2010 (10) TMI 937 - HC - VAT and Sales Tax

Sales tax levied at 5% treating the transaction as outright sale of printed materials overruling the plea of the petitioner that the transactions are by way of execution of works contract - the petitioner was also subjected to penalty under section 22(2) of the Tamil Nadu General Sales Tax Act 1959 (for short the Act ) for the alleged excess collection of sales tax at 8% instead of 5% Held that - On a careful reading of the order of the appellate authority it is seen that the authorised representative of the petitioner/assessee has made a detailed submission by contending that the assessee undertakes only contract works for executing the orders placed by the customers and there are no materials available before the authorities to hold that the assessee is also manufacturing and selling printed materials in the open market on commercial basis. Though such arguments were advanced a reading of the order does not indicate consideration of the materials placed by the petitioner. In fact the learned counsel appearing for the petitioner has produced those materials before us and on a perusal of the same it appears prima facie to us that the petitioner receives orders from the specified customers for printing of ledgers receipts bill books etc. and these works are undertaken and after the printings are completed the printed materials are supplied to the customers who placed orders. There is absolutely no discussion about the above materials by the appellate authority as well as the Tribunal. In fact the appellate authority has merely relied upon the earlier finding viz. that the dealers have sold printed book forms to the public and on verification of the assessment file found that the assessee had paid tax both at the rate of 8% and 5% as pointed out by the assessing authority. There are no materials in support of the said finding. Hence on the said ground alone the findings of both the appellate authority as well as the Tribunal are liable to be set aside and the matter should be remitted back to the assessing officer for fresh consideration. Tax Case Revision is allowed

Issues Involved:
1. Classification of transactions as outright sale versus works contract.
2. Imposition of penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, 1959.

Detailed Analysis:

1. Classification of Transactions as Outright Sale versus Works Contract:
The petitioner, engaged in printing materials on a work contract basis, was assessed for the year 1992-93 by the Commercial Tax Officer, who subjected the petitioner to a sales tax of 5% on a turnover of Rs. 4,53,040/-, treating the transactions as outright sales of printed materials. The petitioner contended that these transactions were executed as works contracts, not outright sales. The appellate authorities, including the Sales Tax Appellate Tribunal, upheld the assessment without independently considering the materials submitted by the petitioner to support their claim.

The petitioner argued that the materials proving the transactions as works contracts were not considered by the first appellate authority and the Tribunal, thus vitiating the orders. The court found that the appellate authority did not independently verify the materials and merely relied on the earlier findings of the assessing authority. Consequently, the court set aside the findings of both the appellate authority and the Tribunal, remitting the matter back to the assessing officer for fresh consideration of the materials submitted by the petitioner.

2. Imposition of Penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, 1959:
The petitioner was also subjected to a penalty for allegedly collecting excess sales tax at 8% instead of 5%. The petitioner claimed that the excess collection was based on a bona fide belief that the printed materials were taxable at 8%. The Special Government Pleader argued that Section 22(2) mandates a penalty if a dealer collects tax in contravention of the provisions, regardless of the dealer's belief.

The court referred to previous judgments, including the Division Bench ruling in State of Tamil Nadu v. Mohammed Ibrahim Sahib and the Supreme Court's interpretation in Joshi, Sales Tax Officer v. Ajit Mills Limited, which clarified that 'collected' means 'collected and kept as his' by the trader. If the tax was collected and returned or kept in suspense, it was not considered 'collected' under the Act. The court also noted that the provision for automatic imposition of penalty under Section 22(2)(i) came into effect only on 28.5.1993, whereas the tax in question was collected before this date. Therefore, the earlier version of Section 22(2), which required a reasonable opportunity to be heard, was applicable.

The court emphasized that the invocation of Section 22(2) is not automatic and requires the assessing authority to apply their mind to the dealer's explanation, including any bona fide belief. The court found no indication of such application of mind in the assessment order or by the appellate authorities. Consequently, the court remitted the matter back to the assessing officer to reconsider the imposition of penalty, taking into account the bona fide belief of the petitioner and the fact that the excess tax collected had been remitted to the department.

Conclusion:
The court allowed the Tax Case Revision, setting aside the orders of the appellate authorities and remitting the matter back to the assessing officer for fresh consideration of both the classification of transactions and the imposition of penalty under Section 22(2). The court directed the assessing officer to independently evaluate the materials submitted by the petitioner and consider the bona fide belief regarding the tax collection.

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