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VAT and Sales Tax - Supreme Court - Case Laws
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2024 (3) TMI 1033
Rate of the State sales tax on silk fabrics - taxable at 4% or 12%? - demand made for the period between 15th January 2000 and 31st March 2000 - HELD THAT:- During the said period, silk fabric was a part of Schedule I of the DST Act, on which sales tax was leviable at the rate of 12%. Sections 14 and 15 of the Central Sales Tax Act were deleted by Act No. 18 of 2017. Section 14, before its deletion, declared certain goods specified therein as of special importance in inter-state trade or commerce. Until 11th May 1968, item (xi) was incorporated in Section 14, which covered the item of “silk sarees”. However, with effect from 11th May 1968, the said item was deleted by Act No. 19 of 1968.
Section 15(1) of the CST Act, as existed during the period for which the impugned assessment was made, provided that the local sales tax rate on declared goods should not exceed 4% of the sale or purchase price of such goods. So long as the silk fabric was a part of the list of declared goods under Section 14 of the CST Act, the sales tax levy under the DST Act could not have exceeded 4% in view of Section 15(1) of the CST Act. However, silk fabric was deleted from the list contained in Section 14 of the CST Act, effective 11 May 1968. Therefore, during the relevant period for which the impugned assessment order was issued, as silk fabric was not a part of the list under Section 14, there was no embargo on levying sales tax on silk fabric at a rate exceeding 4%. Therefore, the argument based on Section 15(1) of the CST Act will not help the appellant.
The second Schedule of the ADE Act provides that during each financial year, each State shall be paid a certain percentage of net proceeds of the additional duties levied and collected during the financial year in respect of the goods described in column (3) of Schedule I. However, no additional duty was made payable on silk fabric under the ADE Act. The proviso makes it clear that notwithstanding the ADE Act, there is no bar on the States levying sales tax - the argument that as silk fabric formed a part of Schedule I of the ADE Act, it disentitled the State Government from levying sales tax is fallacious and cannot be accepted.
The High Court has noted that its Co-ordinate Bench in the case of MR. TOBACCO PVT. LTD. VERSUS UNION OF INDIA AND OTHERS [2006 (1) TMI 567 - DELHI HIGH COURT] upheld the validity of notification dated 31st March 2000 issued under the DST Act.
There are no error in the view taken by the Delhi High Court in the impugned judgment - Accordingly, the appeal is dismissed.
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2023 (11) TMI 298
Interpretation of statute - Section 13(1)(f) of the UP VAT Act - Claim of full ITC on inputs - amount of tax paid towards the purchase of raw Rice Bran - scope of the word “goods” as defined under Section 2(m) of the UP VAT Act as outlined in Section 13(1)(f) of the UP VAT Act should be limited to only “taxable goods” or not - applicability of decision of this Court in the case of M.K. Agro Tech [2017 (9) TMI 1308 - SUPREME COURT].
HELD THAT:- A bare perusal of the scheme under Section 13 of the UP VAT Act [and specifically under Section 13(1)(a)] makes it abundantly clear that in cases where the purchased goods (in the present case Rice Bran) are used in the manufacture of taxable goods (in the present case RBO and physically refined RBO) except the non-VAT goods, and where such manufactured goods are sold within the State or in the course of inter-state trade and commerce, the registered dealers (like the assessee herein) are entitled to claim input tax credit of the full amount. The charging section of the UP VAT Act, therefore, entitles the assessee to claim full amount of tax paid on the purchases as ITC - Furthermore, Section 13(3)(b) of the UP VAT Act, introduces the concept of proportionality in the scheme of the enactment and by means of a deeming fiction provides that where during the manufacture of VAT goods, exempt and non-VAT goods (except as by-product or waste product) are produced, the amount of ITC credit may be claimed and may be allowed in proportion to the extent they are used or consumed in manufacture of taxable goods other than the non-VAT goods and exempt goods.
Explanation (iii) to Section 13, therefore, forbids the Assessing Authority as well as the assessee from raising any dispute in regard to the allowability of the ITC in cases where exempted goods are being produced as a by-product or waste product during the process of manufacture.
Whether the High Court was right in placing on the decision of this court in the case of M.K. Agro Tech? - HELD THAT:- In the case of M.K. Agro Tech, the assessee was engaged in the manufacture of sunflower oil (taxable goods), which is extracted from sunflower cake, by employing solvent extraction process. Sunflower oil cake is the input/raw material on which VAT was payable. During the extraction process, a ‘by-product’ in the form of de-oiled sunflower oil is produced. The said by-product was also exempted under the Karnataka VAT Act - This Court while examining Section 17 of the KVAT Act, read with Rule 131 of the KVAT Rules, held that ITC was admissible to the extent of inputs used in the sale of taxable goods.
In the case of M.K. Agro Tech, this Court held that only partial ITC was permitted to the assessee as they were making taxable and exempted sales from the dutiable raw materials procured by them. In Para 28, this Court has elaborated on the scheme under the Karnataka VAT Act, to emphasise that the provision which allows partial rebate is made applicable on the ‘sales’ of taxable goods and goods exempt under Section 5. It refers to ‘sale’ of ‘goods’, taxable as well as exempt, and is not relatable to the ‘manufacture’ of the goods. Further elaboration has been made to hold that upon the ‘sale’ of goods exempted under Section 5 of the Karnataka VAT Act, partial rebate shall only be admissible - The High Court committed an error in passing the impugned judgment relying on the decision of this Court rendered in M.K. Agro Tech.
The impugned common judgment and order passed by the High Court of Allahabad is hereby set aside and the orders passed by the Commercial Tax Tribunal dated 04.05.2016 and 05.07.2017 are hereby restored - appeal allowed.
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2023 (11) TMI 54
Recovery of dues - first charge over the property of the Corporate Debtor - Waterfall mechanism - prevalence of Section 48 of the Gujarat Value Added Tax 2003 over Section 53 of the Insolvency and Bankruptcy Code 2016 - whether the Review Petitioners have been able to make out any case within the ambit of Order XLVII of Supreme Court Rules, read with Order XLVII of CPC, for reviewing the impugned judgment?
HELD THAT:- It is well settled proposition of law that a co-ordinate Bench cannot comment upon the discretion exercised or judgment rendered by another co-ordinate Bench of the same strength. If a Bench does not accept as correct the decision on a question of law of another Bench of equal strength, the only proper course to adopt would be to refer the matter to the larger Bench, for authoritative decision, otherwise the law would be thrown into the state of uncertainty by reason of conflicting decisions.
Apart from the well-settled legal position that a co-ordinate Bench cannot comment upon the judgment rendered by another co-ordinate Bench of equal strength and that subsequent decision or a judgment of a co-ordinate Bench or larger Bench by itself cannot be regarded as a ground for review, the submissions made by the learned Counsels for the Review Petitioners that the court in the impugned decision had failed to consider the waterfall mechanism as contained in Section 53 and failed to consider other provisions of IBC, are factually incorrect - As evident from the bare reading of the impugned judgment, the Court had considered not only the Waterfall mechanism under Section 53 of IBC but also the other provisions of the IBC for deciding the priority for the purpose of distributing the proceeds from the sale as liquidation assets.
The well-considered judgment sought to be reviewed does not fall within the scope and ambit of Review. The learned Counsels for the Review Petitioners have failed to make out any mistake or error apparent on the face of record in the impugned judgment, and have failed to bring the case within the parameters laid down by this Court in various decision for reviewing the impugned judgment.
All the Review Petitions are dismissed.
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2023 (10) TMI 493
Classification of goods - tinted glass sheets - to be taxed as “goods or wares made of glass” under the Notification No.5784 dated 07.09.1981 being Entry No.IV or as unclassified item?
