1997 (5) TMI 403 - AT - VAT and Sales Tax

Issues Involved:
1. Whether the goods including gems and jewellery sold at the counter to the foreign tourists under the Export Promotion Scheme against the foreign exchange are local sales or sales made in the course of export.
2. Whether in case point No. 1 is decided against the petitioner-firm, interest is payable on the amount of tax to be levied.
3. Whether the proceedings can be initiated under section 12 of the Act.

Detailed Analysis:

Point No. 1:
The primary issue was to determine if the sales of gems and jewellery to foreign tourists under the Export Promotion Scheme were local sales or sales made in the course of export. The petitioner-firm argued that these sales were made against foreign exchange and should be considered as sales in the course of export, hence not chargeable to tax. The Tax Board disagreed, stating that no actual export took place, and the Export Promotion Scheme did not evidence actual exportation of the items purchased. The Supreme Court in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, Ernakulam [1964] 15 STC 753 (SC) established that for a sale to be in the course of export, there must be an intention to export, an obligation to export, and an actual export. The Tax Board concluded that the sale of gems and jewellery did not meet these criteria, and thus, were local sales. The Tribunal upheld this view, emphasizing that a longstanding practice contrary to the law cannot be justified. Therefore, the counter-sales of gems and jewellery were not considered sales in the course of export and were chargeable to tax.

Point No. 2:
The second issue was whether interest was payable on the amount of tax to be levied if the sales were deemed local. The Tax Board concluded that since the reassessment was for the period from November 1, 1978, to October 20, 1979, and the inclusion of section 12 of the Act regarding interest on the amount of tax quantified became part of section 11-B of the Act only from April 1, 1987, no interest could be chargeable on the amount of tax for the period in question. The Tribunal upheld this view, deciding that the interest amounting to Rs. 66,145 was not chargeable.

Point No. 3:
The third issue was whether the initiation of fresh assessment proceedings under section 12 of the Act was permissible. The Tax Board initially concluded that such initiation was not permissible, especially when the objective was to collect additional evidence regarding the sale of items. However, the Tribunal disagreed, stating that section 12 allows for the initiation of fresh proceedings if any part of the business of a dealer has escaped assessment to tax for any reason. The Tribunal clarified that the collection of additional evidence was not involved; rather, it was a matter of assessing whether the counter-sales were local sales or sales made in the course of export based on already submitted returns. Thus, the Tribunal decided this point in favor of the department, allowing the initiation of fresh assessment proceedings under section 12 of the Act.

Conclusion:
The Tribunal concluded that the counter-sales of gems and jewellery, as well as other items, were local sales and not sales made in the course of export, and thus, were chargeable to tax. The judgment of the Deputy Commissioner (Appeals) dated March 12, 1990, and the Tax Board dated October 23, 1991, along with the order on the rectification application dated April 23, 1992, were set aside. The order of the assessing authority dated March 25, 1988, was restored with the modification that the interest amounting to Rs. 66,145 was not chargeable. The petitioner-firm was directed to make the payment within 60 days, failing which interest at the rate of 18 percent per annum would be payable from the 60th day of the judgment. Ordered accordingly.

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