdrawn ab initio unless the stoppage /loss of production was explained as attributable to reasons beyond the control of the unit. In the present case, the HC had held that the Dept. could not ask the dealer to deposit the amount pertaining to the period when unit was in production. However, the SC held that the Dept. was justified in maintaining the demand even for the period during which the unit was in production.

State of Haryana vs. A.S. Fuels P. Ltd. (2008) 16 VST 546 (S.C.)

The Dept. had filed appeals before the Tribunal without obtaining prior sanction from the competent authority. When objection was raised on this count, the Dept. sought leave to withdraw the impugned appeals to file fresh appeals after obtaining the requisite sanction. The leave was granted by the Tribunal and fresh appeals were filed whose maintainability was questioned by the appellant. The Tribunal rejected the objections and entertained the appeals after condoning the delay in filing the appeals. On appeal the HC held that when the appeals were dismissed as withdrawn, by implication the prayer of the Dept. to file fresh appeals was also accepted. It is one of the recognized principles of law that when an application for withdrawal of the petition the assessee seeks permission to reserve the right to file fresh case, the permission to file fresh case can be said to impliedly granted in the withdrawal order. Moreover, if there was no sanction, there was no appeal and therefore the subsequent appeals were rightly entertained by the Tribunal after condoning the delay.

G.N. General Mills vs. State of Punjab & Ors. (2008) 16 VST 566 (P & H)

The Allahabad High Court held that the claim of goods return cannot be rejected on the ground that no defect in the goods returned were established. The court also held that no such requirement was provided in the law and therefore the claim must be allowed if goods were returned within time. The return of goods cannot be termed as colourful device to evade the tax, because an assessee was free to manage its affairs in such a manner that he pays minimum tax.

The Commissioner, Trade Tax, U. P., Lucknow vs. M/s Eicher Good-Earth, Ghaziabad. 2008 NTN (Vol. 38) – 9.

Where the lessor had entered into simultaneous agreements with supplier for supply of boiler and with the users for installation and commissioning and subsequent lease of the boiler and the agreements envisaged movement of goods to the plant from outside the State, the lease was held to be of inter State nature since for the purpose of taxation, a deemed sale could not be distinguished from an ordinary sale and any State law with respect to deemed sales must conform to Article 286 and the provisions of the CST Act. The challenge to the levy was entertained in a writ petition although alternate remedies were not exhausted. The levy was struck down notwithstanding the fact that he had previously admitted his liability. Liability to pay tax has always to be imposed by law – it cannot be imposed by admission. Moreover, the Lease Agreement was executed prior to 11-5-2002 i.e. when the necessary amendment to the CST Act to cover deemed sales was carried out. In the absence of any express provision for retrospective applicability of the said amendment, it was held to have a prospective effect and would not apply to transfers of right to use goods effected prior to 11-5-2002.

Srei International Finance Ltd. vs. State of Orissa (2008) 16 VST 193 (Orissa)

The Allahabad High Court held that obtaining railway receipt in favour of self for inter-State movement and endorsement thereon in favour of the commission agent would not amount to an inter-State sale. The court held the facts of the case to be covered by section 3(b) of the Central Sales Tax Act.

The Commissioner, Trade Tax, U. P., Lucknow. vs. S/s Dalu Ram Ganpat Ram Sohratgarh, Sidharthnagar 2008 NTN (Vol. 38) - 4.

The West Bengal Commercial Tax Appellate & Revisional Board held that in absence of any link between the first seller from another State and the contractee within the State, it cannot be said that the transaction was of inter-State nature. The assessee was, therefore, held to be liable to pay tax under section 6D of the West Bengal Provisions.

M/s National Engg. Industries Ltd vs. D.C.C.T., Corporate Division (2008) 52 S.T.A. (Board-60).

The Madras High Court, after considering the repeal of Tamil Nadu Taxation Special Tribunal Act 1992, held that the jurisdiction of the High Court stood reactivated and therefore the provisions of sections 37 & 38 of Tamil Nadu General Sales Tax Act providing for appeal and revision, was available to the assessee for its approach to High Court.

The Commercial Tax Officer, Chennai vs. C. P. D. Computer Peripheral Devices & Others. 2008-09 (14) TNCTJ – 200.

The Court held that although electrical energy was used for operating laundry machines, they were not intrinsically "electrical goods" as understood by the trade. Hence, laundry machines were not electrical goods and did not require Form ST-18 to be carried along with the vehicle carrying the machine. Further, even if they were classifiable as electrical goods, the same were not meant for sale of transfer but for personal use and so the order levying penalty was rightly set aside by the Tribunal.

Asst. CTO vs. Puran Lal Dry Cleaners (Raj.) (2008) 16 VST 537 (Raj.)

