2009 (10) TMI 864 - HC - VAT and Sales Tax

Whether the respondent had wrongly levied the higher rate of tax on the food and drinks items sold by the petitioner on the misconception that they are branded items? Whether the respondent had wrongly levied the higher rate of tax on the food and drinks items sold by the petitioner on the misconception that they are branded items? Held that - In view of the submissions made by the learned counsels appearing on behalf of the petitioner, as well as the respondent and on a perusal of the records available, this court is of the considered view that the impugned proceedings of the respondent cannot be sustained in the eye of law. It is clear that section 3D of the Tamil Nadu General Sales Tax Act, 1959, as it stood prior to the amendment, which came into effect, from April 1, 2002, there was no distinction between branded and unbranded food and drinks. As such, sales tax was levied on the food and drinks sold by the petitioner, at two per cent, in accordance with the unamended section 3D of the Tamil Nadu General Sales Tax Act, 1959. Since the assessment years of 1998-99, 1999-2000, 2000-01 and 2001-02, relate to the period prior to the amendment of section 3D, it would not be open to the respondent to levy sales tax at the higher rate of 16 per cent. Also the respondent had erred in relying on the Clarification No. 156 of 2003, in D. Dis. Acts Cell II/31073/2003/dated June 26, 2003 in proposing to impose the higher rate of tax on the food and drinks sold by the petitioner. Appeal allowed.

Summary

Issues:
1. Interpretation of section 3D of the Tamil Nadu General Sales Tax Act, 1959 regarding the tax rate on food and drinks sold by a registered dealer.
2. Application of amendments to section 3D and distinction between branded and unbranded food items.
3. Validity of the respondent's proposal to levy tax at a higher rate based on a clarification issued by the Commissioner of Commercial Taxes.
4. Maintainability of the writ petitions due to the availability of alternate remedies under the law.

Issue 1: Interpretation of section 3D of the Tamil Nadu General Sales Tax Act, 1959
The petitioner, a registered dealer, challenged the respondent's proposal to levy tax at a higher rate on food and drinks sold in hotels and restaurants. The petitioner argued that prior to April 1, 2002, section 3D imposed a flat rate of two per cent on all food and drinks without distinguishing between branded and unbranded items. The petitioner contended that the respondent's reliance on subsequent amendments to treat the items as branded was incorrect.

Issue 2: Application of amendments to section 3D and distinction between branded and unbranded items
The petitioner highlighted that the amendment to section 3D introduced the concept of branded and unbranded items, but this distinction was not applicable to sales made before April 1, 2002. The petitioner emphasized that even after the amendment, the food and drinks sold did not fall under the category of branded items, warranting the lower tax rate of two per cent as per the original provision.

Issue 3: Validity of the respondent's proposal based on a clarification
The petitioner argued that the respondent's proposal to levy tax at a higher rate was based on a clarification that had been quashed by a Division Bench of the court in a previous case. The petitioner contended that the reliance on this clarification, especially after it had been invalidated, was arbitrary and illegal, further supporting the argument against the higher tax rate.

Issue 4: Maintainability of the writ petitions
The respondent raised the issue of the writ petitions not being maintainable due to the availability of alternate remedies under the Tamil Nadu General Sales Tax Act, 1959. However, the petitioner argued that pursuing such remedies would be futile, citing precedents where similar clarifications had been issued by higher authorities, creating an obligation on lower authorities to follow them. The court ultimately found in favor of the petitioner, setting aside the respondent's proceedings and directing assessment under the original provision of section 3D, thereby allowing the writ petitions.