2014 (3) TMI 822 - SC - VAT and Sales Tax

Violation/Breach of conditions of tax exemption - restriction on stock transfer outside state while availing exemption Refunding of amount availed by tax exemption/deferment of tax under the exemption scheme - u/s 13 B of the Haryana General Sales Tax Act r/w Rule 28-A Held that - The assessee-company had availed benefit of the sales tax exemption under the Exemption Scheme issued by the State Government - The Eligibility Certificate provides for certain conditions to be complied by the assessee-company - Condition No. 7 provides that the certificate can be cancelled if there is contravention of any condition mentioned in the certificate or Rule 28-A - In the show cause notice it is specifically alleged that the assessee had dispatched good on consignment basis during the assessment period 1995-1996, 1996- 1997 and 1997-1998 and thus the assessee has breached Sub-rule 11(a)(ii) of the Rule 28-A, which prescribes that the assessee having availed the benefit of tax exemption shall not make sales outside the State for next five years by way of transfer or consignment of goods manufactured by it - Since the assessee did not dispute the specific contravention by the assessing authority after cancelling the exemption certificate issued has quantified the tax liability and the interest - The order so passed is in consonance with the scheme of exemption notified by the State Government and also in accordance with the rules prescribed under Section 13B. Validity of High Court Order - Held that - High Court while allowing the petition has proceeded on a wrong assumption, that, the AO has levied tax on inter-state sales and on consignment transfer and accordingly has quashed the assessment order - Judgment and order of the High Court cannot be sustained, impugned order set aside appeal allowed Though assessing authority has completed the assessments in the light of the judgment and order passed by the High Court - Since the judgment and order of the High Court is set aside, the assessing authority is directed to pass fresh assessment order for the periods in dispute after affording opportunity of hearing to the assessee - Decided in favour of Revenue.

Issues Involved:
1. Delay condonation.
2. Legitimacy of tax exemption under the Haryana General Sales Tax Act, 1973.
3. Compliance with conditions for availing tax exemption.
4. Interpretation of "Notional Sales Tax Liability".
5. Assessment of tax on inter-state sales and consignment transfers.
6. Authority of the assessing authority to cancel exemption certificates and demand tax repayment with interest.

Detailed Analysis:

1. Delay Condonation:
The Supreme Court condoned the delay in filing the appeal, allowing the case to proceed.

2. Legitimacy of Tax Exemption under the Haryana General Sales Tax Act, 1973:
The State Government, under Section 13-B of the Haryana General Sales Tax Act, 1973, promulgated an exemption scheme granting certain exemptions to industries in specified areas. Rule 28-B was incorporated to provide conditions for availing these exemptions. The respondent company, engaged in manufacturing electrical motors and fans, was granted an Eligibility Certificate and a Sales Tax Exemption Certificate subject to specific conditions, including maintaining production for six years and not exceeding a tax exemption ceiling.

3. Compliance with Conditions for Availing Tax Exemption:
The Assessing Authority issued a show cause notice to the respondent company for allegedly breaching conditions in the Eligibility Certificate, specifically Rule 28A(11)(a)(ii), by making sales outside Haryana through consignment transfers. The Authority confirmed the notice, stating the company availed tax exemption but made sales outside the state, thus contravening Rule 28A(11)(a)(ii).

4. Interpretation of "Notional Sales Tax Liability":
Rule 28-A(2)(n) includes sales otherwise exigible to sales tax, such as local and inter-state sales, and treats branch transfers or consignment sales within and outside Haryana as deemed sales for calculating "Notional Sales Tax Liability". This concept was used to regulate the exemption scheme and ensure compliance with the conditions stipulated in the Eligibility Certificate.

5. Assessment of Tax on Inter-State Sales and Consignment Transfers:
The High Court quashed the assessment order, assuming the Assessing Authority imposed tax on inter-state sales and consignment transfers, which is impermissible under the Constitution and the Central Sales Tax Act. However, the Supreme Court found this assumption incorrect, emphasizing that the tax was calculated for "Notional Sales Tax Liability" and not imposed on actual inter-state sales.

6. Authority of the Assessing Authority to Cancel Exemption Certificates and Demand Tax Repayment with Interest:
The Assessing Authority has the power to cancel the exemption certificate and demand repayment with interest if the beneficiary industrial unit violates conditions like maintaining production levels and refraining from consignment sales outside the state for five years. The respondent company breached these conditions, justifying the cancellation of the exemption certificate and the demand for tax repayment with interest.

Conclusion:
The Supreme Court set aside the High Court's judgment, which had wrongly assumed the imposition of tax on inter-state sales. The Assessing Authority's actions were consistent with the exemption scheme and Rule 28-A. The case was remanded to the Assessing Authority to pass fresh assessment orders after providing an opportunity for a hearing to the respondent company.

← Previous Next →