1. Adjustment of tax paid in wrong head

Clerk of petitioner, paid CST in the head of State Sales Tax. Central tax authorities (of course of State) levied interest and penalty for short payment of CST. Hon’ble Calcutta HC held that adjustment was to be made only when taxes paid in excess or short paid were credited into a known account or fund and could be easily adjusted. Of course, this ratio would not apply in case of inter-departmental adjustment or completely different types of taxes. The revenue on the other hand contended that this kind of adjustment was not possible. According to it, it may be true that the CST and ST were directly credited into the Consolidate Fund of the State. Nevertheless, CST was an item under List-1 Entry 92-A of the Seventh Schedule to the Constitution over which Parliament had exclusive power to legislate and sales tax falls under List-II Entry-54 over which the State Legislature had exclusive power. This proposition was based on the Mysore HC judgment reported in 20 STC 20 which was not applied in the present facts of the case.

2. A subsequent Circular No. 9 of 2006 dt. 19th October 2006 issued by the Central Govt. took care of the exact situation as obtained in the present case. Relevant paragraph of the said circular read as under:

“Thus a tax payable under the West Bengal Value Added Tax 2003 can be given credit under the same act although the challans has been used under the West Bengal Sales Tax Act, 1994 or under the CST Act, 1956. Similarly a tax meant for deposit under the CST Act, 1956 may be given credit under the same Act although challans used for such deposit is either under the West Bengal Value Added Tax Act, 2003 or The West Bengal Sales Tax Act, 1994. Likewise a tax required to be deposited under the West Bengal Sales Tax Act, 1994 may be given credit under the same act, although the challans for the purpose has been used inadvertently under the West Bengal Value Added Tax Act, 2003 or the CST Act, 1956.”

Accordingly, the revenues pedantic and very technical approach was rejected and writ petition was allowed.

Hindustan Unilever Ltd. v. Dy. Commr. CT (2015) 50 PHT 150 (Cal)

2. Clarification issued by the Commissioner of the Commercial Taxes, Karnataka

3. Facts – Negative facts – Burden of Proof

In the present case, fact of ‘sale’ by a dealer not recorded as purchase by the appellant. Books of accounts not found at the time of survey. Assessing authority issued show-cause notice and rejected clarification given by the appellant and imposed tax. Tribunal on appeal after consideration of the case law cited by the appellant held that the burden of proof as contained in Section 16 of the Act 2008 has been proved by the appellant-dealer. The bonafide dealer is not responsible to prove negative facts. Accordingly, the Tribunal held that the First Appeal Order does not deserve to be supported and therefore it is set-aside and the appeal is allowed.

Maa Mahamaya Alloys Pvt. Ltd. v. C.C.T 2015 NTN (Vol. 57) Tribunal 80

4. Karnataka Sales Tax Act, 1957 – Entry 25 of Schedule-VI

In the present case, constitutional validity of Entry 25 of Schedule-VI to the Karnataka Sales Tax Act, 1957, pertaining to “Processing and supplying of Photographs, photo prints and photo negatives” was the subject-matter of the appeal. It was the third endeavour to resurrect the said entry, when on the first two occasions, the steps taken by the State were declared as impermissible. Even this time the HC has dumped the amendment as unconstitutional. However, the reasons advanced by the HC in all three rounds were different. While travelling through the historical facts which led to the issue at hand, we shall clear the whole controversy involved inasmuch as in respect of works contract levy of tax power of State Legislature is derived under Article 366 clause 29-A r/w Entry No. 54 list II of the Constitution and by virtue of Clause 29A of Article 366, the State legislature is now empowered to segregate the goods part of the works contract and imposed sales tax thereon. It may be noted that Entry 54, List II of the Constitution of India, empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State list, the State Legislature has the competency to legislate over the subject. In view of this legal position, the Apex Court comprising of three Judges undertook the journey of its own 15 cases and set-aside the HC judgment by observing that the HC has not dealt with the matter in its correct perspective and even not dealt with various facets of the issue and allowed the appeal of the State holding that Entry 25 of Schedule-VI of the Act is constitutionally valid. For detailed legal analysis, readers are advised to go through the entire text of the long judgment.

