2007 (2) TMI 583 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of purchase tax under Section 7A of the TNGST Act on royalty paid for mining minerals.
2. Differential tax under Section 3(4) of the TNGST Act on exported goods.
3. Inclusion of packing and forwarding charges in the taxable turnover.

Detailed Analysis:

1. Levy of Purchase Tax under Section 7A of the TNGST Act on Royalty Paid for Mining Minerals:
The petitioner, a Government of Tamil Nadu undertaking, was granted a lease for mining magnesite and dunite. The second respondent (assessing officer) issued a pre-assessment notice pointing out that the petitioner had excavated raw magnesite, a taxable good, from government-owned land and consumed it in manufacturing other goods for sale. The consideration paid for the mineral was deemed to be purchase consideration and assessed to tax at 11% under Section 7A of the TNGST Act. The petitioner argued that since the raw magnesite was quarried from their leasehold land, it was their own good, and there was no element of purchase, thus Section 7A should not be invoked.

The court held that the issue of whether the royalty paid for the consumption of minerals amounts to purchase tax under Section 7A must be determined by examining the lease agreement and the factual context. The court referred to the Supreme Court case of STATE OF ORISSA AND OTHERS VS. TITAGHUR PAPER MILLS CO.LTD. AND ANOTHER (1985) 60 STC 213, which dealt with the imposition of purchase tax on standing trees and bamboos agreed to be severed. However, the court found that the facts of the present case were different, as it involved a lease agreement rather than a license.

The court also referenced the Supreme Court's decision in THE STATE OF TAMIL NADU VS. M.K.KANDASWAMI AND OTHERS (1975) 36 STC 191, which outlined the conditions for invoking Section 7A. The court concluded that the factual aspects related to the lease agreement and the grant order must be considered by the appellate authority to determine the correctness of the purchase tax levy.

2. Differential Tax under Section 3(4) of the TNGST Act on Exported Goods:
The second respondent pointed out that the petitioner had purchased furnace oil at a concessional rate under Form XVII for manufacturing finished goods. A portion of these goods was exported, making the petitioner ineligible for the lower tax rate under Sections 3(3) and 3(4). The petitioner was liable to pay the differential tax of 1% on the turnover.

The petitioner contended that Section 3(4) applies only to goods dispatched outside the state by branch transfer or to an agent, not to direct export sales made under Form H. The court held that this issue could be raised before the appellate authority, as it involved factual determinations about the nature of the transactions and the applicability of the tax provisions.

3. Inclusion of Packing and Forwarding Charges in the Taxable Turnover:
The second respondent proposed to include packing and forwarding charges in the taxable turnover, as per Explanation 2 of Section 2(r) of the TNGST Act, which states that the amount for which goods are sold includes any sums charged for anything done by the dealer in respect of the goods sold at or before delivery. The petitioner objected, claiming that these charges were included in the sale price.

The assessing officer initially omitted this inclusion in the assessment order but later issued a notice confirming the inclusion and levying a penalty under Section 12(3)(b) of the TNGST Act. The court found that this was a factual issue that could be contested before the appellate authority.

Conclusion:
The court dismissed the writ petitions, granting the petitioner liberty to file an appeal before the appellate authority. The court emphasized that the factual and legal issues raised, including the applicability of Section 7A, the differential tax under Section 3(4), and the inclusion of packing and forwarding charges, should be decided by the appellate authority. The court provided two weeks for the petitioner to file an appeal and directed the return of original orders upon request.

← Previous Next →