2021 (4) TMI 414 - HC - VAT and Sales Tax

High Court upholds dealer's tax exemption under CST Act, citing compliance & contractual considerations.

State of Tamil Nadu rep. by The Joint Commissioner (CT) Versus Tvl. Takraf India Pvt. Ltd.

The High Court dismissed the tax case filed by the State, affirming the Tribunal's decision. The court found that the dealer had adequately demonstrated ... Levy of tax on the turnover pertaining to design engineering charges - interstate purchase or not - Revenue would contend that the Tribunal ought to have noted that the Form C declaration filed by the respondent dealer included tax portion also for the turnovers on which they had claimed exemption and hence it is conclusively established that the turnover is taxable in the State - HELD THAT:- The Tribunal held that the conditions specified in Section 6(2) of the CST Act have been satisfied by the dealer and faulted the Assessing Officer for disallowing the claim for exemption only on the ground that the dealer had collected tax whereas he had not rejected the declaration Form filed in support of the claim for exemption made on transit sales under Section 6(2) of the CST Act. Thus, the Tribunal rightly appreciated the factual position while upholding the order passed by the Appellate Authority and we find that the revenue has not made out any ground to interfere with the order passed by the Tribunal. There are no ground to interfere with the order passed by the Tribunal - the tax case is dismissed and the questions of law are answered against the revenue. Issues Involved:1. Disallowance of exemption on transit sales and assessment at 5.2%.2. Disallowance of exemption of design engineering charges at 5.7%.Detailed Analysis:1. Disallowance of Exemption on Transit Sales and Assessment at 5.2%The respondent, a registered dealer engaged in the dealership of machinery, was assessed to tax under the CST Act. The Assessing Officer issued a notice disallowing the exemption claimed on a turnover of Rs. 42,98,11,261.00 as transit sales covered under 'C' and 'E1' Forms. The officer argued that the respondent had purchased goods via interstate transactions for a project with M/s.Neyveli Lignite Corporation Limited (NLC) and transferred them to NLC, claiming exemption as transit sales while also collecting tax from NLC. The respondent contended that the purchases were local and eligible for resale tax of 1%. However, the Assessing Officer rejected this, stating that the respondent had not provided sufficient documentary evidence and confirmed the tax levy.The first appellate authority and the Tribunal found in favor of the dealer, who had provided comprehensive documentation, including invoices, material receipt certificates, and Form C declarations. The Tribunal noted that the conditions under Section 6(2) of the CST Act were satisfied, and the dealer had not collected tax on these transit sales but had reimbursed the CST paid. The Tribunal held that the Assessing Officer's disallowance was incorrect, as the dealer had substantiated the claim for exemption.2. Disallowance of Exemption of Design Engineering Charges at 5.7%The Assessing Officer also proposed to levy tax on design engineering charges, arguing that the dealer had not furnished the agreement with NLC and had collected tax on these charges. The respondent provided evidence that the billing was for supervision charges, not for the sale of goods, and included service tax elements. The first appellate authority and the Tribunal upheld the dealer's claim, stating that the transactions were eligible for exemption under Section 6(2) of the CST Act.The Tribunal examined the nature of the transactions and found that the dealer had complied with the necessary conditions for exemption. The Tribunal emphasized that the dealer had not collected tax on the design engineering charges but had shown them separately in the invoices to claim reimbursement at actuals, in line with the contractual obligations.Conclusion:The High Court dismissed the tax case filed by the State, affirming the Tribunal's decision. The court found that the dealer had adequately demonstrated compliance with the conditions for exemption under Section 6(2) of the CST Act. The court also referenced relevant case law, supporting the dealer's position that the collection of tax, if any, was part of the contractual consideration and not a basis for disallowing the exemption. The questions of law were answered against the revenue, and the Tribunal's order was upheld.