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2016 (1) TMI 998

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..... nd, between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it. It is wholly unnecessary for us to examine whether the chillies purchased by the Secunderabad branch of the petitioner, and then transferred to its Cochin branch in the State of Kerala, were exported to foreign buyers; and whether such exports satisfy the requirements of Section 5(1) of the CST Act; as these are all matters to be examined by the assessing authority. Matter remanded back. - WRIT PETITION NOs.26129, 26130 OF 2012, 8406, 8416 AND 8440 of 2014 - - - Dated:- 10-12-2015 - SRI. RAMESH RANGANATHAN AND SRI. M. SATYANARAYANA MURTHY, JJ. For The Petitioner : Dr.S.R.R.Viswanath For The Respondent : Sri M.Govind Reddy and Sri J.Anil Kumar, Learned Special, Standing Counsel for Commercial Taxes COMMON ORDER: (per Hon ble Sri Justice Ramesh Ranganathan) The relief sought for, in this batch of Writ Petitions, is to quash the assessment orders, passed for different assessment periods in respect of the very same assessee, levying purchase tax under Section 4(4)(iii) of the A.P. VAT Act on goods sold in the course .....

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..... he States of Andhra Pradesh and Telangana lack jurisdiction to levy purchase tax in view of the constitutional prohibition in Article 286(1)(b) of the Constitution of India, and Section 5(b) of the A.P. VAT Act. The 1st respondent issued a show cause notice, in Form VAT 305-A dated 28.02.2012, proposing to levy purchase tax of ₹ 25,66,493/-, calculated at 4% under Section 4(4) of the A.P. VAT Act, on the value of chillies purchased from unregistered dealers i.e., for ₹ 6,41,62,345/-. The petitioner was also asked to show cause why penalty, and interest at 1%, should not be imposed on them. In reply thereto the petitioner, vide letter dated 19.03.2012, submitted that, since chillies purchased from unregistered dealers were exported out of the country, Section 4(4) of the A.P. VAT Act was not attracted. The petitioner claims to have produced all the records, at the time of personal hearing, to show that the chillies purchased by them, within the State, constituted purchases in the course of export. It is their case that the stock transfer notes show that the Secunderabad branch, soon after purchase of chillies, had despatched them to its branch at the SEZ Cochin; the w .....

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..... es purchased from unregistered dealers; if the goods were, indeed, exported the petitioner ought to have filed Form-H ; in the present case the petitioner has merely filed Form-F which shows that the goods were transferred to its branches otherwise than by way of sale; and, under the circumstances, the respondent had levied tax, on purchase of chillies from unregistered dealers, in terms of Section 4(4) of the VAT Act. In the affidavit filed in reply thereto, the petitioner stated that the respondent did not dispute the petitioner s assertion that the chillies, purchased by their Secunderabad branch and transferred to the Cochin branch, was exported therefrom to foreign buyers; the petitioner purchased chillies to meet their export obligations; the chillies, so purchased, were despatched from the petitioner s Secunderabad branch to their Cochin branch, and were exported therefrom to foreign buyers; since the petitioner is itself the direct exporter, Form H, as required under Section 5(3) and (4) of the CST Act read with Rule 12(10) of the CST (R T) Rules, need not be submitted; the chillies purchased by the petitioner at Guntur were stock transferred to its branch in the SEZ .....

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..... efrom to foreign buyers, is contrary to law; as purchase of chillies, by the Secunderabad branch, is in the course of export, they cannot be subjected to tax under Section 4(4) of the A.P. VAT Act; the impugned assessment order is, therefore, liable to be set aside; the judgment of the Supreme Court in East India Tobacco Company v. State of Andhra Pradesh related to a dispute which arose before the CST Act was enacted by Parliament in the year 1956; Section 5(b) of the CST Act, and its explanation, exclude levy of VAT on export sales; the assessing authority erred in reducing the input tax credit, on other commodities, treating purchases, in the course of export, as stock transfers, and in applying Rule 20(8)(d) of the A.P. VAT Rules; and export transactions cannot be included in the denominator, of the formula prescribed in the said Rule, treating them as stock transfers. Reliance is placed by the Learned Counsel on Sahney Steel and Press Works Ltd. v. CTO; English Electric Company of India Ltd. v. DCTO; State of Haryana v. Nipha Exports (P) Ltd; and H.M. Mehta C. v. St. of Haryana. On the other hand Sri M. Govind Reddy, Learned Special Standing Counsel for Commercial Taxes, .....

