AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 804
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....9806, 29911, 30260, 30371, 30377, 30857, 30860, 30887, 30895, 30902, 30941, 31743, 31871, 31894, 31939, 32032, 33027, 34323, 34452, 34474, 34476 and 34890 of 2014 SRI RAMESH RANGANATHAN AND SRI M.SATYANARAYANA MURTHY, JJ. For the Appellant :S.R.R. Viswanath, Sri V. Bhaskar Reddy, Sri Shaikh Jilani Basha and Sri M.V.J.K. Kumar For the Respondent: Sri D. Srinivas, Sri M. Govind Reddy and Sri J. Anil Kumar, Learned Special Standing Counsel for Commercial Taxes COMMON ORDER: (Per Honble Sri Justice Ramesh Ranganathan) In this batch of writ petitions, the validity of the assessment orders are put in issue on the ground that the assessing authority has levied purchase tax contrary to Section 4(4) of the A.P. VAT Act, 2005 (for short the Act) and Sections 14 and 15 of the Central Sales Tax Act, 1956 (CST Act for short). The petitioner- assessees are either (1) rice millers, or (2) dhal millers, or (3) soyabean oil millers, or (4) cotton millers. The first category of petitioners purchase paddy from agriculturists, mill it to produce rice, sell rice either to FCI or in the open market, and pay value added tax (VAT) on the said sales. The husk obtained, after milling rice,....
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.... I. THE RULE OF PRESUMPTION, IN FAVOUR OF CONSTITUTIONALITY, AS A PRINCIPLE OF STATUTORY CONSTRUCTION: 3. Before considering the rival submissions of Learned Counsel on either side, it is useful to examine the scope of Section 4(4) of the Act and its proviso. In order to arrest tax avoidance, a provision for levy of contingent purchase tax was introduced in almost all State enactments. This tax was called contingent purchase tax as the levy of tax on purchases is contingent upon the happening of certain events subsequent to the purchase viz., (1) consumption in the manufacture/production of other goods for sale; (2) consumption otherwise; (3) disposal of those goods within the State otherwise than by way of sale; and (4) dispatch of goods outside the State. Purchase tax, levied under Section 4(4) of the Act, is similar to Section 6-A of the A.P. General Sales Tax Act, 1957 (for short the APGST Act). Section 6-A was inserted in the APGST Act by Act 49 of 1976 w.e.f. 1-9-1976. The Statement of Objects and Reasons, appended to the Andhra Pradesh General Sales Tax (Second Amendment ) Bill, 1976, reads as under: Section 5 of the Andhra Pradesh General Sales Tax Act, 1957,....
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....ttempt of the court should to ascertain the intention of the legislature and put that construction which would lean in favour of the constitutionality unless such construction is wholly untenable. (State of Karnataka v. Hansa Corpn. (1980) 4 SCC 697 ; Seaford Court Estates Ltd. v. Asher (1949) 2 ALLER 155 (SC)). II. SECTION 4(4) OF THE ACT ITS SCOPE: 6. Section 4(4) of the Act provides that every VAT dealer, who in the course of his business purchases any taxable goods from a person or a dealer not registered as a VAT dealer or from a VAT dealer in circumstances in which no tax is payable by the selling VAT dealer, shall be liable to pay tax at the rate of four/five percent on the purchase price of such goods if, after such purchase, the goods are (i) used as inputs for goods which are exempt from tax under the Act; or (ii) used as inputs for goods, which are disposed of otherwise than by way of sale in the State or dispatched outside the State otherwise than by way of sale in the course of inter-State trade and commerce or export out of the territory of India; or (iii) disposed of otherwise than by way of consumption or by way of sale either within the State or in the ....
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....% on the purchase price of such goods which, under Section 2(25) of the Act, is defined to mean the amount of valuable consideration paid or payable by a person for any purchase made by him. The liability to pay such tax, however, arises only when, after such purchase, the goods are (i) used as inputs for goods which are exempt from tax under the Act; or (ii) used as inputs for goods which are (a) disposed of otherwise than by way of sale in the State, or (b) dispatched outside the State otherwise than by way of (1) sale in the course of inter-state trade or commerce or (2) export out of the territory of India; or (iii) disposed of, otherwise than by way of consumption or by way of sale, either (a) within the State or (b) in the course of inter-state trade or commerce or (c) export out of the territory of India. If a common input is used to produce more goods than one and, if any one of the goods so produced attracts clauses (i) to (iii) of Section 4(4), the manner in which the taxable turnover, under Section 4(4), is to be computed is as stipulated in its first proviso. 9. The levy created by Section 4(4) is a levy on the goods purchased within the State which are used as input....
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....t from a transaction in such goods involving sale or purchase. (Madhur Trading Co.). 10. Section 4(4) of the Act brings to tax goods the sale of which would, normally, have been taxed at some point in the State. Subsequent to their purchase by the dealer if those goods are not available for taxation, owing to the act of the dealer in (1) using them as inputs for goods which are exempt from tax under the Act; (2) using them as inputs for goods which are disposed of otherwise than by way of sale in the State; (3) using them as inputs for goods which are dispatched outside the State otherwise than by way of sale in the course of inter-state trade and commerce or export out of the territory of India; or (4) disposing of such goods otherwise than by consumption or by way of sale either within the State or in the course of inter-state trade or export, tax is levied on the purchase price of such goods. (Kandaswami12). True it is that the levy materialises only when the purchased goods (raw material/input) is consumed in the manufacture of different goods and those goods are disposed of within the State otherwise than by way of sale or are consigned to the manufacturing-dealers depots/a....
