2016 (1) TMI 187 - HC - VAT and Sales Tax

Cancellation of exemption certificate - PGST / PVAT - violation of Rule 2(xia) of the Exemption Rules - appellant submitted that the authorities below misconstrued the definition of Export Oriented Unit given under Rule 2 clause (xi-a) of the Rules, which nowhere provides that the appellant was legally bound to export 25% of its production to claim exemption under Rule 8(1)(vi) of the Rules. - collection of amount in as sales tax / CST from the customer but failure to deposit the same with the Government. Held that - It has been categorically recorded by the assessing authority that in the assessment years 2000-01 and 2001-02, the appellant exported nothing outside India. In the assessment year 2001-02, the appellant exported only 1.68% of its products in the markets outside India. Assessing Authority also found that the appellant had neither charged or recovered any handling charges from the customers nor mentioned the same in the sale vouchers. Only in some bills forwarding and postage was charged which were posted accordingly. These entries of sale prices including the sale tax element were then posted in the accounts of each customer and, thus, the full amount of goods including the sale tax was collected from the customers. However, sale tax collected from the customers was not deposited by the appellant into Government Treasury in violation of the provisions of Sections 10(4) and 30-A of the PGST Act Appellant was also disbelieved, because of not mentioning of charging of handling charges on the sale invoice/bills or in the sale books. Even otherwise the appellant had admitted before the Assessing Authority that the amount received from the customers included sales tax. Thus, it was rightly held by the Assessing Authority that the appellant had violated the provisions of the rules and accordingly, was not entitled to any exemption under Rule 8(2) of the Rules. - appellant has not been able to show any illegality or perversity in the findings recorded by the authorities below warranting interference by this Court - Decided against assessee.

Issues Involved:
1. Justification of cancellation of exemption certificate.
2. Violation of Rule 2(xi-a) of the Exemption Rules.
3. Requirement to export 25% of production for 'Export Oriented Unit' status.
4. Invocation of Rule 8(1)(vi).
5. Findings on the violation of Rule 2(xi-a) by the first appellate authority.

Issue-wise Detailed Analysis:

1. Justification of cancellation of exemption certificate:
The appellant was granted an exemption certificate as an Export Oriented Unit (EOU) but was later found to have collected sales tax from customers under the guise of handling charges, which violated the provisions of Sections 10(4) and 30-A of the PGST Act. The Assessing Authority, upon inspection, found that the appellant had charged sales tax in sale vouchers and posted them in the sale book under respective heads, but did not deposit the collected tax into the Government Treasury. This led to the cancellation of the exemption certificate.

2. Violation of Rule 2(xi-a) of the Exemption Rules:
Rule 2(xi-a) defines an Export Oriented Unit as an industrial unit exporting at least 25% of its products in markets outside India. The appellant failed to meet this criterion, exporting 0% in 2000-01 and only 1.68% in 2001-02. The Tribunal upheld the cancellation of the exemption certificate, noting that the appellant did not fulfill the minimum export requirement, thus violating the provisions of the Rules.

3. Requirement to export 25% of production for 'Export Oriented Unit' status:
The Tribunal and lower authorities concluded that the appellant did not achieve the status of an Export Oriented Unit as defined under Rule 2(xi-a) due to its failure to export the required 25% of production. The appellant's argument that the definition did not legally bind them to export 25% was rejected, and the non-compliance with this requirement justified the cancellation of the exemption certificate.

4. Invocation of Rule 8(1)(vi):
Rule 8(1)(vi) allows for the cancellation of an exemption certificate if any provisions of the Act are violated. The authorities found that the appellant had violated this rule by not exporting the required percentage of its production and by collecting sales tax from customers without authorization. The Tribunal confirmed that these violations warranted the cancellation of the exemption certificate.

5. Findings on the violation of Rule 2(xi-a) by the first appellate authority:
The first appellate authority did not record any specific findings on the violation of Rule 2(xi-a). However, the Tribunal and the Assessing Authority both found that the appellant had not met the export requirements and had collected sales tax improperly. These findings were sufficient to uphold the cancellation of the exemption certificate.

Conclusion:
The appeals were dismissed as the appellant failed to show any illegality or perversity in the findings of the authorities below. The questions of law were answered against the appellant, confirming the cancellation of the exemption certificate due to non-compliance with the export requirements and improper collection of sales tax.

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