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..... by the respondent authorities, is on account of misappreciation of the law and the statutory provisions; the levy is without jurisdiction, without authority of law and in flagrant violation of Article 286, and Section 5 of the A.P. VAT Act; and the taxing authorities have assumed jurisdiction to levy tax though none existed. (CIT v. Chhabil Dass Agarwal (2014) 1 SCC 603; State of U.P. v. Mohd. Nooh AIR 1958 SC 86; Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 142 ITR 663: (AIR 1983 SC 603; Harbanslal Sahnia v. Indian Oil Corpn. Ltd. (2003) 2 SCC 107; State of H.P. v. Gujarat Ambuja Cement Ltd. (2005) 6 SCC 499; K.S. Rashid and Son v. Income Tax Investigation Commission AIR 1954 SC 207; Sangram Singh v. Election Tribunal AIR 1955 SC 425; Union of India v. T.R. Varma AIR 1957 SC 882; K.S. Venkataraman and Co. (P) Ltd. v. State of Madras AIR 1966 SC 1089; N.T. Veluswami Thevar v. G. [Image not available] Raja Nainar AIR 1959 SC 422; Municipal Council, Khurai v. Kamal Kumar AIR 1965 SC 1321; Siliguri Municipality v. Amalendu Das (1984) 2 SCC 436; S.T. Muthusami v. K. Natarajan (1988)n 1 SCC 572; Rajasthan SRTC v. Krishna Kant (1995) 5 SCC 75; Kerala SEB v. Kurien E. K .....

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..... ich the State legislature is empowered under Entry 54 to make, includes a law levying tax not only on the sale of goods but also on its purchase. Tax is levied, under Section 4(4) of the Act, on a VAT dealer who, in the course of his business, purchases taxable goods from (1) a person; or (2) a dealer not registered as a VAT dealer; or (3) a VAT dealer in circumstances in which no tax is payable by the selling VAT dealer. Section 4(4) visualises imposition of tax on purchases made by a VAT dealer from a person other than a registered dealer, who could be a nonregistered dealer or a person who is not a dealer. (Hindustan Milkfood Manufacturers Ltd. v. State of A.P). A farmer who grows agricultural produce and, except for cleaning, grading and sorting, does not subject the agricultural produce to any other physical, chemical and other process, would neither fall within the definition of a dealer under Section 2(10) of the Act nor can he be said to be carrying on business for the purposes of the Act. A farmer or an agriculturist would be a person under Section 4(4) of the Act. The tax levied under Section 4(4) is not on the sale of goods by a farmer/agriculturist, but on the VAT .....

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..... than by way of consumption; (b) otherwise than by way of sale either within the State or in the course of interstate trade or commerce; or (c) otherwise than by way of export out of the territory of India. In the present case chillies are taxable goods and as the petitioner - a VAT dealer has, in the course of its business, purchased chillies from farmers (who are not registered VAT dealers) the ingredients of Section 4(4) are, to this extent, attracted. If, after such purchase, the VAT dealer had merely transferred the stock of chillies outside the State then, as the goods would have been disposed of otherwise than by way of consumption or by way of sale within the State or in the course of interstate trade or commerce or export out of the territory of India, it would fall within the ambit of Section 4(4)(iii) of the A.P. VAT Act. In the present case, however, while the goods were no doubt transferred from the Secunderabad branch of the petitioner-company to another of its branches at Cochin in the State of Kerala, the very same goods are said to have been exported from the Cochin branch to foreign buyers outside the country. If the goods (chillies in the present case) have b .....

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..... takes place in any of the ways mentioned in clause (1). Under the Constitution, as it originally stood, revenue from sales-tax was reserved to the States. Since the power of taxation could be exercised by the States, in a manner prejudicial to the larger public interest, it was considered necessary to restrict the power of taxation. In the exercise of this constituent power under Article 286 of the Constitution, the Parliament enacted the CST Act. (The State of Madras v. N.K. Nataraja Mudaliar; Sterling Steels Wires Ltd. v. State of Punjab). With a view to formulate principles for determining as to when a sale or purchase of goods takes place in the course of import into or export from India (Embee Corporation (1997) 7 SCC 190), Chapter II of the Central Sales Tax Act has the heading Formulations of Principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of export or import . The heading of Chapter II suggests that what is done, under Sections 3, 4 and 5 is the formulation of principles. (Consolidated Coffee Ltd. v. Coffee Board, Bangalore). Section 5(1) of the CST Act defines w .....

