2016 (1) TMI 998 - HC - VAT and Sales Tax

Levy of purchase tax under Section 4(4)(iii) of the A.P. VAT Act on goods sold in the course of export out of the territory of India. - The petitioner claims that, since purchase of chillies by the Secunderabad branch constitutes purchase in the course of export out of the territory of India, the States of Andhra Pradesh and Telangana lack jurisdiction to levy purchase tax in view of the constitutional prohibition in Article 286(1)(b) of the Constitution of India, and Section 5(b) of the A.P. VAT Act. Held that - to constitute a sale in the course of export, it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be an obligation to export, and there must be an actual export; the obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export; and to occasion export there must exist such a bond, between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it. It is wholly unnecessary for us to examine whether the chillies purchased by the Secunderabad branch of the petitioner, and then transferred to its Cochin branch in the State of Kerala, were exported to foreign buyers; and whether such exports satisfy the requirements of Section 5(1) of the CST Act; as these are all matters to be examined by the assessing authority. Matter remanded back.

Summary

Issues Involved:
1. Jurisdiction to levy purchase tax under Section 4(4)(iii) of the A.P. VAT Act on goods sold in the course of export.
2. Constitutional prohibition under Article 286(1)(b) of the Constitution of India.
3. Validity of the assessment order and the applicability of Section 5(b) of the A.P. VAT Act.
4. Requirement and submission of Form-H and Form-F.
5. Partial denial of input tax credit under Rule 20(8) of the A.P. VAT Rules.

Detailed Analysis:

Jurisdiction to Levy Purchase Tax:
The petitioner, a company engaged in trading chillies, challenged the assessment orders levying purchase tax under Section 4(4)(iii) of the A.P. VAT Act. The petitioner argued that the purchase of chillies by its Secunderabad branch, which were then stock transferred to its Cochin branch and subsequently exported, constituted purchases in the course of export and thus should be immune from state taxation. The respondent contended that since the goods were transferred and not sold, the petitioner was liable to pay tax on the chillies purchased from unregistered dealers.

Constitutional Prohibition:
The petitioner invoked Article 286(1)(b) of the Constitution, which prohibits states from taxing sales or purchases that occur in the course of export. The court noted that the State Legislature, under Entry 54 of List II of the VII Schedule to the Constitution, can levy tax on the sale or purchase of goods, but this power is restricted by Article 286(1)(b). The court found that if the goods were indeed exported, they would not fall within the ambit of Section 4(4)(iii) of the A.P. VAT Act due to the constitutional prohibition.

Validity of the Assessment Order:
The petitioner argued that the assessment order violated Articles 286(1)(b) and Section 5(b) of the A.P. VAT Act. The court held that the A.P. VAT Act, in view of Section 5(b), prohibits the imposition of tax on the sale or purchase of goods in the course of export. The court emphasized that the principles laid down in Section 5 of the CST Act should be applied to determine when a sale or purchase occurs in the course of export. The court concluded that the assessment orders were without jurisdiction and liable to be set aside if the goods were indeed exported.

Requirement and Submission of Forms:
The respondent argued that the petitioner failed to produce Form-H, which is required to claim exemption under Section 5(3) of the CST Act. The petitioner countered that Form-H was provided to registered VAT dealers and that Form-F was produced to prove stock transfers. The court clarified that Form-H is needed only when goods are purchased from registered dealers, and Form-F is used to establish stock transfers between branches. The court found that the petitioner had complied with the requirements by furnishing Form-F.

Partial Denial of Input Tax Credit:
The petitioner challenged the partial denial of input tax credit under Rule 20(8) of the A.P. VAT Rules. The court noted that the application of Rule 20(8) depends on whether the goods were exported. The court directed the assessing authority to re-examine whether the goods were exported and, if so, to extend the input tax credit accordingly.

Conclusion:
The court set aside the assessment orders and remanded the matters to the assessing authority to verify whether the chillies transferred from the Secunderabad branch to the Cochin branch were exported in compliance with Section 5(1) of the CST Act. The court also directed the assessing authority to reconsider the input tax credit issue based on the findings of the export status. The writ petitions were disposed of without costs.