2025 (11) TMI 2 - HC - VAT / Sales Tax

Solar cells excluded from 'dry cells/batteries' definition; second-stage dealer not liable when vendor's tax payment unproven

M/s Himachal Futuristic Communications Limited Versus State of Haryana and Others.

The HC held that solar cells are not covered by the phrase 'all kinds of dry cells/batteries' and thus do not fall within the description of dry cells, ... Classification of goods - solar cells - solar cells’ fall within definition of dry cells/batteries or otherwise - liability of appellant to pay tax despite being second stage dealer. Whether solar cells fall within definition of dry cells/batteries? - HELD THAT:- From the perusal of Entry 19 of notification dated 30.12.1987, it is evident that expression ‘all kinds of’ precedes expression ‘dry cells/batteries’. The Tribunal has concluded that dry cells as well as solar cells are used for the purpose of generation of energy, thus, dry cells include solar cells. Like State of Haryana, State of Tamil Nadu has made dry cells subjected to sales tax at first stage. From the perusal of above quoted entry, it is evident that State of Tamil Nadu has brought dry cells and solar cells in one entry. Both types of cells are subjected to sales tax at first stage. The legislature has used expression ‘solar cells of all kinds’ besides ‘dry cells and dry cell batteries’. This makes it clear that State of Tamil Nadu has accepted that dry cells and solar cells are two different commodities. The Tribunal in instant case has also returned finding to the effect that solar cells and dry cells are two different commodities, however, both are used for the same purpose i.e. generation of electric energy. Dry cells use different medium than solar cells. In case of dry cells, chemicals, lithium and mercury etc. are used as medium whereas in solar cells, sunlight is used as medium. Learned Tribunal, despite noticing contentions of the petitioner as well as use of the product, has recorded finding to the effect that both kinds of cells are used to generate electric energy. It is factually incorrect because dry cells are not used to generate electric energy whereas these cells are used to store electric energy. The Tribunal is correct while holding that exemption of solar cells from excise duty does not mean that solar cells and dry cells cannot be one and same commodity. It is discretion and wisdom of Central Government to exempt one kind of cell and tax another. The Central Government to promote generation of solar energy has exempted equipments, parts/components and solar cells used to generate electricity. Whether petitioner was liable to pay tax despite being second stage dealer? - HELD THAT:- From the perusal of Entry 19 of aforesaid notification, it is evident that all kinds of dry cells/batteries are covered by Section 18 of HGST. These goods are liable to tax at first stage. Second stage dealer as per proviso to Section 18 cannot sell goods without tax if he has not received declaration from his seller (first stage dealer) to the effect that first stage dealer has paid tax. The respondent has relied upon proviso to Section 18 of HGST to create demand against the petitioner. As per common understanding of the stakeholders, the petitioner furnished Form ST-15 along with returns. It did not furnish Form ST-14 because manufacturer as well as subsequent buyers were of the opinion that goods are not liable to tax in their hand - The respondent cannot raise demand against petitioner as well as manufacturer. The respondent has not further taken care of the fact that Form ST-15 was issued by Assessing Authority to buyers of petitioner. The respondent was duty bound to ascertain status of buyers of petitioner as buyers had furnished Form ST-15 and admitted their liability as traders of general goods. Had respondent conducted enquiry at the end of buyers of petitioner, the instant litigation could be avoided. A Division Bench of Madras High Court in Govindan & Co. v. The State of Tamil Nadu [1974 (2) TMI 69 - MADRAS HIGH COURT] has held that to claim benefit of tax exemption on the ground that sales are second sales, the assessee does not need to prove that seller in fact has paid tax and it is enough to show that earlier sales are taxable and tax is really payable by the seller. A Division Bench of Andhra Pradesh High Court in B. Narasaiah and Co. v. State of A.P., [2001 (7) TMI 1261 - ANDHRA PRADESH HIGH COURT], relying upon its earlier judgment in State of A.P. v. Thungabhadra Industries Ltd. [1983 (4) TMI 250 - ANDHRA PRADESH HIGH COURT] has held that tax cannot be demanded from buyer on the ground that vendor did not pay assessed tax. If vendor is liable to pay tax and has failed to discharge its liability, it is always open for the authorities to proceed against the vendor and recover the tax by the mode known to law. It is settled law that no one can be asked to do something which he cannot do. Hon’ble Supreme Court in Arjun Panditrao Khotkar Vs. Kailash Kushanrao Gorantyal and Ors. [2020 (7) TMI 740 - SUPREME COURT (LB)] has clearly held that law does not demand the impossible. When there is disability that makes it impossible to obey the law, the alleged disobedience of law is excused. The law does not compel one to do that which one cannot possibly perform. Where the law creates a duty or charge and a party is disabled to perform it without any default in him and has no remedy over it, there the law will in general excuse it. When the performance of formalities prescribed by statute has been rendered impossible by circumstances over which a person entrusted has no control, the circumstances will be taken as a valid excuse. Solar cells do not fall within description of all kinds of dry cells - Petitioner being second stage dealer was not liable to pay tax. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether 'solar cells' fall within the statutory description of 'all kinds of dry cells/batteries' for the purpose of entry prescribing tax at the first stage under the notification issued under Section 18 of the Haryana General Sales Tax Act. 2. Whether a dealer who sold the goods as a second-stage (registered-dealer) sale against prescribed declaration forms is liable to pay tax when the first-stage dealer (manufacturer) is subsequently assessed as liable to tax on the same goods. