1990 (11) TMI 358 - HC - VAT and Sales Tax

Invalid assessment under Tripura Sales Tax Act; court rules notice invalid, sales inter-State. Writ petition allowed.

The court found the assessment under section 11(1) of the Tripura Sales Tax Act invalid as the petitioner was not served a valid notice, rendering the ... Assessment in cases of evasion and escape - Service of notice as condition precedent to initiation of assessment - Assessment under regular assessment provisions once proceedings under evasion provision are initiated - Inter-State sale in the course of inter-State trade - Movement of goods as incident of contract determines inter-State character of sale - Place of passing of property not decisive for inter-State saleAssessment in cases of evasion and escape - Service of notice as condition precedent to initiation of assessment - Assessment under regular assessment provisions once proceedings under evasion provision are initiated - Validity of the assessment made under section 11(1) of the Tripura Sales Tax Act where no notice under section 11(1) was served on the dealer. - HELD THAT: - Section 11 permits assumption of jurisdiction and initiation of proceedings only if the authority is satisfied on specified grounds and such satisfaction is based on information in its possession. Initiation of proceedings under section 11(1) requires service of a notice containing requirements which may be included in a notice under section 8(2) (i.e., a notice requiring a dealer to furnish a return). Proceedings under section 11 commence only with service of such a notice within the eight-year time limit. Once proceedings are validly initiated, assessment must follow the procedure applicable to regular assessments under section 9 (including acceptance of returns, opportunity of hearing, or best judgment assessment where appropriate). In the present case no notice as contemplated by section 11(1) was served; the Superintendent proceeded straight to assessment alleging powers under section 11(1). Service of the requisite notice being a condition precedent, the assessment made without such service is illegal and unsustainable.Assessment under section 11(1) is illegal and cannot be sustained because no notice under that provision was served; the condition precedent to initiate proceedings was not satisfied.Inter-State sale in the course of inter-State trade - Movement of goods as incident of contract determines inter-State character of sale - Place of passing of property not decisive for inter-State sale - Whether the supplies of materials made from other States for use in execution of the works contract amounted to intrastate sales in Tripura or inter-State sales. - HELD THAT: - The Court applied principles under section 3 of the Central Sales Tax Act and authoritative Supreme Court decisions establishing that where movement of goods from one State to another is the result of a covenant or an incident of the contract, the sale is in the course of inter-State trade. The place where property passes is not decisive; what matters is whether the inter-State movement is an incident of the contract. The supplies in question involved movement from other States to Tripura as an incident of the contract for execution of the works, and therefore were inter-State sales. The Superintendent's conclusion that the sales were intrastate because property passed in Tripura was contrary to the law and was rejected.The supplies were inter-State sales; the assessment treating them as intrastate sales in Tripura was contrary to law and quashed.Final Conclusion: Writ petition allowed; impugned order of assessment and the notice of demand quashed. Costs of Rs. 1,000 awarded to the petitioner. Issues Involved:1. Validity of assessment under section 11(1) of the Tripura Sales Tax Act.2. Determination of whether the sales were inter-State or intra-State.Summary:1. Validity of Assessment u/s 11(1) of the Tripura Sales Tax Act:The petitioner, a partnership firm, received a notice of demand from the Superintendent of Taxes, Agartala, demanding sales tax on materials supplied for a contract in Tripura. The petitioner challenged the assessment on the grounds that it was illegal and without jurisdiction, as no valid notice u/s 11(1) of the Tripura Sales Tax Act was served, which is a condition precedent for initiating assessment proceedings. The court examined section 11 of the Tripura Act, which outlines the conditions for assuming jurisdiction and initiating assessment proceedings. It was found that no notice u/s 11(1) was served on the petitioner, making the assessment illegal and unsustainable. The court held that the condition precedent for assessment under section 11, namely, service of a notice, was not fulfilled, rendering the assessment invalid.2. Determination of Inter-State vs. Intra-State Sales:The petitioner argued that the sales were inter-State, as the materials were supplied from outside Tripura, and thus, the transactions were exigible to tax under the Central Sales Tax Act. The Superintendent of Taxes treated the transactions as intra-State sales, asserting that the transfer of property occurred in Tripura. The court referred to the Supreme Court's decision in Builders Association of India v. Union of India, which established that sales tax laws levying taxes on the transfer of property in goods involved in works contracts are subject to the restrictions of article 286 of the Constitution. The court concluded that the principles for determining inter-State sales u/s 3 of the Central Sales Tax Act apply to works contracts. The court cited several Supreme Court decisions, emphasizing that the movement of goods from one State to another as a result of a contract constitutes an inter-State sale, irrespective of where the property in the goods passes. Consequently, the court held that the sales in question were inter-State sales, and the assessment treating them as intra-State sales was contrary to the law laid down by the Supreme Court.Conclusion:The writ petition was allowed, the impugned order of assessment and the notice of demand were quashed. The respondents were directed to pay Rs. 1,000 to the petitioner as costs.