2013 (7) TMI 668 - HC - VAT and Sales Tax

Inter-State Sales Tax Exemptions Authority Clarified

PRISM CEMENT LTD & AKSHAY RAHEJA Versus STATE OF MAHARASHTRA, FINANCE DEPARTMENT & OTHS. MUMBAI

The court held that the amended Section 8(5) of the Central Sales Tax Act does not limit the State Government's authority to grant exemptions for ... Section 8(5) of the CST Act as amended by Finance Act 2002 - whether the power of the State Governments to grant exemption under Section 8(5) is restricted only in respect of the transactions covered under Section 8(1) and not in respect of the transactions covered under Section 8(2) of the CST Act? - Held that:- As in State of Tamil Nadu V/s. Sitolaxmi Mills(1973 (12) TMI 75 - SUPREME COURT OF INDIA) uphelding the constitutional validity of Section 8 of the CST Act and further held that the high rate of tax imposed under Section 8(2) does not directly or indirectly impede or hamper the free flow of trade, commerce and intercourse and that in appropriate cases, the State Governments under Section 8(5) are empowered to grant total or partial exemption from the higher rate of tax payable under Section 8(2) the argument of the Revenue that the legislative policy of the Government is to discourage inter State sales to unregistered dealers cannot be sustained as the said argument is contrary to the report of the Taxation Enquiry Commission and also the decisions of the Apex court referred above. The argument of the Revenue that since it is mandatory to fulfill the requirements of Section 8(4) while exercising power under Section 8(5), it must be held that the power of the State Governments to grant total / partial exemption in public interest is restricted only to the transactions which fulfil the requirements of Section 8(4) namely the transactions covered under Section 8(1) cannot be accepted because, Section 8(5) as amended by Finance Act, 2002 not only refers to the transactions covered under Section 8(1) but also refers to the transactions covered under Section 8(2). Therefore, when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant total / partial exemption from the tax payable under Section 8(1) or 8(2), it is not possible to accept the contention of the Revenue that after the 2002 amendment, the power of the State Government under Section 8(5) to grant total / partial exemption is restricted only in respect of the transactions covered under Section 8(1). Thus by retaining the words 'any person or class of persons' in the amended Section 8(5)(b) it is made clear that even after the 2002 amendment, the State Governments under Section 8(5) are also empowered to grant total / partial exemption in public interest in respect of inter State sales to any person or class of persons covered under Section 8(2) of the CST Act. Thus once it is held that the powers vested in the State Governments under Section 8(5) are not divested by the 2002 amendment and that even after the 2002 amendment, the State Governments subject to compliance of Section 8(4) have power to grant exemption in respect of transactions covered under Section 8(1) as also under Section 8(2), no reason to consider the second and the alternative argument of the petitioners that Section 8(5) as amended by Finance Act 2002 does not affect the rights vested in the petitioners under PSI 1993 to avail the exemption upto the quantum specified / period specified in the Entitlement Certificate granted to the petitioners. Issues Involved:1. Challenge to the three trade circulars issued by the Commissioner of Sales Tax.2. Interpretation of Section 8(5) of the Central Sales Tax Act, 1956 as amended by the Finance Act, 2002.3. Impact of the amended Section 8(5) on the vested rights of the petitioner under the 1993 Scheme.4. Legislative intent and policy behind the amendment of Section 8(5).5. Validity of the proceedings initiated to recover tax based on the amended Section 8(5).Detailed Analysis:1. Challenge to the Three Trade Circulars:The writ petition challenges three trade circulars issued by the Commissioner of Sales Tax on 27th May 2002, 20th July 2002, and 8th February 2007, and various notices issued by the Deputy Commissioner of Sales Tax in February 2009 under Section 38 of the Bombay Sales Tax Act, 1959. These circulars and notices were issued to revise assessments for the Assessment Years 2002-2003 to 2004-2005, based on the interpretation of Section 8(5) of the Central Sales Tax Act, 1956 as amended by the Finance Act, 2002.2. Interpretation of Section 8(5) of the Central Sales Tax Act, 1956 as Amended by the Finance Act, 2002:The core issue is whether the amended Section 8(5) restricts the power of the State Government to grant exemptions only to inter-State sales to registered dealers or the Government, subject to furnishing declarations in form 'C' or 'D'. The court analyzed the legislative intent and the language of the amended Section 8(5) and concluded that the amendment does not restrict the State Government's power to grant exemptions only to transactions covered under Section 8(1). The court held that the State Governments retain the power to grant exemptions for transactions covered under both Section 8(1) and Section 8(2), subject to the fulfillment of the requirements of Section 8(4) for transactions under Section 8(1).3. Impact of the Amended Section 8(5) on the Vested Rights of the Petitioner under the 1993 Scheme:The petitioners argued that their right to avail exemptions under the 1993 Scheme, as per the Notification dated 5th July 1980 issued under the unamended Section 8(5), should remain unaffected by the 2002 amendment. The court, however, did not need to address this argument in detail, as it concluded that the amended Section 8(5) did not restrict the State Government's power to grant exemptions for transactions under Section 8(2).4. Legislative Intent and Policy Behind the Amendment of Section 8(5):The court examined the legislative intent behind the amendment, noting that it aimed to overcome the Supreme Court's decision in Shree Digvijay Cement Company Limited, which allowed the State Governments to waive the requirements of Section 8(4). The amendment intended to make the furnishing of form 'C' or 'D' mandatory for transactions under Section 8(1) and to withdraw the State Governments' power to waive this requirement. However, the amendment did not intend to restrict the State Government's power to grant exemptions for transactions under Section 8(2).5. Validity of the Proceedings Initiated to Recover Tax Based on the Amended Section 8(5):The court found that the proceedings initiated based on the impugned trade circulars were premised on an incorrect interpretation of the amended Section 8(5). Since the court held that the State Governments retained the power to grant exemptions for transactions under Section 8(2), the impugned trade circulars and the notices issued under Section 38 of the BST Act were quashed and set aside.Conclusion:The court concluded that the amended Section 8(5) of the CST Act does not restrict the State Government's power to grant total or partial exemptions from tax payable on inter-State sales covered under both Section 8(1) and Section 8(2). The impugned trade circulars and the proceedings initiated based on them were quashed, and the rule was made absolute with no order as to costs.