TaxTMI 
TaxTMI 
TaxTMI 
2007 (11) TMI 565
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....yond the legislative competence of the State under entry 54, List II of the Seventh Schedule to the Constitution of India and ultra vires entry 92B of List I of the Seventh Schedule to the Constitution and void as repugnant to article 14, violative of article 301 and not saved by article 304(b) of the Constitution of India. Originally the petitioner preferred O.P. No. 695 of 2003 before the Tamil Nadu Taxation Special Tribunal, challenging the vires of section 7A(1)(c) of the Tamil Nadu General Sales Tax Act, 1959. It is stated that since the Tribunal was not functioning in its quorum to hear the case, a doubt was raised during the course of hearing before the Tribunal as regards the jurisdiction of the single member to proceed with the case. The petitioner herein is a company engaged in the business of import and domestic purchase and sales of various types of edible oil, i.e, RBD palmolein, soyabean oil and sunflower oil. The purchases were effected from various registered dealers inside the State of Tamil Nadu. From time to time, the oils so purchased were stock transferred by the petitioners to their branches outside the State of Tamil Nadu. The petitioner states that these tr....
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.... instead of from March 1, 1999. As already noted, the petitioner purchased oil from registered dealers, who had the benefit of exemption under the notifications and hence, the sales effected by them were exempt. The assessing authority took the view that though the petitioner had effected purchases from dealers having the benefit of exemption from payment of tax, yet, as the petitioner had despatched the goods to outside the state by way of consignment sale, in view of section 7A(1)(c) of the Act, the petitioner had to pay the purchase tax under section 7A. The assessee objected to the said proposal on the premise that the purpose of the notification was to exempt the dealer on sale of goods and that considering the exemption notification and the object of introduction of section 7A of the Act, the proceedings issued were totally unsustainable. Quite apart from that, the assessee took the plea that invoking section 7A of the Act on the despatch of goods from one State to another would be violative of article 301 and not saved by article 304(b) of the Constitution of India, since there was no Presidential assent. The assessee contended that in the context of exemption granted, the ....
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....under section 7A could arise only in those cases not covered by the provisions of sections 3, 4 and 5. He submitted that going by the language of sections 3(2), 3(2A) and 4, the phrase "payable" under section 7A has to be understood to mean chargeability as per section 3(2), 3(2A), 3(2C) or 4. Hence, going by the language of section 7A, the transactions that fall for consideration under section 7A are only such of those cases not falling within the scope of section 3(2), 3(2C), 3(3) or 4. He submitted that grant of exemption from taxation under the notification issued under section 17 presupposes liability under these provisions of the Act. Hence, when a sale transaction enjoys exemption from payment of tax under the provisions of tax, then a sale does not fall under the phrase "in circumstances in which no tax is payable". He submitted that such purchases on the exempted turnover cannot be equated with the cases of tax evasion which the section seeks to cover. Learned Senior Counsel pointed out that the Act and the Schedule fixes the taxable event, the taxable person and the rate of measure. Learned Senior Counsel pointed out that vegetable oil, which is the subject-matter in thi....
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....ily be one to preserve and justify the grant of exemption under section 17. A notification issued has to fit in with the taxation policy. However, if a notification granting exemption has the effect of shifting the point of taxation to attract section 7A, the same would be against the Scheme given under the Act. Learned counsel placed reliance on the decision reported in [1973] 31 STC 585 (SC) (Sales Tax Officer, Navgaon v. Timber & Fuel Corporation) and submitted that in the background of the Scheme of the Act, the taxation policy and the object for which section 7A was introduced, the proceedings taken are totally illegal. Placing reliance on the decisions of the apex court reported in [1975] 36 STC 191 (State of Tamil Nadu v. M. K. Kandaswami), Associated Cement Companies Ltd. v. State of Bihar reported in [2004] 137 STC 389 (SC), [2007] 6 VST 541 (SC) [Peekay Re-Rolling Mills (P) Ltd. v. Assistant Commissioner] and [1994] 71 ELT 339 (HICO Products Ltd. v. Collector of Central Excise), learned Senior Counsel submits that the phrase "in circumstances in which no tax is payable" has to be understood as an absence of liability or charge. Since granting exemption is always with ref....
