2006 (11) TMI 556 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of reassessment order.
2. Applicability of State Government notification fixing tax rate.
3. Requirement of compliance with sub-section (4) of section 8 of the CST Act.

Summary:

1. Validity of reassessment order:
The petitioner challenged the reassessment order dated September 19, 2005, passed by the Commercial Taxes Officer, Samastipur, which reassessed the petitioner's liability for sales tax for the period 2000-01, resulting in an additional amount of Rs. 2,11,77,970.60 plus penalty, totaling Rs. 2,27,53,885. The reassessment was based on audit objections that led to the rejection of declarations in form "D" issued by the Directorate General of Supplies and Disposal (DGS&D), and consequently, the sales were taxed at 10% u/s 8(2) of the CST Act instead of 3% as initially assessed.

2. Applicability of State Government notification fixing tax rate:
The petitioner argued that the State Government's notification dated October 13, 1986, fixed the tax rate on inter-State sales of jute bags at 3% for both sub-sections (1) and (2) of section 8 of the CST Act. The court noted that the notification, issued u/s 8(5) of the CST Act, indeed set the tax rate at 3% for sales of jute bags in inter-State trade or commerce, regardless of whether the sales fell under sub-section (1) or (2) of section 8. Therefore, even if the sales to DGS&D were not covered by sub-section (1) due to defective form "D" declarations, the tax rate should still be 3% as per the notification.

3. Requirement of compliance with sub-section (4) of section 8 of the CST Act:
The State's counsel contended that compliance with sub-section (4) of section 8, which requires the furnishing of proper declarations, was necessary to avail the benefit of the reduced tax rate under the notification. However, the court distinguished the present case from the Supreme Court decision in State of Rajasthan v. Sarvotam Vegetables Products, noting that the Rajasthan notification only applied to sub-section (1) of section 8, whereas the Bihar notification applied to both sub-sections (1) and (2). Thus, the failure to produce valid form "D" declarations did not alter the applicable tax rate of 3% under the Bihar notification.

Conclusion:
The court found that the reassessment order was not in conformity with the law, as the applicable tax rate should have been 3% as per the State Government notification, regardless of the defective form "D" declarations. Consequently, the impugned order was set aside, and the writ application was allowed with no order as to costs.