2012 (6) TMI 760 - HC - VAT and Sales Tax

Levy CST on the total turnover which included direct export sales as well - requiring to produce H forms - Held that - If the sale of goods is by way of export out of territory of India, it is not exigible the moment the transfer of documents of title to the goods is complete, i.e., after the goods crossed the customs frontiers of India. In addition to this, as per section 5(3) of the CST Act, the last sale or purchase of any goods preceding the sale or purchase occasioning the export of goods out of the territory of India shall be deemed to be export sale, if such sale took place for the purpose of complying with the agreement or order with relation to such export. When the export sales are not exigible under the CST Act, requiring to produce H forms which is relevant in the context of situation under section 5(3) would be unauthorised. Any assessment under such wrong premise would also be unauthorised by law. Be it reiterated that export sale is not in the course of inter-State trade or commerce and levy of tax thereon is unsustainable. In all matters, the CTO misdirected himself and passed the assessment orders. A misdirection in law is a jurisdictional error, and therefore, the impugned assessment orders cannot be sustained. They are liable to be set aside.

Summary

Issues:
Challenge to assessment orders under the Central Sales Tax Act, 1956 for 2008-2009 by IT software companies engaged in export; Dispute over exemption on export sales and concessional tax rates; Requirement of producing proof of exports/exemption; Jurisdictional error by Commercial Tax Officer in subjecting direct export sales turnover to CST; Interpretation of sections 5 and 6 of the CST Act; Misdirection by the CTO in passing assessment orders.

Analysis:
The High Court of Andhra Pradesh addressed three writ petitions filed by IT software companies aggrieved by assessment orders under the Central Sales Tax Act, 1956 for 2008-2009. The primary issue revolved around the companies' export sales and the imposition of CST by the Commercial Tax Officer (CTO). The CTO demanded tax on total turnover, including direct export sales, alleging a failure to produce proof of exports/exemption, specifically H forms as per the Central Sales Tax Rules. The petitioners contended that the CTO erred in subjecting direct export sales to CST, highlighting jurisdictional errors in the assessment process.

The Court delved into the legal framework governing exports and imports under the Constitution, emphasizing the Parliament's authority to formulate principles for inter-State trade or commerce. It clarified that not all export sales are taxable under the CST Act, citing section 6 which mandates tax liability for inter-State sales while exempting export sales as per section 5(3). The Court scrutinized section 5, which defines when a sale is deemed to occur in the course of export, stressing the completion of title transfer post-customs frontiers crossing. It differentiated between direct export sales and intermediate transactions requiring H forms, asserting that the CTO's insistence on H forms for direct exports was unauthorized and unsustainable.

Further, the Court highlighted a jurisdictional error in the assessment orders, citing a precedent where a similar misdirection led to the orders' dismissal. Quoting the precedent, the Court emphasized that direct exports do not necessitate compliance with section 5(3) and reiterated the legal position favoring the assessee in cases of single sales occasioning exports. Consequently, the Court set aside the impugned assessment orders, allowing the CTO to issue notices for proof of direct export sales before reassessment.

In conclusion, the Court disposed of the writ petitions and associated miscellaneous petitions without costs, emphasizing the need for assessments to align with legal provisions and principles governing export sales under the CST Act.