TMI Blog2013 (7) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... uiry Commission and also the decisions of the Apex court referred above. The argument of the Revenue that since it is mandatory to fulfill the requirements of Section 8(4) while exercising power under Section 8(5), it must be held that the power of the State Governments to grant total / partial exemption in public interest is restricted only to the transactions which fulfil the requirements of Section 8(4) namely the transactions covered under Section 8(1) cannot be accepted because, Section 8(5) as amended by Finance Act, 2002 not only refers to the transactions covered under Section 8(1) but also refers to the transactions covered under Section 8(2). Therefore, when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant total / partial exemption from the tax payable under Section 8(1) or 8(2), it is not possible to accept the contention of the Revenue that after the 2002 amendment, the power of the State Government under Section 8(5) to grant total / partial exemption is restricted only in respect of the transactions covered under Section 8(1). Thus by retaining the words 'any person or class of persons' in the amende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the registered dealers or to the Government covered under Section 8(1) of the CST Act unless such sales are supported by declarations in form 'C' or 'D' respectively as provided under Section 8(4) of the CST Act. By the said circulars, the traders are further informed that as a result of the amendment, any Notification issued under Section 8(5) of the CST Act prior to 11th May 2002, which is contrary to the amended Section 8(5) shall stands amended accordingly. In other words, according to the Commissioner, Section 8(5) of the CST Act as amended by the Finance Act 2002 restricts the power of the State Government to grant exemption from payment of tax in respect of sales of goods covered under Section 8(1) subject to fulfilling the conditions of Section 8(4) of the CST Act and, therefore, any Notifications issued to the contrary under Section 8(5) as it stood prior to its amendment by Finance Act 2002 shall stand modified to that extent so that, on amendment of Section 8(5), tax becomes payable in respect of sales which are not covered under Section 8(1) of the CST Act. 3. Based on the above interpretation of the amended Section 8(5) of the CST Act and based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be availed during the period from 1st April 1998 to 31st March 2003. Subsequently, the quantum of exemption has been enhanced and the period for availing the exemption has also been extended upto 31st March 2012. Thus, under the 1993 Scheme, the unit of the petitioner No.1 was exempted from payment of tax on all sales of goods made under the BST Act and CST Act upto the monetary ceiling specified in the Entitlement Certificate or till 31st March 2012 whichever was earlier. 7. It is not in dispute that the unit of the petitioner No.1 being covered under the 1993 Scheme, the goods manufactured in the unit of petitioner No.1 falling under Entry E3 of the Notification issued under Section 41 of the BST Act, when sold within the State were exempt from payment of whole of the tax under the BST Act upto the quantum specified or the period specified in the Entitlement Certificate, whichever is earlier. Similarly, inter State sales of goods manufactured in the unit of petitioner No.1 to dealers covered under Section 8(1) and 8(2), were, by virtue of Notification dated 5th July 1980 issued under Section 8(5) of the CST Act were exempt from tax payable under the CST Act upto t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CST Act as amended by Finance Act 2002 : Rates of tax on sales in the course of inter State trade or commerce. 8. (1) Every dealer, who in the course of inter State trade or commerce- (a) sells to the Government any goods; or (b) sells to a registered dealer other than the Government goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, with effect from such date as may be notified by the Central Government in the Official Gazette for this purpose, which shall be two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, or, as the case may be, under any enactment of that State imposing value added tax, whichever is lower : Provided that the rate of tax payable under this sub-section by a dealer shall continue to be four per cent of his turnover, until the rate of two per cent takes effect under this sub-section. (2) The tax payable by any dealer on his turnover insofar as the turnover or any part thereof relates to the sale of goods in the course of inter State trade or commerce not falling wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of sub-section (1) shall not apply to any sale in the course of inter State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner (a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or (b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorized officer of the Government : Provided that the declaration referred to in clause (a) is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit. (5) Notwithstanding anything contained in this section, the State Government may on the fulfillment of the requirements laid down in sub-section (4) by the dealer, if it is satisfied that it is necessary so to do in the public interest, by Notification in the Official Gazette and subject to such conditions as may be specified therein, direct, - (a) that no tax under this Act shall be payable by any dealer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the Notification. 