The assessee an owner of tankers had entered into an agreement with IOC for transportation of petroleum products from one place to another and received transportation charges. The Tribunal recorded a finding that control and possession of the tankers had never been transferred to IOC and the necessary expenses of transportation were borne by the assessee. The HC held that the provisions of sec. 3F of the U.P. Trade Tax Act, 1948 were applicable only in cases where there was a transfer of right to use goods for which delivery of possession was a sine qua non, transfer of effective control of the goods was a must. In view of the specific finding given by the Tribunal, the levy of lease tax was set aside.

Commissioner, Trade Tax, U.P. vs. Nand Transport Co. (2008) 16 VST 381 (All.)

The Gujarat High Court held that any sale effected by a dealer after closure of his business cannot be liable to tax, since on discontinuation of the business, the course thereof no more continue. It also held that the sale of entire mill on ‘as is where is’ basis did not amount to sale of goods in the course of dealer’s business.

State of Gujarat vs. M/s Sayaji Mills No. 1.

Source : Sales Tax Matters, June 2008, Vol. 11 Part 6, Page 696.

The Andhra Pradesh High Court held that under the provisions of Rule 28(14) read with section 12(7) of the Andhra Pradesh General Sales Tax Act 1957, the liability of a surety would remain in force for one year. The surety would remain responsible for payment of tax, penalty and interest for that year. The Court also held that the surety was not liable for payment of dues of the succeeding years.

Mr P. Venkateswarlu vs. Commercial Tax Officer & Others (2008) 32 PHT 353 (AP).

The Supreme Court held that the jurisdictional High Court judgment was binding on the Tribunal and therefore not considering the decision of jurisdictional court amounted to an error apparent on the face of the record that can be rectified. In that respect, the Apex Court observed that justice was above all and the error must be removed by disturbing the finality, if required.

Asst. Commissioner, Income Tax, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. JT 2008 (10) SC 306.

The Bombay High Court, while construing the provisions of Package Scheme of Incentives, 1993, as amended from 6th July 1994, held that the basis for grant of incentives under the said Scheme, was acquisition of new fixed assets and not the increase in production capacity and therefore, there cannot be occasion for availing the incentives proportionately to the products attributed to the new acquired fixed assets.

The High Court also held that the Deputy Commissioner cannot insert any new condition in the Entitlement Certificate, so as to place a ceiling on the utilisation of the quantum of incentives proportionately.

Commissioner of Sales Tax vs. M/s Pee Vee Textile Ltd. (Sales Tax Application No. 8 of 2007 pronounced on 13th October, 2008).

The Allahabad High Court held that tin containers purchased from another registered dealer within the State cannot be taxed separately when the same was used for packing oil therein. It was also held that the price of tin containers were covered by the quantum of price for oil packed therein.

M/s Prag ICE Oil Mills vs. Commissioner, Trade Tax, U. P. Lucknow (2008) 32 PHT 386 (All).

Where the first Appellate Authority had remanded the matter to the assessing authority and such remand was the subject matter of Second Appeal to the Tribunal, the Tribunal could not consider the issues on merit. The H.C. held that if at all the Tribunal was of the view that the remand of the case challenged, before it was not justified, the Tribunal should have merely remanded the matter to the first Appellate Authority to decide the appeal on merits.

Commissioner, Trade Tax, U.P. vs. Girja Shanker Rice Oil & Flour Mill (2008) 16 VST 218 (All)

The Allahabad High Court held that when the application for exemption was sent by registered post, but was returned back with the endorsement that it could not be served due to strike of government employees, the presumption of service of documents sent by registered post with correct address would be that the same was served. Considering that aspect of the matter, the application for exemption was held to be within time and therefore the conclusion that the assessee had not applied within time was held to be not legally correct.

Shri Shikhar Chand Pradeep Kumar vs. Commissioner of Trade Tax, U. P., Lucknow. 2008 NTN (Vol. 38) – 1.

(Editor’s Note :- Such presumption ought to be rebutable and not absolute).

(1) The action of the Assessing Officer in issuing Notice to the bank to withhold money in account before expiry of period file appeal u/s 51 of the TNVAT Act was held as hasty and arbitrary and illegal.

Lakshmi Machine Works Ltd. vs. Deputy Commissioner 17 VST 32 (Mad)

(2) Embargo u/s 22(1) of the Sick Industrial Companies Act (SICA) against recovery of tax was not applicable to sales tax arrears pertaining to post reference period since such an interpretation would lead to an undesirable state of affairs. The embargo should be confined to those pre package dues reckoned / included in the scheme prepared u/s 15(1) by the BIFR. The Court stated that Tata Davy Ltd. vs. State of Orissa (1988) 111 STC 462 (S.C.) was not any authority for the proposition that a company registered as a sick industrial company can collect and retain sales tax during the post reference period also.

