2023 (3) TMI 687 - HC - VAT and Sales Tax

High Court confirms tax liability on turnover, rejects stock transfer exemption, and upholds penalty.

Tvl. S.L.N. Exports Versus The Secretary, Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), The Appellate Assistant Commissioner (CT) (Now designated as Appellate Deputy Commissioner), The Deputy Commercial Officer (Now designated as Commercial Tax Officer)

The High Court upheld the Tribunal's decision, dismissing the Tax Case and confirming the tax and penalty on the turnover of Rs.2,24,00,783/-. The Court ... Validity of order of tribunal in Review Appeal - Denial of benefit which was allowed earlier - Power to Review - Penultimate sale - Disallowance of claim of exemption and levy of penalty - Inter-State stock transfer of goods purchased for foreign country export - declaration accompanied with appropriate Form-H not present, instead goods were transferred accompanying Form-XX and Form-H only - also, dealer at Tamil Nadu for the purchase within Tamil Nadu from unregistered dealer and subsequent transfer of goods to its Branch Office, has not produced agreement or order for or in relation to such export, which is mandatory for giving exemption from tax under Section 5(3) of CST Act, 1956. HELD THAT:- On review the Tribunal has found that the reasoning given by the Appellate Authority is incorrect and the judgment cited by the dealer and relied by the Appellate Authority are not relevant. It held that the Appellate Authority has come to an erroneous conclusion that the purchase within the State of Tamil Nadu and transport of the coffee seeds to Karnataka are not two distinct acts of the dealer and it has to be considered as inseparable continuous action. The Tribunal has taken note of the fact that the dealer has raised purchase bills while procuring coffee seeds from the planters in Tamil Nadu and thereafter, the goods were transported to the Branch Office at Kushal Nagar, Karnataka, under Form-XX Delivery Note issued to the dealer in the State of Tamil Nadu. Therefore, the contention of the dealer as well as the reasoning of the Appellate Authority was held to be factually incorrect - The actual portion of the raw seeds procured in Tamil Nadu, transported to Karnataka and thereafter, exported to foreign after processing, has not been specifically stated under Form-H, which would reflect the quantum of the seeds procured actually transported to the foreign countries. In the absence of purchase order from the Karnataka Branch and export order from foreign buyer or contract between foreign buyer and Karnataka Unit, exemption cannot be granted to the dealer. On considering the order passed in Review Appeal, it is found that a new fact on verifying the CST files of the assessee, the inconsistent stand of the assessee under the State Act and the Central Act has come to light. This is not a case of intra-State transaction or transfer of goods uninterrupted to the exporter, based on specific agreement for export. The legal position of transaction of this nature is well explained by the Tamil Nadu Taxation Special Tribunal in Razack Trading Co. Vs State of Tamil Nadu [1999 (2) TMI 720 - TAMIL NADU TAXATION SPECIAL TRIBUNAL] where it was held that By declaring the penultimate sale or purchase in the State as a sale in the course of export, the powers of the State Legislature to tax the transactions completed within its territory was taken away and to this extent, this sub-section infringes on these powers. The validity of Subsection (3) of this section was upheld by the apex Court in CONSOLIDATED COFFEE LTD. VERSUS COFFEE BOARD, BANGALORE (AND OTHER CASES) [1980 (4) TMI 278 - SUPREME COURT] on the ground that this sub-section does not create a legal fiction but only lays down a principle of general applicability in accordance with Article 286(2) and hence it is valid. Therefore, this Court holds that the Review by the Tribunal in exercise of the power under Section 36(6) of TNGST Act is maintainable, since important facts has come to light after verification of CST files and it was not been brought to the notice of the Tribunal when the order dated 18.10.2004 in M.T.S.A.No.382 of 2004 came to be passed. It is clear that for exemption from levy of tax, the dealer is bound to furnish the agreement or order for or in relation to the export. In this case, the dealer has failed to furnish any agreement or order. The transfer of goods from Tamil Nadu to Karnataka done only by furnishing Form-XX and not by furnishing Form-H. Therefore, on facts also, the dealer cannot seek exemption from tax liability for its turnover of Rs.2,24,00,783/-. The Tax Case is dismissed. Issues Involved:1. Maintainability of the Review Application under Section 36(6)(a) of the TNGST Act.2. Applicability of Section 7-A(1)(c) of the TNGST Act to the claimed stock transfer.3. Compliance with Section 5(3) of the CST Act, 1956 for tax exemption on the turnover.Issue-wise Detailed Analysis:1. Maintainability of the Review Application under Section 36(6)(a) of the TNGST Act:The primary contention is whether the Review Application filed by the State under Section 36(6)(a) of the TNGST Act is maintainable. The dealer/assessee argued that the grounds raised do not fall within the scope of this section, which allows review only on the discovery of new and important facts not known at the time of the original order. The dealer claimed that no new facts were discovered and that the Review Application was essentially an appeal in disguise. However, it was found that a new fact came to light upon verification of the CST files, revealing the dealer's inconsistent stand under the State and Central Acts. This justified the maintainability of the Review Application.2. Applicability of Section 7-A(1)(c) of the TNGST Act to the claimed stock transfer:The dealer claimed exemption from tax on the turnover of Rs.2,24,00,783/- asserting it was an inter-State stock transfer for export, not subject to Section 7-A of the TNGST Act. The Assessing Authority initially disallowed this claim, which was later reversed by the Appellate Authority, accepting the transfer as a stock transfer exempt from tax. However, the Tribunal in the Review Application found that the purchase and subsequent transfer to Karnataka were distinct transactions. The Tribunal held that the dealer failed to produce necessary documents, such as Form-H, to substantiate the claim that the transfer was solely for export purposes. Consequently, the Tribunal reversed the Appellate Authority's decision, reinstating the tax and penalty.3. Compliance with Section 5(3) of the CST Act, 1956 for tax exemption on the turnover:For the dealer to claim exemption under Section 5(3) of the CST Act, the purchase must be directly linked to an export order. The dealer argued that the purchase was made on instructions from its Karnataka Branch and was meant for export, thus falling under Section 5(3) of the CST Act. However, the Tribunal found that the dealer did not furnish the required agreement or order for export, nor did they use Form-H for the transfer. Instead, the transfer was accompanied by Form-XX, which does not qualify for exemption under Section 5(3). Therefore, the Tribunal concluded that the dealer could not claim tax exemption on the turnover.Conclusion:The High Court upheld the Tribunal's findings, dismissing the Tax Case and confirming the tax and penalty on the turnover of Rs.2,24,00,783/-. The Court ruled that the Review Application was maintainable due to the discovery of new facts, the transfer did not qualify as a stock transfer exempt from tax under Section 7-A(1)(c) of the TNGST Act, and the dealer failed to comply with the requirements of Section 5(3) of the CST Act for tax exemption.