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....ego its tax revenue on the purchase of raw material/inputs. (Hotel Balaji1). 13. The principle behind the levy of purchase tax is that, if the goods purchased are not available for taxation inside the State and, by reason of one of the contingencies, the State is likely to lose its revenue, the interest of the State needs to be secured. The policy underlying Section 4(4) is to tax every transaction either at the point of sale or purchase. Where the seller is not taxed or cannot be taxed, the purchaser is taxed. By the same reasoning, when the seller is taxed, the purchases is not taxed. (Ruchi Soya Industries Limited v. Commercial Tax Officer Harbour III Assessment Circle, Chennai (2008) 12 VST 546, ; Malabar Fruit Products Co. (1972) 30 STC 537 (Ker) approved in M.K. Kandaswami; and Hotel Balaji). The fact that, 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 levied upon the goods purchased. The legislative policy is directed towards ensuring levy of tax at least on one transaction of sale/purchas....
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....w cotton (proportionately), as no tax is levied on the oil cake, extracted by them from cotton seed, which is dispatched outside the State. 17. In these Writ Petitions, the goods which have been subjected to tax under Section 4(4) of the Act, are raw cotton (kapas), paddy, raw dhal and soyabean seed. Tax, under Section 4(4), has been levied on the proportionate purchase value of raw cotton (kapas) on the ground that cotton seed/cotton deoiled cake/cotton delint husk (hull) have not been subjected to tax under the Act. Likewise tax has been levied on the proportionate purchase value of paddy and raw dhal on the ground that husk has not been subjected to tax under the Act. Tax has also been levied on the proportionate purchase value of soyabean seed on the ground that soyabean deoiled cake has not been subjected to tax under the Act. 18. Raw cotton, paddy, raw dhal and soyabean seed are all taxable goods. The expression taxable goods, as used in Section 4(4), can be defined as goods the sale of which is liable to tax under the Act. The word "taxable qualifies the term goods and excludes, by necessary implication, goods the sale of which is exempt from tax under the Act. The goo....
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....Writ Petitions), are subjected to, resulting in production of other goods. IV. SALE OF AGRICULTURAL PRODUCE TO VAT DEALERS FARMERS ARE NOT SUBJECTED TO TAX UNDER THE ACT: 21. It is contended, on behalf of the petitioners, that the goods, i.e., paddy, cotton kapas, soyabean seed, and dhal, are purchased from farmers in all these cases, except in the case of cotton mills where kapas are also purchased from registered dealers; the farmer is outside the purview of the Act; Section 2(6), which deals with the definition of business, excludes farmer in the relevant Explanation-III appended to the definition; so also the definition of dealer in section 2(10) r/w ExplanationII; as the farmer, is outside the purview of the Act, treating him as a person, or a dealer not registered as a VAT dealer, is without jurisdiction; the intention of the legislature is to exempt the farmer from the clutches of the Act; the definition of Sale, in Section 2(28), refers to business and trade; trade and business are synonymous; and, as the farmer is excluded from the definition of business, he is equally exempt from the definition of sale also. 22. On the other hand Learned Special Standing Counsel ....
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.... who is not a dealer. (Hindustan Milkfood Manufacturers Ltd.). 24. Section 2(6) of the Act defines business to include (a) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; (b) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern; and (c) any transaction in connection with commencement or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. Under Explanation (iii) thereto, for the purpose of Section 2(6), a sale by a person, whether by himself or through an agent of agricultural or horticultural produce grown by himself or grown on any land whether as owner or tenant in a form not different from the one in which it was produced, save mere cleaning, grading or sorting, does not constitute business. 25. Section 2(10) of the Act defines dealer to mean any person who carries on the business of buying,....
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....ultural produce) from the farmer. The contention that a farmer or an agriculturist is being subjected to tax is not tenable, as tax is levied not on him but on the VAT dealer who purchases goods from him. It is not every purchase of taxable goods from an agriculturist/farmer, but only such goods which fall within the ambit of clauses (i) to (iii) of Section 4(4), and its proviso, which attracts levy of tax at the stage of its purchase. The contention that a farmer/agriculturist is indirectly being subjected to tax does not, therefore, merit acceptance. 28. Broadly speaking, the effect of Section 4(4) is: tax payable at sale point becomes the tax payable on the purchase point in certain circumstances. Because the seller is not, or cannot be, taxed for certain reasons, the purchasing dealer is being taxed. When taxable goods are sold by a farmer/agriculturist he cannot be taxed because he is not a dealer. The purchaser is taxed in such cases provided one of the conditions specified in clauses (i) to (iii) in Section 4(4) are satisfied. (Hotel Balaji1). Where goods, liable to tax under the Act, are purchased by a VAT dealer from other dealers who are not registered under the Act, a....
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....anies Ltd. v. State of Bihar (2004) 7 SCC 642) ; Peekay Re-Rolling Mills (P) Ltd. v. Asstt. Commr. (2007) 4 SCC 30 , ). Exemption does not negate levy of tax altogether. 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. (Peekay Re-Rolling Mills (P) Ltd. (2007) 4 SCC 30). Section 4(4)(i) of the Act is attracted where the purchased goods are used as inputs for goods which are exempt from tax under the Act. Section 7 of the Act stipulates that the goods, listed in Schedule I to the Act, shall be exempt from tax under the Act. The VAT dealer, who purchases paddy from a farmer and mills it, obtains rice and husk. A process of manufacture is involved in the production of rice by milling paddy, and the rice so produced is distinct in nature and character from paddy. When paddy is dehusked and rice is produced there is a change in the identity of the goods, and paddy does not continue to be paddy thereafter. Rice and paddy, in ordinary parlance, are two distinct and different commodities. (Raja Provision Stores v. Appellate Tribunal (Sales Tax) (1997) 11 SCC 751 = (1997) 105 STC ....