12. On perusal of Section 8(1) of the CST Act, as amended by Finance Act 2002, it it seen that every dealer, who in the course of inter State trade or commerce sells any goods to the Government or sells goods of the description referred to in Section 8(3) to a registered dealer other than the Government is liable to pay tax at two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law / value added tax, whichever is lower. 13. Similarly, Section 8(2) of the CST Act as amended by Finance Act 2002 provides that the rate of tax payable by any dealer on sales not covered under Section 8(1) of the CST Act, shall be (a) in the case of declared goods at twice the rate applicable to the sale or purchase of such goods within the appropriate State, (b) in the case of goods other than declared goods, at the rate of ten per cent or at the rate applicable to sale of such goods in the appropriate State, whichever is highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clauses in the Finance Bill 2002 makes it clear that the object of amending Section 8(5) of the CST Act by Finance Act 2002 is inter alia to make furnishing of form 'C' compulsory by the dealer except in respect of exempted goods and to withdraw powers of the State Governments to waive the requirement of 'C' form specified under Section 8(4) of the CST Act. In other words, as per the notes on clauses, Section 8(5) is amended by Finance Act 2002 with a view to withdraw the powers of the State Governments to waive the requirement of form 'C' specified under Section 8(4), so that compliance of Section 8(4) becomes mandatory in respect of sales of goods to the registered dealer or the Government covered under Section 8(1) except when exempted. 18. As per impugned circulars issued by the Commissioner under Section 8(5) as amended by Finance Act 2002, the powers of the State Government to grant exemption are restricted only in respect of sales in the course of inter State trade or commerce to the dealers who fulfill the requirement of Section 8(4), namely the registered dealers or the Government covered under Section 8(1). Accordingly, proceedings have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirements of Section 8(4), then, the legislature would not have made any references to the exemption to be granted in respect of the sales covered under Section 8(2) in Section 8(5)(a) and in Section 8(5)(b). The very fact that Section 8(5) as amended by Finance Act 2002 refers to the powers of the State Governments to issue Notification prescribing rates of tax lesser than those specified in Section 8(2), clearly shows that even under the amended Section 8(5), the State Governments are empowered to grant exemption in respect of sales covered under Section 8(1) and also under Section 8(2) of the CST Act. 22. It is further contended on behalf of the petitioners that Section 8(5)(b) not only refers to sales of goods to registered dealers or the Government by any dealer or class of dealers in the State, but also refers to sales to 'any person or to such class of person as may be specified in the Notification'. The words all sales ...... by any dealer . to any person . shall be calculated at such lower rates than those specified in .. sub-section (2) as may be mentioned in the Notification in Section 8(5)(b) make it abundantly clear that the State Governments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Punjab reported in (1990) 77 STC 82 (S.C.), it is contended on behalf of the petitioners that the power to grant exemption conferred upon the State Governments under Section 8(5) is to meet the unforeseen circumstances. For example, if there is famine in the State of Bihar and the dealers in the State of Maharashtra want to sell goods to a charitable institution in the State of Bihar at a reasonable price for distribution to those who are starving at Bihar, it would be in public interest for the State of Maharashtra to grant exemption to the dealers in Maharashtra in respect of the sales of goods to the particular charitable institution in the State of Bihar. It is contended that the Central Sales Tax, though levied and collected in the name of Central Government, it is a part of the sales tax levy imposed for the benefit of the States and, therefore, while it is within the domain of the State Governments whether to grant or not to grant exemption, it cannot be said that the State Governments do not have power to grant exemption in respect of sales of goods to dealers other than the registered dealers or the Government. With a view to achieving the industrial development or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified got crystallised prior to 11th May 2002 and, therefore, unless the legislature has specifically taken away that right by retrospective amendment, it is not open to the Revenue to contend that in view of the amendment to Section 8(5) by Finance Act 2002, the rights vested in the petitioners to avail total exemption upto quantum specified or till 31st March 