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2015 (5) TMI 804 - HC - VAT and Sales TaxLevy of purchase tax u/s 4 - agriculture product processors i.e. (1) rice millers, or (2) dhal millers, or (3) soyabean oil millers, or (4) cotton millers - whether in the nature of levy on farmers - Held that - Notwithstanding the goods being taxable goods , there may be circumstances by reason of which the particular sale transaction does not attract tax under the Act. Section 4(4) provides for such a situation and makes the purchase of such goods taxable in the hands of the purchasing VAT dealer, on his purchase turnover, in any of the circumstances referred to clauses (i) to (iii). For instance, branch transfer or stock transfer of goods by a VAT dealer to his consignee/agent is not taxable under the Act. Such transactions attract the ingredients of clause (ii) of Section 4(4). Therefore the input of such goods are subjected to tax under Section 4(4) of the Act. The tax levied under Section 4(4) is not on the sale of goods by a farmer/agriculturist, but on the VAT dealer who purchases goods (agricultural produce) from the farmer. The contention that a farmer or an agriculturist is being subjected to tax is not tenable, as tax is levied not on him but on the VAT dealer who purchases goods from him. It is not every purchase of taxable goods from an agriculturist/farmer, but only such goods which fall within the ambit of clauses (i) to (iii) of Section 4(4), and its proviso, which attracts levy of tax at the stage of its purchase. The contention that a farmer/agriculturist is indirectly being subjected to tax does not, therefore, merit acceptance. When taxable goods are sold by a person, who is not a dealer under the Act, then VAT is not payable on the sale of such goods. Where a farmer grows raw cotton, paddy, raw dhal and soyabean seed in his land, and sells these agricultural produce to others, he is not liable to pay tax, on the sale of such goods, as he is not a dealer under Section 2(10) of the Act. Purchase of such agricultural produce by a VAT dealer is in circumstances in which no tax is payable by the seller. In such circumstances tax, at 4%/5% of the purchase price of such goods, is liable to be paid by the VAT dealer who purchases the aforesaid goods i.e., agricultural produce. This liability of a VAT dealer to pay purchase tax would, however, arise only if any one of the conditions, mentioned in clauses (i) to (iii) of Section 4(4), are satisfied. If the allegations in the show-cause notice, accepted as true, show that the dealer had committed wilful evasion of tax, and the findings recorded in the assessment order establish that the assessee had wilfully evaded tax, it would suffice to extend the period of limitation in terms of Section 21(5) of the Act notwithstanding that the show-cause notice does not explicitly refer to Section 21(5) and does not specifically use the words wilful evasion of tax. Purchase tax is levied on goods which are used as inputs for other goods which are exempt from tax, or for goods which have been transferred on consignment or to branches of the VAT dealer outside the State otherwise than by way of sale. While the provisions of the Act must, in view of Article 286(3) of the Constitution of India, be complaint with Sections 14 and 15 of the CST Act, it is not clear as to how denial of input-tax credit, or computation of input-tax credit in accordance with Rule 20 of the Rules, in the present cases is contrary to the mandate of Sections 14 and 15 of the CST Act. - In any event the question, whether computation of input-tax credit in terms of Rule 20 is in violation of Sections 14 and 15 of the CST Act, must be answered on the facts and circumstances of each case. It is for the assessee to satisfy the assessing authority that computation of the eligible input-tax credit, in terms of Rule 20, is in violation of Sections 14 and 15 of the CST Act. - Matter remanded back - Decided in favour of assessee.