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....king to levy tax on goods, which are exempt from tax under the Act, does not merit acceptance. Having granted exemption in respect of certain goods, under Section 7 read with the entries in the first schedule, the legislature has also chosen to levy purchase tax, under Section 4(4) (i) of the Act, on goods which are used as inputs for goods exempt from tax under the Act. VI. THE FIRST PROVISO TO SECTION 4(4) ITS SCOPE: 34. It is contended, on behalf of the petitioners, that the pro-rata principle, incorporated in the 1st proviso to Section 4(4), applies only to the value of goods, used or disposed of in the manner as prescribed; no purchase tax is leviable as the use of expression disposed of in the proviso makes it clear that branch transfers or stock transfers to ones own consignee/agents, which do not involve transfer of ownership, will not attract the charge; the pro- rata principle is not applicable to stock transfers; Section 4(4), as interpreted by the Revenue, tries to reach out to the purchase followed by two taxable events by looking to derivatives of the derivates of the input, even though the main product has fetched full revenue; Section 4(4) cannot reach out to ....
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.... turnover relating to dispatches outside the state, otherwise than by way of sale (i.e. consignment) of cotton seed oil, cotton seed cake and, in some instances, cotton seed; since it is an exempt transaction, purchase tax is levied on the proportionate purchase value of the goods i.e., input i.e., raw cotton under clause (ii) of Section 4(4) of the Act; a common input is one which gives rise to an output or outputs; inputs, which are not related to the outputs, are specific inputs; a common input is one which gives rise to both common and specific outputs; raw cotton is a common input for cotton seed, oil and cake; in case the dealer purchases cotton lint and sells it as it is, it would be a specific output as it is not connected with oil and cake; the word used in Section 4(4) permits the assessing authority to go back and levy purchase tax on the purchase price of the input which is purchased from farmers/ un-registered dealers, if any of the output /outputs, arising from such input, are disposed in the manner prescribed under clause (i), (ii) and (iii) of Section 4(4); anything that is put in is input; there may be an intermediary product between the first good (input) and the ....
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....may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. (S. Sundaram v. V.R. Pattabhiraman AIR 1985 SC 582 ). The proviso to Section 4(4) prescribes the manner in which the turnover, taxable under Section 4(4) of the Act, should be determined. It stipulates that, where a common input is used to produce goods, the taxable turnover under Section 4(4) shall be the value of the inputs proportionate to the value of the goods used or disposed of in the manner prescribed in clauses (i) to (iii) thereunder. 38. The goods used in the manufacture of any output or end- product might comprise, amongst others, inputs which may retain their dominant individual identity and character throughout the process and also in the end-product; those which, as a....
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.... Concise Oxford Dictionary of Current English (Eighth Edition) defines common, among others, to mean belonging to two or more quantities (common factor). The input must be common to one or more outputs. Paddy, as an input, is common both to rice and husk and soyabean seed, as an input, is common both to soyabean oil and soyabean deoiled cake. 40. The proviso to Section 4(4) is attracted where a common input is used to produce goods more than one, and where the output or one of the outputs cannot be subjected to tax as it attracts the ingredients of clauses (i) to (iii) of Section 4(4) of the Act. In such cases tax is levied on the value of the input proportionate to the value of such output/outputs. Application of the principle, words in the singular include the plural and vice versa, depends on whether the contrary intention appears from the context of the provision. (Sin Poh Amalgamated (H.K.) v. Attorney General (1965) 1 All E.R. 225 ). As the word inputs, referred to in the second limb of the proviso, refers only to the common input in the first limb, it matters little that the word inputs is used in the plural in the second limb, and the word input in the singular in the fi....
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.... of statutory interpretation. And in asserting the power to examine the substance of a composite transaction, formalism in fiscal matters is rejected and a more realistic legal analysis has been chosen. (Inland Revenue Commissioners v. Mc Guckian (1997) 3 All ER 817 ; Ramsay (WT) Ltd. v. IRC (1981) 1 ALLER 865 = (1982) AC 300). The main object of Section 4(4) is to plug leakage of revenue and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability, and efficacy is to be preferred to the one which would render it otiose or sterile. (Hotel Balaji; M.K. Kandaswami). 42. The proviso to Section 4(4) of the Act is attracted where a common input is used to produce one or more outputs. By the use of the word common, the legislative intent is to tax the proportionate value of the common input to the extent one or more of the outputs attract the ingredients of clauses (i) to (iii) of Section 4(4) of the Act. Cotton seed is the common input for cotton seed oil and cotton seed cake. Cotton seed....
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....on seed, being subjected to tax in terms of the proviso to Section 4(4), as raw-cotton is not the common input for cotton seed hull, cotton seed oil and cotton seed de-oiled cake. The use of the words used or disposed of in the manner as prescribed under this section in the proviso, makes it clear that the common input, of the outputs which are used or disposed of in the manner prescribed in clauses (i) to (iii) of Section 4(4) of the Act, can alone be subjected to tax in terms of the proviso. Cotton seed is derived from raw-cotton. Even if cotton seed de-oiled cake were to attract the ingredients of Section 4(4)(ii), the proportionate value of raw-cotton cannot be subjected to tax as it is not raw-cotton, but cotton seed which is the common input for cotton seed oil or cotton seed hull or cotton seed de-oiled cake. The proviso to Section 4(4) cannot be so extended as to bring within its ambit goods whose derivatives are common inputs for other goods (outputs) which attract the ingredients of clauses (i) to (iii) of Section 4(4) of the Act. 45. The theory, of common input/specified input, put forth on behalf of the respondents does not derive support from a plain and literal rea....
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....ealt with in the manner specified in clauses (i) to (iii) of Section 4(4) which falls within the ambit of Section 4(4) of the Act. For instance, cotton seed is an input both for cotton seed oil and cotton seed cake. If cotton seed oil were to constitute 70% of cotton seed and the remaining 30% cotton seed deoiled cake, and if cotton seed oil is sold and the cotton seed deoiled cake is used or disposed of in the manner specified in clauses (i) to (iii) of Section 4(4), it is only the proportionate value of cotton seed, representing cotton seed deoiled cake, which can be subjected to purchase tax under Section 4(4) of the Act. In the aforesaid illustration as cotton seed deoiled cake is taken as constituting 30% of cotton seed, the proportionate value, liable to tax under Section 4(4) of the Act, would be 30% of the purchase price of cotton seed. In order to attract levy of tax under Section 4(4) of the Act cotton seed, in the aforesaid illustration, should have been purchased by a VAT dealer from persons who are not dealers under the Act and, consequently, VAT should not have been levied when cotton seed was so purchased. Where Raw cotton is purchased, tax under Section 4(4) can onl....