Balaji Distilleries Ltd. vs. Secretary to Govt. (Mad.) (2008) 17 VST 59 (Mad.)

No recovery either under the Haryana GST or CST Act could be effected personally from the Director of a company since the company was still not wound up or formally liquidated. The Notices for recovery were held as illegal and contrary to the well-settled position in Mukesh Gupta vs. State of Haryana (1996) 8 PHT 326 (P & H).

Om Prakash Walecha vs. State of Haryana and Ors. (2008) 16 VST 530 (P & H)

Rectification of mistake suo motu by the authorities have to be treated differently from rectification upon application by the dealer. In case of rectification suo motu, the order must be passed within 3 years from the date of order sought to be rectified whereas in case of rectification upon application by dealer, order may be passed beyond this period.

Commissioner of Sales Tax, U.P. vs. Sukhlal Ice & Cold Storage Co. (2008) 16 VST 581 (All)

The West Bengal Taxation Tribunal held that the refund arising under the West Bengal Sales Tax Act, 1994 cannot be adjusted against the tax dues arising under the West Bengal VAT Act, 2003. The assessee was held to be eligible for the refund payment in place of the refund adjustment order issued earlier.

M/s Sony India Pvt. Ltd vs, Dy. DCCT, Corporate Division (2008) 52 S.T.A.-167

The dealer was engaged in buying and selling objects of art. The dealer was issued REP licence by the Deputy Chief Controller of Import and Exports, Moradabad, U.P. Tax was levied on the sale of REP licences as unclassified items on the ground that the dealer was a manufacturer within the definition of Sec. 2(ee) of the Act. The HC held that the dealer could not be said to be a manufacturer as he had not engaged in any manufacturing activity. Further, the dealer had not imported the REP licences as they were issued by the Deputy Chief Controller, Moradabad. As per section 3A, except as provided in section 3D, tax was payable by a dealer in respect of unclassified goods at the point of sales by the manufacturer or importer at 8%. Since the dealer was neither an importer nor a manufacturer, although REP licences were held as goods in Vikas Sales Corporation (1996) 102 STC 106 (S.C.), no tax was leviable under the U.P. Trade Tax Act.

Commissioner of Trade Tax vs. Object de Art India (2008) 16 VST 22 (All.)

The Allahabad High Court held that on supersession of a notification by another one, it cannot be held to have been revived on the later notification being rescinded.

Commissioner of Sales Tax, U. P., Lucknow vs. Mr. Ganeshi Lal

Source : Sales Tax Matters, June 2008, Vol. 11 Part 6, Page 696.

The Ghaziabad Bench–2 of Trade Tax Tribunal held that no sale was involved when a hospital supply X-ray films to patients and not a taxable transaction in the hands of such a hospital.

M/s Yeshoda Hospital & Research Centre Ltd., Ghaziabad vs. Commissioner, Trade Tax, U. P., Lucknow 2008 NTN (Vol. 38) Tribunal – 51.

The Supreme Court, while granting leave against the judgment of the Bombay High Court, held that the High Court ought to have considered various documents that were on record, namely the Invoices, Bill of Lading, modality of payment, name of the consignee etc. Since that was not done before rejecting the reference application by the revenue, the Supreme Court directed the High Court to examine the matter de novo in accordance with law; keeping open all the contentions of both the sides and giving liberty to file additional documents, if so advised before the High Court.

The High Court also did not examine another question on the footing that the assessee had succeeded on the first question. However, according to the Supreme Court, the question as to whether the sales in question were covered by second limb of section 5(2) of the Central Sales Tax Act was also required to be examined.

Commissioner of Sales Tax vs. M/s Tata Iron & Steel Co. Ltd. (Civil Appeal No. 5693 of 2008 decided on 16th September, 2008).

The Allahabad High Court held that the service of notice by affixation at the closed place of business when the information about the dissolution
of the firm was already with the department, was invalid.

The Commissioner of Trade Tax, U. P., Lucknow vs. S/s Sharda Trading Co., Hamirpur. 2008 NTN (Vol. 38) – 29.

The WCT liability was that of the sub-contractor where work was assigned to him by the main contractor. The S.C. confirmed the judgment of the A.P. High Court in (2006) 148 STC 616 (A.P.) The S.C. clarified that there was transfer of property in goods by the sub-contractor and no goods vested in the main contractor. Thus, work executed by the sub contractor resulted only in a single transaction and not multiple transactions.

State of A.P. vs. Larsen & Toubro Ltd. (2008) 17 VST 1 (S.C.)