2005 (7) TMI 621 - HC - VAT and Sales Tax

Issues Involved:
1. Liability to pay sales tax as a pre-condition for the release of sandalwood.
2. Existence of a ban on the export of sandalwood during the relevant period.
3. Justification of respondents' insistence on the payment of sales tax.
4. Liability of the petitioner to pay demurrage charges and penal interest.

Detailed Analysis:

1. Liability to pay sales tax as a pre-condition for the release of sandalwood:
The petitioner argued that the purchases were for export and hence exempt from sales tax under section 5(3) of the Central Sales Tax Act, 1956. The respondents, however, insisted on the payment of sales tax along with the sale amount. The court noted that condition No. 25 of the sale notice required payment of sales tax at the time of confirmation of sales. However, as per section 5(3) of the Central Sales Tax Act, there is no liability to pay tax if the purchase is intended for export pursuant to an agreement or order with a foreign buyer. This position was reinforced by various circulars issued by the Commercial Taxes Department. The court referred to a letter dated April 2, 1986, from the Commissioner of Commercial Taxes, which clarified that sandalwood purchased for export would still satisfy the provision under section 5(3). Additionally, a circular dated July 10, 1995, stated that the export order or agreement need not be shown at the auction but should be furnished before delivery by the Forest Department. The court concluded that the insistence by the respondents on the payment of tax as a pre-condition for releasing the commodity could not be sustained.

2. Existence of a ban on the export of sandalwood during the relevant period:
The respondents contended that there was a ban on the export of sandalwood during the relevant period. However, they did not produce any material to substantiate this claim. The petitioner provided a letter from the Central Government dated November 28, 1997, permitting the export of sandalwood. The court found that the respondents' defence was routine and unsupported by any concrete evidence. Therefore, the court rejected the contention that there was a ban on the export of sandalwood during the relevant period.

3. Justification of respondents' insistence on the payment of sales tax:
The court observed that the respondents' insistence on the payment of sales tax was based on the conditions of sale. However, the petitioner had consistently claimed exemption under section 5(3) of the Central Sales Tax Act. The court referred to a division bench judgment in a similar case, which held that if the purchaser had a pre-existing agreement for export, they were entitled to exemption under section 5(3). The court noted that the respondents had not called upon the petitioner to produce the export agreement in any of their letters. The court concluded that the respondents' insistence on the payment of tax was unjustified.

4. Liability of the petitioner to pay demurrage charges and penal interest:
The court noted that the liability to pay demurrage and penal interest would arise only in the event of intentional default by the petitioner. The facts disclosed that the respondents' uncompromising demand for payment of tax resulted in the stalemate. The court referred to a judgment in Sree Mahalakshmi Flour Mills v. State of Tamil Nadu, which held that demurrage charges would arise only after the buyer became the full owner of the property. The court found that the respondents' demand for demurrage charges and penal interest was not justified as the petitioner was not at fault for the delay in clearing the stock. The court held that the petitioner was not liable to pay demurrage charges or penal interest.

Conclusion:
The writ petition was allowed, and the court concluded that the petitioner was not liable to pay sales tax, demurrage charges, or penal interest. The entitlement for the benefit of section 5(3) of the Central Sales Tax Act would be decided independently by the taxation authorities based on the documents submitted by the petitioner. No costs were awarded.

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