The plea of assessee that tinted glasses manufactured by it falls under clause (c) of sub-section (1) of Section 3A namely residuary clause and as such tax is to be levied @ 10%; whereas revenue is contending that it would fall under Entry No.4 of the notification No.5784 dated 07.09.1981 which Notification has been issued in exercise of the power conferred under clause(d) of Sub-section (1) of Section 3A of the Act.
HELD THAT:- This Court in ATUL GLASS INDUSTRIES LTD. VERSUS COLLECTOR OF CENTRAL EXCISE [1986 (7) TMI 90 - SUPREME COURT] has held the test commonly applied to determine whether an article after subjecting to manufacturing processes becomes a different article or remains the same is: how is the product identified by the class or section of the people dealing with or using such product - In the aforesaid Judgment, the question that arose for consideration was under what tariff item ‘glass mirror’ would fall, and glass screens fitted in motor vehicles as wind screens, rear screens, window screens would fall under which competing tariff item. Adjudicating this question, this Court held that glass sheet after successive stage of processing undergoes a complete transformation to become a glass mirror and a different commercial product with a reflective surface.
There is no vagueness in the notification dated 07.09.1981 and the entry No. 4 is clear and unambiguous namely it has brought within the sweep “all goods and wares made of glass” exigible to tax but not including “plain glass panes” and the exemption being the creation of the statute itself, it has to be construed strictly and even if there is any vagueness in the exemption clause must go to the benefit of the revenue.
The impugned judgments would not call for interference and accordingly the appeals are dismissed.
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2023 (10) TMI 5
Classification of goods - installation cables, outlet or connection modules, patch cords, patch panels, network cards, fibre optic cables etc. - covered in Entry C. 20 (ii)(b) of the Second Schedule to the Karnataka Sales Tax Act, 1957 or not - HELD THAT:- Reliance placed in the case of Collector of Central Excise v. Grasim Industries [2005 (4) TMI 64 - SUPREME COURT] and Castrol India Ltd. v. C.C.E. [2005 (2) TMI 847 - SUPREME COURT], which had ruled that the phrase “that is to say” are to be given a restrictive meaning, rather than expanding the scope of the preceding words. In Castrol India, it was held the expression “that is to say” in sub-heading 2710.60 has to be interpreted to be words of limitation. The fact that sub-heading 2710.60 contains an exclusion clause goes to show that there may be other lubricating oils which may fall in the residuary heading “others”.
Having regard to these facts, the Court is satisfied that the final decision classifying all the items in question, as falling in Part ‘E’ of the Second Schedule to the Karnataka Sales Tax Act, 1957 is correct.
Appeal dismissed.
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2023 (9) TMI 1250
Applicability of ratio of decision of the Apex Court for the similar matters in other states - Classification of goods - Mosquito Mats, Coils and Vaporizers - Mortein Insect Killers - Petition sought clarification of the observations of this Court in M/S RECKITT BENCKISER (INDIA) LTD. VERSUS COMMISSIONER COMMERCIAL TAXES & ORS.[2023 (4) TMI 408 - SUPREME COURT] as the said observations ought not to be construed to be general observations, but only in the context of the Kerala Value Added Tax Act and the notifications issued thereunder.
HELD THAT:- It is clarified that the observations made by this Court in judgment dated 10.04.2023 in paragraphs 9.1. and 9.4 are made in the context of Kerala Value Added Tax Act and are not general observations, which could apply to other State enactments.
Application disposed off.
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2023 (9) TMI 801
Interpretation of statute - Effect of the amendment - Retrospective or prospective - sub-section (1) of Section 25 of KVAT Act as well as the third proviso of the said Section - initially the third proviso was not part of the Section but was later inserted in the year 2010 by the Finance Act 2010 and every year till Finance Act, 2018 the said proviso has been substituted - interpretation to be given to the words “at any time within five years from the last date of the year to which the return relates, proceed to determine” as found in sub-section (1) of Section 25 and the third proviso to the said sub-section as inserted with effect from 01.04.2015, extending time limitation for initiation of proceedings for reassessment of escaped turnover.
Whether, the third proviso to sub-section (1) of Section 25 extends the period of limitation for the initiation of proceedings for reassessment insofar as escaped turnover is concerned? - HELD THAT:- What has to be interpreted is the expression “proceed to determine” as it occurs in sub-Section (1) of Section 25 as well as the third proviso to the said sub-Section as amended in Finance Act, 2017. No doubt, in both the provisions, the expression used is “proceed to determine.” The said expression must be considered in light of the words that occur prior to and subsequent to the said expression. Under sub-Section (1) of Section 25, the intention of the use of the expression “proceed to determine” is in the context of initiation of proceedings at any time within five years (now six years after the 2018 amendment) from the last date of the year to which the return relates. The object and purpose is that there cannot be a belated initiation of proceedings and at the whims and fancies of the Department so as to re-open stale returns, which had already been concluded under the provisions of the said Act. However, the object of the proviso which also uses the words “proceed to determine” must be in the context of completion of the Assessment which had already been initiated in accordance with sub-Section (1) to Section 25 within the time-frame as prescribed therein.
The department is not right in contending that the expression “proceed to determine” in the third proviso gives a lease of life or an extension of the period of limitation by one year at a time for “initiation” of the reassessment proceeding under sub-section (1) of Section 25 of the Act. Such an interpretation would lead to absurdity as a proviso cannot militate against the intention of the main provision in sub-section (1) of Section 25 and thus a proviso cannot extend the limitation period which is fixed under the main provision. The normal function of a proviso is to exempt something out of the provision or to qualify something enacted therein which, but for the proviso, would be within the purview of the provision.
It may be clarified that the expression “proceed to determine” is found in the amendment made to the KVAT Act with effect from 2017 Finance Act, whereas in the earlier amendment, the expression clearly was to “complete the assessment” in the third proviso of sub-section (1) of Section 25 which is also a clear indication of the intention of the Legislature to give a command to the concerned assessing officers seized of the proceedings which had been initiated under sub-section (1) of Section 25 to complete within the time-frame as stipulated in the said proviso. The amendment to the Kerala Finance Act, 2017 is with effect from 01.04.2017 and does not have any retrospective effect.
There are no merit in these appeals. The appeals are hence dismissed.
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2023 (7) TMI 1013
Levy falling upon the trade mark or brand name owner in the case of first sale of any product by such brand name holder or owner - Sale of Plastic moulded furniture - First point sale or not - further sale denied to fall within the mischief of Section 5(2) of the Kerala General Sales Tax Act (KGST Act) - holding brand names by two different licensing arrangements - HELD THAT:- In the present case, it is evident that both Kaveri and the assessee are authorized to use the trade mark and brand “Nilkamal” through separate arrangements. It appears that despite this fact, the present assessee is not engaged in manufacture of the goods in Kerala but is only selling them in that State. On the other hand Kaveri appears to be a manufacturer / dealer whose entire produce is sold to the assessee. In view of the categorical ruling of this Court in “Kail” there can be doubt that the sale to the assessee by Kaveri cannot be ignored by any stretch of the imagination - not in the least because Kaveri was an exempted unit at the relevant time. The fact that an exemption prevailed and enured in favour of a unit does not in any way detract from the circumstance that the levy subsists. This fundamental aspect appears to have been completely ignored by the High Court when it ruled that such sale had to be ignored altogether.
The High Court, therefore, acted clearly in error in reversing the findings of Tribunal - the impugned judgment and order is hereby set aside; the appeals are allowed.
