1998 (3) TMI 668 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of exemption claimed under the earlier notification.
2. Retrospective effect of the subsequent exemption cancellation notification.
3. Right of exemption for end-products remaining in stock post-cancellation.
4. Legality of the penalty imposed on the assessee-dealers.

Detailed Analysis:

1. Validity of Exemption Claimed Under the Earlier Notification:
The assessee-dealers claimed exemption on a turnover of Rs. 2,56,590 for sales of M.S. rods and rounds as second sales under the Central Sales Tax Act, 1956 (CSTA). This claim was based on the Notification No. II(1)/CTRE/50/82, dated March 13, 1982, which granted exemption from tax for end-products manufactured by steel re-rolling mills in Tamil Nadu, provided the raw materials had already suffered tax under the Tamil Nadu General Sales Tax Act, 1959 (TNGSTA). The notification had come into force on April 1, 1982.

2. Retrospective Effect of the Subsequent Exemption Cancellation Notification:
The Government of Tamil Nadu issued a subsequent notification on April 25, 1986, cancelling the earlier exemption notification with retrospective effect from March 17, 1986. The court examined whether the State Government had the power to issue such a cancellation notification with retrospective effect. It was determined that while the State Government could issue notifications under section 8(5) of the CSTA, the power to issue notifications with retrospective effect was not explicitly conferred by the Legislature. The court cited precedents, including Ananda Soap Factory v. State of Karnataka and Cannanore Spinning and Weaving Mills Ltd. v. Collector of Customs and Central Excise, to conclude that the retrospective effect given by the subsequent notification was not sustainable in law. Therefore, the cancellation notification could only operate prospectively from April 25, 1986.

3. Right of Exemption for End-Products Remaining in Stock Post-Cancellation:
The court addressed whether the right of exemption accrued to the assessee-dealers for end-products manufactured from taxed raw materials but remained unsold post-April 25, 1986. It was argued that the right of exemption had accrued before the cancellation notification. However, the court held that the right of exemption would only accrue upon the sale of the end-products. Since the sale did not occur during the currency of the earlier notification, the exemption could not be claimed for end-products remaining in stock beyond April 25, 1986. Therefore, these end-products would be subject to tax at the appropriate rate.

4. Legality of the Penalty Imposed on the Assessee-Dealers:
The assessing officer had imposed a penalty of Rs. 30,800 on the assessee-dealers for the alleged suppressed turnover. The Tribunal had set aside both the assessment and the penalty. The court upheld the Tribunal's decision to delete the penalty, noting that the turnover had been reflected in the accounts and the assessee-dealers had bona fide believed that the turnover was exempt from tax. Thus, there was no violation of section 10(2) of TNGSTA read with section 9(2-A) of CSTA.

Conclusion:
1. The retrospectivity given by the subsequent inter-State sale-exemption-cancellation notification is not sustainable in law.
2. The end-products of the assessee-dealers sold up to April 25, 1986, shall not be subjected to tax.
3. The end-products remaining in stock subsequent to April 25, 1986, shall be subjected to tax at the appropriate rate.
4. The deletion of the penalty, as ordered by the Tribunal, is sustainable in law.

The assessing officer is directed to work out the end-products sold up to April 25, 1986, and provide the relief of exemption accordingly. Any unsold stock of end-products beyond this date shall be subjected to appropriate tax. The tax case (revision) is disposed of with no order as to costs.

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