1962 (3) TMI 62 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Section 8 of the Central Sales Tax Act, 1956.
2. Determination of tax liability for inter-State sales of coffee powder.
3. Exemption from tax under the Mysore Sales Tax Act, 1948 and 1957.
4. Validity of assessment by the Commercial Tax Officer.
5. Requirement of "C" forms for tax exemption.

Detailed Analysis:

1. Applicability of Section 8 of the Central Sales Tax Act, 1956:
The petitioner firm, dealing in coffee seeds and coffee powder, was assessed for inter-State sales tax under the Central Sales Tax Act, 1956. The turnover was divided into two periods: 1st July 1957 to 30th September 1957 and 1st October 1957 to 20th March 1958. The Commercial Tax Officer assessed the sales tax at different rates for these periods, invoking Section 8 of the Central Sales Tax Act. The petitioner contended that the sales were exempt under Section 8, relying on the proviso to sub-section (1) of Section 8, which exempts sales if the goods are exempt from tax under the local State law.

2. Determination of tax liability for inter-State sales of coffee powder:
The Commercial Tax Officer concluded that sales made between 1st July 1957 and 30th September 1957 were not covered under sub-section (1) of Section 8, as the petitioner failed to produce "C" forms. Consequently, these sales were assessed under sub-section (2) of Section 8. The Court held that the assessment should consider whether the sales would have been taxable under the Mysore Sales Tax Act if they had occurred within the State. Since the sale of coffee powder, made from already taxed coffee seeds, would not attract tax under the Mysore Sales Tax Act, the inter-State sales were also exempt.

3. Exemption from tax under the Mysore Sales Tax Act, 1948 and 1957:
The Court examined the Mysore Sales Tax Act, 1948, and the Mysore Sales Tax Act, 1957. Under the 1948 Act, only the first sale of coffee (including coffee powder) was taxable. Under the 1957 Act, as per Entry 43 of the Second Schedule and Explanation III, coffee powder made from taxed coffee seeds was exempt from further tax. The Court affirmed that if the coffee powder sold inter-State was made from such seeds, it would be exempt from tax under the Central Sales Tax Act as well.

4. Validity of assessment by the Commercial Tax Officer:
The Court found that the Commercial Tax Officer's assessment for the period from 1st July 1957 to 30th September 1957 was incorrect as it did not consider the exemption under the Mysore Sales Tax Act. The assessment for this period was quashed. For the period from 1st October 1957 to 20th March 1958, the Court directed the Commercial Tax Officer to reassess the turnover, considering whether the coffee powder sold was made from taxed coffee seeds.

5. Requirement of "C" forms for tax exemption:
The Court noted that the absence of "C" forms led the Commercial Tax Officer to assess sales under sub-section (2) of Section 8 at a higher rate. However, the Court emphasized that the crucial factor was whether the coffee powder was made from taxed coffee seeds. If so, the sales would be exempt regardless of the "C" forms. The Commercial Tax Officer was directed to reassess the sales considering this principle.

Conclusion:
The Court quashed the assessment for the turnover from 1st July 1957 to 30th September 1957 and directed a reassessment for the period from 1st October 1957 to 20th March 1958, based on whether the coffee powder sold was made from taxed coffee seeds. The assessment for the turnover related to metal containers remained undisturbed. The case was remanded to the Commercial Tax Officer for fresh assessment in accordance with the principles laid down in the judgment.