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....2 [Abdul Kadir (A.B.) v. State of Kerala], [1989] 74 STC 447 (SC) (Buxa Dooars Tea Co. Ltd. v. State of West Bengal) and [1998] 108 STC 539 (Ker) (Hallmark Tobacco Company Limited v. State of Kerala) affirmed in [2002] 127 STC 409 (Ker) (State of Kerala v. I.T.C. Limited) to contend that the provisions of section 7A(1)(c) violated article 304(b) of the Constitution and hence, unconstitutional. Hence, learned Senior Counsel submitted that the provisions of section 7A is beyond the legislative competence of the State Legislature and liable to be struck down as ultra vires the provisions of the Constitution. Learned Additional Advocate-General appearing for the State countered the arguments by placing reliance on the decision reported in [1975] 36 STC 191 (State of Tamil Nadu v. M. K. Kandaswami) as well as in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh) and submitted that the contentions as to the interpretation that it is a tax on consignment and violative of articles 301 and 304(b) were considered at length in the decision of the apex court reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh) and [1994] 95 STC 170 (SC) (Devi Dass Gopal Krishan ....
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....provided for under section 17(2), the exemption not being total and in specified circumstances only, and the goods no longer available for taxation thereafter, under the stated circumstances, the charge under section 7A is activated so that there is no leakage of the revenue due to the State. Referring to the contention that invoking section 7A in cases covered under the notification under section 17 would result in a shift in the taxation policy, which could only be done under section 59, he pointed out that the power given under section 17 and the one under section 59 operate on different fields. When a notification under section 17 is issued to grant exemption or to reduce the tax payable under the Act, there is no interference with the point of sale given under the Schedule to the Act. The power under section 17 operates within the taxation policy of the State. However, where the State seeks to amend the Schedule to change or vary, add, delete any of the Schedules, then the same is only by virtue of section 59 and there only the procedure under section 59 needs to be observed. The purport and the scope of the operation of these two sections are totally different and distinct. C....
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.... of the Act on the purchases from those who are exempted from tax. In the circumstances, the liability, as such, is unconstitutional as offensive of article 14 of the Constitution of India. He, therefore, prayed for setting aside the order of the Tribunal, thereby to hold that section 7A(1)(c) is offensive of articles 301 and 304 (a), (b) and (c) of the Constitution of India. Heard the learned counsel for both sides. Before going into the various contentions raised herein, the provisions of section 7A of the Act, as are relevant and as they stood at the material point of time relevant to the assessment years 1999-2000 and 2000-2001, need to be noted: "7A. Levy of purchase tax.-(1) Subject to the provisions of subsection (1) of section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under section 3 or 4, as the case may be, [not being a circumstance in which goods liable to tax under sub-section (2) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First....
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....s", the words "or uses" were inserted by section 3, of the Tamil Nadu General Sales Tax (Tenth Amendment) Act (78 of 1986) with effect from 1987. In 1993, by section 8 of the Tamil Nadu General Sales Tax (Second Amendment) Act 25 of 1993, with effect from March 12, 1993, for the words "every dealer" in sub-section (1), the words "subject to the provisions of sub-section (1) of section 3 every dealer" were substituted. In clause (c), for the words "despatches them", the words "despatches or carries them" were substituted. In the concluding portion of sub-section the expression "whatever the quantum of such turnover in a year" was omitted and the proviso to sub-section (1) was omitted. It may be noted that the amendments made however does not affect the interpretation given or the constitutionality of the provision as decided by the apex court under the various decisions. Section 7A of the Tamil Nadu General Sales Tax Act, 1959, came up for consideration more than once before the Supreme Court. On the interpretation of section 7A, the earliest of the decisions is the one reported in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami). The cases therein included cases relatin....
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....s Act in section 7A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that section 7A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act have not, due to the circumstances of particular sales, suffered tax under section 3, 4 or 5, and which after the purchase, have been dealt by him in any of the modes indicated in clauses (a), (b) and (c) of section 7A(1)." The apex court held that by implication, the phrase "in circumstances in which no tax is payable" referred to circumstances of particular sales not suffering tax. It excluded the goods which are totally exempt from tax at all points under section 8 or section 17(1). Rejecting the contention of the petitioner that section 7A of the Act would operate only in cases of total non-liability, the Supreme Court held that th....
