2016 (11) TMI 214 - HC - VAT and Sales Tax

Interstate LPG Sales Exempt from Tax Despite Amendment: Court Upholds Decision

State of Gujarat Versus Reliance Industries Limited

The Court upheld the Tribunal's decision that interState sales of LPG for domestic use remained exempt from tax under section 8(1) of the CST Act, despite ... Levy of tax u/s 8(1) of the CST Act - Inter-State sale of LPG - it was contended that, no tax could be levied on interState sales of LPG since the local sales thereof are exempt from payment of tax - Held that: - The term “rate of tax” used in the proviso and “rate applicable” in the main body of subsection( 1) of section 8 must receive similar interpretation. Further, under subsection( 2) of section 8, it is provided that tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of interState trade or commerce but not falling within the subsection( 1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State. In contrast to subsection( 1), thus subsection( 2) does not provide for the lower of the two tax rates, 2% as prescribed for interState sales generally or the rate that may be prescribed by the local Sales Tax law. It prescribes only one rate of tax namely, that which is applicable to the sale or purchase of goods in question within the State on the local sales. There is therefore, no warrant to interprete the expression “rate applicable to the sale or purchase of such goods” used in subsection( 1) of section 8 as to mean the prescribed rate and not the rate which may be applicable taking into account the exemption totally or partially that may have been granted by the State Government. The expression “within the State of Gujarat” does not aim to collect tax on interState sale. In fact, learned Advocate General also stated that this could not be and is not even the intention of the State legislation - we do not find that the amended entry 69 is in any way unconstitutional or outside the legislative competence of the State delegated legislation. Our interpretation and the order of dismissing the appeal would take care of other prayers of the petitioner in the Special Civil Application. Same is disposed of accordingly - appeal dismissed - decided against Revenue. Issues Involved:1. Application of Entry 69 vs. Entry 55 of the Exemption Notification under section 5(2) of the Gujarat Value Added Tax Act, 2003.2. Impact of the amendment to Entry 69 effective from 3.10.2008 on intraState and interState sales of LPG.3. Liability of the respondent assessee to pay tax under section 8(1) of the CST Act post-amendment to Entry 69.Detailed Analysis:1. Application of Entry 69 vs. Entry 55 of the Exemption Notification:The primary issue was whether the Tribunal erred in applying Entry 69 instead of Entry 55 to the interState sale of LPG. The Court noted that Entry 69 specifically pertained to 'Sales of Liquified Petroleum Gas (LPG) for domestic use' and was amended to include 'by the consumers of the State' from 3.10.2008. Entry 55, on the other hand, covered goods declared as of special importance under section 14 of the CST Act, limiting the tax to 5%. The Court concluded that Entry 69, being specific to LPG, would prevail over the general Entry 55. Therefore, the Tribunal did not err in applying Entry 69.2. Impact of the Amendment to Entry 69 Effective from 3.10.2008:The amendment added the words 'by the consumers of the State' to Entry 69. The State VAT authorities interpreted this to mean that the exemption from tax applied only to intraState sales and not to interState sales. The Tribunal, however, held that the State Government could not levy tax on interState sales by simply amending the entry. The Court agreed with the Tribunal’s interpretation, stating that section 8(1) of the CST Act, post-1.4.2007, does not distinguish between conditional and unconditional exemptions under the VAT Act. Thus, the amendment did not affect the exemption from CST on interState sales of LPG.3. Liability of the Respondent Assessee to Pay Tax Under Section 8(1) of the CST Act Post-Amendment:The Court examined the legislative amendments and statutory provisions, particularly section 8(1) of the CST Act, which provides that interState sales to registered dealers would be taxed at 2% or the rate applicable to intraState sales, whichever is lower. The Court noted that prior to the amendment effective from 1.4.2007, it was possible for States to exempt local sales while still taxing interState sales. However, post-amendment, this distinction was removed. The Court concluded that the amendment to Entry 69 did not result in the liability of the respondent assessee to pay CST on interState sales of LPG, as the local sales were exempt from tax.Conclusion:The Court dismissed the State’s appeal, upholding the Tribunal’s judgment that the interState sales of LPG for domestic use would continue to be exempt from tax under section 8(1) of the CST Act, even after the amendment to Entry 69. The Court also dismissed the Special Civil Application, finding no unconstitutionality in the amended entry. The request for a stay of the judgment was rejected.