2010 (3) TMI 1034 - HC - VAT and Sales Tax

Whether the State Government is competent to impose tax on the transfer of goods by the petitioner-company to its godown outside the State of Haryana taking recourse to Explanation to rule 28A(2)(n)(i) and 28A(11)(b) of the 1975 Rules? Held that - Object of rule 28 of the 1975 Rules is on what terms and conditions exemption can be availed of. Terms and conditions to avail of exemption does not mean giving authority to the State Government to recover tax which the State Government is otherwise not competent to do so. In view of the above we find the vires of Explanation to rule 28 of the 1975 Rules are not in question and Explanation to rule 28 does not give power to the State to impose tax which the State Government otherwise is not competent to impose in the normal course. Undisputedly the assessing authority has assessed tax considering all the transactions as sale including the inter-State transfer of the consignment which is not legal as per the observations made hereinabove. Tax can be only on transactions which amount to sale hence assessment orders require reconsideration in the light of the observations made hereinabove. The impugned assessment orders are therefore quashed. The assessing authorities are directed to pass assessment orders afresh in accordance with law. Appeal allowed.

Issues Involved:
1. Competence of the State Government to impose tax on the transfer of goods to godowns outside Haryana.
2. Vires of Explanation to Rule 28A(2)(n)(i), (ii), and Rule 28A(11)(b) of the Haryana General Sales Tax Rules, 1975.
3. Legality of the assessment order dated January 31, 1997.

Detailed Analysis:

1. Competence of the State Government to Impose Tax:
The primary issue is whether the State Government can impose tax on the transfer of goods by the petitioner-company to its godown outside Haryana, taking recourse to Explanation to Rule 28A(2)(n)(i) and Rule 28A(11)(b) of the 1975 Rules. The petitioner argued that the State Government is not competent to impose tax on inter-State transactions or consignment transfers, as these do not constitute "sale" under the Haryana General Sales Tax Act, 1973 (1973 Act). The State contended that the definition of "sale" in Rule 28 of the 1975 Rules includes branch transfers or consignment sales outside Haryana, thereby allowing for tax imposition based on notional turnover.

The court examined the definitions and provisions within the 1973 Act, noting that "sale" involves a transfer of property in goods for valuable consideration. The court emphasized that branch transfers or consignment sales outside Haryana do not amount to "sale" and that the State Government lacks the authority to impose tax on such transactions under Section 12 of the 1973 Act. Furthermore, the court referenced Entries 92A and 92B of List I, Seventh Schedule, and Articles 265 and 286 of the Constitution, which restrict the State from imposing taxes on inter-State trade or commerce.

2. Vires of Explanation to Rule 28A:
The petitioner challenged the vires of Explanation to Rule 28A(2)(n)(i), (ii), and Rule 28A(11)(b) of the 1975 Rules, arguing that these provisions violate Entry 92B, List I of the Seventh Schedule, read with Articles 265 and 286 of the Constitution. The State argued that the definition of "sale" in the Explanation to Rule 28 of the 1975 Rules is for the purpose of granting exemptions and that the petitioners, having availed of the exemption, are estopped from challenging the tax imposition.

The court clarified that the object of Rule 28 is to outline the terms and conditions for availing exemptions, not to authorize the State to impose taxes it is otherwise not competent to impose. The court held that the Explanation to Rule 28 does not empower the State to impose tax on inter-State transactions or consignment transfers that do not constitute "sale" under the 1973 Act. Consequently, the vires of the Explanation to Rule 28 were upheld, but the application of these provisions to impose tax was deemed ultra vires.

3. Legality of the Assessment Order:
The petitioner challenged the assessment order dated January 31, 1997, which directed the petitioner to pay Rs. 3,23,66,683, the total tax exemption availed during the exemption period. The court observed that the assessment included transactions considered as sales, including inter-State transfers, which are not legally taxable as per the court's findings.

The court quashed the impugned assessment orders and directed the assessing authorities to reassess in accordance with the law, considering only transactions that constitute "sale."

Conclusion:
The writ petitions were allowed, and the impugned assessment orders were quashed. The assessing authorities were instructed to pass fresh assessment orders in accordance with the court's observations. No order as to costs was made.

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