2014 (7) TMI 15 - HC - VAT and Sales Tax

Classification - whether items such as patasa, harada, sakaria and alchidana, would fall within the term sugar for the purpose of entry 47 of schedule-A of the Bombay Sales Tax Act, 1959 - Held that - The Additional Duties of Excise(Goods of Special Importance) Act, 1957 (here-in-after referred to as the Act of 1957 ) was enacted in the year 1957. From the preamble to the Act, it can be seen that the same was enacted to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds among the States in pursuance of the principles of distribution formulated and the recommendations made by the Finance Commission in its report. Section 4 of the Act of 1957 provides that during each financial year, there shall be paid out of consolidated fund of India to the States in accordance with the provisions of the Second Schedule such sums, representing a part of the net proceeds of the additional duties levied and collected during that financial year as are specified in that schedule. After 10.04.1981, exemption was available to sugar falling under entry 42 only when levy and collection of additional duties of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 was not exempted on account of any exemption or drawback granted under that Act. Rate of duty had to be provided for sugar not falling in entry 42. Schedule-IIA pertains to goods, the sale or purchase of which is subject to sales tax or purchase tax and rates of tax. - Parallely, under exemption notification issued under section 49(2) of the GST Act, by virtue of entry 133, sugar covered under entry 3E in schedule-II part A of the GST Act was exempted from payment of whole of the tax. It may be noted that entry 3E of schedule-II part A referred to Sugar as defined in item no. 1 of the first schedule of Central Excises and Salt Act, 1944. Thus the definition of sugar for the purpose of entry 42 to Schedule I and entry 3E to schedule-II part A remained the same. By virtue of these entries, sugar falling under entry 42 would be exempt from payment of tax, if the condition contained in second column of entry was satisfied. If such condition was not satisfied, it would fall under entry 3E and would ordinarily be taxed at the rates specified therein. However, by way of exemption notification issued by the Government, such tax was also waived. We are informed that this was done in view of the representations made by the trade as is apparent from the circular dated 17.9.81 issued by the Government. The circular refers to legislative changes made in entry 42, corresponding insertion of entry 3E in schedule-IIA and issuance of exemption notification on account of difficulties faced by the trade which was brought to the notice of the Government through representations. In a circular dated 3.4.1989 while explaining the changes made after 1.4.1989 in the GST Act, it was explained that in schedule-I in entry 37, 40, 42, 43 and 44, if additional duty of excise is paid, sales tax is not to be levied. The definition of these terms were adopted from Central Excises and Salt Act, 1944. Now with the introduction of Central Excise Tariff Act,1985 in place of Central Excises and Salt Act, 1944, definition of these terms is referred to from the said Act. Interestingly, in the Gujarat Value Added Tax Act also, similar entries and exemptions are provided. In that background, in circular dated 1.8.2012 issued by the State Government, it is provided that by virtue of decision of Supreme Court in case of Sakarwala Brothers (1966 (9) TMI 102 - SUPREME COURT OF INDIA), items such as patasa, harada, sakaria and alchidana containing more than 90% sucrose are considered as sugar and therefore, would be exempt from payment of VAT. When the State Authorities themselves have clarified the situation, as mentioned above, we see no scope for any further debate. Quite independently also, we have given our own interpretation to various entries holding the field. We fully endorse the view of the tribunal. We further hold that even if case of the respondent does not fall under entry 86 of schedule-I, by virtue of condition contained therein not being satisfied, same would fall under entry 8 of schedule-IIA and not in entry 167 - Decided against Revenue.

Summary

Issues Involved:
1. Validity of the notice issued by the revisional authority.
2. Classification of items under Entry 86 of Schedule-I to the GST Act.
3. Applicability of Entry 8 of Schedule-IIA to the GST Act.
4. Imposition of penalty under Section 45(6) read with Section 45(4) of the GST Act.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued by the Revisional Authority:
The tribunal held that the revisional authority could not levy tax on items other than patasa, as the final notice issued in Form-49 only referred to patasa. The court agreed, stating that under Rule 67 of the GST Rules, a notice in Form-49 must be issued to give the person likely to be affected adversely a reasonable opportunity of being heard. Since the final order taxed items not mentioned in Form-49, it violated Rule 67 and the requirement of reasonable opportunity of being heard.

2. Classification of Items under Entry 86 of Schedule-I to the GST Act:
The court examined whether the items (patasa, harada, sakaria, and alchidana) fell under Entry 86, which exempts "sugar" from tax if additional duties of excise are not exempted. The court referenced the Supreme Court's decision in Sakarwala Brothers, which held that these items are considered "sugar" for tax purposes if they contain more than 90% sucrose. The court concluded that since the additional duties of excise were not exempted, the items in question fell under Entry 86, making them exempt from sales tax.

3. Applicability of Entry 8 of Schedule-IIA to the GST Act:
The court considered the alternative argument that if the items did not fall under Entry 86, they would fall under Entry 8 of Schedule-IIA, which also exempts "sugar" from tax. The court analyzed the legislative history and changes to the entries, noting that both entries historically used the same definition of "sugar." The court concluded that even if the items did not meet the conditions of Entry 86, they would still be classified under Entry 8 and thus be exempt from tax.

4. Imposition of Penalty under Section 45(6) read with Section 45(4) of the GST Act:
The court did not find it necessary to delve into the penalty issue in detail, as the primary contention was resolved in favor of the respondent. The tribunal's decision to not impose a penalty was implicitly upheld by the court's agreement with the tribunal's conclusions on the other issues.

Conclusion:
The court dismissed the petitions, affirming the tribunal's judgment that the items in question were exempt from sales tax under Entry 86 of Schedule-I or alternatively under Entry 8 of Schedule-IIA. The notices issued by the revisional authority were deemed defective, and the imposition of tax on items not mentioned in the final notice was invalid. The court's interpretation of the legislative entries and historical context supported the respondent's position, leading to the dismissal of the State's petitions.