2015 (1) TMI 591 - HC - VAT and Sales Tax

High Court affirms Tribunal decision on set-off rule; Sales Tax Act interpretation clarified

M/s. Milan Supari Co. Pvt. Ltd. Versus The Commissioner of Sales Tax

The High Court upheld the Tribunal's decision that set-off under Rule 42-H of the Bombay Sales Tax Rules, 1959, is not applicable for goods sold against a ... Admissibility of set off - Whether the Tribunal was justified in holding that set off under Rule 42-H of the Bombay Sales Tax Rules, 1959 is not admissible if the goods sold are covered by a declaration in Form N-14B – Held that:- The Tribunal rightly noted that the Assessee before it had effected sale of Schedule 'C' goods against Form 'N14B' - That Form is prescribed in relation to the goods which have been procured from another dealer who sold them in the course of export, out of the territory of India within the meaning of Section 5(3) of the CST - That Form is prescribed by virtue of Rule 21A - That is a Form of a certificate to be furnished by a dealer in support of his claim for exemption in respect of sales deemed to be in the course of export, out of the territory of India - a dealer may make a claim that he is not liable to pay tax under the BST in respect of his sale of goods on the ground that the sale of such goods is a sale in the course of export of the goods out of the territory of India within the meaning of SubSection (3) of Section 5 of the CST - He can therefore produce a certificate in the Form along with evidence of export of such goods and claim exemption in respect of the liability to pay the Sales Tax - the sales and purchases which are not liable to tax under the BST by virtue of Section 75 have been rightly excluded or taken out of the purview of Rule 42-H and that is the only interpretation which can be placed on the said Rule - If one peruses Section 5 and particularly Sub Section (1) and SubSection (3) of the CST together with Section 75 of the BST, Rule 21A of the Bombay Sales Tax Rules, Form N-14B harmoniously and together, it would be apparent that what is not within the purview of the BST can never be brought in for the purposes of claiming a deduction or set-off under Rule 42H. In respect of the amount of tax payable by registered dealer on his sales or goods on which deduction under Section 8(1) has been not allowed is a case of the registered dealer to whom the BST was applicable - If it was applicable because the sale was not a sale which was beyond the purview or reach of the BST, it is to enable such a dealer to claim the drawback, set off etc. on goods purchased by him and liable for value added Sales Tax that Rule 42H was worded accordingly - once again the explanation appears in Rule 42H and after 1st April, 1999 is because a similar case of dealer holding a trademark or patent was before the legislature – there is no reason to interfere in the order of the Tribunal – Decided against petitioner assessee. Issues Involved:1. Justification of the Tribunal's decision regarding set-off under Rule 42-H of the Bombay Sales Tax Rules, 1959.2. Interpretation of Rule 42-H with respect to the absence of Explanation II during the relevant period.3. Applicability of Form N-14B in claiming set-off under Rule 42-H.4. Impact of Section 5(3) of the Central Sales Tax Act, 1956 on the eligibility for set-off under Rule 42-H.5. Examination of the Tribunal's conclusions and the legal basis for the same.Detailed Analysis:1. Justification of the Tribunal's Decision Regarding Set-Off Under Rule 42-H:The Tribunal was tasked with determining if the set-off under Rule 42-H of the Bombay Sales Tax Rules, 1959, is admissible when goods sold are covered by a declaration in Form N-14B. The Assessee, a registered dealer under both the Bombay Sales Tax Act, 1959, and the Central Sales Tax Act, 1956, claimed set-off for the period from 1st April 1996 to 31st March 1997. The Tribunal upheld the disallowance of set-off for sales against Form N-14B, which was challenged by the Assessee.2. Interpretation of Rule 42-H with Respect to the Absence of Explanation II During the Relevant Period:The Assessee argued that the absence of Explanation II in Rule 42-H during the period from 1st October 1995 to 31st March 1999 should have been considered by the Tribunal. The Tribunal, however, did not find this argument compelling. The explanation was deemed not crucial for interpreting Rule 42-H for the relevant period, as the rule itself was clear in its application and intent.3. Applicability of Form N-14B in Claiming Set-Off Under Rule 42-H:Form N-14B is prescribed under Rule 21A for claiming exemption from sales tax on goods sold in the course of export out of India. The Tribunal noted that sales against Form N-14B are related to goods procured from another dealer for export, which are outside the purview of the Bombay Sales Tax Act. Hence, such sales cannot be considered for set-off under Rule 42-H, which is meant for goods liable for value-added sales tax under Schedule 'C'.4. Impact of Section 5(3) of the Central Sales Tax Act, 1956 on the Eligibility for Set-Off Under Rule 42-H:Section 5(3) of the Central Sales Tax Act, 1956, deems the last sale or purchase preceding the export of goods as part of the export process, thus exempting it from sales tax. The Tribunal and the Court interpreted this to mean that sales covered under Section 5(3) are not liable for sales tax under the Bombay Sales Tax Act and therefore cannot be considered for set-off under Rule 42-H. This interpretation aligns with Section 75 of the Bombay Sales Tax Act, which excludes such transactions from the tax purview.5. Examination of the Tribunal's Conclusions and the Legal Basis for the Same:The Tribunal's conclusions were based on a thorough examination of Rule 42-H, Section 5 of the Central Sales Tax Act, and Section 75 of the Bombay Sales Tax Act. The Tribunal correctly interpreted that sales against Form N-14B, being in the course of export, are not subject to the Bombay Sales Tax and thus not eligible for set-off under Rule 42-H. The Court upheld this interpretation, finding no error in the Tribunal's judgment. The reference was answered in favor of the Revenue, affirming the Tribunal's decision.Conclusion:The High Court upheld the Tribunal's decision, concluding that the set-off under Rule 42-H of the Bombay Sales Tax Rules, 1959, is not admissible for goods sold against a declaration in Form N-14B. The absence of Explanation II during the relevant period did not alter the interpretation of Rule 42-H. Sales covered by Section 5(3) of the Central Sales Tax Act, 1956, are outside the purview of the Bombay Sales Tax Act and therefore not eligible for set-off. The Tribunal's judgment was found to be legally sound and was affirmed by the Court.