1988 (10) TMI 266 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the collection of sales tax deposit on packing charges and freight.
2. Jurisdiction of the Deputy Commercial Tax Officer to levy penalties under section 22 of the Tamil Nadu General Sales Tax Act, 1959.
3. Compliance with the provisions of the Tamil Nadu General Sales Tax Act, 1959, specifically section 22(1).

Issue-wise Detailed Analysis:

1. Legality of the Collection of Sales Tax Deposit on Packing Charges and Freight:

The petitioners, manufacturers of cement, collected sales tax deposits on packing charges and freight due to the pending decision of the Supreme Court on Ramco Cement's case [1982] 51 STC 171 (Mad.). They informed buyers that these deposits were contingent and refundable if the levy of sales tax was ultimately deemed unjustified. The petitioners argued that these deposits were not collections by way of tax but were held as a safeguard against potential liability. The Court noted that the amounts were ledgerised separately and treated as deposits, not as sales tax collections. The Court referred to the precedent set in State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. [1960] 11 STC 734 (SC), which held that amounts received as deposits on the express condition of refundability do not constitute a collection by way of tax. Therefore, the Court concluded that the collection of deposits by the petitioners was legal and did not amount to a collection of tax.

2. Jurisdiction of the Deputy Commercial Tax Officer to Levy Penalties under Section 22 of the Tamil Nadu General Sales Tax Act, 1959:

The first respondent issued show cause notices and proposed penalties under section 22 of the Tamil Nadu General Sales Tax Act, 1959, alleging that the petitioners' collection of deposits violated section 22(1) of the Act. The petitioners challenged the jurisdiction of the Deputy Commercial Tax Officer, arguing that the deposits were not collected as sales tax and therefore did not fall under the purview of section 22(1). The Court agreed with the petitioners, stating that the deposits were collected as a contingency measure and not as sales tax. Consequently, the first respondent's actions were beyond the scope of his jurisdiction under section 22.

3. Compliance with the Provisions of the Tamil Nadu General Sales Tax Act, 1959, Specifically Section 22(1):

Section 22(1) of the Tamil Nadu General Sales Tax Act, 1959, prohibits the collection of any amount by way of tax unless authorized by the Act. The respondents argued that the petitioners' collection of deposits violated this provision. However, the Court found that the deposits were collected with the clear understanding that they were refundable and contingent upon the outcome of the pending Supreme Court case. The Court also referred to Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad [1964] 15 STC 403 (SC), which held that unauthorized collections must be paid to the government, but this did not apply to conditional deposits. Thus, the Court concluded that the petitioners' actions did not contravene section 22(1) and that the collection was lawful.

Conclusion:

The Court held that the collection of deposits by the petitioners was legal and did not violate any provisions of the Tamil Nadu General Sales Tax Act, 1959. The proceedings initiated by the first respondent under section 22(1) were deemed invalid and were quashed. The writ petitions were allowed, and no costs were ordered.