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2023 (7) TMI 1012
Method of calculation or the method of determining the exemption limits under the scheme, extended by the State, to multiplexes, who had put up capital infrastructure - Denial of extension of New Package Scheme of Incentives for Tourism Projects - invocation of doctrine of promissory estoppel - HELD THAT:- It is evident from the terms of the Scheme and the exemption notification which gave effect to it, fixed to limits i.e. (1) a time limit and (2) quantification of the exemption. The latter could be subject to the first i.e., in the event, the amount reached the exemption limit were achieved, before the expiry of the period in question (5-10 years), no further exemption could be claimed. The state, however, omitted to provide any mechanism to determine how the exemption limits could be worked out for the purpose of notional calculation of the quantified limit. This meant that a reasonable workable method of calculation had to be applied.
The state’s contention is founded on the assumption that the amount collected during the exemption period by the multiplex owners, also included in element of tax. This assumption, in the opinion of this court is flawed because there could have been no collection which amounted to tax. Furthermore, multiplex/theatre-owners were under an obligation to file monthly returns in terms of the enactment. This would have taken care of any allegation of abuse. The state’s additional argument was that since the element of tax was notionally included in the collections – by multiplexes, -during the exempted period, a further amount equivalent to the tax collectable had to be added.
As the High Court concluded- and in the opinion of this Court correctly so, this contention was bereft of any logic and was plainly unreasonable. There is concededly, a gap in the manner how tax exemption limits can be discerned. Undoubtedly, the law is now settled that exemption notifications have to be interpreted strictly, and against assesses in case of ambiguity.
A reasonable method of calculating benefit of tax exemption, for the purpose of considering (whether the 100% limit equivalent to capital expenditure) was reached or not is to notionally determine the tax amounts payable during the relevant period, when the multiplexes enjoyed tax exemption. This is possible, having regard to the returns filed by them during the time when they sought and were granted exemption. The outer limit (100% investment) is a discernible amount, which the units would be able to furnish, with appropriate proof in their books of accounts, and valuations furnished by them. Clearly enunciating this principle and applying to the facts of this case, High Court has followed a reasonable method which cannot, in this court’s opinion, be faulted.
This court holds that there is no merit in this appeal - Appeal dismissed.
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2023 (7) TMI 191
Scope of clarification issued by the Revenue Department - To be retrospective or prospective - Applicability of Exemption Entry No. 8 on maize starch - overriding effect of Taxation Entry No. 61 - recovery of taxes retrospectively is a mere change of opinion or not - HELD THAT:- The Exemption Notification was erroneously held by the High Court not to have statutory backing. Recital thereof shows the source of power. Exercise of power was in terms of Section 17 of the Act, which appears to be the repository of the State Government’s power to exempt payment of tax. However, nothing really turns on it in view of the several Amendment Acts by which the Schedules were amended from time to time - Indeed, the Act was amended further with effect from 27th March, 2002 by Act No.18 of 2002, i.e., the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 2002, but the same being a post-millennium event is admittedly beyond the period under consideration, i.e., 1998-99; hence, we need not be too concerned with the latter amendment.
It would appear from the conspectus of the statutory provisions as delineated above that there were two entries in the field at or about the period of the relevant assessment year, i.e., “sago and starch of any kind” in Schedule I, referred by us as Taxation Entry No.61, and “products of millets (rice, flour, brokens and brans of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)” in Schedule III which we are referring to as Exemption Entry No.8.
Law is well settled that if in any statutory rule or statutory notification two expressions are used - one in general words and the other in special terms - under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail - it is thus emerged that Taxation Entry No.61 is relatable to ‘starch’ of any kind whereas Exemption Entry No.8 relates to products of ‘millet’.
The clarification vide Circular dated 8th October, 1998 was issued in exercise of power conferred by the statute (i.e., Section 28-A of the Act). Whenever a clarification pursuant to an application made by a registered dealer as to the applicable rate of tax is issued under sub-section (1), or the Commissioner on his own clarifies any point concerning the rate of tax under the Act, or the procedure relating to assessment and collection of tax as provided for under the Act is issued under sub-section (2), the object is to make the rate of tax explicit what is otherwise implicit - What the clarification provided by the Commissioner does is to clear the meaning of the two entries which was already implicit but had given rise to a confusion. A clarification of this nature, therefore, is bound to be retrospective.
The impugned judgment is upheld albeit for reasons not assigned by the High Court. Finding no merit in the appeals, the same is dismissed.
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2023 (7) TMI 41
Calling to pay the deferred sales tax immediately - validity of G.O.Ms. No. 503 Revenue (CT-II) Department dated 08.05.2009, whereby Rule 67 of the A.P. VAT Rules, 2005 came to be amended - contrary to the industrial policy of the State Government in G.0.Ms. No. 108 dated 20.05.1996 or not - HELD THAT:- Under Section 69 read with Rule 67, all those industrial units, who availed the option of tax holiday / exemption prior to 2005, came to be converted to the unit availing tax deferment, however, with condition that the balance period of tax holiday / exemption available as on 31.03.2005 to such units shall be doubled for the purpose of tax deferment. Meaning thereby, an industrial unit having two years balance period available as tax holiday / exemption as on 31.03.2005, the same shall be converted to the unit availing tax deferment for four years, i.e., double the balance period. However, the illustration to Rule 67 provided contrary to Rule 67 and it provided for 14 years deferment.
As per the settled position of law, an illustration cannot govern the Rule but it is the Rule which shall govern and the illustration is always for clarification and it is to explain what is provided under the Rule. But the illustration cannot be contrary to the main statute namely, Rule and/or Act. Therefore, thereafter when the illustration came to be amended subsequently, vide G.O.Ms. No.503 Revenue (CT-II) Department dated 08.05.2009, to bring it in line with the statutory provision – Rule 67, it cannot be said that the same is illegal and/or contrary to the parent act and/or contrary to the original industrial scheme - In fact, the State Government has taken care of the interest of the industrial units by providing double the balance period while converting the industrial units, who earlier availed the tax holiday as the units having tax deferment. Therefore, it cannot be said that the State was not aware of the interest of the industrial units under the VAT regime.
The High Court has rightly dismissed the writ petitions upholding the subsequent G.O.Ms. No.503 Revenue (CT-II) Department dated 08.05.2009 and amendment to Rule 67 of the Rules, 2005 - The impugned judgments and orders passed by the High Court upholding the validity of the amendment to Rule 67 of the Rules, 2005 vide G.O.Ms. No.503 Revenue (CT-II) Department dated 08.05.2009 is/are hereby confirmed.
Appeal allowed in part.
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2023 (6) TMI 990
Recovery of sales tax - transfer of the right to use any goods - Power of Revenue Dept. to direct deduction at Source for payment of Sales Tax from Bills of any person who transfers right to use any goods for any purpose - Rule 3A(2) is a valid piece of delegated Legislation or not.
Whether Sub-rule (2) of the Rule 3A of the TST Rules can be declared ultra vires being contrary to the provisions of the ‘TST Act’, though there is express proviso in Section 3(1) for levy of 4% Sales Tax on any transfer of the right to use any goods for any purpose?
HELD THAT:- In exercise of the powers under Section 44 of the TST Act the State Government had enacted the TST Rules which were placed before the Legislative Assembly. On fair reading of Section 44 of the Act which is a rule making power it can be seen that the rule making power under Section 44 is inclusive and wide enough to cover the procedure for recovery including tax deduction at source.
