2009 (12) TMI 866 - HC - VAT and Sales Tax

Whether the levy of additional sales tax at one per cent so as to bring the rate of tax to four per cent in respect of inter-State sale of cotton during the assessment year 1996-97 is correct when the rate of tax under the local Act is only three per cent? Held that - The section 8(2A) categorically provides that if the goods are exempted under the local Act, generally the tax under the Central Sales Tax Act is nil. If the local tax is less than four per cent, then the tax under the Central Sales Tax Act is also at a lower rate, as provided under the local Act. Incidentally, the Division Bench of this court in the case of Sree Ayyanar Spinning and Weaving Mills Limited v. State of Tamil Nadu 1998 (2) TMI 558 - MADRAS HIGH COURT has also stated that moreover, it was impermissible to add additional sales tax to the lower rate of levy made in the public interest, in respect of the goods, to which a notification had been framed under sub-section (5) of section 8 of the Act. When it is the law laid down in respect of the goods for which the notification has been issued under section 8(5) of the Act, there cannot be any levy of additional sales tax, as the section clearly states that the Central sales tax would be at a lower rate as that of the rate fixed in the local Sales Tax Act. W.P. dismissed.

Summary

Issues:
Levy of additional sales tax on inter-State sale of cotton during the assessment year 1996-97.

Analysis:
The writ petition addressed the issue of whether the levy of additional sales tax at one per cent to bring the tax rate to four per cent on inter-State sale of cotton during the assessment year 1996-97 was correct when the local tax rate was only three per cent. The assessing officer levied the additional tax under section 8(2A) of the Central Sales Tax Act, 1956. The Appellate Assistant Commissioner allowed the appeal filed by the assessee, and the Tribunal upheld this decision. Both authorities held that additional sales tax and surcharge apply only to inter-State sales not covered by C form falling under section 8(2B) of the Act. They also stated that for declared goods covered by C form declaration, the assessing officer cannot levy a higher rate than that prescribed under the local Act.

The interpretation of section 8(2A) was crucial in this case. The section provides that the tax payable on inter-State sales of goods exempt from tax under the State Act shall be nil, and if the State tax rate is lower than four per cent, the Central sales tax shall be at that lower rate. The section's non obstante clause gives it an overriding effect over other provisions. It aims to prevent local consumers from being in a better position than consumers outside the state by ensuring that Central sales tax aligns with the local tax rate for exempted goods.

The judgment highlighted the importance of section 8 in fixing tax rates for inter-State sales and the significance of declared goods in inter-State trade. It emphasized that the purpose of section 8(2A) is to facilitate inter-State trade and prevent discrimination against consumers in importing states. The court referred to a previous case to support the interpretation that no additional sales tax can be added to the lower rate prescribed under the Act for goods covered by a notification under section 8(5).

Ultimately, the court dismissed the writ petition, upholding the decisions of the lower authorities. The judgment concluded that if goods are exempt under the local Act, the Central sales tax is nil, and if the local tax rate is below four per cent, the Central tax rate aligns with the lower local rate.