1998 (9) TMI 643 - AT - VAT and Sales Tax

Issues Involved:

1. Promissory estoppel and public interest in exemption notifications.
2. Applicability of additional sales tax.
3. Jurisdiction of State Government to levy tax on consignment sales/branch transfers.
4. Classification and eligibility for tax exemptions for steel re-rolling mills and tube manufacturers.
5. Constitutionality of restricting exemptions to re-rolling mills within Tamil Nadu.

Detailed Analysis:

1. Promissory Estoppel and Public Interest in Exemption Notifications:

The scrap dealers argued that the shift in the Government's stand by G.O. P. No. 390 dated September 4, 1991, which subjected raw materials to a 2% tax and an additional 2% tax if the re-rolling mills stock transferred the finished products outside Tamil Nadu, violated the principles of promissory estoppel. The Tribunal rejected this contention, stating that there was no promise held out to the assessees regarding exemption. The judgment of the Supreme Court in Kasinka Trading Corporation dispels any theory of promissory estoppel. Furthermore, section 17 of the TNGST Act does not refer to public interest in granting exemptions, distinguishing it from provisions like section 25 of the Customs Act or section 8(5) of the Central Sales Tax Act.

2. Applicability of Additional Sales Tax:

The scrap dealers were apprehensive about the imposition of additional sales tax despite the reduction from 4% to 2%. The Tribunal clarified that there is ample protection under the Additional Sales Tax Act, 1970, ensuring that the total tax does not exceed 4%. The Supreme Court's judgment in Aysha Hosiery Factory (P) Ltd.'s case supports this view, confirming that the additional sales tax can be imposed as long as it adheres to statutory limits.

3. Jurisdiction of State Government to Levy Tax on Consignment Sales/Branch Transfers:

The steel re-rolling mills contended that the State Government had no jurisdiction under entry 54, List II of the Seventh Schedule to impose tax on despatches to places outside Tamil Nadu, arguing that such a levy could only be made under entry 92-B of the Union List. The Tribunal agreed, stating that the notifications attempting to levy tax on consignment/branch transfers were beyond the State's jurisdiction and violated entries 92-A and 92-B of List I of the Seventh Schedule to the Constitution of India. The Tribunal found that the conditions in the notifications were vague and unworkable.

4. Classification and Eligibility for Tax Exemptions for Steel Re-rolling Mills and Tube Manufacturers:

The tube manufacturers argued that they should be considered re-rolling mills and eligible for the same exemptions. The Tribunal rejected this, stating that re-rolling is a specific process involving the formation of raw materials into various shapes by passing them through rollers. The exemptions were intended for steel re-rolling mills manufacturing specific end-products like M.S. rounds and rods. The Tribunal upheld the Government's stance that tube manufacturers do not qualify for these exemptions.

5. Constitutionality of Restricting Exemptions to Re-rolling Mills within Tamil Nadu:

The Tribunal addressed the issue of restricting exemptions to re-rolling mills within Tamil Nadu, finding it unconstitutional under articles 301 and 304(a) of the Constitution of India. The Tribunal held that the words "in Tamil Nadu" in the notifications should be deleted, ensuring that re-rolling mills outside Tamil Nadu could also benefit from the exemptions, provided they meet the other conditions.

Operative Portion of the Judgment:

1. The words "in Tamil Nadu" in various notifications were ordered to be deleted.
2. Conditions requiring re-rolling mills to remit tax on raw materials used in consignment sales/branch transfers were deleted.
3. Notifications were upheld in all other respects.
4. Tube manufacturers were denied the benefits of exemptions meant for re-rolling mills.
5. Additional sales tax provisions were deemed applicable, subject to an overall ceiling of 4%.
6. Parties were directed to file objections or statutory appeals based on the judgment, with specific timelines provided.
7. All interim orders were vacated, and authorities were directed to proceed in accordance with the judgment.

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