2006 (5) TMI 461 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether export sales are part of gross turnover for calculating notional tax liability under rule 28-A(4)(a) of the Haryana General Sales Tax Rules, 1975.

Issue-wise Detailed Analysis:

1. Inclusion of Export Sales in Gross Turnover:
The primary question referred to the court was whether export sales should be included in the gross turnover for calculating notional tax liability under rule 28-A(4)(a) of the Haryana General Sales Tax Rules, 1975. The assessee-dealer, engaged in the manufacturing and sale of paper and packing material, was granted tax exemption under section 13-B of the Act read with rule 28-A of the Rules. The Assessing Authority excluded export sales from the gross turnover while calculating notional tax liability. However, the Revisional Authority included export sales, a view upheld by the Tribunal, which stated that the gross turnover includes sales in the course of export.

Arguments by the Assessee:
The assessee argued that export sales should not be part of gross turnover because the State Legislature lacks the competence to tax export sales. They cited several judgments, including A.V. Fernandez v. State of Kerala and State of Madras v. Gannon Dunkerley & Co., to support their claim that turnover can only include sales legally subject to tax.

Arguments by the State:
The State contended that under the proviso to rule 28-A(4)(a), the benefit of tax exemption applies to the gross turnover, which includes all sales receipts, including export sales.

Legal Provisions and Interpretation:
- Sections 12, 13-B, and 25-A of the Act: Section 12 explicitly states that tax on sales in the course of export outside India shall not be imposed. Section 13-B allows the State Government to exempt certain industries from tax, and Section 25-A provides for deferment of tax.
- Rule 28-A of the Rules: This rule outlines the conditions for tax exemption/deferment. The definition of "notional sales tax liability" under rule 28-A(2)(n) does not include export sales.
- Supreme Court Judgments: The court referred to the judgment in A.V. Fernandez v. State of Kerala, which distinguished between exemption from tax and non-imposition of tax. It also cited Associated Cement Companies Ltd. v. State of Bihar, which clarified that exemption presupposes a liability, and if there is no liability, exemption is not applicable.

Analysis and Conclusion:
The court concluded that turnover of export goods outside India does not form part of the turnover for calculating notional tax liability. Article 286 of the Constitution and Section 12 of the Act prevent the imposition of tax on export sales. Including export sales in the turnover for calculating notional tax liability would contradict these provisions and lead to an absurd interpretation of the law. The court emphasized that the purpose of sections 13-B and 25-A is to provide tax incentives to promote industrialization, not to include non-taxable transactions in the turnover.

Discrimination in Treatment:
The court also noted that the rules create a discriminatory situation where units availing tax deferment do not include export sales in their turnover, whereas units availing tax exemption do. This inconsistency further supports the exclusion of export sales from the gross turnover for calculating notional tax liability.

Final Judgment:
The court answered the question in favor of the assessee-dealer, ruling that export sales should not be included in the gross turnover for calculating notional tax liability under rule 28-A of the Haryana General Sales Tax Rules, 1975.