State of Karnataka etc. v. M/s Pro Lab And Ors. etc. 2014-15 (19) KCTJ 275 and 2015 NTN (Vol. 57)-102

5. Limitation

The revision application filed by the Commissioner was delayed by 175 days and prayer was made to condone it. No reasons were cited in the affidavit for the period in between 90 days of serving the order except for stating that there was a shortage of employees in the office and there was no permanent State Representative. The HC following the judgment of the Apex Court in the case of Postmaster General v. Living Media India Ltd. 2012 (3) SCC 563 held that the work of no Dept. can be left unattended only for the reason that there was a shortage of employees or that the officer was not posted in a particular post. Therefore, the delay in filing the revision went totally unexplained. Accordingly, the revision application praying of condonation of delay was rejected and revision too was dismissed as barred by time.

Commissioner, CT, U.P., Lucknow 2015 NTN (Vol. 57) – 47 (All)

6. lis When Commences – Right to appeal when arises

Accrual of right of appeal is the date of initiation of proceedings and not the decision itself. Right of appeal is a vested right and accrues to the litigant as and from the date lis commences. Such right is actually exercised when the adverse judgment is pronounced. Lis can be said to have arisen as soon as proceedings start and when the authority called the assessee for evidence. The lis cannot be said to have started merely on the filing of the return. The lis cannot be said to have arisen on issuance of mere notice because (i) the assessee could not accept the notice and there could be no objection from his side; (ii) the assessee would not have appeared to contest the assessment; (iii) the critical relevant date of the initiation of the proceedings and the decision itself. Therefore, following the Apex Court judgments the Tribunal held the intention of the Apex Court to make such observations was that lis is to be determined from the date when objection has been made by the party to the litigation.

2. In the present case decided by the Punjab Value Added Tax Tribunal in the context of Section 62(5) of the PVT Act, 2005 which referred to the payment of 25% of the tax, penalty and interest. Earlier, it was taken that the appeal could be entertained on the payment of 25% of tax, penalty and interest. But it never referred, if the appellant was also to make the payment of 25% of the “additional demand.” Consequently, the present amendment to the section was brought on the statute book as a clarificatory provision so as to include 25% additional demand of tax, penalty and interest. It is in the context of the section, the above legal position was explained by the Tribunal and the case was decided in favour of the revenue.

Indian Sucrose Ltd. v. State of Punjab (2015) 50 PHT 141 (Pvt.)

7. Notification and its effective date

Allahabad HC held that it was a settled position in law that the taxing statute was generally prospective in nature and if it has to be made retrospectively, it has to be specifically provided. The facts of the case related to the A.Y. 1997-98 (Central). Assessee dealt in manufacture and sale of electronic goods and was granted Eligibility Certificate (EC) under the provision of Section 4A of the U.P. Trade Tax Act, 1948. The first sale was made on 5-5-1997 under Notification No. 781 dt. 31-3-1995 issued u/s 8 of the CST Act, which entitled the assessee to exemption / rebate on the tax for the first 10 years of the production / sale. However, exemption or rebate in the rate of tax on any transaction of sale shall not exceed 5% of the sale price and it shall be as percentage of the rate of tax normally applicable under the U.P. Act. The Notification dt. 31-3-1995 was amended by another notification dt. 5-5-1997 thereby substituting the words “under the U.P. Act” by the words “under the Act”. Tribunal by its order impugned refused the benefit of exemption / reduction in tax to the assessee for the relevant year 1997-98 on the ground that the use of the word “U.P. Act” in Column 4 of Annexure-I to the Notification dt. 31-3-1995 appeared to be a clerical mistake and that in view of the subsequent amendment made by the Notification dt. 5-5-1997 the said mistake stood rectified which would be operative from 1-4-1995 itself. The HC held that the amendment to the Notification dt. 31-3-1995 brought about by means of the Notification dt. 5-5-1997 shall be effective from 5-5-1997 and would not apply retrospectively w.e.f. 1-4-1995 as held by the Tribunal. Accordingly, the revision was allowed.

