2015 (10) TMI 2405 - HC - VAT and Sales Tax

Inter state sale or intra state sale - movement of levy rice from Yanam in the Union territory of Pondicherry to Kakinada (AP) - scope of control order - Jurisdiction of tax authorities in Andhra Pradesh - violation of Article 269 and 286 of the Constitution - Suppression of facts - Held that - It is no doubt true that the question, whether a particular sale is an inter-state or an intra-state sale, is a mixed question of fact and law, (Sumukha Veereswari Rice Mill 1987 (3) TMI 508 - ANDHRA PRADESH HIGH COURT ), and this Court would, ordinarily, not take upon itself the task of examining such questions in Writ proceedings under Article 226 of the Constitution of India. - The questions, which this Court is called upon to examine, are on the basis of undisputed facts available on record. As the facts, necessary to determine whether the subject sales are inter-state or intra-state sales, are not in dispute, we see no reason to non-suit the petitioners on this score. Validity of order - violation of article 269 and 286 of the constitution - power of state (Andhra Pradesh) to levy tax of sale of levy rice from Yanam in the Union territory of Pondicherry to Kakinada (AP) - interstate sale or not - Held that - In order to determine whether the sale of levy rice by the Yanam Rice Millers to FCI, Kakinada is an inter-state or an intrastate sale, it is necessary to refer to the relevant provisions of the CST Act and the A.P. VAT Act. Before doing so, however, it is necessary to examine whether the petitioners, rice millers at Yanam, are bound by the control orders issued by the Government of Andhra Pradesh under Section 3 of the Essential Commodities Act, 1955. Scope of control order - Held that - While the obligation cast on the Yanam rice millers, in terms of the arrangement between the Government of Andhra Pradesh and the Government of Pondicherry with regards supply of levy rice by Yanam rice millers to FCI at Kakinada, is similar to the statutory obligations placed on rice millers in Andhra Pradesh under the Control Orders, that does not mean that these Control Orders stand, automatically, extended to the Union Territory of Pondicherry also. - The petitioners, rice millers carrying on business at Yanam, cannot be brought within the ambit of the Control Orders which, as noted hereinabove, is limited in its operation only to the territorial limits of the State of Andhra Pradesh, and not beyond. Interstate movement of goods - Held that - While Yanam, which forms part of the Union Territory of Pondicherry, is adjacent to Kakinada in the State of Andhra Pradesh, both the 1984 and the 1987 Control Orders did not have extra-territorial operation, and were not automatically applicable to the Yanam rice millers. Though the arrangement, in terms of the Government memo dated 31.10.1983, did not obligate the Yanam rice millers to purchase paddy from agriculturists in the State of Andhra Pradesh, they did so, on their own volition, as they required paddy for carrying on the business of milling rice in their rice mills at Yanam. The said arrangement, in memo dated 31.10.1983, enabled the Yanam rice millers to procure paddy from agriculturists in Andhra Pradesh, and transport paddy from Andhra Pradesh to Yanam on a permit issued by the Government of A.P.; for its being milled at their rice mills in Yanam. Having done so on their own volition, the Yanam Rice Millers were thereafter obligated, in terms of the aforesaid arrangement, to transport the prescribed percentage of levy rice from Yanam for its sale and delivery to FCI/APSCSCL at Kakinada. As the sale of levy rice by the rice millers at Yanam to FCI at Kakinada, (the sale transactions brought to tax under the AP VAT Act by the impugned assessment orders), occasioned the movement of goods (levy rice) from Yanam in the Union Territory of Pondicherry to Kakinada in the State of Andhra Pradesh (from one State to another), it is evident that the sale has taken place in the course of inter-state trade and commerce, and is not exigible to tax as an intra-state sale under the A.P. VAT Act. Des weighment and ascertaning the quality of Rice at Kakinada (AP) make the sale an Intra-State Sale - Held that - The State Legislature cannot, by law, treat such sales as sales within the State as it is within the exclusive domain of the appropriate legislature i.e. Parliament to fix the location of sale by way of a legal fiction or otherwise. The State, where the goods are delivered in the transaction of an inter-State sale, cannot levy a tax on the basis that one of the events in the chain has taken place within the State. - The movement of levy rice, from Yanam to FCI or APSCSCL at Kakinada in the State of Andhra Pradesh, is an inter-State movement integral to the scheme of arrangement between the Government of Andhra Pradesh, the Government of Pondicherry and the Yanam rice millers, and the sale of levy rice by the petitioners to FCI, Kakinada is an inter-state sale. The impugned assessment orders levying VAT on the petitioners, (all of whom are rice millers at Yanam), under the AP VAT Act is without jurisdiction and are, accordingly, set aside. Collection of amount in the name of VAT by the petition from the FCI (AP) but not paid to the state authorities - Held that - While the Yanam rice millers, in the representation dated 05.10.2007, had contended that they were liable to tax under the AP VAT Act, and had thereby collected 4% extra from FCI, they have avoided payment of VAT, collected by them from FCI, to the Government of A.P contending that sale of levy rice to FCI is an inter-state sale not exigible to tax under the AP VAT Act. While these contradictory stands appear to have been taken by the petitioners only to enrich themselves, by retaining the excess amount paid to them by FCI towards the VAT component, the fact remains that acquiescence or consent would not confer jurisdiction on the assessing authority to levy tax, under the AP VAT Act, on inter-state sales. Petitioners had sought for and were paid by FCI, for the levy rice supplied by them, a higher price than what was paid to rice millers in Andhra Pradesh. The price paid by FCI, for procurement of levy rice, (from rice millers - both in Andhra Pradesh and at Yanam), included the VAT component. While the VAT component was factored into the procurement price prior to 2007-08, it was paid separately for the period subsequent to 2007-08. The VAT component of the procurement price, paid to the rice millers in Andhra Pradesh, was, in turn, paid by them, along with their returns, as VAT to the Government of Andhra Pradesh. On the other hand the Yanam rice millers, having collected the VAT component from FCI along with the procurement price, have retained the said amounts, and have not paid it to the Government of Andhra Pradesh. As the Yanam rice millers were not liable to pay tax under the AP VAT Act, the sale price, which included the VAT component, is, undoubtedly, an excess payment. As the sale of levy rice by the petitioners, who are all rice millers at Yanam in the Union territory of Pondicherry, to the FCI at Kakinada in the State of Andhra Pradesh, are sales in the course of inter-state trade and commerce falling within the ambit of Section 3(a) of the CST Act, the impugned assessment orders, subjecting these sales to tax under the A.P. VAT Act treating them as intra-state sales, are without jurisdiction and are set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Preliminary Objection: Availability of Alternative Remedy
2. Violation of Articles 269 and 286 of the Constitution
3. Applicability of Control Orders
4. Section 3(a) of the CST Act: Inter-State Movement of Goods
5. Weighment and Ascertainment of Quality of Rice at Kakinada
6. Payment of VAT by Petitioners
7. Suppression of Facts by Petitioners
8. Other Contentions

