2009 (12) TMI 900 - HC - VAT and Sales Tax

Whether the circular dated March 18, 2002 in any manner violates, varies or modifies the notification dated October 10, 1995 issued by the State Government in exercise of its power under section 8(5) of the Central Act? Held that - The only power which can be exercised is to exempt the goods from tax. In the present case we find that under the U.P. Act the electronics goods is generally liable to be taxed at 2.5 per cent. including surcharge which is lower than four per cent. and the notification issued under section 8(5) prescribed the rate of tax at two per cent. Thus the case in hand would be covered by sub-section (2A) of section 8 of the Central Act and not by sub-section (1) or sub-section (2) of section 8. Our above view finds support from the phrase used tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification . The use of words lower rates implies that rate of tax may be lowered down than the rate of tax as provided under the State Act. Further the reference of sub-section (1) or sub-section (2) is indicative of the fact that a notification can be issued only with respect to the rate of tax referred in aforestated sub-sections and not to sub-section (2-A) of section 8. The circular therefore, clarifying the above legal position is not in any manner illegal or contrary to law.

Issues Involved:
1. Validity of the circular dated March 18, 2002, issued by the Commissioner of Trade Tax.
2. Interpretation of the notification dated October 10, 1995, under section 8(5) of the Central Sales Tax Act.
3. Applicability of sections 8(1), 8(2), and 8(2A) of the Central Sales Tax Act.
4. Legality of reassessment and rectification proceedings initiated under sections 21 and 22 of the U.P. Trade Tax Act.

Detailed Analysis:

1. Validity of the Circular Dated March 18, 2002:
The primary issue in these writ petitions is whether the circular dated March 18, 2002, violates, varies, or modifies the notification dated October 10, 1995, issued under section 8(5) of the Central Sales Tax Act. The petitioners argue that the circular wrongly interprets the notification and leads to unjustified reassessment proceedings. They contend that the notification issued in the public interest under section 8(5) cannot be altered by an administrative circular.

2. Interpretation of the Notification Dated October 10, 1995:
The notification dated October 10, 1995, specifies a tax rate of two percent for inter-State sales of electronic goods. The petitioners argue that this notification should apply to their sales, which were previously taxed at two percent. However, the court clarifies that the notification is applicable only to transactions covered under sub-sections (1) and (2) of section 8 of the Central Sales Tax Act, and not to those covered under section 8(2A). The court emphasizes that the notification pertains to goods taxed at four percent or more, whereas the petitioners' goods are taxed at 2.5 percent under intra-State sales.

3. Applicability of Sections 8(1), 8(2), and 8(2A) of the Central Sales Tax Act:
The court explains that section 8 of the Central Sales Tax Act categorizes inter-State sales into four types. The sales in question do not fall under sub-sections (1) or (2) but under section 8(2A), which states that if the intra-State tax rate is less than four percent, the inter-State tax rate should be the same. Since the petitioners' electronic goods are taxed at 2.5 percent intra-State, they fall under section 8(2A), not sections 8(1) or 8(2). The notification under section 8(5) cannot apply to these goods as it is intended for goods taxed at four percent or more.

4. Legality of Reassessment and Rectification Proceedings:
The petitioners challenge the reassessment and rectification proceedings initiated under sections 21 and 22 of the U.P. Trade Tax Act. They argue that these proceedings are unjustified and that the circular dated March 18, 2002, misinterprets the notification. The court, however, finds that the circular correctly clarifies the legal position and does not conflict with the notification. The court dismisses the petitions, stating that the circular does not modify or alter the notification but merely clarifies that it applies only to goods covered under sections 8(1) and 8(2), not 8(2A).

Conclusion:
The court concludes that the circular dated March 18, 2002, is valid and does not violate the notification dated October 10, 1995. The electronic goods in question are taxed under section 8(2A) of the Central Sales Tax Act, and the notification under section 8(5) does not apply to them. The reassessment and rectification proceedings are justified, and the writ petitions are dismissed with costs.

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