Court quashes tax demand, shifts burden to Excise Dept, imposes cost on 15-year litigated petitioner

The Court quashed the demand notice issued by the Assistant Commissioner, Commercial Taxes, directing recovery of sales tax from a manufacturing unit supplying rectified spirit to a government warehouse through the Excise Department. Despite ongoing disputes between the Excise and Sales Tax Departments, the Court held that the petitioner should not bear the burden of the inter-departmental dispute. Acknowledging the Excise Commissioner's stance on sales tax liability, the Court directed the Commercial Tax Department to recover from the Excise Department. Additionally, the Court imposed a cost of Rs. 20,000 on the Excise Department for the petitioner's 15-year litigation ordeal, ensuring payment within three months.

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Issues:
Quashing demand notice by Assistant Commissioner, Commercial Taxes; Dispute over sales tax liability between petitioner and Excise Department; Liability of petitioner to pay sales tax; Interpretation of relevant laws and previous judgments; Burden of litigation on petitioner due to inter-departmental dispute.

Analysis:
The petitioner, a manufacturing unit of rectified spirit, sought to quash a demand notice for unpaid sales tax issued by the Assistant Commissioner, Commercial Taxes. The petitioner supplied rectified spirit to the bonded warehouse maintained by the State Government through the Excise Department. The Commercial Taxes Department alleged non-payment of sales tax liability by the petitioner for periods before and after April 1, 1989. The petitioner claimed it couldn't pay as the purchaser, the Excise Department, hadn't paid them. The Commissioner of Excise supported this stance in a letter to the Commissioner of Commercial Taxes, emphasizing that manufacturers selling to government warehouses through the Excise Department were not liable to pay sales tax. Despite ongoing disputes between the Excise and Sales Tax Departments, the Commercial Taxes Commissioner directed recovery from the petitioner from April 1, 1989. The Sales Tax Department pressured the petitioner, who made representations to both Excise and Commercial Taxes Departments, citing the Excise Department's assurance to resolve the matter. The Assistant Commissioner's demand notice for sales tax payment was challenged by the petitioner.

The Court noted the petitioner's supply of rectified spirit to the government warehouse through the Excise Department without receiving the sales tax amount. The liability for sales tax payment was still unresolved, with the State Government yet to decide on the point of levy or collection responsibility. Referring to a similar case, the Court emphasized that a manufacturing unit should not suffer due to inter-departmental disputes when one department was liable for the tax payment. The Court distinguished a previous judgment cited by the State counsel, noting that it involved a private party, unlike the current scenario where the supply was to a government department. Consequently, the Court held that the petitioner should not bear the brunt of the dispute between the Excise and Sales Tax Departments. Given the Excise Commissioner's acknowledgment of the sales tax liability, the Court quashed the demand notice, directing the Commercial Tax Department to recover from the Excise Department.

The Court highlighted the petitioner's 15-year litigation ordeal due to the departmental standoff, causing unnecessary burden and harassment. As a result, the Court imposed a cost of Rs. 20,000 on the Excise Department, payable to the petitioner within three months, with the Secretary of the Excise Department responsible for ensuring the payment. This comprehensive judgment resolved the issues surrounding the demand notice, sales tax liability, inter-departmental disputes, and the petitioner's undue litigation burden effectively.

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