2025 (3) TMI 562 - HC - VAT / Sales Tax

Tax exemption denied for export goods due to non-compliance with Section 5(3) CST Act documentation requirements

M/s. Sandoz Private Limited Versus State Of Karnataka, Dy. Commissioner Of Commercial Taxes, (Audit) Bengaluru.

Karnataka HC upheld denial of tax exemption under section 5(3) of CST Act for export-intended goods. The appellate tribunal improperly raised unargued ... Rejection of his rectification application - Karnataka Appellate Tribunal raised an issue, which had not been raised by the lower authorities and also not argued at the time of final hearing by both the sides - exemption of turnover under section 5 (3) of the CST Act - amendments to section 5 of the CST Act effective from 13-5-2005 - HELD THAT:- Section 5 is intended to promote export business of the country and therefore grants certain concessions & exemptions in respect of sale of goods that are exported or intended to be exported. Sub-section (3) grants exemption from tax in respect of last sale of goods provided that some tangible evidentiary material as prescribed in law is produced to prove the intended onward transaction of export. Sub-section (3) of Sec.5 of the Act r/w Rule 12 (10) (a) of the subject rules, which is much pressed into service by both the sides has been construed by the Coordinate Bench in A.R. ASSOCIATES [2001 (1) TMI 948 - KARNATAKA HIGH COURT] wherein it was held that 'Undoubtedly, the law does make an exception in those of the instances where very valid and cogent reasons are set out for the default or for those cases where the aggrieved party is able to demonstrate that but for the absence of appearance, the chances of success were almost certain and that it would really be a miscarriage of justice if the party is not afforded a second opportunity. None of those principles apply to the present case and consequently, we are of the view that no second opportunity can be afforded to the present appellants.' Learned AGA is more than justified in contending that sub-section (3) of Sec. 5 is a qualified provision to sub-section (1) and that in addition to what it requires, the Assessee has to comply with other requirement prescribed under Rule 12 (10) (a) coupled with Form-H. Conclusion - The denial of tax exemption upheld due to non-compliance with statutory requirements and evidentiary standards. Petition dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:i) Whether the Karnataka Appellate Tribunal erred by addressing an issue not raised by lower authorities or argued at the final hearing, and deciding against the petitioner.ii) Whether the Tribunal erred in denying the petitioner exemption under section 5(3) of the CST Act due to the absence of a claim for exemption in the monthly return and the lack of a revised return, despite the export turnover being declared as inter-State sales turnover.iii) Whether the Tribunal incorrectly applied a previous judgment (M/s A.R. Associates) to the petitioner's case for 2005-06, given the amendments to section 5 of the CST Act effective from 13-5-2005, which specify the requirement for producing a prescribed declaration (Form H) from the exporter.ISSUE-WISE DETAILED ANALYSISIssue i: The Tribunal's consideration of an unraised issue- Relevant legal framework and precedents: The Tribunal's authority to consider issues not raised by lower authorities or argued by parties is not explicitly addressed in the CST Act.- Court's interpretation and reasoning: The Court found no error in the Tribunal's approach, suggesting that the Tribunal's decision did not exceed its jurisdiction or procedural fairness.- Application of law to facts: The Tribunal's decision to consider the issue was deemed appropriate, as it related to the fundamental requirements for tax exemption under the CST Act.- Conclusions: The Court upheld the Tribunal's decision, indicating no procedural impropriety or miscarriage of justice.Issue ii: Denial of exemption under section 5(3) of the CST Act- Relevant legal framework and precedents: Section 5(3) of the CST Act provides tax exemption for the last sale preceding export, contingent on compliance with prescribed evidentiary requirements, including Form H.- Court's interpretation and reasoning: The Court emphasized the necessity of producing tangible evidentiary material, such as Form H, to substantiate claims for exemption under section 5(3). The Tribunal's decision was based on the absence of such evidence.- Key evidence and findings: The petitioner failed to file the required documents, including a revised return and Form H, to support the claim for exemption.- Application of law to facts: The Tribunal's decision was consistent with the statutory requirements, as the petitioner did not fulfill the evidentiary conditions for exemption.- Conclusions: The Court agreed with the Tribunal, affirming the denial of exemption due to non-compliance with section 5(3) requirements.Issue iii: Application of the M/s A.R. Associates judgment- Relevant legal framework and precedents: The M/s A.R. Associates case interpreted section 5(3) of the CST Act, emphasizing the need for an export agreement and a nexus between transactions.- Court's interpretation and reasoning: The Court found the Tribunal's reliance on the M/s A.R. Associates judgment appropriate, as the petitioner failed to demonstrate compliance with the amended requirements of section 5(3) and Rule 12(10)(a).- Key evidence and findings: The petitioner did not provide the necessary export agreement or evidence of a nexus between transactions, as required by the M/s A.R. Associates precedent.- Application of law to facts: The Tribunal correctly applied the principles from M/s A.R. Associates, given the petitioner's failure to meet the evidentiary standards.- Conclusions: The Court upheld the Tribunal's application of the M/s A.R. Associates judgment, affirming the denial of exemption.SIGNIFICANT HOLDINGS- Core principles established: The judgment reinforces the requirement for strict compliance with evidentiary standards under section 5(3) of the CST Act for claiming tax exemptions. The necessity of producing Form H and demonstrating a nexus between transactions is emphasized.- Final determinations on each issue: The Court upheld the Tribunal's decisions on all issues, affirming the denial of tax exemption due to non-compliance with statutory requirements and evidentiary standards.