Section 3 of the TST Act can be said to be the charging Section and the liability to pay the tax shall be as per Section 3 of the TST Act. As per Section 3(1) of the TST Act every dealer in taxable goods shall pay a tax on his turnover at the rate specified in column (3) of the Schedule. As per the proviso to Section 3(1) as inserted by Tripura Sales Tax (Fourth Amendment) Act, 1987 w.e.f. 12.05.1987 the rate of tax on any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be 4%. The ‘Sale’ is defined under Section 2(g) and it means any transfer of property, in goods for cash or deferred payment or other valuable considerations, and includes any transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration, and such delivery or transfer of any goods shall be deemed to be a sale of those goods by the person making the delivery or transfer and purchase of those goods by the person to whom such delivery or transfer is made. Thus, any transfer of right to use any goods including the vehicles shall be deemed to be a ‘sale’ as defined under Section 2(g)(ii) - the submissions on behalf of the respondents – suppliers/transferers that as there is no sale or transfer of the goods and that they are not registered with the TST Act and therefore, the liability to pay the tax at 4% does not arise cannot be accepted. As observed, the liability to pay the tax shall be on the transferer who transfers the right to use any goods as per proviso to Section 3(1) read with Section 2(b) and 2(g) of the TST Act.
Whether Rule 3A(2) of the TST Rules and the memorandum issued by the Government to deduct the tax at 4% and the bills to be paid to the transferers can be said to be ultra vires to TST Act? - HELD THAT:- It appears that the High Court has held the said provision as ultra vires by observing that there is no such provision for tax deduction at source under the TST Act and therefore, the Rule cannot go beyond the Act. The aforesaid view taken by the High Court is absolutely fallacious. Rule 3A(2) can be said to be a recovery machinery/mechanism. What Rule 3A(2) provides is only for a machinery/mechanism where the person buying the goods is required to deduct the tax at source and deposits the same with the Revenue. It does not in any manner change the chargeability of the tax or liability of the tax which is under Section 3(1) of the TST Act read with Section 2(b) & 2(g) of the TST Act.
The rules are framed in exercise of Rule-making power under Section 44 of the Act and in that view of the matter and as the liability to pay the tax on transfer of right to use the goods shall still be continued under proviso to Section 3(1), mere providing for mode of recovery and/or providing for machinery/mechanism to recover the tax to be paid by the transferer/supplier from the person buying the goods deducting the tax at source and depositing the same with the Revenue cannot be said to be ultra vires to TST Act and the Rules as observed and held by the High Court - the High Court has fallen in error in misinterpreting Rule 3A(2) of the TST Rules and has fallen in error in declaring Rule 3A(2) of the TST Rules ultra vires to TST Act and the High Court has materially erred in quashing and setting aside the memorandum issued by the State Government requiring the hirers namely the ONGC and the GAIL to deduct an amount equivalent to 4% out of the respective bills of the suppliers of the vehicles.
The order passed by the learned Single Judge declaring Rule 3A(2) of the Tripura Sales Tax Rules, 1976 as ultra vires to the Tripura Sales Tax Act, 1976 and quashing and setting aside the memorandum of 1992 issued by the State Government requiring the hirers to deduct an amount of tax at 4% out of the respective bills of the suppliers of the vehicles are hereby quashed and set aside - appeal allowed.
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2023 (5) TMI 744
Levy of Sales Tax - consideration passed through credit notes - credit note issued by a manufacturer to a dealer of automobiles in consideration of the replacement of a defective part in the automobile sold pursuant to a warranty agreement being collateral to the sale of the automobile.
Whether the judgment of this Court in MOHD. EKRAM KHAN & SONS VERSUS COMMISSIONER OF TRADE TAX, UP. (AND ANOTHER APPEAL) [2004 (7) TMI 341 - SUPREME COURT] calls for reconsideration in terms of the Reference Order dated 05.12.2019?
HELD THAT:- In Mohd. Ekram Khan, this Court distinguished the judgment in PREMIER AUTOMOBILES VERSUS UOI. [1971 (11) TMI 159 - SUPREME COURT] by holding that the fact situation there was different and the issues in the said case were also different by observing that one of the issues was, whether, the expenses on account of warranty and statutory bonus were to be excludable while working out the ex-works cost. It was noted therein that car manufacturers furnish warranty covering the cars sold by entering into an agreement with the manufacturers of components providing for a warranty so far as the components supplied are concerned. The whole object behind the warranty is that the consumer who has to make a heavy investment for the vehicle should be assured of a proper performance of the vehicle in a trouble-free manner for a reasonable length of time. Therefore, entire cost of warranty was to be borne by the manufacturer.
Referring to Prem Nath Motors, it was observed in Mohd. Ekram Khan that the said case dealt with transfer of property in the part or parts replaced in pursuance of a stipulation or a warranty which is a part of the original sale of the car for the price fixed and received from the buyer or consumer. It was observed that the price so fixed and received was a consolidated price for the car and the parts that may have to be supplied by way of replacement in pursuance of the warranty. It was observed by this Court that the decision in Prem Nath Motors did not apply to the controversy in Mohd. Ekram Khan.
This Court in Mohd. Ekram Khan distinguished the factual situation in Premier Automobiles and COMMISSIONER OF SALES TAX, DELHI ADMINISTRATION, VIKAS BHAWAN, NEW DELHI VERSUS PREM NATH MOTORS (P.) LTD. [1978 (5) TMI 108 - DELHI HIGH COURT]. In other words, after distinguishing the aforesaid cases, it was noted that “in a case the manufacturer may have purchased from the open market parts for the purpose of replacement of the defective parts. For such transaction, it would have paid taxes. The position is not different because the assessee had supplied the parts and had received the price.” In other words, in Mohd. Ekram Khan, a situation where a manufacturer has purchased the part from the open market for the purpose of replacement of the defective part and for which taxes have been paid by the manufacturer and a situation where the dealer/assessee supplies the part from his own stock and has received the price for the same in the form of credit note on return of the spare part to the manufacturer have been considered to be not different to each other, but the same.
Whether, this Court in Mohd. Ekram Khan was right in equating both the factual situations and holding that in the latter case, the dealer was liable to pay sales tax on the premise that the transaction between the manufacturer and dealer was one of sale? - HELD THAT:- The entire controversy must be viewed in the perspective of a composite transaction and not in isolation as the dealer (assessee) would be acting under a warranty with there being a manufacturer on one end and the purchaser or customer of an automobile at the other end and the dealer acting on behalf of the manufacturer or an intermediary between the said customer and manufacturer. The said transaction cannot be viewed in a myopic sense by truncating or excluding the role or action of a dealer under the warranty and viewing it only from the perspective of a transaction simpliciter between manufacturer and a dealer. Such an approach is not only skewed from a commercial perspective but also jurisprudentially or in the legal sense. There need not be a reiteration of the significance of a warranty in a transaction of a sale of goods.
When the transaction between the manufacturer and dealer is viewed in the larger canvas of a dealer discharging his obligations pursuant to a warranty appended to a sale of an automobile, the same cannot be narrowly construed. At the same time, whether the transaction resulting in payment by way of a credit note to a dealer/assessee is a sale within the definition of sale under the Sales Tax Acts of the respective States under consideration has to be considered.
The aforesaid discussion could be illustrated better with reference to STATE OF TAMIL NADU VERSUS SRI SRINIVASA SALES CIRCULATION (AND OTHER APPEALS) [1996 (10) TMI 379 - SUPREME COURT].
Applying the aforesaid principles and the judgment of this Court to the case at hand, it is noted that when the dealer uses one of the spare parts from his stock for the replacement of a defective part in an automobile under a warranty, he is given a monetary benefit in the form of a credit note. The definition of “credit note” from various dictionaries and Law Lexicons have been adverted to above. A perusal of the aforesaid definitions would clearly indicate that a credit note issued by a manufacturer in favour of a dealer is a valuable consideration within the meaning of the definition of “sale” under both, Central Sales Tax Act as well as the respective State enactments under consideration - No doubt, cash is a money consideration but the definition of “sale” under the Central Sales Tax Act as well as under the State enactments does not imply price to mean only a money consideration in a narrower sense but in a wider sense to include different forms of money consideration such as deferred payment and also a valuable consideration which need not be restricted to cash or deferred payment only but a valuable consideration which would include a credit note which is to be read within the definition of “price”.
