2021 (3) TMI 1129 - HC - VAT / Sales Tax

Export Sales Exempt from State Taxes: Court Rules State Lacks Power to Tax Export Transactions, Orders Set Aside.

The HC concluded that Section 3(4) of the TNGST Act is inapplicable to export sales, affirming that the State lacks legislative competence to levy taxes ... Levy of Sales Tax - Export sale - Whether the 'export sale' will also be a 'sale' which does not attract the levy of tax under Section 3(4) of the Act? - HELD THAT:- This writ petition has been answered against the assessee in the decision of the Hon'ble Division Bench of this Court in the case of TUBE INVESTMENTS OF INDIA LTD. (FORMERLY KNOWN AS M/S. TI DIAMOND CHAIN LTD.) VERSUS THE STATE OF TAMIL NADU, REPRESENTED BY THE COMMERCIAL TAX OFFICER [2010 (10) TMI 938 - MADRAS HIGH COURT] where it was held that Section 3(4) of the Act will have no application since situs of the export sales of the petitioners for the purpose of said Section was the State of Tamilnadu and by virtue of the said factual position, the applicability of Section 3(4) stands excluded for the exigibility of tax. The questions are accordingly answered in favour of the petitioners/assessee. Petition dismissed. Issues Involved:1. Applicability of Section 3(4) of the Tamil Nadu General Sales Tax Act (TNGST Act) to export sales.2. Legislative competence of the State to levy tax on export sales.3. Interpretation of 'sale' under Section 2(n) of the TNGST Act in the context of export sales.4. Relevance of previous judgments and their applicability to the current case.Detailed Analysis:1. Applicability of Section 3(4) of the TNGST Act to Export Sales:The court examined whether Section 3(4) of the TNGST Act applies to export sales. The Division Bench in Tube Investments of India Ltd. Vs. State of Tamil Nadu had previously held that the imposition of tax under Section 3(4) on export sales contradicts the Constitutional restriction under Article 286. The court reiterated that the State lacks the legislative competence to levy any tax on export sales, and thus, any indirect tax liability on inputs purchased for export sales cannot be recognized.2. Legislative Competence of the State to Levy Tax on Export Sales:The court emphasized the paramount principle that the Constitution restricts the State from levying tax on export sales. The decision in Tube Investments of India Ltd. affirmed this by stating that the imposition of tax under Section 3(4) on export sales would run counter to the intention of the Parliament and cannot be countenanced.3. Interpretation of 'Sale' under Section 2(n) of the TNGST Act in the Context of Export Sales:The court analyzed the definition of 'sale' under Section 2(n) of the TNGST Act and its Explanation 3(a). It was held that the export sale is fully covered by the definition of 'sale' within the State. The court concluded that the goods manufactured by availing the concessional rate of tax under Section 3(3) are deemed to be within the State, and thus, export sales are also considered sales under the Act. Consequently, the application of Section 3(4) is excluded for export sales.4. Relevance of Previous Judgments and Their Applicability to the Current Case:The court discussed various precedents, including the Supreme Court's decision in State of Karnataka vs. B.M. Ashraf & Co., which dealt with similar issues under the Karnataka General Sales Tax Act. However, the court clarified that the judgment in Ashraf's case cannot be applied mutatis mutandis to the current case due to differences in the statutory provisions. The court also referred to other judgments, such as Polestar Electronic (Pvt.) Ltd. vs. Additional Commissioner, Sales Tax, and Printers (Mysore) Ltd. vs. Asstt. Commercial Tax Officer, to support its interpretation that the export sale qualifies as a sale within the State for the purposes of the Act.Conclusion:The court held that Section 3(4) of the TNGST Act does not apply to export sales, as the situs of the export sales for the purpose of the said Section was within the State of Tamil Nadu. The impugned orders were set aside, and the writ petition was dismissed. The questions were answered in favor of the petitioners/assessee, and no costs were awarded.