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....COMPUTING THE CORRESPONDING VALUE, IRRATIONAL? 50. It is contended, on behalf of the petitioners, that the assessing authorities, in this batch of writ petitions, have not specifically adopted a rational method for the purpose of computing the corresponding purchase value; neither the legislature in the Act, nor the rule making authority under the relevant rules, have prescribed any method for computing the corresponding purchase turnover of the input alleged to have been used for obtaining the resultant by-product exempt from tax; it is the value of the inputs which is relevant; and the proviso should be understood to be applicable in cases where multiple inputs are used for obtaining an output or different outputs exempt from payment of tax, in which case only the proportionate purchase value of the specific input, used for obtaining the output, has to be calculated as the second limb refers to the value of inputs which is plural in nature. Reliance is placed on Delux Wires v. State of A.P (1990) 77 STC 373 (APHC) in this regard. 51. On the other hand Learned Special Standing Counsel for Commercial Taxes would submit that Kapas is the input for Lint and Cotton seed; Cotton ....
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....ii) and Section 14-B of the APGST Act, as incorporated by the Amendment Act 18 of 1985, must be read down by not giving effect to the said provisions until and unless the legislature prescribes guidelines for exercising the power conferred thereunder; and the expressions "prevailing market prices" and "abnormally low" occurring in Section 14-B of the Act, are defined. The Division bench, however, made it clear that, as and when the legislature chooses to define the said two expressions and indicates the method and manner of determination of the turnover with reference to the prevailing market prices, Section 14-B of the Act can be enforced from such date. 54. No uniform formula can be prescribed in applying the proviso to Section 4(4) of the Act, as the proviso would apply to different goods, the proportionate value of which may vary from one to another. For instance, in the present batch of Writ Petitions itself, the proportionate value of paddy, soya bean seed etc are subjected to tax under Section 4(4) of the Act. While paddy is the common input for rice and husk, soya bean seed is the common input for soya bean oil and soya bean de-oiled cake. The proportionate quantity of h....
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....eaking, is applicable to pending cases. No suitor can be said to have a vested right in procedure. (Sharvan Kumar Swarup & Sons (1994) 6 SCC 623 ). 58. The liability is imposed by the charging section ie Section 4(4) of the Act. Its proviso enables the liability to be quantified and, when quantified, to be enforced against the subject, but the liability is definitely and finally created by the charging section i.e., Section 4(4) of the Act. (Sharvan Kumar Swarup & Sons (1994) 6 SCC 623; W.H. Cockerline & Co. v. The Commissioner of Inland Revenue (16) TC 1 at 19 ). It is important to distinguish between charging provisions, which impose the charge to tax, and machinery provisions which provide the machinery for the quantification of the charge and the levying and collection of the tax in respect of the charge so imposed. Machinery provisions do not impose a charge or extend or restrict a charge elsewhere clearly imposed. (Halsbury's Law of England (Fourth Edn.) Vol. 23, Para 29; Sharvan Kumar Swarup & Sons54). While provisions of a statute, dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attr....
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....r liable to pay tax under the Act in the State, (b) the goods so purchased cease to exist as such goods for the reason they are consumed in the manufacture of different commodities and (c) such manufactured commodities are either disposed of within the State otherwise than by way of sale or despatched to a place outside the State otherwise than by way of an inter-State sale or export sale. It is evident that if such manufactured goods are not sold within the State of Haryana, but yet disposed of within the State, no tax is payable on such disposition; similarly, where manufactured goods are despatched out of State as a result of an inter-State sale or export sale, no tax is payable on such sale. Similarly again where such manufactured goods are taken out of State to manufacturers own depots or to the depots of his agents, no tax is payable on such removal. Goodyear1 takes only the last eventuality and holds that the taxable event is the removal of goods from the State and since such removal is to dealers own depots/agents outside the State, it is consignment, which cannot be taxed by the State legislature. With the greatest respect at our command, we beg to disagree. The levy creat....
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....agents) outside the State. Disposal of goods within the State without effecting a sale also stands on the same footing, an instance of which may be captive consumption of manufactured products in the manufacture of yet other products. Once the scheme and policy of the provision is appreciated, there is no room, in our respectful opinion, for saying that the tax is on the consignment of manufactured goods. (emphasis supplied). The judgment in Hotel Balaji1 was followed in Devi Dass Gopal Krishan (P) Ltd.. The contention urged on behalf of the petitioners, that tax levied under Section 4(4) of the Act is in the nature of consignment tax, does not, therefore, merit acceptance. X. SECTION 15 (a) OF THE CST ACT: ITS SCOPE: 63. It is contended, on behalf of the petitioners, that unginned cotton, and ginned cotton, are treated as one and the same commodity under Section 14(ii) of the CST Act; Entry 79 of the IV Schedule to the Act also treats cotton, whether unginned or ginned, as one and the same commodity; when raw cotton is ginned, the ginning process yields ginned cotton (also called cotton lint) and cotton seed; it cannot be said that unginned cotton is the input and ginned ....
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....s, that 100 kgs. of Kapas yields only 32 or 33 kgs of lint, and the rest is either seed or waste; as per this calculation also, the total tax levied on kapas do not exceed 4% as restricted under Section 15(a) of the CST Act; while the petitioners have raised this issue in some of the Writ Petitions, they did not produce any material evidence to prove that the tax levied on declared goods exceeded 4% in any given case; the tax payable under Section 15(a) of the CST Act is output tax input tax; even after levy of purchase tax, if the total tax paid or payable by the dealer does not exceed 4% on the total purchase or sale of cotton, Section 14 & 15 of the CST Act will not be violated; in the instant case (cases), since the total tax paid or payable by the dealer does not exceed 4% on the total purchase or sale of cotton, it cannot be said that levy of purchase tax is in violation of Section 14 & 15 of the CST Act, as is evident from the illustration given below ( i.e., the tax payable on Cotton in W.P.No.22428 of 2013) - Purchase of Kapas from farmers 2,90,764.43 Quintals Value Rs. 86,35,68,153 Tax @ 4% = Rs. 3,45,42,726(if levied) Outpu....