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....Hence, any understanding of the effect of the exemption notification has to be in consonance with the scheme of taxation. If the effect results in a shift in the point of taxation, then the proper course would be to follow the procedure under section 59. In the absence of the same, the resort to section 7A is bad. We do not find any reason to accept this line of thought. Section 7A does not give any room for such course of interpretation. Sections 3, 4 and 7A are independent charging sections. As already noted, section 7A comes into play where the purchase of goods liable to tax does not suffer tax in the circumstances, but are dealt with in the manner stated therein. It is no doubt true that a second sale of tax suffered goods enjoys the second sale exemption. He may sell the goods inside the State again or sell the same as inter-State sale or despatch them to outside the State as consignment or branch transfer. Any manner of dealing with tax suffered sales as prescribed under section 7A like disposal of the goods otherwise than by way of sale or using them in the manufacture, or despatch does not attract the provisions of the Act. The reason being that goods which normally have....
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....x shall be payable at least once either by the first seller or by the second earliest of the successive dealers who is liable to tax under the section. The liability, although is on the first sale, in the given circumstances, the payability is shifted to the earliest of the successive dealers. The proviso in this section does not shift the liability, but the payability alone. This only shows that given the object of taxation, subject to the availability of the goods for taxation and the provisions of the Act, the transactions are taxed so that the State does not suffer on any account of leakage. The emphasis is on compliance of the charge by payment of tax due under the provisions of the Act. In this connection, the decision reported in [2004] 137 STC 389 (SC) (Associated Cement Companies Ltd. v. State of Bihar) needs to be noticed. The facts in [2004] 137 STC 389 (SC) (Associated Cement Companies Ltd. v. State of Bihar) relate to a case where the assessee was granted exemption pursuant to an incentive granted to the new units under the industrial policy of the State of Bihar with reference to additional incremental production for the period April 1, 1998 to March 31, 2007. The ass....
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....eld that "exemption can operate when there had been a valid levy: for, if there was no levy at all, there would be nothing exempt". "Despite an exemption, the liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfil the liability is done away with." The apex court, in that case, was concerned about an exemption granted on the sale of declared goods. The dealer therein purchased steel ingots from dealers who were exempted under a notification issued under section 10 from payment of tax. Since the dealer used the steel ingots as raw materials to produce bars and rods, they were visited with liability under section 5A (purchase tax under the Kerala General Sales Tax Act). The apex court held that when certain goods were subjected to single stage tax condition, and the stage identified for the levy was exempted, subsequent sales could not be taxed by the authorities despite exemption. Dealing with the question as to whether the tax sought to be levied under section 5A would amount to tax at second stage and the same would violate section 15 of the Central Sales Tax Act, 1956, the apex court referred to the decision in the case of Shanmuga Trader....
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....cepted for, the second proviso to sub-section (2) of section 3 steps in, in instances where the exemption is not total, but only conditional. In the context of the second proviso to section 3(2), an exemption not being one of general nature, the Act makes the second or the earliest of the successive dealers to pay the tax on the sale effected by him. If that be so, the plea based on section 59 that the notification under section 17 have the effect of a shift in the policy of taxation loses its significance. In any event, in the face of the decisions referred to above on the aspect of liability and payability, we do not accept the contention of the counsel that the effect of the notification has the result of altering the tax policy. Considering the decision of the Supreme Court reported in [1975] 36 STC 191 at 197 (State of Tamil Nadu v. M.K.Kandaswami), on the phrase "sale or purchase of which is liable to tax" and that of the Supreme Court reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh), we do not accept the plea that the notification touches on the policy of taxation and hence, the provision is bad. We hold that by levying tax under section 7A in cases of....