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..... IR 1980 SC 1468) . If export of chillies by the petitioner, from its Cochin branch to foreign buyers outside the country, satisfies the requirements of Section 5(1) of the CST Act, the respondents would then lack jurisdiction to levy VAT, as such a levy is prohibited under Article 286(1)(b) of the Constitution of India read with Section 5(b) and Section 4(4)(iii) of the A.P. VAT Act. It is no doubt true that the Secunderabad branch of the petitioner company only purchased chillies, among others, from farmers and transferred the stock of chillies to the Cochin branch. It is also true that the goods (chillies) were not exported by the Secunderabad branch of the petitioner company to foreign buyers. The question which necessitates examination is whether the stock transfer of goods from one branch of a company, and export of the very same goods, from the other branch, outside the country would fall outside the ambit of Section 4(4)(iii) of the A.P. VAT Act. The petitioner is a company registered under the Companies Act, 1956 and, as noted hereinbefore, has branches in different parts of the country. Transfer of goods from one branch of the company to another does not result in th .....

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..... ipha Exports Pvt. Ltd (1998) 108 STC 337, being subjected to challenge in appeal, the Supreme Court, in Nipha Exports Pvt. Ltd (2007) 8 VST 466 (SC), agreed with the view expressed by the Punjab Haryana High Court that the movement of goods from Faridabad to Calcutta was occasioned in the course of export out of India, and there could be no sale between the branch office and the head office. In H.M. Mehta Co. (2007) 10 VST 173 (P H) the petitioner approached the Punjab Haryana High Court challenging the assessment order whereby purchase tax was levied under Section 9 of the Haryana General Sales Tax Act, 1973 on the purchase value of cotton which was transferred by the assessee to its head office at Bombay, and from there the same goods were exported out of the Country. Purchase tax was levied as the assessee had transferred the goods out of the State, otherwise than by way of sale, to its head office at Bombay, which were ultimately exported out of the country. Following its earlier judgment in Nipha Exports36, the Punjab Haryana High Court set aside the levy of purchase tax on the purchase value of goods which were transferred by the petitioner to its head office outsi .....

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..... has furnished them with Form H to enable such registered VAT dealers to claim the benefit of Section 5(3) of the CST Act; and the question of furnishing Form-H, when goods are purchased from farmers (who are not registered VAT dealers), does not arise. Learned Counsel would submit that Form-F was produced by the Secunderabad branch, to the assessing authority, as proof of stock of chillies having been transferred from the Secunderabad branch to the Cochin branch of the petitioner company. Rule 12(1)(a) of the CST (R T) Rules requires the declaration, referred to in Section 5(4) of the CST Act, to be in Form-H, and to be furnished to the prescribed authority upto the time of assessment by the first assessing authority. Form-H is the certificate furnished by the exporter, to the dealer from whom he purchased the goods, that the goods supplied by the selling dealer have been sold, by the exporter, in the course of export out of the territory of India. Form-H is required to be supplied only to registered dealers from whom the petitioner purchased goods for the purpose of export. Furnishing of the certificate, in Form-H, would enable such registered dealers to claim the benefit of a .....

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..... of the CST Act, that the transfer of the goods, outside the State, was not by way of sale. Sri J.Anil Kumar, Learned Special Standing Counsel for Commercial Taxes, would submit that the petitioner had, in its monthly returns, disclosed this turnover only under column 12 and not column 13, and they cannot, therefore, claim that these goods are exempt from tax under Section 4(4)(iii) of the A.P. VAT Act on the specious plea that the transfer of stock of chillies from the Secunderabad branch to the Cochin branch was in the course of export. Form VAT 200 is the monthly return, for Value Added Tax, to be submitted by a registered dealer. In the present case, column 12 of the monthly return filed by the Secunderabad branch of the petitioner company relates to exempt sales, and column 13 is the zero rated sale international exports. As the Secunderabad branch of the petitioner company had merely transferred stock of chillies to the Cochin branch, and it was the Cochin branch which had exported goods outside the territory of India, the Secunderabad branch could only have claimed exemption, under column 12, furnishing Form-F as proof that there was only a stock transfer of goods, a .....

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..... agreement between them, or even from the nature of the transaction which links the sale to export; and to occasion export there must exist such a bond, between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it. It is wholly unnecessary for us to examine whether the chillies purchased by the Secunderabad branch of the petitioner, and then transferred to its Cochin branch in the State of Kerala, were exported to foreign buyers; and whether such exports satisfy the requirements of Section 5(1) of the CST Act; as these are all matters to be examined by the assessing authority. We consider it appropriate, in these circumstances, to remand all these matters to the assessing authority who shall, after giving the petitioner an opportunity of being heard, examine whether or not the stock of chillies, transferred from the Secunderabad branch to the Cochin branch of the petitioner company, were sold by the Cochin branch to foreign buyers outside the territory of India in terms of Section 5(1) of the CST Act. On the question of partial denial of input tax credit to the petitioner, it is necessary to note that .....

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