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....cted under the authority of Parliament, but the tax is collected through the agency of the State. It is levied ultimately for the benefit of the States and is, statutorily, assigned to them. It is clear from the amendments made by the Constitution (Sixth Amendment) Act, 1956, in Article 269, and the enactment of the CST Act that CST, though levied for and collected in the name of the Central Government, is a part of the sales-tax levy imposed for the benefit of the States. (The State of Madras v. N.K. Nataraja Mudaliar AIR 1969 SC 147 ; Sterling Steels & Wires Ltd. v. State of Punjab (1980) 45 STC 438 (PH)). Article 286(3)(a) of the Constitution of India, after its substitution by the Constitution (46th Amendment) Act, 1982, stipulates that any law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of goods declared by parliament by law to be of special importance in inter- State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as parliament may, by law, specify. 67. The CST Act firstly specifies the declared goods and, secondly, imposes c....
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....15(a) of the CST Act was sought to be amended with a view to allowing the State Governments to impose tax on declared goods at more than one stage in respect of the sale of declared goods. After its amendment, by Act 20 of 2002 with effect from 13.05.2002, Section 15 of the CST Act reads as under: Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely:- (a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may....
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....eclared goods at one point, it could not be levied at any other subsequent stage and consequently, if declared goods had suffered purchase tax, they could not be subjected to tax again at the point of sale to the consumer. (Commissioner, Sales Tax, U.P., Lucknow v. Chokhani Co. (1982) 51 STC 195 (Allahabad HC) ; Commissioner of Sales Tax v. Nirankari Engineering, Kanpur (1982) 51 STC 195 (Allahabad HC); Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290 at 296-297 (SC) ). Hitherto, when the purchaser of the goods was exempt from levy of tax, sales tax could not be collected from the selling dealer as it would then have violated the condition of single -stage tax under the pre-amended Section 15(a) of the CST Act. (Vijaya Lakshmi Enterprises v. State of A.P (2012) 54 APSTJ 39 (APHC); Peekay Re -Rolling Mills (P) Ltd.). Even before its amendment Section 15(a) itself, beyond saying that the levy could only be at one stage, did not prescribe any particular point in the series of sales or purchases. The fixation of the point, in conformity with Section 15(a) of the CST Act, was left to the particular State legislature. The automatic modification of the provi....
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....ton (cotton lint) was hitherto subjected to tax on its sale, no purchase tax could have been levied on raw cotton as Section 15(a), before its amendment, restricted imposition of tax on declared goods only to one stage i.e., either at the stage of its sale or its purchase. However, after the amendment of Section 15(a) by Act 20 of 2002 with effect from 13.05.2002, tax under the Act can be imposed at more than one stage. In effect tax can now be levied both on the sale or purchase of cotton i.e., tax can be imposed both on the purchase of raw cotton (kapas) and again on the sale of ginned cotton i.e., cotton lint. The restriction under Section 15(a) of the CST Act is now limited only to the rate of tax which before 08.04.2011 was 4%, and is 5% thereafter. In view of Section 15(a) of the CST Act the rate of tax, both on the purchase and sale of cotton together, cannot exceed 4%/5%. 77. The fact that ginned and unginned cotton are consistently treated under the same head, in the statutes dealing with the matter, indicates that the legislature looked upon ginned and unginned cotton as one and the same commodity. It seems to have been felt that ginning does not alter the character of....
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....not exceed 4%. In the illustration above mentioned, as tax on the sale of ginned cotton of Rs. 4,800/- exceeds the tax payable on the entire purchase value of raw cotton of Rs. 4,000/-, no purchase tax can be levied on the purchase of raw cotton by the VAT dealer. 79. Section 14(vi-a) of the CST Act relates to pulses (dhal). Section 15(d) of the CST Act stipulates that each of the pulses referred to in Section 14(vi-a), whether whole or separated and with or without husk, shall be treated as a single commodity for the purpose of levy of tax under the Act. Consequently the Act has, in its fourth Schedule, listed under a common entry i.e., Entry 82 all kinds of pulses and dhals. Raw dhal and finished dhal both fall under Entry 82 of the IV Schedule to the Act. In view of both Section 15(d) of the CST Act, and Entry 82 of the IV Schedule to the VAT Act, raw dhal (whole dhal) must be held to be the same commodity as finished dhal even after it is dehusked. As a result the restriction placed by Section 15(a) of the CST Act, of the tax payable under the VAT Act in respect of the sale or purchase of such goods not exceeding 4%/5% of the sale or purchase price thereof, would be attracte....
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....d on purchase of raw cotton and tax again being levied at 4% on the sale of cotton seed as both Parliament and the State Legislature have treated them as two different and distinct goods. 81. The ingredients of Section 15[c] of the CST Act are: (i) tax has been levied under the VAT Act on the sale or purchase of paddy which is declared goods under Section 14(1)[c] of the CST Act; (2) rice is procured from such paddy; and (3) tax is levied on the rice so procured. In such circumstances tax leviable on the procured rice must be reduced by the amount of tax levied on such paddy. Purchase tax under Section 4(4) is levied on the value of paddy to the extent it yields husk which is exempt from tax under the first schedule to the VAT Act. In view of Section 15(c) of the CST Act, the tax levied on the sale of rice would be required to be reduced by the amount of purchase tax levied, under Section 4(4) of the Act, on paddy. 82. Reliance placed by the petitioners on Commissioner, Sales Tax v. Mathura Das Ram Saran Das 1976 UPTC 518 ; Radhakrishna & Co. v. State of A.P. (1969) 24 STC 320 (A.P); and Rattan Lal & Co., is misplaced. In Mathura Das Ram Saran Das77, the question which ....