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....policy of the Legislature. The tax was directed towards ensuring levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products manufactured out of them." Referring to the provisions of the Andhra Pradesh General Sales Tax Act, 1957 relating to purchase tax under section 6A and the provision of section 9 empowering the Government to exempt either the sale of certain goods or sale by certain persons either wholly or partly, the apex court held that in the light of the specific Scheme of section 9, the conditional exemption at the point of sale by particular category of persons could not be construed as operating to exempt purchase tax under section 6A. Referring to the sound policy underlying the provisions of purchase tax, the apex court held "merely because the levy attaches on the happening or non-happening of a subsequent event, the nature and character of the levy does not change ". The apex court held that that the Scheme of the Act is to tax at a point to ensure that the goods do not escape tax in the State altogether and the liability is attracted in respect of goods, which are liable to tax. The Supr....
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....rchasing dealer of such goods is taxed. The apex court held that "It would, therefore, be clear that the real object of the clauses (i) to (iii) in the section is not to levy a consumption tax, use tax or consignment tax but only to point out that thereby the purchasing dealer converts himself into the last purchaser in the State of such goods. The goods cease to exist or cease to be available in the State for sale or purchase attracting tax. In these circumstances, the purchasing dealer of such goods is taxed, if the seller is not or cannot be taxed." On that score, one cannot characterise the same as a tax on consignment. The fact that the levy materialises and is postponed does not convert what is in essence a purchase tax on goods to a consignment tax. Thus, the apex court rejected the challenge to the said provisions based on entry 54, List II of the Seventh Schedule to the Constitution of India. The subsequent decision rendered by the Supreme Court reported in [1994] 95 STC 170 (SC) (Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab) reaffirms the view expressed in the decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh). There, the apex co....
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....C 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai), the learned single judge held that the taxation under the Scheme of purchase tax did not aim at any restriction to the physical movement and hence, was not discriminatory. Referring to the Supreme Court decision reported in [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid & Co. v. State of Madras), the learned judge held that the taxation provision such as the one challenged did not impose any restriction to the physical movement. Pointing out that in all cases narrated therein there was no scope for the State by getting revenue in regard to such goods after they were sold and had been dealt with in the manner specified therein, the High Court referred to the decision of the Supreme Court reported in [1961] 1 SCR 809; AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) and [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid & Co. v. State of Madras) and held that "taxation provisions such as the one impugned here do not impose any such restriction to the physical movement of the goods. The provision in section 5A does not also discriminate between the goods imported and the goods of indigenous origin. Ther....
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....les Tax Officer, Palai) and [1973] 32 STC 359 (Ker) (Yusuf Shabeer v. State of Kerala) relating to the Kerala General Sales Tax Act, 1963 which are in pari materia with section 7A of the Tamil Nadu General Sales Tax Act, 1959 and approved of the view of the Kerala High Court reported in [1973] 32 STC 359 (Ker) (Yusuf Shabeer v. State of Kerala) and [1972] 30 STC 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai) both on the constitutionality of the provisions and the interpretation placed therein. In the context of the interpretation put on the provision, including the issue on its validity, it is no longer available for an assessee to contend that the levy is not attracted in case where anterior sale enjoys an exemption. Learned Senior Counsel pointed out that these decisions were concerned only on the interpretation and not on the constitutionality. We do not agree with the submission. A reading of the decisions of the Supreme Court reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh), [1994] 95 STC 170 (SC) (Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab) and [1995] 96 STC 344 (SC) (Jagatjit Sugar Mills v. State of Punjab), l....
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.... any one of the manners specified therein. The apex court held that "the policy of the Legislature is not to tax the same goods twice over. The fact in a given case, the purchased goods are consigned by the purchaser to his own depots or agents outside the State makes no difference to the nature and character of the tax. By doing so, he cannot escape even the one-time tax upon the goods purchased, which is the policy of the Legislature. The tax was directed towards ensuring levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products manufactured out of them". The charge under section 7A need not be necessary to check exemption but certainly it is pointing at the loophole caused by the circumstances stated under section 7A. If the goods are not available in the State for subsequent taxation by reason of the circumstances mentioned in section 7A(1)(a),(b),(c), then the purchaser is made liable under section 7A. Learned counsel for the petitioner referred to the decision reported in [2000] 5 SCC 488 (Arnit Das v. State of Bihar) in support of his plea that the issues which are not decided can always be re-agi....