2013 (10) TMI 1019 - HC - VAT and Sales Tax

Rate of sales tax - Inter state sale of Iron & Steel - Section 8 (1) - Governor s notification - Whether in view of the said notification the rate of tax on inter state sale of goods manufactured by the assessee would be 2 % in view of Section 8 (1) of the Central Sales Tax Act or would it be covered by the proviso to Section 8 (1) and, therefore, attract tax @ 4 % - Held that - the rate payable on the sales affected to a government or registered dealer by the selling dealer in the State of U.P during course of inter State sales, would attract tax @ 2 % with effect from said date, as may be notified by the Central Government in the Official Gazette for this purpose. Further power has been conferred upon the Central Government to provide for the lower rate in respect of said goods at par with the rate applicable to the sale or puchase of said goods inside appropriate State under the State tax law. To attract the said clause 8 (1) it is but necessary that there is a notification by the Central Government declaring that the rate of tax on turn over of a selling dealer would be 2 % during course of inter State trade covered by Section 8 (1) or the lower rate as applicable on the sale of the same goods within the State under the State law. So long as a notification under Section 8 (1) is not issued, the proviso to Section 8(1) would continue to hold the field. The proviso prescribes the rate of tax to be 4 % of the turn over - under the order of the Tribunal and even otherwise, no notification issued by the Central Government in exercise of powers under Section 8 (1) has been brought on record nor has been referred to the findings of the Tribunal that the rate of tax under the Central Sales Tax Act for the assessee would be 2 %, cannot be legally sustained as it is based on ignorance of the proviso to Section 8 (1) of the Central Sales Tax Act as noticed above. The same cannot be legally sustained - Decided in favour of Revenue.

Summary

Issues:
Interpretation of Section 8(1) of the Central Sales Tax Act regarding the rate of tax applicable on inter-state sale of goods manufactured from tax paid raw material.

Analysis:
The High Court of Allahabad heard a revision filed by the department against the Tribunal's order related to the assessment year 1995-96 under the Central Sales Tax Act. The Tribunal had held that the rate of tax on inter-state sale of Iron & Steel manufactured from tax paid raw material would be 2% based on the certificate in Form C provided by the assessee. However, the department contended that the proviso to Section 8(1) was misread by the Tribunal, as it mandates a 4% tax rate in the absence of a notification specifying a 2% rate. The assessee argued that since Form C was submitted, satisfying Section 8(4), the 2% tax rate applied to intra-state sales should also apply to inter-state sales.

The Court noted that the goods were manufactured from tax paid raw material and sold within the State of U.P at a 2% tax rate as per a notification. The key issue was whether the inter-state sale of goods manufactured by the assessee should be taxed at 2% under Section 8(1) or at 4% as per the proviso. Section 8(1) specifies a 2% tax rate unless a notification states otherwise, in which case the proviso mandates a 4% rate until the 2% rate is notified. The absence of a notification would trigger the proviso, resulting in a 4% tax rate for inter-state sales.

The Court clarified that without a notification specifying a 2% tax rate for inter-state sales, the proviso to Section 8(1) would apply, necessitating a 4% tax rate. Since no such notification was presented in the case, the Tribunal's decision to tax at 2% was legally unsustainable. Consequently, the Court quashed the impugned order, restoring the second appeal to the Tribunal for a fresh decision within three months in accordance with the law and the Court's observations.

In conclusion, the High Court of Allahabad allowed the revision, emphasizing the importance of a notification under Section 8(1) for determining the applicable tax rate on inter-state sales of goods manufactured from tax paid raw material under the Central Sales Tax Act.