2003 (10) TMI 612 - AT - VAT and Sales Tax

Summary

Issues:
1. Quashing of revised order of assessment in TNGST 0740578/1997-98 dated February 28, 2003.
2. Eligibility for second sale exemption of pre-recorded audio cassettes.
3. Classification of petitioner as first seller of pre-recorded cassettes.
4. Interpretation of sales tax liability on pre-recorded cassettes.

Analysis:
1. The petitioner sought to quash the revised order of assessment dated February 28, 2003. The petitioner argued that they are engaged in selling pre-recorded audio cassettes and are eligible for second sale exemption as per the TNGST Act. The petitioner contended that the assessing authority erred in treating them as the first seller of the cassettes instead of recognizing them as engaging in second sales. The first appellate authority had previously allowed the petitioner's appeal for the assessment year 1998-99. The Tribunal found merit in the petitioner's argument and set aside the impugned order, remitting the matter back to the assessing authority for a re-assessment in accordance with the law and relevant circulars issued by the Commissioner of Commercial Taxes.

2. The Tribunal examined the nature of the transactions involving the supply of pre-recorded audio cassettes by the petitioner. It was revealed that the customers of the petitioner recorded audio in blank cassettes supplied by the petitioner and then returned the recorded cassettes to the petitioner. The customers subsequently raised sale bills against the petitioner as if pre-recorded cassettes were sold, leading to a claim for second sale exemption by the petitioner. However, the assessing authority classified the petitioner as the first seller of the cassettes, subjecting them to tax liability under section 3(2) of the Act. The Tribunal disagreed with this classification, citing previous clarifications and circulars that supported the petitioner's claim for exemption as second sales.

3. The assessing authority's reasoning for imposing tax liability on the petitioner was based on the customers' role in recording audio on the cassettes, which was considered a works contract. The authority viewed the customers as not having the right to sell the recorded cassettes, leading to the petitioner being treated as the first seller. However, the Tribunal found fault with this interpretation, emphasizing that the relevant turnover should be assessed in line with the clarification issued by the Commissioner of Commercial Taxes and the provisions of the Act. The Tribunal directed the assessing authority to adhere to the clarification and circulars in force and provide reasons for any deviation from the prescribed guidelines.

4. In conclusion, the Tribunal disposed of the original petition by setting aside the impugned order and remitting the matter for re-assessment. The Tribunal emphasized the importance of following the relevant clarifications and circulars in determining the tax liability on pre-recorded cassettes. The stay petition associated with the case was deemed irrelevant following the disposal of the original petition, with the Tribunal's order to be duly observed and executed by all concerned parties.