2020 (3) TMI 143 - HC - VAT and Sales Tax

Court quashes assessment orders under CST Act, sets aside TNGST Act orders, remits cases for tax determination.

The court quashed the assessment orders under the CST Act and set aside the orders under the TNGST Act, remitting the cases for proper taxability ... Del credere agent - dealer - sale - deemed sale through a mercantile agent - place of sale - intra state v. inter state determination - remand for factual determination of taxabilityDel credere agent - dealer - deemed sale through a mercantile agent - Whether the petitioner, acting as a del credere agent, falls within the statutory definition of 'dealer' under the TNGST Act, 1959 and the CST Act, 1956 and thus can be subjected to tax. - HELD THAT: - The Court found on the material and authorities that a del credere agent, who for extra remuneration guarantees the solvency/performance of buyers and thereby assumes contingent pecuniary liability, is captured by the inclusive definitions of 'dealer' in both enactments. Explanation (1-B) to Section 2(n) of the TNGST Act specifically deems transfers effected through a del credere agent or other mercantile agents to be a purchase or sale by such agent for the purposes of that Act. Having regard to the character of a del credere agent (guarantee of payment, collection and handing over of proceeds to principal) and the statutory language, the petitioner was held to be a dealer within the meaning of the respective enactments. [Paras 17, 21, 27, 32, 33]The petitioner acting as a del credere agent is a 'dealer' under the TNGST Act, 1959 and the CST Act, 1956.Sale - place of sale - intra state v. inter state determination - remand for factual determination of taxability - Whether the transactions in question constitute a 'sale' taxable in Tamil Nadu (i.e., goods being within the State at the time of sale) or are interstate sales liable in the State of despatch, and whether the impugned assessments correctly determined taxability. - HELD THAT: - The Court analysed the statutory tests for 'sale' - transfer of property in goods in the course of business for consideration - and the deeming provisions. In particular, Explanation (3)(a) to Section 2(n) of the TNGST Act was held to make taxability depend on whether the goods were ascertained and within Tamil Nadu at the time of contract/appropriation. The petitioner produced invoices indicating direct dispatch from the principal outside the State, raising factual questions whether the goods were within Tamil Nadu when contracts were made or appropriated. Those questions of fact - whether supplies originated from Gujarat (making them interstate sales taxable in the State of despatch/principal) or from within Tamil Nadu (attracting intra state tax and potentially resale tax in the hands of the agent) - could not be resolved on the writ and required adjudication by the assessing authority. Accordingly, the Court refrained from deciding taxability on merits and directed factual verification by the authority. [Paras 34, 35, 36, 37, 38]Taxability depends on the factual question whether the goods were within Tamil Nadu at the time of sale/appropriation; that factual issue is remitted to the assessing authority for determination.Remand for factual determination of taxability - Appropriate relief to be granted in respect of the impugned assessment orders under the CST Act and the TNGST Act. - HELD THAT: - Applying the legal conclusions above, the Court concluded that where the transactions are shown to be interstate (originating outside Tamil Nadu) the petitioner cannot be made liable under the TNGST Act. Given outstanding factual issues, the Court interfered with the orders to the extent necessary: the impugned orders passed under the Central Sales Tax Act, 1956 were quashed, while the impugned orders under the Tamil Nadu General Sales Tax Act, 1959 were set aside and remitted to the respondent for fresh determination in the light of the observations in the judgment. The assessing authority was directed to decide the matter after hearing the petitioner within three months. [Paras 39]Orders under the CST Act are quashed; orders under the TNGST Act are set aside and remitted to the respondent for fresh determination of taxability after factual enquiry and hearing within three months.Final Conclusion: Writ petitions allowed in part: the Court held that a del credere agent is a 'dealer' under the relevant Acts, but factual determination is required to decide whether the sales were intra state (taxable in Tamil Nadu) or interstate (taxable in the State of despatch). Consequently, CST assessments were quashed and TNGST assessments were set aside and remitted for fresh decision in accordance with the Court's observations within three months, after hearing the petitioner. Issues Involved:1. Challenge to assessment orders under TNGST Act, 1959 and CST Act, 1956.2. Legitimacy of tax demand on the petitioner as a Del Credere agent.3. Applicability of Supreme Court precedents.4. Definition and scope of 'dealer' and 'sale' under TNGST and CST Acts.5. Determination of intra-state vs. inter-state sales.Detailed Analysis:1. Challenge to Assessment Orders:The petitioner challenged the assessment orders passed by the Commercial Tax Officer, Trichy, for the assessment years 2002-2003 and 2003-2004 under the TNGST Act, 1959 and CST Act, 1956. The respondent demanded tax on the ground that the petitioner, being a dealer, failed to pay the disputed tax.2. Legitimacy of Tax Demand:The petitioner argued that the respondent had no authority to levy tax as the sales took place from the principal's location in Mumbai or its branch office, which had already paid CST/TNGST. The impugned orders held the petitioner liable as a Del Credere agent for Reliance Industries Ltd., asserting that the tax liability was on the principal, and the petitioner merely acted as an agent receiving commission.3. Applicability of Supreme Court Precedents:The petitioner relied on the Supreme Court decision in Peninsular Traders and Another Vs. Deputy Commissioner of Sales Tax (Law), Kerala, which identified the agreement as one of agency without transfer of property. The respondent countered that this decision was distinguishable and relied on other Supreme Court decisions like Alwaye Agencies Vs. Dy. Commissioner of Agricultural Income Tax and Sales Tax, and Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer, Bhopal, emphasizing the distinction between agency and sale contracts.4. Definition and Scope of 'Dealer' and 'Sale':The court examined the definitions under the TNGST and CST Acts:- Dealer: Includes any person who carries on the business of buying, selling, supplying, or distributing goods, including Del Credere agents.- Sale: Defined as every transfer of property in goods for cash, deferred payment, or other valuable consideration, including transactions through Del Credere agents.The court noted that the definitions in the respective enactments are inclusive and expansive, covering various forms of transactions.5. Determination of Intra-State vs. Inter-State Sales:The court emphasized that the determination of whether a sale was intra-state or inter-state is a mixed question of fact. It was noted that if the goods were transferred directly from the principal in Gujarat, the transaction would be an inter-state sale, taxable in Gujarat. However, if the goods were supplied from within Tamil Nadu, the petitioner would be liable for re-sale tax under the TNGST Act.Conclusion:The court quashed the impugned orders under the CST Act and set aside the orders under the TNGST Act, remitting the cases back to the respondent for proper determination of taxability. The respondent was directed to pass appropriate orders within three months, considering the observations made. The writ petitions were allowed or disposed of accordingly, with no costs and closure of connected miscellaneous petitions.Orders:1. W.P.Nos.37567 & 32110 of 2007 are allowed.2. W.P.Nos.37568 & 32111 of 2007 are disposed.3. No cost.4. Consequently, connected Miscellaneous Petitions are closed.