2007 (4) TMI 623 - HC - VAT and Sales Tax

Court Upholds Revenue's Power to Levy Purchase Tax, Emphasizes Binding Nature of Circulars

M/s. Hotel Shri Kannan Versus The State of Tamil Nadu rep. by the Secretary to Government Department of Commercial Taxes & Religious Endowments

The court held that the Revenue could levy purchase tax under Section 7-A of the Tamil Nadu General Sales Tax Act on dealers purchasing goods from ... - Issues Involved:1. Power to levy purchase tax under Section 7-A of the Tamil Nadu General Sales Tax Act.2. Validity and applicability of Circular D.Dis.Acts Cell II/75893/99 and its amendments.3. Binding nature of circulars and clarifications issued by the Revenue.4. Interpretation of Sections 8 and 28-A of the Act.5. Scope and object of Section 7-A of the Act.Issue-wise Detailed Analysis:1. Power to Levy Purchase Tax under Section 7-A of the Tamil Nadu General Sales Tax Act:The primary contention was whether the Revenue could levy purchase tax under Section 7-A of the Act on the dealers who purchased turmeric from unregistered dealers within the state. The court noted that Section 7-A is both a charging and remedial section aimed at preventing tax evasion. It applies when goods are purchased in circumstances where no tax is payable under Sections 3 or 4, and the goods are either consumed, disposed of, or dispatched outside the state.2. Validity and Applicability of Circular D.Dis.Acts Cell II/75893/99 and its Amendments:The dealers argued that the circulars issued by the Revenue were binding and should exempt them from the purchase tax. The court examined the circulars and clarifications, noting that they were in force during the relevant period and thus binding on the Revenue. The court cited several precedents where circulars issued by tax authorities were held to be binding, including decisions from the Supreme Court and other High Courts.3. Binding Nature of Circulars and Clarifications Issued by the Revenue:The court emphasized that circulars and clarifications issued by the Revenue are binding on the authorities. It referenced multiple Supreme Court rulings to support this view, including:- State Bank of Travancore v. C.I.T.- Keshavji Ravji & Co. v. Commissioner of Income Tax- Collector of Central Excise, Patna v. Usha Martin Industries- Paper Products Ltd. v. Commissioner of Central Excise- UCO Bank v. C.I.T.- Commissioner of Sales Tax, U.P. v. Indra Industries- Commissioner of Income Tax v. Kelvinator of India Ltd.- Collector of Central Excise, Vadodara v. Dhiren Chemical Industries- Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd.4. Interpretation of Sections 8 and 28-A of the Act:The court analyzed Sections 8 and 28-A, concluding that Section 8 provides for exemption from any tax, including purchase tax, subject to conditions. Section 28-A empowers the Commissioner of Commercial Taxes to issue clarifications concerning the rate of tax and the procedure for assessment and collection. The court held that the Commissioner's power under Section 28-A is broader and includes the authority to exempt taxes.5. Scope and Object of Section 7-A of the Act:The court reiterated that Section 7-A aims to prevent tax evasion and should be interpreted to preserve its efficacy. It noted that the section applies to purchases from unregistered dealers and ensures that such transactions do not escape taxation.Conclusion:The court set aside the assessment orders passed without reference to the relevant circulars and directed the dealers to submit their objections to the show cause notices within thirty days. The objections, supported by relevant materials, should be forwarded to the Commissioner of Commercial Taxes for a decision on the applicability of the circulars. The court also directed the government to authorize the Commissioner to decide on the applicability of the circulars and pass appropriate orders in accordance with the law. The writ appeals and writ petitions were disposed of accordingly, with no costs.