2009 (3) TMI 545 - SC - VAT and Sales Tax

Whether export sales are includible in notional tax liability of a unit as defined in rule 28A(2)(n) of the 1975 Rules? Held that - Appeal allowed. One has to read the proviso in rule 28A(4) with Explanation 1 which states that for the purposes of arriving at the limit of tax exemption/deferment, the notional sales tax liability of the unit shall be taken into consideration . It is because of the said Explanation that notional sales tax liability has been defined in rule 28A(2)(n). Therefore, one has to go strictly by the definition of the words notional sales tax liability in the said rule 28A(2)(n) of the 1975 Rules. Thus export sales were not includible in the matter of calculation of notional tax liability during the period in question.

Summary

Issues Involved:
1. Whether export sales are includible in "notional tax liability" of a unit as defined in rule 28A(2)(n) of the Haryana General Sales Tax Rules, 1975.

Issue-wise Detailed Analysis:

1. Inclusion of Export Sales in "Notional Tax Liability":

Contentions:
- The State argued that the benefit of exemption on payment of tax was available to a unit on its "gross turnover," which included export sales, as per the proviso to rule 28A(4)(a) of the 1975 Rules.
- The assessee contended that "notional sales tax liability," as defined in rule 28A(2)(n), did not include export sales, and thus, export sales should not be part of the "gross turnover" for the purpose of calculating the tax exemption.

Relevant Provisions of Law:
- Section 2(e) of the 1973 Act defines "export" as taking goods out of the State, excluding inter-State trade or commerce or export out of India.
- Section 2(gg) defines "gross turnover" as the aggregate of sales and purchases by a dealer.
- Section 12 states that no tax is payable on sales or purchases in the course of export out of India.
- Section 13B empowers the State Government to exempt certain industries from tax to promote industrial development.
- Rule 28A(2)(n) defines "notional sales tax liability" as the tax payable on sales of finished products under local sales tax law and the Central Sales Tax Act, excluding export sales.

Findings:
- The court noted the difference between a scheme of deduction and a scheme for exemption. The exemption scheme provided for a specified period and quantum of exemption.
- Rule 28A(2)(n) included local sales, inter-State sales, branch transfers, and consignment sales within its scope for "notional sales tax liability" but explicitly excluded export sales.
- The court emphasized that a scheme for exemption must be interpreted strictly. Export sales were not intended to be included in the "notional sales tax liability" under rule 28A(2)(n).
- The proviso to rule 28A(4)(a) extended the benefit of exemption to tax on "gross turnover," but the calculation of the exemption limit required considering the "notional sales tax liability," which excluded export sales.
- The court also compared rule 28A with rule 28B, noting that while rule 28B included export sales in "notional sales tax liability" by deeming fiction, rule 28A did not.

Conclusion:
- The court held that export sales were not includible in the calculation of "notional tax liability" under rule 28A(2)(n) during the period in question.
- The question of constitutionality regarding the taxation of export sales was kept open, but the court concluded that export sales were not included in the definition of "notional sales tax liability" as per rule 28A(2)(n).

Judgment:
- The civil appeals filed by the Department were dismissed, with no order as to costs. The assessee succeeded on the point that export sales were not includible in the "notional tax liability."