1994 (12) TMI 318 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of tax and surcharge collection by the assessee on second sales.
2. Applicability of penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959.
3. Interpretation of "profit" versus "tax" in the context of sales transactions.

Issue-wise Detailed Analysis:

1. Legality of tax and surcharge collection by the assessee on second sales:
The department argued that the assessee collected tax and surcharge on second sales at the rate of 8.4% without explicitly mentioning it as tax in the bills. The assessee claimed these collections were part of the profit and not tax or surcharge. The department countered that the collection was under the guise of profit, but in reality, it was tax and surcharge, thus violating section 22(1) of the Tamil Nadu General Sales Tax Act, 1959. The court noted that the assessee's invoices showed an additional amount corresponding exactly to the tax and surcharge rates, indicating it was indeed collected as tax and surcharge, not profit.

2. Applicability of penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959:
The department imposed a penalty under section 22(2) for the illegal collection of tax on second sales. The Appellate Assistant Commissioner confirmed the penalty, but the Tribunal deleted it. The department contended that the Tribunal's decision was incorrect, as the assessee's collection of tax and surcharge, even if labeled differently, warranted a penalty. The court referenced several precedents, including the Gujarat High Court's decision in State of Gujarat v. Ilac Ltd. and the Supreme Court's judgment in R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited, which supported the forfeiture and penalty for excess tax collection.

3. Interpretation of "profit" versus "tax" in the context of sales transactions:
The assessee argued that the additional amount collected was part of the profit margin agreed upon with the customers, not tax or surcharge. The department maintained that the exact match of the additional amount with the tax and surcharge rates indicated it was collected as tax. The court examined the invoices and found that the amounts added were consistent with the tax rates, thus supporting the department's view. The court cited M.A.R. Arunachalam Chettiar & Co. v. State of Tamil Nadu, emphasizing that if the collection exceeded the tax paid by the assessee, it was deemed to be tax and surcharge, justifying the penalty under section 22(2).

Conclusion:
The court concluded that the Tribunal erred in deleting the penalty and upheld the department's imposition of the penalty under section 22(2) of the Tamil Nadu General Sales Tax Act, 1959. The revision filed by the department was allowed, and the penalty reinstated. The court emphasized that the additional amounts collected by the assessee were indeed tax and surcharge, not profit, thereby justifying the penalty.