2001 (2) TMI 1018 - AT - VAT and Sales Tax

Tribunal Upholds State's Sales Tax on Industrial Alcohol

The Tribunal upheld the State of Tamil Nadu's levy of sales tax on industrial alcohol, ruling it within the state's legislative competence under entry 54 ... Levy of sales tax on industrial alcohol - legislative competence under entry 54 of List II - administrative fee as component of sale price - maintainability of writ petitions where alternative remedy exists - per incuriam / sub silentio observation and its non-binding effectLevy of sales tax on industrial alcohol - legislative competence under entry 54 of List II - per incuriam / sub silentio observation and its non-binding effect - Validity of the levy of sales tax by the State on industrial alcohol (rectified spirit/industrial alcohol). - HELD THAT: - The Tribunal examined the conflict in the Supreme Court decisions relied upon by the petitioners and the State. It noted that the obiter in Synthetics & Chemicals Ltd. suggesting that sales tax could not be charged on industrial alcohol was an abrupt observation not preceded by discussion and was treated in subsequent decisions as per incuriam or sub silentio. The Tribunal followed the later authoritative pronouncements, including State of Uttar Pradesh v. Synthetics and Chemicals Limited and Bihar Distillery v. Union of India, which uphold the State's power to levy taxes on the sale or purchase of goods under entry 54 of List II. The Tribunal therefore concluded that the levy of sales tax on industrial alcohol falls within the legislative competence of the State and is not rendered invalid by the Price Control Orders relied upon by the petitioners. [Paras 7, 8, 11]Levy of sales tax on industrial alcohol is within the legislative competence of the State and is not illegal or unconstitutional.Administrative fee as component of sale price - maintainability of writ petitions where alternative remedy exists - Whether collection of sales tax on the administrative fee (charged by manufacturers/excisable authorities and claimed to be distinct from industrial alcohol) is illegal or whether the writ petitions challenging it are maintainable. - HELD THAT: - The Tribunal found no material on record to show that sales tax was separately collected on the administrative fee as alleged. On the legal merits, applying the principle that amounts payable by the purchaser as part of the consideration (even if shown separately) form part of the sale price, the Tribunal held that an administrative fee charged by the manufacturer in relation to production and made payable by the purchaser would ordinarily form part of the sale consideration and be subject to sales tax. Further, the Tribunal held that disputed questions of fact between purchasers and sellers concerning whether tax was actually collected on such fee could not properly be agitated in writ petitions against the State; where the dispute is between parties, civil remedies or other appropriate statutory remedies are the proper forum. For these reasons the Tribunal found no ground to declare the collection illegal or unconstitutional and treated the petitions as not maintainable to raise the factual-commercial dispute against the State. [Paras 9, 10, 11]No illegality found in taxing the administrative fee as forming part of sale price; factual disputes as to collection are not maintainable in these writ petitions and petitioners have alternative remedies.Final Conclusion: The petitions are dismissed: the State's levy of sales tax on industrial alcohol is constitutionally valid under entry 54 of List II; amounts described as administrative fee, if part of the consideration for sale, are taxable, and factual disputes about collection must be pursued by appropriate remedies rather than by writ before this Tribunal. Issues Involved:1. Legality and constitutionality of the levy of sales tax on ethyl alcohol/rectified spirit/industrial alcohol by the State of Tamil Nadu.2. Legality and constitutionality of the levy of sales tax on the administrative fee associated with industrial alcohol.Detailed Analysis:1. Legality and Constitutionality of the Levy of Sales Tax on Ethyl Alcohol/Rectified Spirit/Industrial Alcohol:The petitioners, operating chemical industries, challenged the levy of sales tax on ethyl alcohol/rectified spirit/industrial alcohol by the State of Tamil Nadu, arguing it was illegal and unconstitutional. They cited the Supreme Court's decision in *Synthetics & Chemicals Ltd. v. State of U.P.* [1991] 80 STC 270; AIR 1990 SC 1927, which held that states do not have the authority to levy taxes on industrial alcohol as it falls under the exclusive control of the Union. This was reaffirmed in *Bihar Distillery v. Union of India* AIR 1997 SC 1208.However, the respondent's counsel contended that ethyl alcohol and similar substances are taxable under entry 23 of Part-D of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. They argued that the Supreme Court's judgment in *Synthetics & Chemicals Ltd.* did not address the state's power to levy sales tax under entry 54 of List II of the Seventh Schedule to the Constitution.The Tribunal noted that the Supreme Court in *State of Uttar Pradesh v. Synthetics and Chemicals Limited* [1992] 87 STC 289 clarified that the earlier judgment did not discuss the state's power to levy sales tax on the sale or purchase of goods under entry 54 of List II. The Supreme Court stated that the observation regarding sales tax in the earlier judgment was per incuriam and not binding.The Tribunal concluded that the levy of sales tax on industrial alcohol is within the legislative competence of the State Government under entry 54 in List II of the Seventh Schedule to the Constitution of India. The petitioners' challenge to the levy of sales tax on industrial alcohol was found to lack merit, as the Supreme Court had upheld such levies in subsequent decisions.2. Legality and Constitutionality of the Levy of Sales Tax on the Administrative Fee:The petitioners also challenged the levy of sales tax on the administrative fee associated with industrial alcohol, arguing it was illegal and unconstitutional. They claimed that the administrative fee, which does not form part of the industrial alcohol, should not be subject to sales tax.The Tribunal observed that the schedules to the Tamil Nadu General Sales Tax Act, 1959, do not have a separate entry for tax on administrative fees. The administrative fee paid by the manufacturer might have been included in the cost of industrial alcohol, forming part of the sale value for sales tax computation.The Tribunal found no material evidence to show that sales tax was collected on the administrative fee as claimed by the petitioners. It emphasized that disputed questions of fact could not be agitated in a writ petition and that the issue was a matter between the petitioners and the sellers. The proper course for resolving such disputes would be a civil suit, not a writ petition against the State Government.The Tribunal referred to the Supreme Court's decision in *Hindustan Sugar Mills Limited v. State of Rajasthan* [1979] 43 STC 13, which held that freight and handling charges included in the sale price are part of the consideration for the sale of goods. Applying this ratio, the Tribunal concluded that the administrative fee represents expenditure incurred by the manufacturer and forms part of the consideration for the sale of industrial alcohol.The Tribunal dismissed the petitions, finding no case to declare the levy of sales tax on the administrative fee as illegal or unconstitutional. It emphasized that judicial review under Article 226 of the Constitution is confined to the decision-making process, not the correctness of the decision itself.Conclusion:The Tribunal dismissed all the original petitions, upholding the levy of sales tax on industrial alcohol and the administrative fee associated with it. The petitioners' challenges were found to lack merit, and the Tribunal emphasized the proper legal avenues for resolving such disputes.