2010 (9) TMI 1002 - HC - VAT and Sales Tax

What is the maximum rate of sales tax applicable on goods sold to a Government Department against certificate in form D by an industrial unit holding exemption certificate under rule 28A of the Haryana General Sales Tax Rules, 1975 for the purpose of computing notional sales tax liability as defined in clause (n) of sub-rule (2) of rule 28A? Whether the instructions issued by the Excise and Taxation Commissioner to the Assessing Authorities vide Memo No. 1314/ S.T.I.dated May 19, 1994 but later superseded vide memo dated March 25, 1997, shall act as an estoppel to applying the higher rate of tax than the concessional rate for the period before March 25, 1997? Held that - The Tribunal was right in allowing the appeal of the respondentdealer. We accordingly answer question No. 1 against the petitioner-State of Haryana and in favour of the respondent-dealer. Adverting to the second question, in view of answer to question No. 1 in favour of the assessee-dealer, question No. 2 does not survive. Accordingly, the reference is answered against the State of Haryana and in favour of the assessee.

Summary

Issues:
1. Maximum rate of sales tax applicable on goods sold to a Government Department against certificate in form D by an industrial unit holding exemption certificate.
2. Estoppel effect of instructions issued by the Excise and Taxation Commissioner on applying higher rate of tax than the concessional rate.

Analysis:
1. The case involved a dispute regarding the maximum rate of sales tax applicable on goods sold to a Government Department by an industrial unit holding an exemption certificate. The respondent-assessee, holding an exemption certificate under the Haryana General Sales Tax Rules, made sales to Government Departments against certificates in form D. The assessing authority assessed the notional sales tax liability (NSTL) at the maximum rate of sales tax, resulting in a demand from the respondent. The Tribunal concurred with the assessing officer's computation, leading to a review application by the State of Haryana, which was dismissed. The Tribunal then referred the matter to the High Court for determination of the applicable sales tax rate.

2. The High Court analyzed the relevant provisions of the Haryana General Sales Tax Rules and previous judgments to determine the correct method for calculating the notional sales tax liability. The court held that the sales tax should be calculated at the rate applicable to the transaction under the Act, not at the maximum rate of sales tax. Citing precedents, the court emphasized that the purpose of exemption is to grant relief from the tax payable as per the provisions of the Act, rather than imposing tax first and then granting exemption. The court's decision was in line with previous rulings and was upheld by the apex court.

3. Consequently, the High Court answered the first question in favor of the respondent-dealer, holding that the sales tax on goods sold to Government Departments against form D should be calculated at the usual rate of sales tax applicable to the transaction. As a result of this determination, the second question regarding the estoppel effect of instructions issued by the Excise and Taxation Commissioner became irrelevant and did not require consideration. The reference was answered against the State of Haryana and in favor of the assessee, affirming the Tribunal's decision and providing clarity on the correct method of calculating notional sales tax liability in such cases.