1999 (9) TMI 927 - HC - VAT and Sales Tax

Court Invalidates Circular Impacting Sales Tax Assessments; Calls for Legislative Amendments

The court found that the Commissioner's circular dated February 24, 1998, was contrary to Rule 6(1)(l) of the A.P. General Sales Tax Rules, 1957. The ... - Issues Involved:1. Legality of assessment orders for the year 1997-98.2. Application of Rule 6(1)(l) of the A.P. General Sales Tax Rules, 1957.3. Validity of the Commissioner's circular dated February 24, 1998.4. Calculation of the tax component in the sale price.5. Quantum of deduction towards rural development cess.Detailed Analysis:1. Legality of Assessment Orders for the Year 1997-98:The petitioners, who are rice millers, challenged the assessment orders passed by the first respondent for the year 1997-98. They argued that the deduction of tax permissible under Rule 6(1)(l) of the A.P. General Sales Tax Rules, 1957 was not given based on the Commissioner of Commercial Taxes' circular dated February 24, 1998.2. Application of Rule 6(1)(l) of the A.P. General Sales Tax Rules, 1957:Rule 6(1)(l) provides for certain deductions in determining the net turnover of a dealer. It was introduced to exclude the tax on tax. The rule states that the amount collected towards tax is excludible from 'turnover'. The formula for this deduction is:\[ \text{Rate of tax} \times \text{aggregate of sale prices} \div (100 + \text{rate of tax}) \]The court found that the formula does not contemplate excluding the tax attributable to the corresponding turnover of paddy before arriving at the deduction of the amount relatable to tax on rice.3. Validity of the Commissioner's Circular Dated February 24, 1998:The circular stated that the tax payable on sales of rice is the net tax payable after providing a rebate towards the tax on paddy. The court held that the circular was contrary to Rule 6(1)(l) and could not control the plain effect of the formula laid down in the rule. The circular failed to take into account the decisions of the court and the Tribunal, which had consistently interpreted the expression 'rate of tax' as the standard rate of 4 percent.4. Calculation of the Tax Component in the Sale Price:The court noted that the sale price is inclusive of tax and emphasized that the burden is on the dealer to show whether and to what extent the tax component entered into the all-inclusive price charged while claiming the deduction under Rule 6(1)(l). The assessing authority had incorrectly applied the formula by reducing the tax attributable to paddy.5. Quantum of Deduction Towards Rural Development Cess:The court did not delve into the issue of the quantum of deduction towards rural development cess, as the petitioner had an effective alternative remedy. The focus remained on the deduction under Rule 6(1)(l) due to the binding nature of the Commissioner's circular on the assessing authority.Conclusion:The court concluded that the Commissioner's circular was contrary to law and could not override the formula laid down in Rule 6(1)(l). The assessment orders based on the circular were set aside, and fresh assessments were directed to be made without reference to the circular. The court suggested that the Legislature or rule-making authority might consider amending the rule to address the peculiar situation arising from the operation of section 15(c) of the Central Sales Tax Act, 1956, read with Explanation III of the Third Schedule to the Andhra Pradesh General Sales Tax Act, 1957.Final Decision:The writ petitions were allowed, and the impugned assessment orders were set aside. The assessing authorities were directed to make fresh assessments in light of the court's observations and without reference to the Commissioner's circular. No costs were awarded.