A credit note is a valuable consideration which is essentially a document to inform a buyer that the buyer’s account is being credited because of errors, returns or allowances. - Merely because the dealer is acting as an intermediary or on behalf of the manufacturer pursuant to a warranty and receives a recompense in the form of a credit note, the same cannot escape liability of tax under the Sales Tax Acts under consideration.
The manufacturer gives the warranty to the consumer by making a representation with regard to the automobile. It is in the nature of a promise which the dealer assessee carries out on behalf of the manufacturer.
The value of the credit note is a valuable consideration received which is in the nature of a benefit from the manufacturer which is exigible to tax. If the dealer had sold a spare part of the automobile from his stock to any other consumer across the counter, he would have collected the requisite sales tax along with the price from that consumer but in the instant case, the consideration is received in the form of a credit note from the manufacturer which is subject to sales tax. The person who pays the valuable consideration in a sale transaction is irrelevant so long as it is paid.
Application of Indian Contract Act, 1872
Applying the definitions of Section 2(d) of the Indian Contract Act, 1872 to the facts of the present case, it would mean that as between the manufacturer of the automobile, the dealer and the customer, the manufacturer is the promisor who makes the proposal to recompensate the dealer when pursuant to a warranty clause, the dealer replaces a spare part from out of his own stock or by buying the same from the open market or from the manufacturer of the spare part. Thus, the dealer is the promisee. The occasion to replace the spare part is when the customer brings to the notice of the dealer a defect in a part of the automobile, pursuant to a warranty which has been given by the manufacturer to the customer.
The dealer (promisee) agrees to replace a defective part which is a consideration for the promise and in turn, receives a recompense in the form of a credit note from the manufacturer. Thus, there is an agreement between the manufacturer and the dealer, and it would be in an instance of there being reciprocal promises.
Conclusion:
The transaction between the manufacturer and dealer while acting pursuant to a warranty in the circumstances explained above has to be construed as sale within the meaning and definition of sale under the Sales Tax Acts under consideration.
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2023 (5) TMI 595
Doctrine of legitimate expectation - exemption from payment of sales tax - Vested Rights - dissenting / Split judgment - Section 2(17) of the West Bengal Sales Tax Act, 1994 which came to be amended w.e.f. 01.08.2001 vide West Bengal Finance Act, 2001, omitting “tea blending” from the definition of “manufacture”. - legitimate expectation was created by the competent authority, which lured the appellants to act in a certain manner
As per M. R. SHAH , J.
HELD THAT:- In the present case, prior to 2001, as per Section 2(17) of the Act, 1994, the activity of “tea blending” was included in the definition of “manufacture”. Therefore, being in the activity of “tea blending”, the appellants were entitled to the exemption from payment of sales tax as manufacturers. It cannot be disputed that being the manufacturer in the activity of “tea blending” the appellants would have always been entitled to the exemption from payment of sales tax. Being a manufacturer, being in the activity of “tea blending”, the appellants were availing the sales tax exemption. However, thereafter, the definition of “manufacture” as contained in Section 2(17) of the Act, 1994 came to be amended w.e.f. 01.08.2001 vide West Bengal Finance Act, 2001 and the activity of “tea blending” came to be excluded from the definition of “manufacture”. Consequently, the appellants ceased to be the manufacturers. Once the appellants ceased to be the manufacturers, the appellants shall not be entitled to the exemption from the payment of sales tax, which was available to the appellants as a manufacturer being in the activity of “tea blending”. Therefore, on and from 01.08.2001, “tea blending” activity ceased to be the manufacturing activity and the appellants ceased to be the manufacturers and therefore, on and from 01.08.2001, the appellants shall not be entitled to the exemption from payment of sales tax.
The view taken by the learned Tribunal as well as the High Court agreed upon, that on and after 01.08.2001 and in view of the amendment to Section 2(17) of the Act, 1994, by which the definition of “manufacture” is amended and “tea blending” is excluded from the definition of “manufacture”, the appellants shall not be entitled to the exemption from payment of sales tax - appeal dismissed.
As per KRISHNA MURARI, J.
HELD THAT:- The doctrine of legitimate expectation, in simple terms, is a legal principle that arises when a public authority makes a promise or acts in a manner that leads an individual or a group to expect a particular outcome. This doctrine , which flows from the doctrine of rule of law, is based on the idea of fairness and consistency in the decision-making processes of public authorities - When a legitimate expectation of a specific outcome is created by a public authority, the said public authority is required to take into account such expectation created by it when making a decision that affects the interests of the individual or group concerned. If the public authority fails to do so, the individual or group has a right to challenge the decision and seek a remedy, such as an order to enforce the legitimate expectation, as is the situation in the case at hand.
The doctrine of legitimate expectation was elaborated upon in the case of FOOD CORPORATION OF INDIA VERSUS. KAMDHENU CATTLE FEED INDUSTRIES [1992 (11) TMI 275 - SUPREME COURT], wherein, this Court held that the duty of public authorities to act in a reasonable manner, entitles every person to have a legitimate expectation to be treated in such a reasonable manner. This legitimate expectation imposed on public authorities to act in a fair manner, as has been held, is imperative to ensure non-arbitrariness of state action. It was further held by this Court that while such a legitimate expectation might not by itself be an enforceable right, however, the failure to take into account such expectation may deem a decision of the public authority to be arbitrary.
The doctrine of legitimate expectation finds its home within the doctrine of rule of law and is a limb of Article 14 that fights against the contamination of arbitrary state action and misuse of power - The doctrine of promissory estoppel and the doctrine of legitimate expectation, while they share a common root and a similar theme, by way of going through the rigours of common law, have developed into two distinct doctrines. The doctrine of promissory estoppel is a remedy in private law; however, the doctrine of legitimate expectation is a remedy in public law, and as stated above, is rooted in Article 14 of the Constitution of India.
This legitimate expectation, created by the appropriate and competent authority, was broken when a subsequent amendment was brought in, wherein the words “blending of tea” was removed from the definition of “manufacture”. Such an amendment, by removing the said words, snatched away the legitimate expectation of a specific outcome, and ousted the appellants from claiming the tax holiday, to which they were promised by the original amendment. As can be seen, a reasonable legitimate expectation was created by the competent authority, which lured the appellants to act in a certain manner. Such a legitimate expectation was then snatched away, leaving the appellants without remedy, and in losses - In the present case at hand, while perusing through the subsequent amendment, it can be clearly seen that no such appropriate justification has been provided by the government. No appropriate reason for the enactment of the amendment, nor the considerations of the affected party have been discussed. A mere claim of change of policy is not sufficient to discharge the burden of proof vested in the government. The government must precisely show what the change of policy is, and why such a change of law is in furtherance of public policy, and the public good.
It can be clearly seen that a legitimate expectation was created by the public authority, and such an expectation, accrued in the favour of the appellants herein, was rescinded by the said authority without any demonstration of public interest. No appropriate explanation has been provided as to why a shift was made in Law, and why such a shift, in spite of the loss which would occur to the appellants and similarly situated persons, was necessary to advance public interest. In such a circumstance, the legitimate expectation created in the minds of the appellants, must be protected, and the benefits given originally must be made applicable to the appellants herein for the period promised by the respondent authority.
The Authority must be held accountable to the legitimate expectation created by it, and therefore, a direction is liable to be issued to the respondents herein to extend the benefits of the original amendment to the appellants herein, till the expiry of such a benefit as per the original amendment - Appeal allowed.
