2013 (12) TMI 1229 - HC - VAT and Sales Tax

Tribunal Upholds Tax Assessment on Local Sales under Tamil Nadu GST Act

The Tribunal upheld the assessment orders, determining that the transactions were local sales taxable under the Tamil Nadu General Sales Tax Act. It ruled ... Inter-State sale - incidence of the contract of sale - movement of goods - Section 3(a) of the Central Sales Tax Act - effect of prior assessment on subsequent assessmentInter-State sale - incidence of the contract of sale - movement of goods - Section 3(a) of the Central Sales Tax Act - Characterisation of the transactions as inter-State sales or as local sales assessable under the Tamil Nadu General Sales Tax Act - HELD THAT: - The Court applied the settled principle that for a sale to be an inter-State sale under Section 3(a) the movement of goods from one State to another must be the result or incident of the contract of sale; it is sufficient if such movement is implicit in the contract, but where movement is neither expressly provided for nor implicit, it cannot be related to the sale. On the facts the allocation orders and application were general and constituted a consolidated request by MRF Ltd.; delivery was ex-godown and STC reserved rights to vary/cancel allocations. The subsequent directions and transport by the assessee after taking delivery were held to be independent of the sale and not an incident of the contract. The Court agreed with the Tribunal that there was no specific contractual obligation on STC to despatch to Kottayam or Goa and that the movement occurred after delivery, breaking the necessary link between sale and movement. Consequently the transactions were local sales taxable under the Tamil Nadu General Sales Tax Act and not inter-State sales. [Paras 14, 16, 19, 21]Transactions for the periods in dispute are local sales and not inter-State sales; therefore assessable under the Tamil Nadu General Sales Tax Act.Effect of prior assessment on subsequent assessment - Whether the prior assessment and collection of tax at the hands of STC under the Central Sales Tax Act precluded reassessment of the same turnover at the hands of the assessee - HELD THAT: - The Court rejected the contention that STC's assessment under the Central Sales Tax Act estopped the Assessing Officer from enquiring into the true nature of the transactions. Where materials seized at inspection showed facts pointing to local purchases and post-delivery movement, the Assessing Officer was entitled to reconsider the character of the transactions and assess under the appropriate statute. The fact that STC had offered the turnover and tax had been collected under the Central Sales Tax Act did not foreclose an enquiry or prevent assessment of the turnover at the hands of the assessee if the nature of the transaction warranted it. [Paras 22]Prior assessment of STC does not bar the revenue from enquiring into and assessing the transaction at the hands of the assessee under the State Act.Adjustment of tax paid by vendor - Relief in respect of tax already collected and remitted by STC - HELD THAT: - Although the Court held the transactions to be local sales, it recognised that STC had collected tax at 4% from the assessee and remitted it to the State. In the interests of justice and following contemporaneous precedents on adjustment, the Court directed the State to verify the fact of payment by the assessee and remittance by STC and to give necessary adjustment of the 4% tax remitted by STC towards the assessment on the assessee, leaving only the balance differential tax payable by the assessee. [Paras 24]State to verify payment/remittance and adjust the 4% tax collected by STC against the assessment of the assessee; net liability restricted to the differential tax.Final Conclusion: The appeals are dismissed. The Court holds the transactions to be local sales assessable under the Tamil Nadu General Sales Tax Act (Assessment Years 1989-90, 1990-91, 1991-92), rejects the plea that STC's prior assessment precludes reassessment of the assessee, but directs the State to verify and adjust the 4% tax collected and remitted by STC against the assessee's liability so that only the differential tax remains payable. Issues Involved:1. Characterization of the transaction as inter-State sale or local sale.2. Assessment of tax liability under the Tamil Nadu General Sales Tax Act vs. Central Sales Tax Act.3. Validity of the allocation order and its implications on the transaction.4. Applicability of previous Supreme Court rulings on inter-State sales.5. Adjustment of tax already paid by the State Trading Corporation (STC) against the assessee's tax liability.Issue-wise Detailed Analysis:1. Characterization of the Transaction as Inter-State Sale or Local Sale:The primary issue was whether the transactions involving the sale of natural rubber by the State Trading Corporation (STC) to the assessee constituted inter-State sales or local sales. The Assessing Officer concluded that the transactions were local sales taxable under the Tamil Nadu General Sales Tax Act, despite the assessee's argument that the goods moved from Chennai to Kottayam and Goa, thus qualifying as inter-State sales. The Tribunal agreed with the Assessing Officer, noting that the movement of goods was not an integral part of the sale contract but rather a post-sale activity initiated by the assessee.2. Assessment of Tax Liability:The Tribunal confirmed that the transactions were local sales, and the assessee was liable to pay tax under the Tamil Nadu General Sales Tax Act. The Tribunal observed that the payment of 4% tax under the Central Sales Tax Act by STC did not alter the character of the transactions. The Tribunal emphasized that the responsibility of STC ceased once the goods were delivered ex-godown, and there was no obligation for STC to move the goods inter-State.3. Validity of the Allocation Order:The Tribunal examined the allocation order and the remittance slips, which did not explicitly indicate an inter-State movement of goods. The Tribunal noted that the allocation order stipulated that the goods were to be used in the assessee's own unit and not sold or utilized by any other party or unit. The Tribunal found no evidence of a contract or agreement specifying that the goods were to be moved inter-State as part of the sale.4. Applicability of Previous Supreme Court Rulings:The Tribunal referred to Supreme Court rulings, including [1992] 87 STC 196 (Commissioner of Sales Tax Vs. B.L.Kailash Chand Arhti (S.C.)) and [2007] 7 VST 214 (State of Orissa Vs. K.B.Saha & Sons Industries Pvt. Ltd.), to determine the nature of the transactions. The Tribunal concluded that the movement of goods must be an integral part of the sale contract to qualify as an inter-State sale. Since the movement of goods in this case was a post-sale activity initiated by the assessee, the transactions were deemed local sales.5. Adjustment of Tax Already Paid:The Tribunal acknowledged that STC had collected 4% tax under the Central Sales Tax Act and remitted it to the State. The Tribunal directed that the 4% tax already paid by STC should be adjusted against the assessee's tax liability, and the assessee should only be liable for the differential tax of 1% under the Tamil Nadu General Sales Tax Act. This adjustment was in line with the decision reported in [1990] 77 STC 162 (Trichur Cotton Mills Limited Vs. State of Tamil Nadu).Conclusion:The Tribunal upheld the assessment orders, confirming that the transactions were local sales taxable under the Tamil Nadu General Sales Tax Act. The Tribunal directed the adjustment of the 4% tax already paid by STC against the assessee's tax liability, resulting in a differential tax liability of 1% for the assessee. The appeals filed by the assessee for the assessment years 1989-90 and 1991-92 were dismissed, and the connected miscellaneous petitions were also dismissed.