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Whether solar cells fall within 'all kinds of dry cells/batteries' Legal framework: - Construction of entries in a taxing notification under Section 18 is governed by principles of literal and strict interpretation in taxation jurisprudence; entries cannot be added to or subtracted from by courts. - Ordinary/popular or commercial meaning of words used in a taxing entry is to be preferred over technical/scientific meanings when construing taxing entries. Precedent treatment: - The Tribunal treated solar cells as covered by the expression 'all kinds of dry cells/batteries' on the basis that both types of cells are voltaic in nature and used for generation of electrical energy. - The Court noted that other State notifications sometimes list dry cells and solar cells separately, indicating legislative recognition of difference between the two commodities. Interpretation and reasoning: - Functional and commercial distinctions between dry cells and solar cells are emphasized: dry cells store electrical energy (for use in torches, radios, watches, etc.), whereas solar cells convert sunlight into electrical energy and serve as components/parts for power generation equipment. - Solar cells are not interchangeable substitutes for conventional dry cells; they have distinct applications, distribution channels, and technical/sales markets. In common and business parlance they are treated as distinct commodities. - The Tribunal's reasoning that both are used to 'generate' energy was rejected as factually incorrect: dry cells do not generate but store energy. The presence of the phrase 'all kinds of' qualifying 'dry cells/batteries' cannot be read down to include commodities that are not of the same functional and commercial genus unless the words used unambiguously embrace them. - The Court accepted that exemption of solar cells under central excise law for policy reasons does not of itself resolve the taxability question under the State notification, but such exemption does not mean identity of the commodities. Ratio vs. Obiter: - Ratio: The Court's conclusion that 'solar cells do not fall within the description of all kinds of dry cells/batteries' is a dispositive legal holding based on construction of the entry and factual-functional distinctions between the goods. - Obiter: Discussion of other State notifications and central excise policy considerations are explanatory observations and not essential to the constructional holding. Conclusions on Issue 1: - Solar cells are not covered by the entry 'all kinds of dry cells/batteries' in the impugned notification; they are a distinct commodity for purposes of the notification under Section 18. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Liability of second-stage dealer when first-stage dealer is assessed Legal framework: - Section 18 permits the State to levy tax at the first stage of sale by notification and provides that subsequent stage sales are exempt only if the subsequent-stage dealer furnishes a certificate/declaration in the prescribed form from the registered dealer (first-stage seller) stating that tax has been paid at the first stage. - Section 27 permits deduction from taxable turnover for sales to registered dealers subject to production of prescribed declarations (Form ST-15 in the facts). Precedent treatment: - Precedents relied upon hold that a second-stage dealer claiming exemption need only show that earlier sales were taxable and that the tax was payable by the seller; he need not prove actual payment by the seller. Non-payment by the first-stage dealer does not automatically shift liability to the second-stage dealer where statutory conditions for exemption were fulfilled. - Authorities also establish that tax cannot be demanded from a buyer merely because a vendor failed to pay; recovery must be pursued against the vendor by the modes available under law. Interpretation and reasoning: - The statutory proviso to Section 18 conditions exemption on production of a declaration from the registered dealer that tax has been paid at the first stage; however, rigid application that requires actual proof of payment by first-stage dealer from the second-stage dealer would impose an impossible burden where the dealer has no control over the first-stage dealer (and where the statutory form issued by the assessing authority was used). - In the facts, the petitioner purchased from a manufacturer and sold to registered dealers against Form ST-15; the assessing authority originally accepted the returns and ST-15 forms and treated the sales as exempt RD sales. The departmental authorities later initiated revision and created demand against the manufacturer as first-stage dealer as well as against the petitioner on the premise that the goods were first-stage taxable. - It was unreasonable and legally impermissible to saddle the second-stage dealer with liability after the department itself had issued and accepted prescribed forms and the first-stage dealer was separately assessed; statutory and jurisprudential principles do not require the second-stage dealer to prove actual payment by the first-stage dealer to claim exemption. - The law will excuse performance of a statutory formality when it is impossible to comply with it through no fault of the party (doctrine that law does not demand the impossible). Where the buyer furnished the prescribed form (ST-15) and the department itself issued/accepted such forms in returns, the second-stage dealer cannot be made liable because of subsequent departmental reassessment of the first-stage dealer. Ratio vs. Obiter: - Ratio: The Court's holding that a second-stage dealer who has sold against the prescribed declaration form and whose returns were accepted is not liable to pay tax merely because the first-stage dealer was later assessed is the operative legal conclusion. - Obiter: Observations criticizing departmental procedure (e.g., failure to verify buyers' status) are ancillary comments and do not form the core legal holding. Conclusions on Issue 2: - Where the second-stage dealer sold the goods as RD sales against prescribed declarations (Form ST-15), furnished those forms with returns and the assessing authority had accepted them, the second-stage dealer is not liable to pay tax by reason of a subsequent departmental finding that the manufacturer was a first-stage taxable dealer. - Recovery of any tax found payable at the first stage is a matter for proceedings against the first-stage dealer; it cannot be shifted to the second-stage dealer who complied with statutory formalities in good faith and where actual compliance by the seller was beyond his control.