2016 (11) TMI 416 - SC - VAT and Sales Tax

State Bank of India not liable for purchase tax on Exim Scrips under Bengal Finance Act

Commercial Tax Officer & Others Versus State Bank of India & Another

Commercial Tax Officer & Others Versus State Bank of India & Another - 2016 (341) E.L.T. 481 (SC), [2017] 97 VST 1 (SC) Issues Involved:1. Liability of State Bank of India (SBI) to levy of purchase tax under Section 5(6a) of the Bengal Finance (Sales Tax) Act, 1941 for accepting Exim Scrips.2. Definition and treatment of Exim Scrips as 'goods.'3. SBI's role as an agent of the Reserve Bank of India (RBI).4. Applicability of Section 4(6)(iii) of the Act to SBI's transactions.5. Classification of SBI's activity as 'business' under the Act.6. Constitutional validity of Section 4(6)(iii) of the Act.Detailed Analysis:1. Liability of SBI to Levy of Purchase Tax:The court examined whether SBI, as a registered dealer under the Bengal Finance (Sales Tax) Act, 1941, was liable to levy of purchase tax for accepting Exim Scrips at a premium of 20% of their face value. The assessing officer initially levied purchase tax on SBI, which was upheld by the Assistant Commissioner and the Taxation Tribunal. However, the High Court of Calcutta quashed these orders, concluding that the purchase of Exim Scrips by SBI did not attract the provisions of Section 4(6)(iii) of the Act.2. Definition and Treatment of Exim Scrips as 'Goods':The court referred to the case of Vikas Sales Corporation v. Commissioner of Commercial Taxes, where it was held that REP Licences/Exim Scrips are goods and their transfer constitutes a sale. The High Court distinguished this case by stating that the Exim Scrips purchased by SBI were intended for cancellation and not for commercial transactions, thus reducing them to mere paper with no commercial value.3. SBI's Role as an Agent of RBI:The RBI issued a circular authorizing SBI to purchase Exim Scrips as its agent. The court highlighted that SBI acted on behalf of RBI to cancel the Exim Scrips, which were then forwarded to the Joint Chief Controller of Imports and Exports. This activity was not considered a purchase in the commercial sense but a process to remove the Exim Scrips from the market.4. Applicability of Section 4(6)(iii) of the Act:The court analyzed whether SBI's transactions fell under Section 4(6)(iii) of the Act, which imposes purchase tax on certain purchases. The High Court concluded that these transactions did not constitute purchases for resale or commercial use but were part of a mopping-up operation directed by RBI, thus not attracting the provisions of Section 4(6)(iii).5. Classification of SBI's Activity as 'Business':The tribunal had earlier held that SBI's activity of purchasing Exim Scrips constituted 'business' under Section 2(1a) of the Act. However, the High Court disagreed, stating that the transactions were a one-time affair, not part of SBI's regular business activities, and were conducted under RBI's instructions for a specific purpose.6. Constitutional Validity of Section 4(6)(iii) of the Act:The High Court did not find it necessary to address the constitutional validity of Section 4(6)(iii) of the Act, given its conclusion that SBI's transactions did not attract the provisions of this section.Conclusion:The Supreme Court upheld the High Court's judgment, concluding that SBI was not liable to levy of purchase tax under the Act for accepting Exim Scrips. The court emphasized that the transactions were conducted as an agent of RBI for the purpose of cancelling the Exim Scrips, and did not constitute a purchase in the commercial sense. Consequently, the appeal was dismissed, and the orders levying purchase tax on SBI were quashed.