2012 whichever is earlier has been taken away. In support of the above contention, reliance is placed on the decisions of the Apex Court in the case of Govinddas V/s. Income Tax Officer reported in (1976) 1 SCC 906, MRF V/s. Assistant Commissioner reported in (2006) 8 SCC 702, S.L. Srinivasa Jute Twine Mills (P) Limited V/s. Union of India reported in (2006) 2 SCC 740 and Southern Petrochemicals Industries Limited V/s. Electricity Inspector reported in (2007) 5 SCC 447. Reliance is also placed on a Division Bench decision of the Madras High Court in the case of Diebold Systems (P) Limited V/s. Additional Commercial Tax reported in (2011) 39 VST 335 (Mad.), wherein it is held that even after the 2002 amendment, the State Governments have power to grant exemption in respect of sales of goods to persons other than the regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be fulfilled only in respect of sales covered under Section 8(1), the powers of the State Governments under the amended Section 8(5) must be held to be restricted to sales to registered dealer / Government covered under Section 8(1) and not in respect of the sales covered under Section 8(2) of the CST Act. 29. It is further contended on behalf of the Revenue that reference to the words sub-section 2 and the words to any person or such class of persons as may be specified in the Notification in the amended Section 8(5) (a) and (b) no doubt create difficulty in accepting the contention of the Revenue. However, it is contended that in view of the words on the fulfillment of the requirements laid down in sub-section (4) by the dealer in the opening part of Section 8(5), it is clear that the legislature intended to confer power on the State Governments to grant exemption only in respect of those sales which comply with the requirements of Section 8(4) i.e. sales to registered dealer / Government and, therefore, the words 'to any person or class of persons' in Section 8(5)(b) must be held referable to registered dealer / Government specified in the Notification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority of the State Government in the case of unregistered dealers, there being no control, there is every possibility of avoidance of tax when sales are made to unregistered dealers. To prevent such revenue loss by way of tax avoidance, the legislature by the 2002 amendment to Section 8(5) has restricted the powers of the State Governments to grant exemption only in respect of sales in the course of inter State trade or commerce who fulfill the requirement of Section 8(4) i.e. sales to registered dealers or the Government. 32. It is contended on behalf of the Revenue that the legislative policy is to discourage inter State trade to unregistered dealers. The Parliament by amending Section 8(5) merely made it consistent with the legislative policy of discouraging inter State trade with unregistered dealers. It is contended that the Apex Court in the case of Shree Digvijay Cement Company Limited (supra) failed to appreciate the above legislative policy and, therefore, the amendment of Section 8 of the CST Act became necessary. However, the draftsman of the 2002 amendment, by retaining the words 'or sub-section 2' and the words to any person or class of persons in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Apex Court in the case of Excise Commissioner V/s. Ram Kumar reported in (1976) 3 SCC 540 and Jit Ram Vs. State of Haryana reported in (1981) 1 SCC 11. 36. It is further contended on behalf of the Revenue that the amendment to Section 8(5) by Finance Act 2002 is not retrospective in nature as it does not take away the benefit granted or made available under the 1993 Scheme. The amendment neither provides for new levy of taxes nor does it reduces the gross amount of exemption nor does the period during which the exemption could be availed have been curtailed. In other words, even after the amendment of Section 8(5), the quantum of benefits conferred under the 1993 Scheme remain unaltered but the availment of the benefits in future is restricted to the sales in the course of inter State trade or commerce to registered dealers / Government against the production of 'C' or 'D' forms. Therefore, it cannot be said that the amendment to Section 8(5) is retrospective in operation. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of Darshan Singh V/s. Ram Pal Singh reported in AIR 1991 SC 1654. 37. Accordingly, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral legislation, there should be a provision for levy of sales tax on inter State trade specifying the rate at which the tax on sales in the course of inter State trade should be levied. The main object of proposing levy of sales tax on inter State trade, according to the Commission, was to ensure that some revenue accrues to the exporting States without any undue burden on the consumers in the importing State. The Commission in its report observed that the rate of tax to be specified in the proposed Central legislation in respect of sales between the registered dealers of one State with the registered dealers of another State should be comparatively low preferably one per cent on all articles except on 'goods of special importance in inter State trade'. 