2011 (2) TMI 1341 - HC - VAT and Sales Tax

When the statute imposes the liability to pay purchase tax by the assessee, whether the assessee is entitled to levy and collect sales tax on the ground that he has not paid the purchase tax and whether it contravenes section 18 of the Act? Held that - The observation of the Tribunal that the law does not prohibit any person from collecting the tax from the customers even if the same is to be paid at the point of purchase is contrary to the aforesaid statutory provisions. Similarly, the observation that though he was liable to pay tax at the stage of purchase and he has paid tax at the stage of sale and therefore there is no contravention, also runs counter to the aforesaid statutory provisions. Therefore the error committed by the Tribunal is patently illegal and cannot be sustained. In that view of the matter, the order passed by the Tribunal is hereby set aside. Hence, Revision is allowed.

Summary

Issues:
1. Interpretation of section 18AA of the Karnataka Sales Tax Act and the Central Sales Tax Act.
2. Validity of reassessment orders passed under section 18AA.
3. Prohibition on collecting tax at the point of sale if purchase tax is not paid.

Analysis:
1. The High Court reviewed a revision filed by the Revenue against the Karnataka Appellate Tribunal's decision declaring orders under section 18AA of the Karnataka Sales Tax Act and Central Sales Tax Act as illegal. The Tribunal upheld the reassessment orders against a coffee curer for escaping turnover assessment to tax. The Tribunal considered if the curer was justified in not paying purchase tax and collecting sales tax. The Tribunal found the reassessment order valid but disagreed on the legality of collecting tax at the point of sale.

2. The Tribunal affirmed the reassessment under section 12A for the curer's failure to pay tax on coffee seed purchases. However, it held that the curer could collect tax from customers even if liable at the purchase stage. The Revenue argued that collecting sales tax without paying purchase tax was prohibited under section 18AA. The curer contended that since purchase tax and sales tax were the same, no law was breached. The High Court focused on whether the curer could levy sales tax without paying purchase tax and if it contravened section 18 of the Act.

3. The Court analyzed the relevant provisions of the Act, emphasizing that a dealer must pay purchase tax at the point of purchase and cannot collect tax at the point of sale if not liable. Section 18 prohibits collecting tax exceeding what the dealer is liable to pay. Section 18AA addresses amounts wrongly collected as tax, mandating payment to the assessing authority and providing for forfeiture. The Court found the Tribunal's interpretation allowing collection at the sale stage despite non-payment at the purchase stage as contrary to statutory provisions. Consequently, the Tribunal's decision was deemed illegal, and the original reassessment order was upheld.

In conclusion, the High Court allowed the revision, setting aside the Tribunal's decision and restoring the first appellate authority's order. The judgment clarified the prohibition on collecting tax at the point of sale without paying purchase tax, emphasizing compliance with statutory provisions under section 18 and section 18AA of the Act.