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2023 (5) TMI 326
Taxability - gutka/gutkha/guhtka - appellants argued that state legislatures were not empowered to levy sales tax on those articles, in view of the provision in the Constitution enabling the Union to levy additional duties of excise, and further that in any case, the rate of state tax cannot exceed the limit prescribed by the Central Sales Tax Act, 1956.
HELD THAT:- Entry No. 2 of Part-J in the First Schedule to the ADE Act is similar to sub-heading 2404.49 - as amended from 01.03.2001. As a result, additional excise duty could be imposed on ''Pan Masala containing tobacco”. As far as Kothari Products Limited v. Government of Andhra Pradesh, [[1997 (7) TMI 601 - ANDHRA PRADESH HIGH COURT]] is concerned, a Full Bench of the (undivided) Andhra Pradesh High Court had examined the interface between the APGST Act, and the provisions of the CET Act, in the context of whether gudaku was subjected to sales tax levy, as the dealers had contended that it was tobacco, and therefore, exempt under the local law - The Full Bench ruling considered the local enactments, and sub-headings in Chapters 21 and 24 of the CET Act, and held that although gutkha falls within the term ‘pan masala’, since no additional duty of excise is levied on it, yet it could not be held that gutkha was exempt from state sales tax.
It was held by the Full Bench of the Andhra Pradesh High Court [[1997 (7) TMI 601 - ANDHRA PRADESH HIGH COURT]] that provisions of explanation of the Fourth Schedule to the APGST Act, with reference to the heads and sub-heads in the CET Act, what was relevant in ascertaining the real import of the expression “chewing tobacco and preparations containing chewing tobacco” was the breadth of the terms used in the entry, sub-heading or a notification, or statute. From that aspect, the court concluded that gutkha fell within the wide language of the said expression. However sub-heading 2404.40 “Chewing tobacco and preparations containing chewing tobacco” was a general sub-head.
The court concluded that it is a settled rule of interpretation that a specific reference prevails over a general entry. Since the court held that “gutkha” fell within the meaning of “pan masala” in the sub-heading 21.06, there could be no doubt that “pan masala” was a specific sub-head even assuming that it falls within the meaning of “chewing tobacco”. Therefore, the court concluded that in view of the specific head “pan masala” in Chapter 21, that item was excluded from the general sub-head 2404.40 “Chewing tobacco and preparations containing chewing tobacco”. The court also concluded that though “gutkha” fell within the term “pan masala” in Chapter 21 under sub-head 21.06 yet as it is not subjected to additional duty, an essential condition envisaged by the explanation for claiming exemption, is lacking.
Whether pan masala was an exempted item, being “tobacco”? - HELD THAT:- It is noticeable that pan masala was expressly mentioned in Chapter 21 for the first time, in 1995 in the CET Act. Note 3 defined 'Pan Masala' as “any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients”. However, at the same time, Chapter 24 contained a specific entry “tobacco” which enumerated tobacco, manufactured tobacco, substitutes etc. The relevant sub-heading at that time was 2404.41 which enumerated chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti. Thus, the CET Act itself made a distinction between pan masala - whether it contained tobacco, or not, and all forms of tobacco. Right from 1995, the distinction in the CET Act between pan masala (Chapter 21) and tobacco (Chapter 24), had been made. The definition of pan masala also clarified that despite one of its ingredients being tobacco, it would nevertheless be a separate article.
On a plain application of the interpretive rules, especially Rule 3(a) it is clear that the heading which provides the most accurate description has to be followed. In the present case, there is no doubt, that before 2001, pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco. Goods classifiable under Chapter 24, i.e. tobacco items were more general; also they did not include pan masala.
Rate of tax - HELD THAT:- In view of the restrictions under Section 15 CST Act, neither gutkha nor pan masala were “declared goods” under Section 14 of the CST Act. The amendment to the CET Act did not become part of Section 14(ix). The goods under the relevant sub-headings of the CET Act were absent in the list of declared goods of the CST Act; they were not part of the provisions introduced to the Finance Act, 1988. Therefore, the subsequent changes made introducing 2404.40 in the CET Act do not affect or change the CST Act. Consequently gutkha and pan masala are not covered under sub-heading 2404.40 so far as CST Act is concerned. Resultantly the arguments of the assessees that the rate of local tax, cannot exceed the limit under the CST Act, are rejected as unmerited.
The appeals by the assessees have to fail. The revenue’s appeals are consequently allowed.
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2023 (5) TMI 290
Classification of goods - medicated talcum powder - classifiable under Entry 79 of the First Schedule to Kerala General Sales Tax Act, 1963 or not - whether medicated talcum powder is medicine or drug, or a cosmetic, or in terms of the statutes in question, medicated talcum powder? - HELD THAT:- In the present case, the clear legislative intent, of inserting a carefully worded entry, which was a “hybrid” one, i.e. describing an article that contained medicinal ingredients, as well as those used for cosmetics, and yet placing such a creature (“neither beast nor fowl” so to say) in the category of cosmetics, ruled out altogether any interpretive scope of classifying it as a medicinal preparation, or drug or medicine. Therefore, this court cannot fault the High Court for drawing the conclusion that it did.
Tamil Nadu case [[2014 (5) TMI 413 - MADRAS HIGH COURT]] - HELD THAT:- The legislative history of the entry is telling. Talcum powder, lipsticks, lip salve, nail polish, nail varnishes, nail brushes, toilet powders, baby powders, talcum powders, powder pads, etc. clearly showed that all manner of talcum powder fell within Entry, i.e. Item 1. After the amendment, with effect from 01.04.1994, the explanation was added. The explanation specifically stated that items “listed above” “even if medicated or as defined in Section 3” (of the Drugs Act) “or manufactured on the license issued under the said Act will fall under this item”. The explanation included, in Item 1, Part F medicated talcum powder, regardless that the license to manufacture it, was under the Drugs Act. The pointed reference to toilet powders, baby powders, talcum powders, powder pads, along with the additional words “even if medicated” again, like in the Kerala case, is decisive.
In the present case, the TNGST was consciously amended to include talcum powder, whether or not medicated in the specific entry or class of entries, enumerating cosmetics. Hence, like in the Kerala case [[2008 (9) TMI 845 - KERALA HIGH COURT]], the plain meaning of that taxation head or entry had to be given, as there was no ambiguity. Consequently, the findings recorded by the High Courts are justified.
This court is of the view that both sets of appeals have to fail - Appeal dismissed.
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2023 (5) TMI 6
Seeking deletion of adverse entries regarding the sales tax liability of Regent and Eastman - seeking direction upon the tehsildar to mutate the subject property, after quashing of the order dated 22nd December 2006 - declaring the action of the excise and taxation officer as illegal, unjust and without the authority of law.
Whether, in view of dismissal of the special leave petition qua PNB by the order dated 8th April, 2011, the judgment and order outlawing section 16-B of the HPGST Act can at all be examined? - HELD THAT:- A law, which the State legislature had the competence to enact, has been outlawed by the High Court while hearing a writ petition which was rendered infructuous due to developments subsequent to its filing and prior to its disposal but such developments had not been brought to the notice of the High Court - A reading of the affidavit reveals that during the pendency of the writ petition (filed by PNB) before the High Court, the borrower had offered a compromise proposal which PNB had accepted. In terms thereof, the borrower paid to PNB an amount of Rs.36 lakh towards full and final settlement of the loan liability. Upon receipt of the compromise amount, the title deed of the mortgaged property was duly returned to the borrower. Pursuant thereto, PNB filed an application for withdrawing the execution case before the Recovery Officer, DRT, Chandigarh on 13th August, 2002 and the case, upon being disposed of as withdrawn, was consigned to the record room.
