2017 (7) TMI 667 - HC - VAT and Sales Tax

Court quashes assessment order, clarifies petitioner's logistic service provider role

M/s WS Retail Services Private Limited Versus Union of India and others

The court quashed the assessment order and demand notices, remanding the matter for fresh assessment by the Excise & Taxation Officer (ETO). It ... Levy of turnover tax - inter state sale - PVAT Ac, 2005 - whether the petitioner had traded in goods as defined under the PVAT Act? - Held that: - There is no dispute that the articles dealt with by the petitioner fall within the meaning of the word “goods” as defined in section 2(k) of the PVAT Act - the ETO proceeded almost entirely, on the basis that the goods were brought into the State of Punjab through the ICC and that in Form VAT-36 the petitioner mentioned its TIN. This fact, according to the ETO, established that the petitioner had imported the goods to Punjab without anything more and sold the same only thereafter to various customers. Thus, according to the ETO, the petitioner sold the goods in the State of Punjab and that the sales were not inter-state sales as contended by the petitioner. This, in our view, was a fundamental error. Whether the logistics partner is a trader? - Held that: - The WS Retail Services Private Limited, the logistics provider is a registered taxable person under the Punjab VAT Act, 2005 holding TIN 03392097512. The taxable person has imported the goods on its TIN. The taxable person does not have any physical stock or stock in the books of such imports made. Further, it has exported goods in the course of interstate trade and commerce. Thus, the taxable person is a legitimate trader - For continuously three years the goods were being imported into the State of Punjab on the Tax Identification Number (TIN). The dealer has no stock of the goods with him in his books. Hence, it is very clear that all the goods have been sold in the State of Punjab on which the dealer is liable to pay tax. Whether the taxable person be taxed? - Held that: - The data of the Department clearly shows that the taxable person has imported the goods on its TIN. If the goods have been imported by the taxable person, then it would have disposed off also by the taxable person. It is the taxable person who has dispatched the taxable goods to the end consumer. The consumer is in the State of Punjab. Most of the transactions made by the end users are on the basis of cash on delivery. The taxable person has also received the consideration for the goods sold to the end user - the transaction is a legitimate sale by the taxable person within the State of Punjab and hence, the person is liable to be taxed. Whether the sale occurred within the State of Punjab? - Held that: - In this case, it is clear that the goods were imported by the taxable person to sell in the State of Punjab. Hence, all the Sales except clearly mentioned as exports as per ICC data have occurred within the State of Punjab. Where does the property in the goods transferred (sic transfer) to the buyer? - Held that: - The assessment order has not considered any of the principles discussed elaborately in the above authorities. We will assume that the authorities were not brought to the notice of the ETO. The assessment order has proceeded on a basis which is contrary to these principles. We hasten to add that as stated in the assessment order it is also possible that the entire material was not produced before the ETO. Upon remand, it would be necessary for the Assessing Officer to consider the material in the light of the above principles and authorities. Isn’t the e-commerce website a virtual showroom? - Held that: - It matters not where the sale was ultimately concluded while determining whether it is an inter-state sale or not. Even assuming that the sale was finally concluded in the State of Punjab, so long as the sale caused the movement of goods from another State to the State of Punjab, it would be an inter-state sale. If the petitioner’s case, which we have already referred to in some detail, is correct the sales effected by it would constitute inter-state sales and fall within the ambit of the Central Sales Tax, 1956. If the dealer has acted as a logistics partner, then can we tax him? - Held that: - The question has not been answered. The assessment order does not hold the petitioner liable for tax in respect of the sales by other vendors to purchasers in respect whereof it rendered services as a logistic provider. As a logistic provider the petitioner only facilitated the transport and delivery of goods by the vendors to the purchasers. It did not have any proprietary interest in these goods - if the transactions are as suggested by the petitioner and as set out in detail by us earlier, the sales would be in the course of inter-state