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.... he is going to use the goods or sell them to consumers, he knows when' he is not liable to tax and when he is. Therefore, he will not include the transaction in his taxable turnover in the first case but include it in the second. Goods in the hands of a dealer are not taxed. They are only taxed on the last purchase or sales. This information is always possessed by a dealer and by providing that he need not include in his turnover any transaction except when he is the last dealer, the position is now clear. It is contended that even so the dealer may not know that he is the last dealer and may make some mistake. The law does not take into account the actions of persons who are negligent or mistaken but only of persons who act correctly, according to law. If the dealer is clear 'about his own position he is now quite able see whether he is the last purchaser liable to pay the tax or the last seller liable to pay the tax. The Act by Specifying the stage as the last purchase or sale by a dealer liable to pay the tax makes the stage quite clear and by giving an option to him not to include such transactions in his return saves him from the liability to pay the tax till....
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....e of cotton kapas relatable to the value of cotton seed/cotton seed oil/cotton seed oil cake sent on consignment; the petitioners, at times, purchased cotton kapas (raw cotton) or cotton lint from other registered VAT dealers under tax invoices; on such purchases, the other registered VAT dealers charged VAT; the petitioners, after purchasing from other registered VAT dealers, ginned raw cotton and derived cotton lint; the purchased cotton lint was sold locally within the State or in the course of inter-state trade and commerce and the tax due under the Act, or the CST Act, was completely paid; since they paid tax on the sales of cotton lint either derived out of ginning raw cotton or purchased from other registered VAT dealers, the petitioners are entitled to reimbursement of the entire tax paid on their purchase of raw cotton or lint by the operation of Section 15(b) of the CST Act; this reimbursement, which petitioners are entitled to, cannot be confused with the input-tax credit due under Section 13 of the Act; the petitioners sold a part of the cotton lint in the course of inter- state trade and commerce to registered dealers, and paid the tax due u/s 8(1) of the CST Act; unde....
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....receding the sale or purchase, occasioning the export of those goods out of the territory of India, shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. 88. Section 8 of the CST Act prescribes the rates of tax on sales in the course of inter-state trade or commerce. Under Section 8(1) every dealer who, in the course of inter-state trade or commerce, sells to a registered dealer goods of the description referred to in sub-section (3), shall be liable to pay tax under the Act which shall be 2% of his turnover, or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower. Under the proviso thereto, the central government may, by notification in the official gazette, reduce the rate of tax under Section 8(1). Under Section 8(2) the tax payable by any dealer on his turnover, in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-state trade or commerce not falling within sub- section (1), shall be at th....
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....s must, thereafter, have been sold in the course of inter-state trade or commerce; (3) tax must be paid under the CST Act in respect of the sale of such goods in the course of inter-state trade or commerce; (4) in such an event, the tax levied under the VAT Act is required to be reimbursed to the person making such sale in the course of inter-state trade or commerce; (5) reimbursement, of the tax levied under the VAT Act, shall be in such manner, and shall be subject to such conditions, as may be provided under the VAT Act. As goods sold in the course of inter-state trade or commerce are zero-rated sales under Section 8 of the VAT Act, and input tax credit can also be claimed by the VAT dealer, who sells taxable goods in the course of inter-State trade or commerce, to the extent tax was paid by him on the purchase of such goods, the requirement of Section 15(b) would, ordinarily, be satisfied. 91. While Section 15(b) is applicable only where declared goods are sold in the course of inter-state trade or commerce, Section 4(4) of the VAT Act is attracted on the purchase of taxable goods used or disposed of otherwise than by way of sale in the course of inter-State trade or commerc....
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....would require purchase tax levied under Section 4(4) on raw dhal to be reimbursed to the person selling finished dhal in the course of inter-state trade and commerce. Unlike raw cotton, this difficulty does not arise when cotton seed is purchased from persons who are not dealers under the VAT Act. Cotton seed is the common input for both cotton seed oil and cotton seed de-oiled cake. Where cotton seed de-oiled cake is despatched outside the State on consignment, the proportionate purchase value of cotton seed, representing the cotton seed de-oiled cake which has been sent outside the State on consignment, can be subjected to tax under Section 4(4) of the VAT Act. XII. CAN THE ADVANCE RULING, UNDER SECTION 67 OF THE A.P. VAT ACT, BE REVISED UNDER SECTION 32 THEREOF? 93. It is contended, on behalf of the petitioners, that, on an application being made for advance ruling under Section 67 of the Act, the Advance Ruling Authority, vide CCTs Ref. No.A.R.Com/517/2005 dated 12.03.2007, had clarified that where cotton kapas (raw cotton) purchased from unregistered dealers is ginned, no purchase tax can be levied under Section 4(4) on the supposed value of raw cotton depending upon the....
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....djudication before this Court. XIII. LIMITATION FOR PASSING AN ORDER UNDER SECTION 21(3) AND 21(5) OF THE ACT: 95. It is contended, on behalf of the petitioners, that a part of the period, in the relevant assessment orders, is barred by limitation; the Act does not prescribe a separate assessment year, and assessment can be made for any part of a tax period; a part of the assessment period is, therefore, barred by limitation as the assessment order is passed beyond 4 years; nothing has been stated in the show cause notices or the assessment orders with regards the extended period of limitation nor has anything been averred in the counter affidavits; and the extended period of limitation, under Section 21(5) of the Act, would not be applicable in these cases as there is no willful evasion or any best judgement assessment referred to in the assessment orders. On the other hand, Learned Special Standing Counsel for Commercial Taxes would submit that in some cases, since there is willful evasion of tax by some of the dealers, the assessing authority has invoked his jurisdiction under Section 21(5) of the Act, and has passed assessment orders within 6 years which is legal and vali....