42. While recommending lower rate of tax at one per cent in respect of inter State sales between the registered dealers of one State with the registered dealers of another State in the proposed legislation, the Commission recommended higher rate of tax in respect of inter State sales between unregistered dealers of one State with the unregistered dealers of another State, because, unlike the registered dealers, the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of tax applicable to local sales to the sales in the course of inter State trade to unregistered dealers, the legislature sought to check the tax avoidance by the dealers in the exporting state and the unregistered dealers / customers in the importing State. 47. The rate of tax applicable to the sales of goods in the course of inter State trade or commerce to dealers covered under Section 8(1) and 8(2) have been amended from time to time. Prior to the 2002 amendment, the rate of tax payable in respect of sales covered under Section 8(1) was four per cent of the turn over and in respect of the sales covered under Section 8(2) the rate of tax in the case of declared goods was at twice the rate applicable to the sale of such goods inside the appropriate State and in the case of goods other than the declared goods, the rate of tax was ten per cent or at the rate applicable to sale of such goods inside the appropriate State, whichever was higher. 48. Thus, the legislative policy of the Government under the CST Act has always been to discourage tax avoidance resorted to by the dealers in respect of sales of goods in the course of inter State trade or commerce to unregistered deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the argument of the Revenue that the legislative policy of the Government is to discourage inter State sales to unregistered dealers cannot be sustained as the said argument is contrary to the report of the Taxation Enquiry Commission and also the decisions of the Apex court referred to herein above. 51. The question then to be considered is, whether there is any merit in the argument of the Revenue that after the 2002 amendment, the power of the State Governments to grant exemption under Section 8(5) is restricted only in respect of the transactions covered under Section 8(1) and not in respect of the transactions covered under Section 8(2) of the CST Act ? 52. It is not in dispute that prior to the 2002 amendment, notwithstanding the rates of tax prescribed in respect of inter State sales covered under Section 8(1) and 8(2), the State Governments under Section 8(5) could in public interest grant total / partial exemption from the tax payable under Section 8(1) or 8(2). It is also not in dispute that prior to the 2002 amendment, fulfilment of the requirements of Section 8(4) was mandatory in respect of the transactions covered under Section 8(1). However, the Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not have made any reference to the power of the State Government to grant total / partial exemption from tax payable under Section 8(2). The very fact that the legislature even after the 2002 amendment has retained in Section 8(5), the words that relate to the power of the State Governments to grant total / partial exemption from tax payable under Section 8(2), clearly show that the said amendment was not intended to affect the power of the State Governments to grant total / partial exemption from the tax payable in respect of the transactions covered under Section 8(2). 55. Apart from the above, by retaining the words 'any person or class of persons' in the amended Section 8(5)(b) it is made clear that even after the 2002 amendment, the State Governments under Section 8(5) are also empowered to grant total / partial exemption in public interest in respect of inter State sales to any person or class of persons covered under Section 8(2) of the CST Act. Thus, when Section 8(5) as amended by Finance Act 2002 specifically provides that the State Governments, subject to fulfiling the requirements of Section 8(4) by a dealer, may in public interest grant total / partia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, it cannot be said that power has been taken away especially when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant exemption from tax payable in respect of inter State sales to any person or any class of persons. In other words, when the legislature with a view to meet the unforeseen circumstances had conferred power upon the State Governments to grant total / partial exemption from tax payable by any person or class of persons under Section 8(1) or 8(2), in the absence of any material to show that either the unforeseen circumstances have ceased to exist or the State Governments have misused such power or for any other reason it became necessary to withdraw such power, the self destructive argument of the Revenue that by 2002 amendment the powers of the State Governments to grant exemption to any person or class of persons has been taken away cannot be accepted, especially the language used in the amended Section 8(5) negates such argument of the Revenue. 57. The alternative argument of the Revenue that the words 'sub-section (2)' as also the words 'to any person or to such class of persons' in S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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