trade and commerce. It is for the petitioner to establish the same. If on the other hand the goods were first imported into the State of Punjab without anything more and the petitioner entered into the transactions of sale with its purchasers thereafter they would not constitute sales in the course of inter-state trade and commerce. Further, where it is established that the petitioner acted only as a logistic provider, the petitioner would not be liable under the VAT Act - It would be necessary for the ETO to consider the transactions afresh. The ETO must in other words assess the documents already furnished and the documents that may hereafter be furnished. The impugned assessment order and the demand notices issued pursuant thereto are quashed and set-aside - The matter is remanded to the ETO for passing a fresh assessment order in accordance with law - petition allowed by way of remand. Issues Involved:1. Legitimacy of the assessment order and demand notice.2. Nature of transactions and applicability of Central Sales Tax (CST) vs. Punjab Value Added Tax (PVAT).3. Jurisdiction and procedural compliance by the Excise & Taxation Officer (ETO).4. Classification of online transactions as inter-state sales.5. Role and liability of the petitioner as a logistic service provider.Detailed Analysis:1. Legitimacy of the Assessment Order and Demand Notice:The petitioner sought to quash two show cause notices, an assessment order, and a demand notice. The assessment order dated 03.08.2015 was made under section 29(2) of the PVAT Act for the accounting year 2012-13. The tax demand notice dated 18.08.2015 directed the petitioner to pay Rs. 55,21,230/- pursuant to the assessment order, which assessed the balance tax due at Rs. 1,30,84,500/-. Interest and penalty were also levied under sections 32, 56, and 60 of the PVAT Act. The court quashed the impugned assessment order and demand notices, remanding the matter to the ETO for fresh assessment in accordance with the judgment.2. Nature of Transactions and Applicability of CST vs. PVAT:The petitioner, engaged in online trading through www.flipkart.com, contended that the goods sold and transported to Punjab were subject to CST in the originating state, as they were inter-state sales. The ETO, however, treated these transactions as local sales within Punjab, thereby subjecting them to PVAT. The court highlighted that the movement of goods from one state to another due to a sale contract constitutes an inter-state sale under the CST Act, irrespective of where the property in goods passes. The court referred to multiple Supreme Court judgments affirming that inter-state movement of goods resulting from a sale contract qualifies as an inter-state sale.3. Jurisdiction and Procedural Compliance by the ETO:The ETO's assessment was based largely on the petitioner’s TIN being mentioned in the ICC data, which the ETO interpreted as evidence of local sales within Punjab. The court found this to be a fundamental error, emphasizing that mentioning the TIN in FORM VAT-36 was a procedural requirement for smooth passage of goods, not indicative of local sales. The court also noted that the assessment order did not consider several legal principles and precedents regarding inter-state sales.4. Classification of Online Transactions as Inter-State Sales:The court noted that the petitioner’s business model involved goods being sold online, dispatched from warehouses outside Punjab, and delivered to customers in Punjab. The invoices indicated the originating state and CST paid there. The court reiterated that sales causing the movement of goods from one state to another are inter-state sales under the CST Act. The court referenced multiple judgments, including Oil India Limited vs. Superintendent of Taxes and others, and English Electric Company of India Ltd. Vs. Deputy Commercial Tax Officer, which support the classification of such transactions as inter-state sales.5. Role and Liability of the Petitioner as a Logistic Service Provider:The petitioner also provided logistic services under the brand 'ekart,' facilitating the transport and delivery of goods sold by other vendors. The court clarified that as a logistic provider, the petitioner was not liable for tax under the PVAT Act for these transactions, as it did not have proprietary interest in the goods. The court directed the ETO to reassess the transactions, distinguishing between the petitioner’s role as a seller and a logistic provider.Conclusion:The court quashed the impugned assessment order and demand notices, remanding the matter to the ETO for fresh assessment, considering the principles of inter-state sales under the CST Act and the petitioner’s dual role as a seller and logistic provider. The ETO was directed to reassess the documents in light of the judgment and legal precedents.