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.... offence. 98. Rule 23 of the Rules relates to tax returns and, under sub- rule (1) thereof, the return to be filed by a VAT dealer, under Section 20, shall be in Form VAT 200, and shall be filed within 20 days after the end of the tax period. Under Rule 23(6)(a) if any VAT dealer, having furnished a return in Form VAT 200, finds any omission or incorrect information therein, other than as a result of an inspection or receipt of any other information or evidence by the authority prescribed, he shall submit an application in Form VAT 213 within a period of six months from the end of the relevant tax period. Rule 24 relates to payment of tax and Rule 25 to assessment. Rule 25(1) stipulates that, where a VAT dealer fails to file a VAT return as prescribed under Section 20, the prescribed authority shall unilaterally assess the tax payable. Rule 25(1) requires the prescribed authority to serve upon the VAT dealer a notice of the tax assessed and the penalty due. Under Rule 25(5), where any VAT return filed by the VAT dealer appears to the prescribed authority to be incorrect or incomplete, the prescribed authority shall assess the tax payable, to be best of his judgment, in Form VAT ....
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....the assessing authority to state, for the first time in the assessment order, that the assessee has committed wilful evasion of tax. The show cause notice should contain factual details to show the basis on which the assessing authority has arrived at the tentative conclusion that the VAT dealer has committed wilful evasion of tax, for it is only then would the VAT dealer have the opportunity to submit his reply and satisfy the assessing authority that he has not committed wilful evasion of tax; and the extended period of limitation of six years under Section 21(5) of the Act would not apply. 101. Since the burden of proving malafide conduct lies with the Revenue, Section 21(5) of the Act finds application only when specific and explicit averments challenging the fides of the conduct of the assessee are made in the show cause notice. In order to attract Section 21(5), it must be shown that VAT has escaped assessment by reason of wilful evasion by a VAT dealer. In order to extend the period of limitation from four years to six years, the show cause notice must put the assessee on notice of the omissions and commissions which amount to committing wilful evasion of tax. Unless the ....
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...., only if the said dealer has committed wilful evasion of tax. As the fact, of commission of wilful evasion, is a jurisdictional fact the dealer is entitled to satisfy the prescribed authority, on being given the opportunity to show cause, that such jurisdictional facts are non-existent; and jurisdiction under Section 21(5) of the Act cannot be exercised. It is necessary, therefore, for the prescribed authority to detail these jurisdictional facts in the show-cause notice proposing to assess the dealer to tax under Section 21(5) of the Act. The contents of the show cause notice and the assessment order must clearly show the commission of wilful evasion, in the absence of which the extended period of limitation, under Section 21(5) of the VAT Act, would not apply. The requirement of stating these jurisdictional facts in the show cause notice is to ensure that the assessee-dealer has the opportunity to satisfy the assessing authority that he lacks jurisdiction, to assess the dealer to tax, applying the extended period of limitation. 103. We do not propose to examine whether, in each of the Writ Petitions, the assessment order or a part thereof is barred by limitation. As the asses....
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....led cake, which is exempt from payment of tax, is without jurisdiction; restriction of input-tax, under Rule 20(6) of the Rules, is illegal; the petitioners claimed input-tax credit ITC as per Rule 20(9)(a) of the Rules, applied the formula as prescribed, and filed VAT 200A return and VAT 200B consolidated return; column 3 of the Form VAT 200A specifically refers to the sum of the boxes 13A, 14A, 16A, 17A and 19A of VAT 200 return; therefore the total of all the turnovers, taxable at different rates, is to be summed up for the purpose of restricting input-tax credit; the assessing authority has not taken the turnover specified in column 16A of VAT 200 return; the authority proceeded on the wrong premise that Rule 20(6) is applicable on the ground that the petitioner has used specific inputs for specific outputs which is incorrect; the cotton kapas, purchased from registered dealers, are the original input used for obtaining the end product; the relevant rule would, therefore, be Rules 20(9) & 20(10) as the assessees have not maintained separate accounts with regards specific inputs used for specific outputs; the entire turnover has to be taken for the purpose of arriving at the tur....
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....ases; and they are mutually exclusive and independent exercises covering different spheres of purchases by a VAT dealer. 106. Section 2(13) of the Act defines exempt sale to mean a sale of goods on which no tax is chargeable, and consequently no credit for input-tax related to that sale is allowable. Section 2(14) defines exempted turnover to mean the aggregate of sale prices of all goods exempt under the Act and full or part of the actual value or fair market value of all transactions not taxable under the provisions of the Act, including transactions falling under Section 6-A of the CST Act. Section 2(19) of the Act defines input-tax to mean the tax paid or payable under the Act by a VAT dealer to another, whether directly by himself or through his agent on his behalf, on the purchase of goods in the course of business. Section 2(22) defines output tax to mean the tax paid or payable by a VAT dealer, on the sale of goods to another VAT dealer, whether by himself or through his agent or any other person. Section 2(35) defines tax invoice to mean a sale invoice containing such details as may be prescribed and issued by a VAT dealer to another VAT dealer. 107. Section 4 of the....
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....in Form VAT 200A, for each tax period for adjustment of input-tax credit; and also to make an adjustment for a period of 12 months, ending March every year by filing a return in Form VAT 200B. Rule 20(7) stipulates that, where a VAT dealer makes taxable sales and sales of exempt goods (goods in Schedule I) for a tax period, and inputs are common for both, the amount which can be claimed as input tax credit, for the purchases of the goods at each tax rate shall be calculated by the formula a x b/c. The proviso thereto requires the VAT dealer to furnish an additional return in Form VAT 200A for each tax period for adjustment of input-tax credit; and also to make an adjustment for a period of 12 months ending March every year by filing a return in Form VAT 200B. 109. Under Rule 20(8)(a), where a VAT dealer makes sales of taxable goods and also exempt transactions of taxable goods in a tax period, for the purchases of goods taxed at 12.5%, input-tax to the extent of the 8.5% portion can be fully claimed in the same tax period. Rule 20(8)(b) provides that, in respect of purchases of goods taxable at 1%, 4% and for the 4% tax portion in respect of goods taxable at 12.5%, the VAT deale....