The High Court by its judgment and order dated 2nd January, 2008 decided an infructuous writ petition and, in the process, outlawed section 16-B of the HPGST Act when the same was not at all warranted - it was also a clear but inadvertent error on the part of this Court to dismiss only the special leave petition against PNB as infructuous; the appropriate course for this Court ought to have been to dismiss the writ petition of PNB itself as infructuous having regard to the clear stand taken by PNB in its aforesaid affidavit dated 30th September, 2010 that nothing survived for a decision on the writ petition on the date it was decided in view of release of the property from mortgage - this issue is answered in affirmative.
Should the answer to the above question be in the affirmative, whether section 16-B of the HPGST Act should have been outlawed by the High Court on the ground that it is ultra vires the Constitution or the Banking Companies Act? - HELD THAT:- The High Court while seized of the writ petition of PNB [2008 (1) TMI 836 - HIMACHAL PRADESH HIGH COURT] was not at all concerned with the SARFAESI Act as such. The matter had travelled to the High Court from proceedings under the DRT Act. There was, thus, no occasion for the High Court to pronounce on the validity of section 16-B of the HPGST Act based on what was held by its coordinate Bench in M/s A.J. Infrastructures Pvt. Ltd. [2007 (9) TMI 563 - HIMACHAL PRADESH HIGH COURT]. The High Court was therefore in clear error.
Thus, section 16-B of the HPGST Act is a perfectly valid piece of legislation and is not ultra vires the Constitution and/or the Banking Companies Act as erroneously held in the decision of the High Court dated 2nd January, 2008. Also, following the decision in Central Bank of India [2009 (2) TMI 451 - SUPREME COURT], it is held that any observation in the decision dated 7th September, 2007 touching upon section 16-B of the HPGST Act vis-à-vis section 35 of the SARFAESI Act is of no effect.
Whether having regard to the facts and circumstances triggering the writ petitions, the High Court was justified in returning the findings that the State’s claim of first charge on the subject properties is not substantiated? - HELD THAT:- Section 14 of the HPGST Act postulates assessment of tax. The cumulative effect of the several sub-sections of section 14 is that after returns are furnished by a dealer in respect of any period, the duty of the assessing authority is to assess the appropriate quantum of tax required to be paid by the dealer, in terms of the procedure laid down therein; and to initiate steps, also in terms of the laid down procedure, to recover any amount of unpaid tax, penalty or interest payable under the enactment. Section 16 envisages that any amount of tax, penalty or interest payable under the HPGST Act remaining unpaid after the due date shall be recoverable as arrears of land revenue. Section 16-A, starting with a non-obstante clause, confers power on the Commissioner or any officer other than the one excluded to initiate a special mode of recovery.
While adopting such a stand, the State and its department either overlooked or were ignorant of the requirement of law that section 16-B would be attracted only after determination of the liability and upon any sum becoming due and payable; and that, it is only thereafter that the charge, if any, would operate - no relevant documentary evidence having been placed before the High Court, when CWP 306 of 2007 was being heard, to indicate that necessary steps under the HPGST Act had been initiated by the State and its officers, the third issue has to be answered by holding that the State not having taken steps as required by law for realization of its dues, there was no determination of liability, a fortiori, question of taking recourse to the HPLR Act for recovery of dues as arrears of land revenue did not arise. Without such determination of liability, no red entry marks could have been inserted in the revenue records and the High Court was right in holding that the State ought not to have refused mutation.
Whether dismissal of the review petition/application for recall instituted by the State by the High Court suffers from any infirmity, legal or otherwise? - HELD THAT:- No error apparent on the face of the record was pointed out, which is the first ground for seeking a review. Documents were annexed to the application, which were in existence when the reply to CWP 306 of 2007 was filed by the State and no case had been set up that despite discharge of due diligence, such documentary evidence, which were in existence, could not be annexed to the said reply. Much indulgence is shown to the State Governments when they carry judgments/orders in time-barred appeals/revisions, having regard to the impersonal machinery being involved. However, undue indulgence cannot be shown to the State Governments either when they do not file a proper reply or when, despite there being a provision for review, such remedy is not pursued and a different one pursued presumably to overcome the restrictions the provision for review imposes - High Court was justified in rejecting the application for recall.
Relief - HELD THAT:- The appellants (State and its officers) are not entitled to any relief except the declaration that section 16-B of the HPGST Act is not ultra vires any provision of law. In view of section 16-B having been outlawed by the High Court on 2nd January, 2008, this declaration shall not enure to the benefit of the State in respect of cases that are old and have been closed but would be effective once again from this day.
Appeal disposed off.
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2023 (4) TMI 761
Waiver of penalty and interest levied under subsection (6) of Section 45 of the Gujarat Sales Tax Act, 1969 - classification of services - contract of coating of pipes - civil works contract or not - case of Revenue is that the composition amount is payable not at the rate of 2% as deposited by the respondent but it falls under Residuary Entry8 to the notification dated 18.10.1993.
The High Court has set aside the penalty and interest on the ground that the assessee was under the bonafide opinion and following the advice, paid the tax at 2% and that thereafter, when the enhanced tax as imposed has already been paid by the assessee, the penalty and interest is not required to be paid by the assessee.
HELD THAT:- On a fair reading of Section 45 of Gujarat Sales Tax Act, 1969, it can be seen that as per subsection (2) of Section 45 of the Act, 1969, penalty is leviable if it appears to the Commissioner that a dealer has concealed the particulars of any transaction or deliberately furnished inaccurate particulars of any transaction liable to tax. In the present case, it cannot be said that the dealer has concealed the particulars of any transaction or deliberately furnished inaccurate particulars of any transaction liable to tax. However, in so far as penalty leviable under subsection (6) of Section 45 of the Act, 1969 is concerned, the penalty leviable under the said provision is as such, a statutory penalty and there is no discretion vested with the Commissioner as to whether to levy the penalty leviable under subsection (6) of Section 45 of the Act, 1969 or not. Subsection (5) of Section 45 provides that in the case of a dealer where the amount of tax assessed for any period under sections 41 or 50 or reassessed for any period under Section 45 exceeds the amount of tax already paid by the dealer in respect of such period by more than 25% of the amount of tax so paid, the dealer shall be deemed to have failed to pay the tax to the extent of difference between amount so assessed or reassessed as aforesaid and the amount paid - Considering subsection (5) of Section 45 of the Act, 1969, if a dealer is deemed to have failed to pay the tax to the extent mentioned in subsection (5), there shall be levied on such dealer a penalty not exceeding one and onehalf times the difference referred to in subsection (5). Under the circumstances, to the aforesaid extent and on the difference of tax, as per subsection (5) of Section 45, the respondent – assessee – dealer shall be liable to pay the penalty as mentioned under subsection (6) of Section 45.
On a bare reading of subsections (5) and (6) of Section 45, it is evident that it is integral part of the assessment that the penalty be levied on the difference of amount of tax paid and amount of tax payable as per the order of assessment or reassessment as the case may and the same shall be automatic. Therefore, when the penalty on the difference of amount of tax paid and tax payable is more than 25% of the amount of tax so paid, there shall be automatic levy of penalty under Section 45(6) of the Act.
The Gujarat High Court while considering the very provision and penalty and interest imposed under Section 45(6) and Section 47(4A) of the Act, 1969, has taken a consistent view in the cases of Riddhi Siddhi Gluco Biols Ltd. [2017 (4) TMI 309 - GUJARAT HIGH COURT] and Oil and Natural Gas Corporation Limited [2016 (4) TMI 94 - GUJARAT HIGH COURT] that the penalty leviable under Section 45(6) of the Act is a statutory and mandatory penalty and there is no question of any mens rea on the part of the assessee to be considered. In the aforesaid decisions, it is observed and held that levy of penalty is automatic on the eventualities occurring under subsection (5) of Section 45 of the Act, 1969.
