2007 (4) TMI 622 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Levy of purchase tax under Section 7-A of the TNGST Act on minerals extracted from leasehold land.
2. Jurisdiction and constitutionality of the State's taxing power under Entry 54 in List II of the VII Schedule to the Constitution of India.
3. Classification of the right to extract minerals as a profit a prendre.

Issue-wise Detailed Analysis:

1. Levy of Purchase Tax under Section 7-A of the TNGST Act:
The appellant, a government undertaking, was assessed for purchase tax under Section 7-A of the TNGST Act for the assessment years 1999-2000 and 2000-2001. The second respondent-assessing officer argued that the appellant's excavation of raw magnesite from government-owned land, consumed in manufacturing other goods for sale, constituted a purchase assessable to tax at 11 percent. The appellant contended that the raw magnesite quarried from their leasehold land was their own property and not a purchase, thus Section 7-A was inapplicable. The court found that the minerals extracted by the appellant from the leased mines were a profit a prendre, a benefit arising out of immovable property, and not a transaction of purchase or sale. Consequently, the assessment order regarding the levy of purchase tax under Section 7-A and the proportionate levy of penalty was set aside.

2. Jurisdiction and Constitutionality of the State's Taxing Power:
The appellant argued that the levy of purchase tax on the magnesite excavated was beyond the State's taxing power under Entry 54 in List II of the VII Schedule to the Constitution of India. The court referred to the Supreme Court's decisions in Ananda Behra Vs. State of Orissa, State of Orissa Vs. Titaghur Paper Mills Co. Ltd., and State of H.P. Vs. Gujarat Ambuja Cement Ltd., which established that a profit a prendre, a right to take something off another person's land, is a benefit arising out of immovable property and beyond the State's taxing power. The court held that the attempt to tax the value of raw magnesite excavated from leasehold land was ultra vires the TNGST Act and unconstitutional.

3. Classification of the Right to Extract Minerals as a Profit a Prendre:
The court examined the nature of a profit a prendre, defined as a right to enter another's land and take some profit of the soil or a portion of the soil itself, for the use of the owner of the right. The court cited Halsbury's Laws of England and relevant case law to establish that a profit a prendre is an interest in land, and thus immovable property. The court concluded that the minerals extracted by the appellant from the leased mines were a profit a prendre, and there was no transaction of purchase or sale. Therefore, the levy of purchase tax under Section 7-A of the TNGST Act was not applicable.

Conclusion:
The appeals were partly allowed, setting aside the assessment order related to the levy of purchase tax under Section 7-A and the proportionate levy of penalty. The appellant was granted liberty to agitate other issues in a statutory appeal under Section 31 of the TNGST Act. The court directed that if the appeal is preferred within two weeks, the appellate authority shall entertain it without raising the ground of limitation and decide on its merits. Consequently, all related miscellaneous petitions were closed without costs.