2025 (7) TMI 553 - HC - VAT / Sales Tax

Petitioner entitled to simultaneous exemption benefits under TNVAT Act 2006 and CST Act 1956 for interstate sales

Shri Chakra Agencies, Represented by its Proptriex A. Jayasutha Versus State Tax Officer, Attur

The Madras HC allowed the petition regarding simultaneous exemption benefits under TNVAT Act 2006 and CST Act 1956. The court held that the petitioner was ... Benefit of exemption under the provisions of the Tamil Nadu Value Added Tax (TNVAT) Act, 2006 - availment of simultaneous benefit of exemption under Section 8(2) of the Central Sales Tax (CST) Act, 1956 or not - HELD THAT:- In similar circumstances, this Court in K. PERIYASAMY VERSUS THE STATE TAX OFFICER, ATTUR [2025 (1) TMI 218 - MADRAS HIGH COURT] held that the petitioner is entitled to the exemption under the TNVAT Act for interstate sales under the CST Act, as no notification to the contrary was issued under Section 8(5) of the CST Act. The Impugned Proceedings of the respondent passed in CST:886961/2013-2014 dated 06.02.2020 is set aside - petition allowed. The primary legal issue considered by the Court was whether the benefit of exemption under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006 extends to exemption under Section 8(2) of the Central Sales Tax (CST) Act, 1956, specifically in the context of interstate sales transactions. The Court also examined the applicability and interpretation of various provisions under the CST Act, including Sections 8(1), 8(2), 8(3), 8(5), and 9(2), and the relevance of prior Supreme Court precedents concerning the levy and collection of excise duties and taxes.Another issue was the validity of the impugned tax demands and revision orders passed by the respondent authorities, which sought to deny the exemption claimed by the petitioner under the relevant notifications issued by the State Government.Regarding the first issue, the Court analyzed the legal framework governing the levy of tax under the CST Act. Section 8(1) imposes a tax on interstate sales to registered dealers at a rate of 3% or the rate applicable within the State, whichever is lower, but only for goods described in Section 8(3). Section 8(2) applies the sales tax rate of the appropriate State to interstate sales not covered under Section 8(1). Section 8(5) empowers the State Government to issue notifications exempting certain classes of goods or dealers from tax or to levy tax at lower rates, subject to specified conditions.The Court noted that in the present case, the goods sold by the petitioner did not fall within the ambit of Section 8(1) or Section 8(3), making Section 8(2) the relevant provision. Since no notification under Section 8(5) had been issued to provide a special exemption or reduced tax rate, the general provisions of Section 8(2) would apply. This meant the tax rate applicable within the State under the TNVAT Act would govern the interstate sales turnover for the petitioner.The Court further examined the exemption notification No.II(1)/CTR/30(a-2)/2007 dated 23.03.2007 issued by the Tamil Nadu Government under the TNVAT Act, which exempted certain goods from tax. The petitioner claimed entitlement to this exemption for interstate sales under the CST Act by virtue of Section 8(2). The Court held that the exemption under the TNVAT Act applies to the CST Act's provisions as well, in the absence of any conflicting notification under Section 8(5) of the CST Act.In its reasoning, the Court relied on the prior decision of the Madras High Court in related writ petitions and distinguished the Supreme Court's decisions in cases concerning excise duties, particularly the Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Co. Ltd. The Court clarified that those decisions dealt with the levy and collection of excise duty at the stage of manufacture or removal of goods and are not directly relevant to the question of sales tax exemptions under the CST Act. The Court emphasized that the levy of excise duty is on manufacture or production, and collection may occur at removal, but this principle does not translate into an automatic levy or denial of exemption under sales tax law.The Court also considered the provisions of Section 9(2) of the CST Act, which empower State authorities to assess and collect CST as if it were a tax under the State's general sales tax law, reinforcing the applicability of State exemptions to CST assessments.Regarding the impugned orders, the Court found that the respondent authorities had erred in denying the exemption and confirming the tax demand. Since no notification under Section 8(5) of the CST Act was produced to justify the denial, and the petitioner was entitled to exemption under the TNVAT notification, the impugned revision orders and proceedings were set aside.The Court rejected the respondent's reliance on excise duty jurisprudence and held that the exemption under the TNVAT Act must be recognized in CST assessments under Section 8(2) unless a valid notification under Section 8(5) of the CST Act provides otherwise.In conclusion, the Court held that the petitioner is entitled to the benefit of exemption under Notification No.II(1)/CTR/30(a-2)/2007 dated 23.03.2007 for the goods sold in the course of interstate trade or commerce. The impugned orders denying such exemption were quashed, and consequential relief was granted to the petitioner. The Court ordered no costs and closed connected miscellaneous petitions.Significant holdings include the following verbatim excerpt from the Court's reasoning, which clarifies the distinction between excise duty and sales tax levies and the scope of exemption under the CST Act:'The decision of the Hon'ble Supreme Court in the case of Collector of Central Excise, Hyderabad Vs. Vazir Sultan Tobacco Co. Ltd., reported in 1996 (83) E.L.T.3(S.C) is not relevant. In the above case, the Hon'ble Supreme Court has merely held that adoption of provision of one fiscal statute does not mean that tax is payable under the adopting Act wherever it is payable under the adopted legislation... Once the levy is not there at the time when the goods are manufactured or produced in India, it cannot be levied at the stage of removal of the said goods. The idea of collection at the stage of removal is devised for the sake of convenience.'Core principles established by the Court include:The exemption under the TNVAT Act applies to interstate sales under Section 8(2) of the CST Act in the absence of a valid notification under Section 8(5) of the CST Act.The levy of excise duty and the collection of sales tax are governed by distinct legal principles; excise duty is levied on manufacture or production, whereas sales tax is levied on sale transactions.The authorities empowered under Section 9(2) of the CST Act must apply the State's general sales tax law provisions, including exemptions, in CST assessments.The absence of a notification under Section 8(5) of the CST Act precludes denial of exemption available under the State's VAT law for interstate sales.Ultimately, the Court allowed the writ petition, set aside the impugned orders, and granted the petitioner the benefit of exemption under the relevant State notification, establishing a clear precedent on the interplay between State VAT exemptions and CST liability under Section 8(2) of the CST Act.