2000 (4) TMI 809 - HC - VAT and Sales Tax

Appellant wins benefits under Section 5(3) of Sales Tax Act, sandalwood release ordered

Lavanya Enterprises Versus Secretary to Government of Tamil Nadu, Environment and Forest Department, Chennai and others

The court ruled in favor of the appellant, holding that they were entitled to benefits under Section 5(3) of the Central Sales Tax Act, 1956, if they ... - Issues Involved:1. Liability to pay sales tax on sandalwood purchased in auction.2. Applicability of Section 5(3) of the Central Sales Tax Act, 1956.3. Validity of the conditions in the sale notice regarding sales tax.4. Requirement of producing export documents at the time of sale.5. Imposition of penal interest and demurrage charges.Detailed Analysis:1. Liability to Pay Sales Tax on Sandalwood Purchased in Auction:The appellant-firm participated in an auction for the sale of sandalwood conducted by the second respondent. The auction was confirmed on March 17, 1999, with a demand for sales tax under condition No. 27 of the sale notice. The appellant contested this demand, arguing they were not liable to pay sales tax due to their intent to export the sandalwood. The court initially rejected the appellant's writ petitions, stating that any claim for exemption should be referred to the Sales Tax Department and that the appellant had agreed to the auction terms, including the payment of sales tax.2. Applicability of Section 5(3) of the Central Sales Tax Act, 1956:The appellant argued that under Section 5(3) of the Central Sales Tax Act, 1956, they were not liable to pay sales tax as the purchase was for fulfilling an export order. Section 5(3) states that the last sale or purchase preceding the export is deemed to be in the course of export if it took place for the purpose of complying with an export agreement. The court emphasized that two conditions must be satisfied: the sale must occur after the export agreement, and it must be for the purpose of complying with that agreement. The appellant provided evidence of a contract with a foreign buyer dated December 20, 1998, and argued that the sandalwood was purchased to fulfill this contract.3. Validity of the Conditions in the Sale Notice Regarding Sales Tax:The respondents argued that the appellant was bound by the auction terms, including the payment of sales tax. However, the court held that statutory benefits under Section 5(3) of the Act cannot be circumvented by contractual terms. The court cited the Allahabad High Court's decision in U.P. State Electricity Board v. Lakshmi Devi Sehgal, stating that no contract can enforce terms contrary to public policy or statutory provisions. Therefore, the appellant's entitlement to benefits under Section 5(3) could not be negated by the auction conditions.4. Requirement of Producing Export Documents at the Time of Sale:The respondents contended that the appellant did not produce export documents at the time of sale confirmation, thus disqualifying them from claiming benefits under Section 5(3). The court found no such requirement in the sale notice and referenced the Supreme Court's decision in Consolidated Coffee Ltd. v. Coffee Board, Bangalore, which held that the production of export agreements or orders is not necessary at the time of auction participation but at the time of property transfer. The court concluded that the appellant's failure to produce documents at the time of sale did not alter the nature of the sale if it was indeed for export.5. Imposition of Penal Interest and Demurrage Charges:The appellant faced demands for penal interest and demurrage charges due to delayed payment and removal of sandalwood. The court noted that the appellant had paid 50% of the sales tax and provided a bank guarantee for the remaining amount. The court directed the appellant to keep the bank guarantee alive for another six months and instructed the respondents to release the sandalwood upon compliance with the court's directions.Conclusion:The court set aside the single judge's order, holding that the appellant was entitled to the benefits under Section 5(3) of the Central Sales Tax Act, 1956, if they could establish that the purchase was for export. The court directed the respondents to release the sandalwood upon the appellant's compliance with the bank guarantee condition, emphasizing the need for the Forest Department to establish clear guidelines to address such issues in future auctions.