2014 (12) TMI 1218 - HC - VAT and Sales Tax

Liability of tax - Import of raw sugar and consequential sale - Raw sugar imported in to India was processed, converted into white sugar and re-exported and what has been sold locally is only the processed white sugar - Also violation of principles of natural justice - Held that - if sugar is to attract sales tax under the First Schedule, then it must be one other than what is specified for grant of exemption under the Third Schedule. Considering the emphasis in the Third Schedule that the goods produced or manufactured in India as described in the Additional Duties of Excise (Goods of Special importance) Act, 1957 alone is taken up for consideration, the only sugar that can hence fall for consideration under First Schedule must be one other than what is enumerated in the Third Schedule. Rightly, entry 61 of Part B of the First Schedule gave the description of sugar that is sought to be taxed in the First Schedule as, sugar imported into India from foreign countries . Thus irrespective of the kind of sugar, once it is an imported sugar, the sales tax levy under entry 61 of Part B stands automatically attracted to the sales and if sold as such, retaining its original character attracts tax at four per cent under the First Schedule to the Act. But when once imported sugar is not dealt with as such for sale, but has been subjected to a manufacturing process, the liability under the First Schedule no longer stands attracted to the manufactured sugar. Therefore, the assessment is to be redone. - Matter remanded back

Issues Involved:

1. Validity of the assessment order dated November 14, 2014.
2. Applicability of Entry 61 of Part B of the First Schedule to the sale of processed white sugar.
3. Compliance with principles of natural justice and due application of mind by the assessing officer.
4. Delay in finalizing the assessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of the assessment order dated November 14, 2014:

The petitioner, a public limited company engaged in the manufacture of cane sugar, sought to quash the assessment order for the year 2004-2005 under the Tamil Nadu General Sales Tax Act (TNGST). The petitioner contended that the assessment order was issued without proper consideration of their objections and relevant facts, thus violating principles of natural justice. The court observed that the petitioner had submitted detailed replies to notices issued by the assessing officer and the enforcement officer, but these were not adequately addressed in the final assessment order.

2. Applicability of Entry 61 of Part B of the First Schedule to the sale of processed white sugar:

The petitioner argued that Entry 61 of Part B, which taxes imported raw sugar at 4%, did not apply as the imported raw sugar was processed into white sugar and re-exported. They contended that the locally sold sugar was processed white sugar, which falls under Entry 1(i) of Part A of the Third Schedule, exempting it from sales tax. The court noted that the Third Schedule's relevance is limited to identifying goods for exemption, and sugar produced or manufactured in India as described in the Additional Duties of Excise Act is exempt. Therefore, only imported sugar sold as such attracts tax under Entry 61, not processed sugar.

3. Compliance with principles of natural justice and due application of mind by the assessing officer:

The court found that the assessing officer failed to consider the petitioner's contentions and the manufacturing process involved. The assessment order lacked reference to the proceedings initiated by the enforcement wing and did not address the delay in finalizing the matter. The court emphasized that the assessing officer must deal with the merits of the contentions raised by the dealer and ensure compliance with principles of natural justice.

4. Delay in finalizing the assessment proceedings:

The court noted that the proceedings commenced in 2006 and concluded in 2014, with three different assessing officers handling the case during this period. The delay in finalizing the assessment was unexplained, and the assessment order did not reference the enforcement wing's proceedings. The court highlighted that the assessing officer has a duty to complete proceedings promptly and that undue delay violates the principles of natural justice.

Conclusion:

The court allowed the writ petition, set aside the impugned order, and remanded the matter to the first respondent for fresh consideration. The petitioner was permitted to present all their contentions and documents, and the first respondent was directed to pass orders on merits and in accordance with the law after affording the petitioner an opportunity to be heard. The second respondent was deleted from the array of respondents as they were neither a proper nor necessary party to the writ petition. The court emphasized the need for timely completion of assessment proceedings and adherence to principles of natural justice.

No costs were awarded, and the connected miscellaneous petition was closed.

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