Super Cassette Industries Ltd. v. Commissioner of Trade Tax, Lucknow 2015 NTN (Vol. 57) – 48 (All)

8. Opportunity of hearing and notice

In the present case, two points were for the consideration of the Punjab Value Added Tax Tribunal, viz. (i) Opportunity of hearing and (ii) Notice for imposition of penalty. As per section 61 of the PVT Act, 2005, opportunity of hearing is to be given before imposition of penalty. The penalty was imposed on 8-8-2012 and notice was issued on 29-8-2012. Thus, it was no notice in the eye of law after levying the penalty first. As regards reversal of input credit on transfer of stocks to branches, the assessee had not reversed ITC completely as per the provisions of section 19(3) of the Act. The Assessing Officer without giving proper notice, reversed the same and levied penalty on the assessee. The Tribunal held: as regards ITC on the capital goods, the AO did not give his opinion as to at what rate ITC was admissible upon the capital goods. Order passed thus completely lacks application of mind. Consequently, penalty was also set-aside and the AO was directed to decide the case afresh on both the above issues. Accordingly, the appeal was decided.

Hawkins Cookers Ltd. v. State of Punjab (2015) 50 PHT 189 (Pvt).

9. Refund of excess amount of tax paid

In writ petition filed before the Allahabad HC, the main grievance of the petitioner was that refund of the excess amount of tax of pre deposit amounted to ` 16.6 crore paid under protest in compliance of interim order of the Supreme Court and be application for rectification of mistake apparent on record has been rejected. The HC on examination of the case allowed the writ petition by holding that not passing an order of refund when the amount is found due to be refundable would amount to be judicial misconduct. The rectification application filed was rejected mechanically without application of mind, the same order too was set-aside. All in all, the refund was required to be granted by allowing writ petition within a period of 6 weeks from the date of production of a certified copy of the Order.

Sony India Pvt. Ltd. v. State of U.P. & 2 Ors. 2015 NTN (Vol. 57) -125 (All)

10. Sale its Ingredients

In order to constitute ‘sale’ three ingredients must be present i.e. (i) mutual consent between the parties competent to contract, (ii) transfer of property in goods and (iii) transfer of ownership along with valuable consideration. In the present case, goods were supplied as free of cost returned back after fitment. Questioned goods “Child parts” supplied as free cost to the appellant. Appellant contended that excise duty was leviable on the assessable value i.e. the value of ‘manufactured goods’ whereas sales tax was charged on the taxable value of goods against consideration. The appellant sent back such ‘Child parts’ by fixing it in automobile plastic component supplied back. No tax charged on the value of child parts. The Assessing Authority (AO) imposed tax on supply of such child parts by treating it as sale. First Appellate Authority remanded the matter back to the AO. Aggrieved with the remand order, the dealer filed the present appeal. The Tribunal in appeal placed reliance on the judgment in the case of Devidas Gopal Krishna And Ors; Commissioner of sales tax, U.P. v. Satya Industrial Corporation (1994) UPTC 1149 and observation of the Supreme Court in the case of M/s Moriroku UT India Pvt. Ltd. v. State of U.P. (2008) 15 VST 559 (SC) and held that no valuable consideration was received on supply of questioned goods “Child parts” received as “free of cost” from the buyer for fitments in the manufactured goods supplied by the appellant again to the buyer. No transfer in property in questioned goods passed from buyer to the appellant. Ownership remained with the buyer company which provided “free of cost” supply of question goods to the appellant. Insurance of such question goods was made at the end of the buyer company supplying it as free of cost to the appellant. Hence, on facts, tax deleted as imposed by the AO on supply of “child parts” by treating it as “sale”. Accordingly, appeal allowed.