Issues Involved
1. Constitutionality and statutory construction of Section 4(4) of the A.P. VAT Act, 2005. 2. Scope and application of Section 4(4) of the A.P. VAT Act. 3. Levy of tax on taxable goods under Section 4(4). 4. Tax implications on agricultural produce purchased from farmers. 5. Applicability of tax on goods exempt from VAT under the Act. 6. Proviso to Section 4(4) and its application. 7. Rationality of the method prescribed in the first proviso to Section 4(4) for computing the corresponding value. 8. Prospective application of the first proviso to Section 4(4). 9. Nature of tax levied under Section 4(4) and its relation to consignment tax. 10. Compliance with Section 15(a) of the CST Act. 11. Compliance with Section 15(b) of the CST Act. 12. Revision of advance ruling under Section 32 of the A.P. VAT Act. 13. Limitation for passing an order under Sections 21(3) and 21(5) of the Act. 14. Computation of input tax credit in terms of Rule 20 and its compliance with Sections 14 and 15 of the CST Act. Detailed Analysis I. Constitutionality and Statutory Construction of Section 4(4) The court examined the scope of Section 4(4) of the A.P. VAT Act, 2005, emphasizing the principle of statutory construction that favors the constitutionality of statutes. It highlighted that the rule of presumption in favor of constitutionality requires courts to interpret statutes in a manner that upholds their validity. II. Scope and Application of Section 4(4) Section 4(4) imposes a contingent purchase tax on VAT dealers who purchase taxable goods under certain conditions. The court noted that this provision aims to prevent tax evasion by taxing goods that would otherwise escape taxation due to subsequent events like consumption, disposal, or dispatch outside the state. III. Levy of Tax on Taxable Goods The court clarified that Section 4(4) applies to taxable goods purchased under circumstances where no tax is payable by the seller. It emphasized that the provision aims to ensure that the state receives tax revenue either at the point of sale or purchase. IV. Tax Implications on Agricultural Produce Purchased from Farmers The court held that farmers, who are not considered dealers under the Act, are not directly taxed under Section 4(4). However, VAT dealers purchasing agricultural produce from farmers are liable to pay purchase tax if the purchased goods are used or disposed of in a manner specified in Section 4(4). V. Applicability of Tax on Goods Exempt from VAT The court clarified that tax under Section 4(4) is not levied on goods exempt from VAT but on the proportionate value of taxable goods used as inputs for exempt goods. This ensures that the state does not lose revenue due to exemptions. VI. Proviso to Section 4(4) and Its Application The first proviso to Section 4(4) prescribes the method for computing the taxable turnover when a common input is used to produce multiple goods. The court emphasized that the proviso should be interpreted to ensure that the legislative intent of taxing the proportionate value of common inputs is upheld. VII. Rationality of the Method Prescribed in the First Proviso The court held that the absence of a uniform formula for computing the proportionate value does not invalidate the proviso. The assessing authority can determine the proportionate value based on the facts and circumstances of each case. VIII. Prospective Application of the First Proviso The court noted that the first proviso to Section 4(4) is a machinery provision and can be applied retrospectively to pending cases. It emphasized that procedural law generally applies to pending cases unless explicitly stated otherwise. IX. Nature of Tax Levied Under Section 4(4) The court rejected the contention that tax under Section 4(4) is a consignment tax, holding that it is a purchase tax on raw materials used in manufacturing goods that are disposed of in specified manners. X. Compliance with Section 15(a) of the CST Act The court held that the rate of tax on declared goods, both at the purchase and sale stages, cannot exceed the maximum rate prescribed under Section 15(a) of the CST Act. It emphasized that ginned and unginned cotton are treated as the same commodity, and the combined tax rate cannot exceed the prescribed limit. XI. Compliance with Section 15(b) of the CST Act The court held that Section 15(b) requires reimbursement of state tax levied on declared goods if they are sold in inter-state trade and commerce. It emphasized that this provision ensures that goods of special importance are not excessively taxed. XII. Revision of Advance Ruling The court did not address the validity of the revision of the advance ruling by the Commissioner of Commercial Taxes, as the matter was pending in special appeals. It emphasized that the judgment would bind the authorities under the Act. XIII. Limitation for Passing an Order The court clarified that the limitation period for making assessments under Section 21(3) is four years from the due date of the return. The extended period of six years under Section 21(5) applies only in cases of willful evasion of tax, and the show-cause notice must contain specific allegations in this regard. XIV. Computation of Input Tax Credit The court held that the computation of input tax credit under Rule 20 is not in violation of Sections 14 and 15 of the CST Act. It emphasized that the restriction of input tax credit and the levy of purchase tax are independent acts and do not overlap. Conclusion The court set aside the impugned orders and directed the concerned authorities to pass fresh orders in accordance with the judgment, after giving the petitioners an opportunity to be heard. The writ petitions were disposed of without costs.
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