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....ed, briefly, as under: (i). Section 4(4) of the VAT Act is the charging section and its main object is to plug leakage of revenue, and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. (ii). The policy underlying Section 4(4) is to tax every transaction either at the point of sale or purchase. Where the seller is not taxed or cannot be taxed, the purchaser is taxed. By the same reasoning, when the seller is taxed, the purchases is not taxed. If the goods are not available in the State for subsequent taxation, by reason of the circumstances mentioned in clauses (i) to (iii) of Section 4(4), then the purchaser is made liable to tax under Section 4(4). (iii). The goods purchased are referred to in Section 4(4) as taxable goods, and such purchases are in circumstances in which no tax is payable by the seller. The expression 'taxable goods', as used in Section 4(4), can be defined as g....
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....x. It is only because the goods listed in the first schedule to the VAT Act are exempt from payment of VAT under the Act is purchase tax levied, under Section 4(4)(i) of the VAT Act, on goods which are used as inputs for those goods which are exempt from tax under the Act. (xi). Section 4(4)(i) & (ii) require that the manufactured/produced goods should have been transferred to some person otherwise than by way of sale. If the manufactured goods are not sold within the State, but are yet disposed of within the State, then no tax is payable on such disposition. Again where such manufactured goods are taken out of the State, to the manufacturers own depots or to the depots of his agents, then no such tax is payable on such removal. (xii). Each transaction of purchase of goods, which is used or disposed of in the manner contemplated under clauses (i) to (iii) of Section 4(4), is distinct and is neither capable of being construed as overlapping or as redundant. (xiii). The use of the word input, in clauses (i) and (ii) of Section 4(4), brings within its ambit every item which is a raw material in the widest sense, made wider by using the expression input. The purpose is to broa....
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....tton seed de-oiled cake. (xxi). The use of the words used or disposed of in the manner as prescribed under this section, in the proviso to Section 4(4), make it clear that the common input, of the outputs which are used or disposed of in the manner prescribed in clauses (i) to (iii) of Section 4(4), can alone be subjected to tax. (xxii). The proviso to Section 4(4) cannot be so extended as to bring within its ambit goods whose derivatives are common inputs for other goods (outputs) which attract the ingredients of clauses (i) to (iii) of Section 4(4) of the Act. (xxiii). Where one of the outputs is dealt with in the manner specified in clauses (i) to (iii) of Section 4(4), and the other output is not, it is only the output which is dealt with in the manner specified in clauses (i) to (iii) of Section 4(4) which falls within the ambit of Section 4(4) of the Act. (xxiv). The proviso to Section 4(4) enables tax to be levied not on the goods which constitute the output, but on the proportionate value of the purchased goods which are used as inputs for producing other goods (outputs) where one of the goods so produced attracts the ingredients of clauses (i) to (iii) of Secti....
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.... the CST Act, but to modify them in accordance with Section 15. The law of the State is declared to be subject to the restrictions and conditions contained in the law made by Parliament, and the provisions of the State Act would pro-tanto stand modified. (xxxiv). Where the turnover, of declared goods under Section 14 of the CST Act, are subjected to tax under the sales tax law of a State, Section 15(a) of the CST Act prescribes the maximum rate at which such tax may be imposed so as to ensure that inter-state trade or commerce in such goods is not hampered by heavy taxation within the State occasioned by an excessive rate of tax. (xxxv). As a result of Article 286 (3) of the Constitution, and Section 15(a) of the CST Act, the rate of tax under Section 4(4) of the VAT Act, as in the case of sale or purchase of declared goods, is limited to the rate of four/five per cent. (xxxvi). The whole idea, underlying Section 15(a) of the CST Act, is that declared goods should not, in the aggregate, suffer tax at more than four/five per cent both in intra-state and inter-state trade. (xxxvii). Cotton, whether ginned or unginned, is treated as a single commodity or a single species o....
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....nnot be introduced into the relevant provisions/schedules on the ground that they are derived from the primary commodities. (xliv). Cotton kapas, in its unginned or unmanufactured state, contain cotton-seed. But it is by a manufacturing process that cotton and seed are separated, and the seed so separated is neither cotton nor part of cotton. They are two distinct commercial goods though, before the manufacturing process, the seed might have been a part of cotton itself. (xlv). The restriction under Section 15(a), of the maximum rate of 4%/5% tax being imposed, would not disable tax at 4%/5% being levied on purchase of raw cotton and tax again being levied at 4%/5% on the sale of cotton seed as both Parliament and the State Legislature have treated them as two different and distinct goods. (xlvi). When paddy is dehusked, and rice is produced, there is a change in the identity of the goods, and paddy does not continue to be paddy thereafter. Rice and paddy, in ordinary parlance, are two distinct and different commodities. However, in view of Section 15(c) of the CST Act, the tax levied on the sale of rice must be reduced by the amount of purchase tax levied, under Section 4....
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....month and, unlike the APGST Act, not for an assessment year. (lv). The prescribed authority gets jurisdiction to assess the VAT dealer to tax, within the extended period of limitation of six years under Section 21(5) of the VAT Act, only if the said dealer has committed wilful evasion of tax. (lvi). As the assessment order is required, under Rule 25(5) of the Rules, to be preceded by a notice in Form VAT 305-A, it would not suffice for the assessing authority to state, for the first time in the assessment order, that the assessee has committed wilful evasion of tax. The show cause notice should contain factual details to show the basis on which the assessing authority has arrived at the tentative conclusion that the VAT dealer has committed wilful evasion of tax. (lvii). It is mandatory that the show-cause notice must contain allegations against the assessee falling within the four corners of Section 21(5). Unless the assessee is put to notice, he would have no opportunity to meet the case of the department. In the absence of any such allegations in the show-cause notice, the Revenue cannot sustain the notice or the order passed under Section 21(5) of the Act. (lviii). If ....