2004 (4) TMI 292 - SC - VAT and Sales Tax

Whether the State has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter, in view of section 5(3) read with section 15(ca) of the Central Sales Tax Act, 1956? Held that - Appeal dismissed. Clause (ca) contains a limited deeming fiction, which only applies to sale of rice by the exporter. This fiction is attached to the purchased commodity which is paddy from which rice is procured and not the exported commodity. Clause (ca) equates the two commodities only in cases where rice procured from paddy is exported and not to any other case. Accordingly, we hold that the purchase of paddy by the appellants in these cases is not exempt from the levy of a tax. Such purchases do not fall within section 5 of the 1956 Act. The sale by the exporter is however, exempt under section 5(1) and the purchase of paddy by the miller-cum-exporter is covered under section 5(3) of the 1956 Act.

Issues Involved:
1. Competency of the State to levy purchase tax on paddy.
2. Interpretation of Sections 5(3) and 15(ca) of the Central Sales Tax Act, 1956.
3. Applicability of tax exemption for transactions involving paddy and rice.
4. Single point levy of tax for declared goods.
5. Adjustment of tax liability on paddy against tax on rice.

Detailed Analysis:

1. Competency of the State to Levy Purchase Tax on Paddy:
The primary issue was whether the State had the power to levy purchase tax on paddy purchased by a miller for the sale of rice to an exporter, under the provisions of the Central Sales Tax Act, 1956, and the Haryana General Sales Tax Act, 1973. The appellant, a miller, argued that such a tax was not permissible under Article 286 of the Constitution and Sections 5(3) and 15(ca) of the 1956 Act.

2. Interpretation of Sections 5(3) and 15(ca) of the Central Sales Tax Act, 1956:
Section 5(3) deems the last sale or purchase preceding the export of goods to be in the course of export if it complies with an export order. Section 15(ca) equates paddy and rice as a single commodity for the purposes of Section 5(3). The court clarified that Section 5(1) covers direct export sales, while Section 5(3) applies to penultimate sales preceding export. The court held that the purchase of paddy by the miller, who converts it to rice and sells it to the exporter, does not occasion export and thus does not fall under Section 5(3).

3. Applicability of Tax Exemption for Transactions Involving Paddy and Rice:
The appellant contended that the sale of rice to the exporter was part of export sales and should be exempt from tax. The court, however, held that the purchase of paddy by the miller for conversion to rice and subsequent sale to the exporter is a local sale and does not qualify for exemption under Section 5(3). The court emphasized that clause (ca) in Section 15 provides a limited deeming fiction, applicable only to the sale of rice by the exporter, not to the sale by the miller to the exporter.

4. Single Point Levy of Tax for Declared Goods:
The court discussed the concept of single point tax, emphasizing that every transaction has two ends-sale and purchase. Section 15(a) mandates that tax should not be levied at more than one stage. The court noted that under the 1973 Act, rice and paddy are treated as separate taxable items. The introduction of clause (ca) in Section 15 aimed to prevent multiple taxation on paddy and rice, facilitating a single point levy.

5. Adjustment of Tax Liability on Paddy Against Tax on Rice:
The appellant argued that the tax levied on the purchase value of paddy should be adjustable against the tax liability on the sale of rice under the 1973 Act. The court acknowledged that the High Court had granted liberty to the appellant to file an appeal against the assessment order(s) and left this issue open for adjudication by the assessing/appellate authority.

Conclusion:
The Supreme Court dismissed the civil appeals and writ petitions, holding that the purchase of paddy by the miller for sale of rice to the exporter is subject to purchase tax under the 1973 Act. The court affirmed that the sale by the exporter is exempt under Section 5(1) of the 1956 Act, but the purchase by the miller does not qualify for exemption under Section 5(3). The court also left the issue of tax adjustment open for adjudication by the appropriate authorities.

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