On strict interpretation of Section 45 and Section 47 of the Act, 1969, the only conclusion would be that the penalty and interest leviable under Section 45 and 47(4A) of the Act, 1969 are statutory and mandatory and there is no discretion vested in the Commissioner/Assessing Officer to levy or not to levy the penalty and interest other than as mentioned in Section 45(6) and Section 47 of the Act, 1969. It is needless to observe that such an interpretation has been made having regard to the tenor of Sections 45 and 47 of the Act, 1969 and the language used therein.
The impugned judgment and order passed by the High Court on the grounds that the amount of tax has already been paid by the assessee – dealer; that the assessee – dealer was under the bonafide belief that it was liable to pay the tax at the rate of 2%, is unsustainable.
The impugned judgment and order passed by the High court is hereby quashed and set aside - Appeal allowed.
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2023 (4) TMI 408
Classification of goods - Mosquito Mats, Coils and Vaporizers - Mortein Insect Killers - Harpic Toilet Cleaner and Lizol Floor Cleaners - Dettol Antiseptic Liquid - classifiable under Entry No. 44(5) of the III Schedule to the Kerala VAT Act as being 'pesticides, insecticides' corresponding to HSN Code 3808 and therefore subject to VAT at the rate of 4% or not? - Dettol Antiseptic Liquid, classifiable under Entry 36(8) (h) (vi) being medicaments corresponding to HSN Code 3004.90 of the III Schedule or not - HELD THAT:- It is required to be noted that HSN Code 3808 has been deleted from Entry 44(5) w.e.f. 01.07.2006 and from 21.01.2006 the aforesaid products would fall under Sl. No.66 namely ‘Mosquito repellant’, which is the specific entry and subject to VAT at 12.5%. The insecticides under Entry 44(5) therefore can be said to be a general entry. Once there is a specific entry the ‘Mosquito Repellant’, thereafter one is not required to go to the definition under another Act namely Insecticides Act. Sl.No.66 of Notification SRO 82/06 dated 21.01.2006 issued under Section 6(1)(d) of the Kerala VAT Act which covers "Mosquito Repellants” - Even otherwise it is required to be noted that Entry 44(5) which includes insecticides relates to products which are used in agricultural operations. All the products in the Entry are used in the agricultural field in relation to growing of agricultural products and controlling of pets, insecticides etc. which are attacking the plants. Therefore, in view of the specific Entry 66 of Notification SRO 82/06 dated 21.01.2006 the aforesaid products namely Mosquito Repellants, electric or electronic mosquito repellants, gadgets and insect repellants, devices and parts and accessories thereof are rightly classified as Mosquito repellants.
In the present case under the KVAT Act there is a specific Entry Mosquito repellant so far as the product electric or electronic mosquito repellents, gadgets and insect repellents, devices and parts and accessories thereof are concerned and therefore the said specific entry shall be applicable in any case, the same cannot be said to be insecticides. We are in complete agreement with the view taken by the High Court that Mosquito Mats, Coils and Vaporizers and Mortein Insect Killers products shall not be classifiable under Entry 44(5) as insecticides.
Harpic and Lizol - HELD THAT:- What is required to be considered is the dominant use which is cleaning and removal of stains of floor and the toilet. Thereafter, the same shall not fall under Entry 44(5) – HSN Code No.3808 as insecticides or disinfectant. Entry 27(4) of SRO No. 82 of 2006 is with respect to stain busters, stain removers, abir, blue and all kinds of cleaning powder and liquids including floor and toilet cleaning. In that view of the matter Entry 27(4) being a specific entry the same shall be applicable and the aforesaid two products namely Harpic and Lizol shall not be classifiable under general Entry 44(5) and in any case the same cannot be classifiable under Entry 44(5) as insecticides - the product Harpic and Lizol shall not be classifiable under Entry 44(5) and shall be classifiable under Entry 27(4) of SRO 82/2006 chargeable to tax at 12.5%.
Dettol - HELD THAT:- The active ingredients of Dettol are Chloroxylenol IP, Terpineol BP, Alcohol Absolute IP (denatured) and it is an antiseptic having germicidal properties and it kills germs, bacteria and it prevents infection therefore it is applied on wounds, cuts, grazes, bites and stings. It is also used in hospitals for surgical use and medical use - the Dettol is used as an antiseptic liquid and is used in hospitals for surgical use, medical use and midwifery, due to therapeutic & prophylactic properties. Therefore, the same can be said to be an item of medicament to be treated as a drug and medicine. Here also the dominant use is a relevant consideration.
In the case of PONDS INDIA LTD. VERSUS COMMISSIONER OF TRADE TAX, LUCKNOW [2008 (5) TMI 46 - SUPREME COURT] this Court has held that while deciding the issue whether any particular item would be covered under relevant entry or classification, different tests viz. the dictionary meaning, technical meaning, user’s point of view, popular meaning etc. are to be applied.
The dominant use of Dettol and the active ingredients of Dettol referred to hereinabove and that the Dettol is used as an antiseptic and is used in hospitals for surgical use, medical use and midwifery due to therapeutic & prophylactic properties the same would fall under Entry 36(8) (h) (vi) as claimed by the appellant and would not fall under the residuary entry as claimed by the Revenue. To that extent the impugned judgment and order passed by the High Court deserves to be quashed and set aside.
The impugned judgment and order passed by the High Court in so far as the products Mosquito Mats, Coils and Vaporizers and Mortein Insect Killers; Harpic Toilet Cleaner and Lizol Floor Cleaners is hereby confirmed. So far as the impugned judgment and order passed by the High Court with respect to Dettol Antiseptic Liquid is concerned, the impugned judgment and order passed by the High Court is set aside and it is held that the product Dettol would fall under Entry 36(8) (h)(vi) of Schedule III of the KVAT Act and shall be liable to be taxed at 4%.
Appeal allowed in part.
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2023 (3) TMI 943
Process amounting to manufacture or not - mixture of the base paint with different colours, results in a new product or not - Revenue contended that the sale of paints which had undergone mixing (through a computerised process with the aid of a DTS machine) amounted to ‘manufacture’, thereby resulting in a new product, which was a fresh incidence of taxation - HELD THAT:- In Mahalaxmi Stores [2002 (11) TMI 112 - SUPREME COURT], this court relied on previous decisions such as Commissioner of Sales Tax Vs. Pio Food Packers [1980 (5) TMI 30 - SUPREME COURT], and Chowgule and Company(P) Limited Vs. Union of India [1980 (11) TMI 61 - SUPREME COURT] to state that the manufacturing process can vary, and that the process of producing every type of variation, or finishing of goods, would not amount to ‘manufacture’ as contained in the statute unless it resulted in the emergence of a new commercial commodity.
In Sonhbadra [2006 (8) TMI 304 - SUPREME COURT], this court while deciding the facts of the case before it cited a large number of decisions rendered in the context of what was meant by ‘manufacture.’ This court specifically noticed in Union of India V. Delhi Cloth and General Mills [1962 (10) TMI 1 - SUPREME COURT] that ‘manufacture’ meant bringing into existence a ‘new’ substance and did not mean merely to bring about some change in the substance. In Mahalaxmi Stores, it was held that processing or variation/finishing of goods would not per se amount to manufacture unless it resulted in the emergence of a new commercial commodity.
In the present case, the findings based on the expert’s evidence are that the base paint was mixed with colouring as an additive. Both of these had suffered tax. The resultant article i.e., the paint of a different shade, did not result in a new commercial product. In common parlance, the new product was nothing else but ‘paint’, and not a different article.
The High Court did not fall into error - Appeal dismissed.
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