1977 (12) TMI 128 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to pay Central sales tax under section 8(2A) of the Central Sales Tax Act, 1956, despite State tax exemption.
2. Interpretation of the Incentive Rules and the notification issued by the Himachal Pradesh Government.
3. Applicability of the explanation attached to sub-section (2A) of section 8 of the Central Sales Tax Act.
4. Legal competency of the State Government to provide conditions regarding Central sales tax.
5. Principle of promissory estoppel.

Detailed Analysis:

1. Liability to Pay Central Sales Tax:
The primary issue was whether the petitioners were liable to pay Central sales tax on their inter-State trade turnover for the assessment year 1972-73 under section 8(2A) of the Central Sales Tax Act, 1956. The petitioners argued that since the goods were exempted from State sales tax under the Incentive Rules and subsequent notification, they should not be liable for Central sales tax.

2. Interpretation of Incentive Rules and Notification:
The Incentive Rules framed on 12th April, 1971, provided various incentives to industries, including exemption from sales/purchase tax. The notification issued on 27th May, 1974, under section 42 of the Himachal Pradesh General Sales Tax Act, 1968, extended this exemption to small-scale industries. The petitioners invested significantly based on these rules and claimed exemption for their inter-State sales.

3. Applicability of Explanation to Section 8(2A):
Section 8(2A) of the Central Sales Tax Act states that the tax payable by a dealer on his turnover shall be nil if the goods are exempt from tax generally under the State law. However, the explanation attached to this section specifies that the exemption does not apply if the goods are exempt only under specified circumstances or conditions. The court examined whether the conditions in the Incentive Rules and the notification constituted such specified circumstances or conditions.

The court found that the conditions in the Incentive Rules and the notification were procedural and descriptive, not limiting or qualifying the right to claim exemption. Therefore, the explanation to section 8(2A) did not apply, and the petitioners were entitled to the exemption.

4. Legal Competency of State Government:
Clause (4) of the notification stated that no holiday from Central sales tax would be available to small-scale industries. The court held that the State Government was not legally competent to prescribe conditions regarding Central sales tax, as this is a Central subject under entry 92-A of List I of the Seventh Schedule of the Constitution. Therefore, clause (4) could not bind the petitioners to pay Central sales tax.

5. Principle of Promissory Estoppel:
The petitioners argued that the State Government was estopped from demanding Central sales tax based on the principle of promissory estoppel, as they had made significant investments relying on the Incentive Rules. However, the court did not find it necessary to delve into this argument, given the conclusion that the petitioners were entitled to the exemption under section 8(2A).

Conclusion:
The court allowed the writ petition, declaring that the petitioners were not liable to pay Central sales tax on their inter-State sales turnover for the assessment year 1972-73. The order passed by the Deputy Excise and Taxation Commissioner was quashed, and necessary adjustments or refunds were directed to be made. The rule was made absolute without any order as to costs.