2003 (5) TMI 492 - HC - VAT and Sales Tax

Dealers' Tax Set-Off Denied for Unproven Raw Material Tax Payment

Arun Ispat Udyog, Secunderabad Versus State of Andhra Pradesh (and other cases)

Arun Ispat Udyog, Secunderabad Versus State of Andhra Pradesh (and other cases) - [2004] 135 STC 140 (AP) Issues Involved:1. Entitlement to set-off on finished products in terms of G.O. Ms. No. 763 Revenue dated August 21, 1990.2. Classification of raw materials under entry 2(xvi) or entry 2A of the Third Schedule to the A.P. General Sales Tax Act, 1957.3. Burden of proof regarding payment of tax on raw materials.4. Applicability of previous case law and government orders on the issue of set-off.Detailed Analysis:1. Entitlement to Set-off on Finished Products:The dealer-assessees sought set-off on the tax paid on raw materials used to manufacture finished products. The Tribunal initially accepted the dealers' contention that the raw materials fell under entry 2(xvi) and thus were liable to tax on the first sale. However, the Tribunal remanded the matter to the assessing authority to verify if the tax was paid by the first seller. The Tribunal stated, 'if the first seller was not levied any tax, no set-off shall be given to the dealers-assessees.'2. Classification of Raw Materials:The core issue was whether the raw materials purchased by the dealers fell under entry 2(xvi) or entry 2A of the Third Schedule to the Act. The Tribunal initially ruled in favor of the dealers, classifying the materials under entry 2(xvi), which implies tax at the first sale. However, a subsequent ruling in the Arun Ispat Udyog case clarified that M.S. scrap falls under entry 2A, making it taxable at the last purchase in the State. The judgment states, 'the scrap purchased by the dealers would fall under entry 2A and not under entry 2(xvi) of the Third Schedule to the Act.'3. Burden of Proof Regarding Payment of Tax:The dealers contended that once they purchased raw materials from identifiable registered dealers, the burden of proving tax payment should not fall on them. The Court, however, disagreed, emphasizing that 'it is for the assessee to prove that the raw material had already suffered tax, and if it is so proved, then only the dealers are entitled to the benefit of set-off.'4. Applicability of Previous Case Law and Government Orders:The dealers relied on previous judgments (Apex Steel Re-rolling Mills and Thungabhadra Industries) and government orders to argue their case. However, the Court distinguished these cases based on the facts and clarified that the raw materials in question were subject to tax on the last purchase, not the first sale. The Court also referenced the Supreme Court's decision in Dhiren Chemical Industries, which held that exemption benefits are only available if the raw materials have indeed suffered tax.Conclusion:The Court concluded that the raw materials purchased by the dealers fall under entry 2A and are taxable at the last purchase within the State. The dealers failed to prove that the raw materials had already suffered tax, thus they were not entitled to the set-off. The judgment affirmed the Tribunal's decision to remand the matter for verification of tax payment, stating, 'we do not find any error in the order of the Tribunal in directing the assessing officer to grant the benefit of exemption, if it is found that tax has been paid on the raw material.' Consequently, the tax revision cases were dismissed.