Issue-Wise Analysis:

1. Preliminary Objection: Availability of Alternative Remedy
The respondents raised a preliminary objection that the petitioners should have availed the alternative remedy of appeal under Section 31 of the AP VAT Act instead of invoking the writ jurisdiction under Article 226 of the Constitution. The court noted that the writ petitions were admitted nearly two years ago, and the statutory embargo under Section 31 of the AP VAT Act now precludes the petitioners from being relegated to the alternative remedy. The court held that it is competent to deal with the matter based on the affidavits filed, especially since the facts necessary to determine whether the sales are inter-state or intra-state are undisputed.

2. Violation of Articles 269 and 286 of the Constitution
The petitioners contended that the impugned assessment orders violated Articles 269 and 286 of the Constitution, as well as Sections 3(a) and 9 of the CST Act, arguing that the sale of levy rice from Yanam to FCI at Kakinada constituted inter-state sales. The court examined the historical context and constitutional provisions, concluding that the sale of levy rice by Yanam rice millers to FCI at Kakinada is an inter-state sale, and therefore, the tax authorities in Andhra Pradesh lack jurisdiction to levy tax on these transactions.

3. Applicability of Control Orders
The respondents argued that the petitioners should be treated as rice millers in Andhra Pradesh and subject to the same control orders. However, the court found that the control orders issued under the Essential Commodities Act, 1955, by the Government of Andhra Pradesh, do not have extra-territorial operation and cannot be applied to the Union Territory of Pondicherry. Therefore, the petitioners, as rice millers at Yanam, cannot be brought within the ambit of these control orders.

4. Section 3(a) of the CST Act: Inter-State Movement of Goods
The court examined whether the sale of levy rice by the Yanam rice millers to FCI at Kakinada falls within the ambit of Section 3(a) of the CST Act. The court noted that the arrangement under the Government memo dated 31.10.1983 obligated the Yanam rice millers to transport levy rice from Yanam to Kakinada. As this sale occasioned the movement of goods from one state to another, it qualifies as an inter-state sale under Section 3(a) of the CST Act.

5. Weighment and Ascertainment of Quality of Rice at Kakinada
The respondents contended that the sale was an intra-state sale because the property in the goods passed to FCI only after weighment and quality checks at Kakinada. The court held that the obligation to transport levy rice from Yanam to Kakinada was inextricably linked to the arrangement in the Government memo dated 31.10.1983. Therefore, the sale qualifies as an inter-state sale despite the weighment and ascertainment of quality at Kakinada.

6. Payment of VAT by Petitioners
The petitioners argued that they received a consolidated price for the levy rice and did not collect VAT. However, the court found that the petitioners had sought and were paid the VAT component by FCI. The court noted that while the petitioners retained the VAT component, they did not pay it to the Government of Andhra Pradesh. The court clarified that this excess payment does not confer jurisdiction on the Andhra Pradesh tax authorities to levy VAT on inter-state sales.

7. Suppression of Facts by Petitioners
The respondents argued that the petitioners suppressed the fact that they had submitted a representation to FCI admitting liability under the AP VAT Act. The court held that suppression of this fact was not material for determining the lis, as the jurisdiction to levy tax on inter-state sales cannot be conferred by consent or acquiescence.

8. Other Contentions
The court did not find it necessary to address other contentions, such as whether the petitioners are casual dealers under the AP VAT Act or liable to purchase tax under Section 4(4) of the AP VAT Act, as these issues were not relevant to the determination of the main issue.

Conclusion:
The court concluded that the sale of levy rice by the petitioners to FCI at Kakinada is an inter-state sale under Section 3(a) of the CST Act. Consequently, the impugned assessment orders levying VAT under the AP VAT Act are without jurisdiction and are set aside. The court also clarified that this order does not preclude FCI from recovering the excess payment made to the petitioners as the VAT component.