2025 (12) TMI 1069 - HC - VAT / Sales Tax

Sales tax exemption for aluminium sole moulds and cutting dyes sold between 100% EOUs denied; penalty u/s16(2) set aside.

The dominant issue was whether inter se sales between 100% EOUs of aluminium sole moulds and cutting dyes qualified for sales tax exemption under the ... Sale by 100% EOU to 100% EOU - seeking exemption under Serial No.386 of G.O.Ms.528, CT&RE, dated 21.11.1997, gazetted on 17.12.1997 in respect of certain sales made to each other, of aluminium sole moulds and cutting dyes - levy of penalty - HELD THAT:- The case of the assessee’s from inception has been premised only on Notification dated 21.11.1997. However, a claim of exemption, if the facts are admitted, may be decided based on any number of extenuating factors, one such factor being the applicability or otherwise of available Notifications/Circulars/ Government Orders. That would constitute a pure question of law. Hence, in circumstances where the facts are admitted, such a question may be considered at any stage in the proceedings, and had we been of the view that the assessee’s satisfied the contours of serial No.340 Notification dated 31.03.1994, nothing would have prevented us from granting the exemption even at this stage. However in the present cases, we do not believe that the assessee’s satisfy that condition - Serial No.340 in Notification dated 31.03.1994 is specific to inter unit sales in respect of those units that are situated within the Madras Exports Processing Zones (MEPZ). Though the assessee may be 100% EOU’s, admittedly they are not located within the MEPZ - it cannot be accepted that Serial No. 340 must encompass even 100% EOU’s as such an interpretation does not flow from the clear language of that Notification. As far as Notification dated 21.11.1997 is concerned, though it applies to ‘all’ dealers, the benefit granted is specific to the sale of raw materials, packing materials and consumables - the dyes and moulds cannot be construed to be either raw materials, packing materials or consumables and hence we reject this argument as well. Notification dated 21.11.1997 is also of no assistance to them - Hence, a consumable is any item which, as the term suggests, would be consumed in the process of manufacturing, either substantially or partly. Both dyes and moulds used in the present cases are not consumed, but are only aids/implements used in the manufacturing process itself. Hence the arguments of the assessee on this score are rejected. Levy of penalty - HELD THAT:- The provision pressed into service by the revenue is Section 16(2) of the Act which requires the assessing authority to establish that the escapement of turnover was on account of ‘willful non-disclosure of assessable turnover by the dealer’ - The issue turns only on an interpretation of the Notifications and this constitutes a pure question of law. In fact, the case of the assessee’s has been accepted by an assessing authority originally and even at the stage of the Tribunal, one of the members of the Tribunal has been persuaded to accept the case put forth by it. The levy of penalty is thus set aside. Theses appeals are partly allowed, to the extent of setting aside the levy of penalty alone. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether sales of aluminium sole moulds and cutting dyes by one 100% export oriented unit to another qualified for exemption under the notification granting exemption for sales of raw materials, packing materials and consumable goods to registered 100% export oriented units. (ii) Whether the assessee could shift reliance, at the appellate stage, to an exemption notification meant for inter-unit sales within the Madras Export Processing Zone, and if so, whether the assessee satisfied its conditions. (iii) Whether penalty under Section 16(2) could be sustained when the dispute concerned interpretation of exemption notifications and all material facts were already disclosed on record. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Exemption for sale of 'raw materials, packing materials and consumable goods' to 100% EOUs-whether moulds and dyes qualify Legal framework: The Court examined the exemption notification that grants exemption from tax on sales of raw materials, packing materials and consumable goods to registered 100% export oriented units in the State and certain specified zones. Interpretation and reasoning: The Court held that the notification, though available to 'all dealers', restricts the benefit to the specified categories of goods. On the nature of the goods, the Court concluded that aluminium sole moulds and cutting dyes are not 'raw materials' or 'packing materials'. The Court further found they are not 'consumables' because they are not consumed in the manufacturing process; rather, they function as aids/implements used for manufacture. The Court also considered the definition of 'consumables' placed before it (from the EXIM policy) and found it supported the revenue's position, since consumables must be items substantially or totally consumed during the manufacturing process, which moulds and dyes are not. Conclusion: Exemption under the notification for raw materials/packing materials/consumables was denied; moulds and dyes were held outside the scope of 'consumables' and the other exempt categories. Issue (ii): Applicability of the separate 'inter-unit sales' exemption within the Madras Export Processing Zone (MEPZ) Legal framework: The Court examined a distinct notification granting exemption for inter-unit sales where both seller and buyer units are located within the Madras Export Processing Zone, subject to the condition that the ultimate sale is an export sale. Interpretation and reasoning: The Court accepted that, where facts are admitted, applicability of an exemption notification can be considered as a pure question of law even if not earlier pressed. However, on the notification's language, the Court found the exemption is expressly confined to units situated within the MEPZ. Even if the assessee units were 100% export oriented undertakings engaged in export sales, they admittedly were not located within the MEPZ. The Court refused to expand the notification to cover 100% EOUs outside the zone, holding such an interpretation would strain the plain language. The Court also noted there is no general statutory exemption for all inter se sales between export units, and any exemption referenced by the Court was itself limited to specific circumstances connected with MEPZ-related transactions. Conclusion: The MEPZ inter-unit sales exemption was held inapplicable because the units were not located within the MEPZ; the assessee could not claim a zone-specific exemption by virtue of EOU status alone. Issue (iii): Sustainability of penalty under Section 16(2) in a dispute turning on interpretation of exemptions Legal framework: The Court applied Section 16(2), which permits penalty only where escapement of turnover is attributable to willful non-disclosure of assessable turnover by the dealer. Interpretation and reasoning: The Court found the statutory condition for penalty was not satisfied. It held that the assessee had produced all facts necessary to decide the matter and they were already on record; the dispute was purely about the correct interpretation and applicability of exemption notifications. The Court treated the earlier acceptance of the exemption by the assessing authority, and the fact that one tribunal member had accepted the assessee's view, as reinforcing that the matter involved legal interpretation rather than deliberate suppression. Conclusion: Penalty under Section 16(2) was set aside for want of proof of willful non-disclosure, though the exemption claim itself failed.