2012 (2) TMI 460 - HC - VAT and Sales Tax

Circular of the Commissioner of Commercial Taxes, Andhra Pradesh bearing Ref. No. AIII(1)/98/ 2010, dated May 22, 2010 challenged on the ground that it is contrary to proceedings dated November 21, 2007, October 21, 2008 and November 13, 2009, issued by the first respondent - Held that - The clarifications in the impugned circular issued by the Commissioner constitute guidelines issued in exercise of powers under rule 16(2)(c) of the APVAT Rules, 2005. As rightly pleaded in the Commissioner s counter and clarified in the impugned circular, rice millers are not entitled to any exemption from liability to tax under the provisions of the APVAT Act, 2005 in respect of any part of turnovers of sales made otherwise than to FCI/State Agencies and no exemption on any part of the turnover of sales made in the open markets, otherwise than towards levy is comprehended in the policy of the Union of India exemplified by the letters dated November 21, 2007, October 21, 2008 and November 13, 2009. The impugned circular of the Commissioner merely clarifies a position inherent and integral to the policy of the Union as set out in the three letters of the 1st respondent. Thus no illegality in the circular dated May 22, 2010 issued by the Commissioner of Commercial Taxes, Andhra Pradesh, nor in proceedings initiated by the concerned assessment authorities for levy of tax from the petitioners, warranting interference under article 226 of the Constitution. W.P. dismissed.

Issues Involved:
1. Validity of the circular issued by the Commissioner of Commercial Taxes, Andhra Pradesh.
2. Authority of the Commissioner to issue the circular.
3. Compliance of the circular with the policy of the Union of India.
4. Entitlement of rice millers to VAT exemption on the incentive bonus component.

Detailed Analysis:

1. Validity of the circular issued by the Commissioner of Commercial Taxes, Andhra Pradesh:
The petitioners challenged the circular of the Commissioner of Commercial Taxes, Andhra Pradesh, dated May 22, 2010, on the grounds that it contradicted the proceedings dated November 21, 2007, October 21, 2008, and November 13, 2009, issued by the first respondent (Central Government). The circular clarified that rice millers are eligible for VAT exemption on the bonus amount reimbursed by FCI only for the paddy purchased proportionate to the levy rice supplied. It explicitly stated that rice millers are not eligible to claim VAT exemption on the bonus amount for rice sold in the open market or for inter-State sales. The court upheld the circular, stating it did not violate the Union's policy as set out in the letters from the Central Government.

2. Authority of the Commissioner to issue the circular:
The petitioners argued that the Commissioner had no authority to issue a circular contrary to the conditions imposed by the Union of India and without consulting the Central Government. The court found that the Commissioner issued the circular under rule 16(2)(c) of the APVAT Rules, 2005, which allows for guidelines to be issued by the Commissioner regarding exemptions from taxable turnover. The court concluded that the circular was within the Commissioner's authority and did not require prior consultation with the Central Government.

3. Compliance of the circular with the policy of the Union of India:
The petitioners contended that the circular was contrary to the Union's policy, which exempted the incentive bonus from State taxes. The court analyzed the letters from the Central Government, which indicated that the incentive bonus was to be paid to farmers for paddy procured for levy rice and that the bonus should be exempt from State taxes to ensure it reached the farmers without deductions. The court held that the circular correctly interpreted the Union's policy by limiting the exemption to the bonus amount reimbursed for levy rice and not for sales in the open market or inter-State sales.

4. Entitlement of rice millers to VAT exemption on the incentive bonus component:
The court examined rule 16(2)(c) of the APVAT Rules, 2005, which states that amounts forming part of the sale price on account of incentives sanctioned by the Government should not be included in the taxable turnover, subject to guidelines issued by the Commissioner. The court found that the Union's policy, as set out in the letters, intended the incentive bonus to be exempt from State taxes only for rice supplied towards levy. The circular correctly clarified that rice millers are not entitled to VAT exemption on the bonus amount for rice sold in the open market or for inter-State sales, as no incentive bonus is paid by FCI or State Agencies for such sales.

Conclusion:
The court concluded that the circular dated May 22, 2010, issued by the Commissioner of Commercial Taxes, Andhra Pradesh, was legal and did not violate the Union's policy. The writ petitions were dismissed, and the interim orders dissolved, with no order as to costs.

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