2006 (6) TMI 491 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of REP licences should be treated as "goods" and subject to sales tax.
2. The legality of imposing penalties for non-disclosure of REP licences sales in tax returns.
3. The impact of the Supreme Court's judgment in Vikas Sales Corporation on the treatment of REP licences.
4. The relevance of the Supreme Court's judgment in Sunrise Associates on REP licences.

Detailed Analysis:

1. Treatment of REP Licences as "Goods":
The petitioner, a partnership firm engaged in exporting goods, argued that REP licences were not considered "goods" and thus not subject to sales tax under the Bengal Finance (Sales Tax) Act, 1941, during the relevant assessment years (1989-90, 1990-91, and 1991-92). The firm had submitted returns showing nil taxable turnover, as its business involved export and sale of excess REP licences, which were not taxed at that time.

The Supreme Court, in its judgment in Vikas Sales Corporation (1996), declared that REP licences were goods and subject to sales tax. This judgment prompted the reopening of the petitioner's deemed assessments for the relevant years, leading to fresh assessments and imposition of sales tax on REP licences.

2. Legality of Imposing Penalties:
The Commercial Tax Officer imposed penalties under section 11E(4) of the 1941 Act for non-disclosure of REP licences sales. The Assistant Commissioner upheld the imposition but set aside the penalty order, directing a fresh assessment based on the assessed tax liability. The Deputy Commissioner confirmed this decision. The petitioner argued that there was no reasonable cause to include REP licences in returns or pay tax before the Supreme Court's judgment in Vikas Sales Corporation.

The Tribunal observed that sales tax authorities in West Bengal did not treat REP licences as "goods" before the judgment in Vikas Sales Corporation. The petitioner was not expected to include such sales in its returns or pay tax thereon.

3. Impact of Vikas Sales Corporation Judgment:
The Supreme Court's judgment in Vikas Sales Corporation led to the reopening of deemed assessments and imposition of sales tax on REP licences. The Tribunal noted that the petitioner and other dealers had reasonable cause for not paying tax on REP licences before this judgment, as the state revenue authorities did not consider such sales taxable.

4. Relevance of Sunrise Associates Judgment:
The petitioner argued that the Supreme Court's judgment in Sunrise Associates (2006) reopened the controversy regarding the nature of REP licences. The Constitution Bench in Sunrise Associates held that lottery tickets are actionable claims and not goods, indirectly questioning the assumption in Vikas Sales Corporation that REP licences are goods.

The Tribunal concluded that the petitioner had reasonable cause for not including REP licences sales in returns before the Vikas Sales Corporation judgment. The imposition of penalties was deemed unjustified as the petitioner acted based on the prevailing legal understanding in West Bengal.

Conclusion:
The Tribunal set aside the penalties imposed by the Commercial Tax Officer, Assistant Commissioner, and Deputy Commissioner concerning the sale of REP licences under section 11E(4) of the 1941 Act for the period before the Supreme Court's judgment in Vikas Sales Corporation. The applications were allowed to this extent, with no order as to costs.