Mutuality does not shield member supplies from sales tax after the Forty-sixth Amendment, and nondisclosure can attract penalty.
After the Forty-sixth Amendment, supply of goods by an unincorporated association to its members for valuable consideration is treated as a taxable sale, and the plea of mutuality does not exclude liability under the Central Sales Tax Act, 1956. The contention that the transactions were concluded within Tamil Nadu failed for lack of material showing intra-State completion. In parallel, omission to disclose the taxable turnover in the return supported penalty under the Tamil Nadu General Sales Tax Act, 1959, because the assessee had notice of the taxability and no bona fide basis for non-disclosure was established. Both the assessment and the penalty were sustained.
Issues: (i) whether the supply of wattle extract by an unincorporated association to its members constituted a taxable sale liable under the Central Sales Tax Act, 1956 despite the plea of mutuality and the Forty-sixth Amendment to the Constitution of India; (ii) whether penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959 for failure to disclose the taxable turnover.
Issue (i): whether the supply of wattle extract by an unincorporated association to its members constituted a taxable sale liable under the Central Sales Tax Act, 1956 despite the plea of mutuality and the Forty-sixth Amendment to the Constitution of India.
Analysis: The supply was held to be a sale by the assessee's own earlier case law, and the constitutional position after Article 366(29A)(e) of the Constitution of India treated supply of goods by an unincorporated association to its members for valuable consideration as a sale. The contention that the transactions were completed within Tamil Nadu was rejected for want of material to show that the sales were concluded in the State itself. The earlier Supreme Court order concerned a challenge at the show-cause stage and did not undo the settled position on taxability.
Conclusion: The liability to tax under the Central Sales Tax Act, 1956 was upheld against the assessee.
Issue (ii): whether penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959 for failure to disclose the taxable turnover.
Analysis: The return was admittedly incomplete and the taxable turnover relating to supply of wattle extract was not reported. The assessee had already been put on notice by the earlier decision on the taxability of such supplies, and the pendency of proceedings before the Supreme Court on a different aspect did not establish a bona fide belief sufficient to excuse non-disclosure.
Conclusion: The levy of penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was upheld against the assessee.
Final Conclusion: The revision was rejected in full, with both the assessment on the supplies and the penalty sustained.
Ratio Decidendi: After the Forty-sixth Amendment, supply of goods by an unincorporated association to its members for valuable consideration is taxable as a sale, and omission to disclose such taxable turnover without a legally sustainable basis justifies penalty.
TaxTMI 
AI Drafter ✕
TaxTMI 