Mori Roku Ut Pvt. Ltd. v. C.C.T. 2015 NTN (Vol. 57) – Tribunal-52

11. Time barred assessment

In this case, Respondent intentionally withheld legitimate purchase tax due to be deposited as per the admitted turnover in the returns. There was delay in framing the assessment on the part of the Dept. Amount withheld whether can be recovered by enacting new law / provision after the expiry of period of limitation as prescribed in the law itself. The HC followed State of Punjab And Ors. v. Patiala Co-Op. Sugar Mills Ltd. and held in the negative.

State of Punjab & Ors. v. Fazilka Co-Op. Sugar Mills Ltd. (2015) 50 PHT 128 (P&H)

12. Whether “Surgical Cotton” commercially different and distinct product ?

In the present case, the fact was production of surgical cotton from raw cotton by process of transformation whether amounts to manufacture, was held in the affirmative and whether “Surgical Cotton” was commercially different and distinct product was held in the affirmative, in the context of Schedule Entry “Cotton including absorbent cotton wool 1.P” and whether liable to exemption of tax under Notification u/s 2(27) of the Rajasthan Sales Tax Act, 1994, also held in the affirmative.

Mamata Surgical Cotton Industries v. AC (Anti Evasion), Rajasthan (2015) 65 S.T.A. 122 (SC)

13. Words and Phrases – “Tax Due”

Section 23(5) of the Delhi Sales Tax Act deals with the situation where a dealer fails to furnish returns in respect of any period by the prescribed date. In such eventuality, the Commissioner is mandated to, after giving the dealer a reasonable opportunity of being heard, make a best judgment assessment. Consequently after due notice and opportunity to the dealer a best judgment assessment was made on 26-3-1985 by the Assessing Authority whereby the petitioner was directed to pay a sum of ` 52,39,763 under the said act and by a separate order of the same date, the petitioner was required to pay a sum of Rs. 5,92,469 under the CST Act, 1956. However, in neither case was any interest levied by the assessing authority u/s. 27(1) of the said Act. The writ petition was directed against the order dt. 13-2-1994 passed by the Sales Tax Appellate Tribunal. The point in issue related to the chargeability of interest u/s. 27(1) where the petitioner did not file any return in respect of the year 1980-81. The petitioner had also not deposited any tax during the currency of that year. Provisions of section 23(5) were invoked and best judgment assessment framed where under petitioner was directed to pay a sum of ` 52,39,763 under the Delhi Sales Tax Act, and a sum of ` 5,92,469 under the CST Act, 1956.

2. The expression “tax due” as appearing in section 27(1) of the Delhi Sales Tax Act to be read in relation to the provisions of section 21(3) thereof. Section 21(3) of the said act has clear reference to the furnishing of a return. Moreover, it has reference to the full amount of tax due from a dealer under the act “according to such return”. In other words, the tax which is set to be due u/s. 27(1) of the said act must be the tax which is due “according to the return”. If no return is filed then there could be no “tax due” within the meaning of section 27(1) of the act r/w section 21(3) thereof. The tax which is ultimately assessed is the tax which becomes due on assessment and if this tax so assessed is not paid even after the demand is raised then the dealer would be deemed to be in default and would be liable to pay interest u/s 27(2) of the said act. But till such tax is assessed no interest can be levied on such a dealer, who has not filed a return u/s 27(1) of the said act.

3. In view of the above legal position, it is evident that the impugned order dt. 13-2-1994 is not in accordance with the Constitution Bench judgments of the Supreme Court i.e. J.K. Synthetics Ltd. v. CTO (1994) 4 PHT 450 (SC), Maruti Wire Industries Pvt. Ltd. v. STO (2001) 17 PHT 414 (SC) (FB) and State of Rajasthan v. Ghasilal AIR 1965 SC 1454.

Pure drinks (New Delhi) Ltd. v. The Members Sales Tax Tribunal (2015) 50 PHT 169 (Del)

D. H. Joshi,
Advocate