2014 (5) TMI 609 - HC - VAT and Sales Tax

Court rules duty drawback not part of taxable turnover under Sales Tax Act, upholds penalty deletion

The State of Tamil Nadu rep. By the Deputy Commissioner (CT) Versus Garware Wall Ropes

The High Court allowed the assessee's revisions, ruling that duty drawback received under the Customs and Central Excise Duties Drawback Rules, 1971, ... Validity of Tribunal Order - Includibility of duty drawback in Total Turnover - Rule 3 of the Customs and Central Excise Duties Drawback Rules, 1971 'sale price', 'turnover', Explanation 2 to Section 2(r) and 'sale' in Section 2(n) of Tamil Nadu General Sales Tax Act – Notification - Whether the duty drawback received could be treated as part of sale consideration to fall under 'turnover' – Deletion of penalty - u/s 16(2) – Held that:- Sale being a bilateral transaction, all expenses incurred by the dealer to put the goods in a deliverable state alone form part and parcel of the selling price - Post sale expenses incurred like freight and cost of installation, separately charged for after the sale of the goods, are excluded from price - The levy of tax being on the sale of goods and the turnover being the aggregate amount for which goods are brought or sold, the Act seeks to take note of only such of those receipts received by the vendor from the purchasers in connection with the sale and nothing beyond - This means, any amount received by an assessee from any other party, not connected with the sale, cannot be brought within the definition of 'turnover' for assessing the same under the provisions of the Act. Relying upon NEYVELI LIGNITE CORPORATION LTD v. CTO [2001 (9) TMI 926 - SUPREME COURT OF INDIA] - Where the receipt is from any third party who has nothing to do with the sale and the payment has no relevance or reference to the sale, the same could not form part of the sale transaction; hence, there is no question of including the same under the head of 'turnover' - The includability of any payment received by a dealer as part of the sale transaction depended on the fact as to whether the payment has any relevance to the contract of sale to treat the receipt as part of the sale consideration - As the definition of turnover, total turnover and sale go, it is only those payments made by the purchaser, including those liability of the seller that the purchaser undertakes to discharge on behalf of the vendor, can be treated as the amount for which goods are bought or sold or supplied - Post-sale freight separately charged for in the bill would not form part of the turnover. The excise duty element was only on the intermediary product and that there was no duty on the final product falling under Sub Heading No. 56.07 in terms of Notification No. 61/87 C.E. dated 01.03.1987 - When the duty drawback was as per the scheme given under the Excise and Customs Rules and that there was no agreement between the purchaser and the seller on the aspect of duty drawback and it never received any consideration and rightly so in the sale effected, the question of roping in those receipts from the Government of India long after the sale does not arise, to be included in the turnover for the purpose of assessment - The difference in price charged by the assessee in respect of sale to coastal vessels and to the foreign going vessels has no relevance at all and it is not the decisive factor in considering the question of taxability of the receipt - So long as the assessee was able to show that the receipt was as per the provisions of Central Excise and Customs Act and the Rules made thereunder with reference to export of goods manufactured from out of duty suffered goods, and the transaction thus answer the definition of 'export' as given under the Duty Drawback Rules, the State is not justified in taxing this receipt as part of the turnover - Order of Tribunal set aside and the revisions are allowed - As far as the penalty aspect is concerned, in the light of the order passed by this Court, Revision filed by the Revenue fails – Decided in favour of Assessee. Issues Involved:1. Deletion of Penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act.2. Inclusion of Duty Drawback in the Turnover under Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959.Detailed Analysis:1. Deletion of Penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act:The Revenue's appeal in TC(R). No. 717 of 2006 questioned the Tribunal's decision to delete the penalty levied under Section 16(2) of the Tamil Nadu General Sales Tax Act. The Tribunal's rationale was that the issue was arguable, and there was no lack of bona fides on the part of the assessee. Consequently, the Tribunal set aside the penalty for the assessment years 1987-88 to 1989-90 and 1990-91. The High Court upheld this decision, noting that the penalty was not justified given the arguable nature of the issue and the bona fide conduct of the assessee.2. Inclusion of Duty Drawback in the Turnover under Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959:The primary issue in TC(R).Nos.1604, 1690, and 1866 of 2008 was whether the duty drawback received by the assessee should be included in the turnover under Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959. The assessee, a dealer in nylon ropes, received duty drawbacks for exporting goods manufactured from duty-paid imported raw materials. The Assessing Officer included these duty drawbacks in the taxable turnover, a decision upheld by the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal.The High Court examined the statutory framework, including Section 75 of the Customs Act, 1962, and the Customs and Central Excise Duties Drawback Rules, 1971. The Court noted that the duty drawback is a rebate on duties paid on imported materials used in manufacturing exported goods. It emphasized that the duty drawback is linked to export activities and not to local sales or the sale price charged to buyers.The Court referred to several precedents, including the Supreme Court's rulings in Neyveli Lignite Corporation Ltd. v. CTO, E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes, and Indian Aluminium Cables Ltd. v. Commissioner of Sales Tax. These cases established that subsidies or rebates not forming part of the sale consideration could not be included in the taxable turnover.The Court concluded that the duty drawback received by the assessee had no causal connection to the sale transaction and was not part of the sale consideration. It held that the duty drawback, being a post-sale event and unrelated to the sale price, could not be included in the turnover under the Tamil Nadu General Sales Tax Act. Consequently, the Court set aside the Tribunal's order and allowed the assessee's revisions.Conclusion:The High Court allowed the assessee's revisions, ruling that the duty drawback received under the Customs and Central Excise Duties Drawback Rules, 1971, could not be included in the taxable turnover under the Tamil Nadu General Sales Tax Act, 1959. The Court also upheld the Tribunal's decision to delete the penalty levied under Section 16(2) of the Act, finding no lack of bona fides on the part of the assessee.