2016 (8) TMI 633 - HC - VAT and Sales Tax

Claim of benefit of concessional rate of tax under Section 3(3) of the TNGST Act - inter-state sale or not - The LAB sold by the petitioner was used as a raw material in the manufacture of Acid Slurry and such manufacturing activity took place within the State of Tamil Nadu. What was stock transferred to Mangalore by HLL was not LAB, but a commercially different product namely, Acid Slurry. Held that - The Revenue does not dispute the fact that the delivery of LAB was effected within the State of Tamil Nadu and what moves out from the factory of the job worker is only Acid Slurry and not LAB. Thus, it cannot be disputed that there was manufacturing activity inside the State of Tamil Nadu in as much as the product sold namely LAB was converted into Acid Slurry at Ranipet in the factory of the job worker. Thus, sofar as the manufacturing activity done by the job worker, the product which emerges upon manufacture namely Acid Slurry is infact, a final product in such process though in the chain of manufacturing activities, it may be an intermediary product. The contention of the respondent that payment of tax by HLL at 1% under Section 3(4) of the TNGST Act is irrelevant cannot be countenanced. This is a very relevant factor, which goes to show that the HLL is a manufacturer. To bring a transaction with the scope of Section 3 of the CST Act, essentially there should be sale of goods and transport of these goods from one state to another as a result of, or as an integral part of sale. When the sale and the interstate movement of the goods are not interconnected, as there is no contractual obligation or other obligation to take the goods to another state or when there is no evidence that the transport of the goods to the other state was caused by the contract of the sale, there could be no interstate sale. In terms of the purchase order, dated 15.06.2000, the petitioner was directed to effect the supplies as per the specifications and subject to the approval of the buyer and the material to be delivered to their job worker at Ranipet. Thus, the contract of sale was completed upon delivery of the goods at Ranipet within the state of Tamil Nadu. The seller namely, the petitioner had no contractual or other obligation to take the goods to another State nor there is any evidence produced by the Revenue in this regard. Thus, when the transaction done by the petitioner is factually not disputed and the transaction/sale concluded within the State at Ranipet, which is an additional place of business of HLL, undoubtedly, the transaction is a intrastate sale and the petitioner is entitled to avail concessional rate of tax on submission of form-XVII declaration. Writ Petition is allowed and the impugned orders are quashed and the first respondent is directed to accept the form-XVII, issued by HLL, on the sale of delivery of LAB to the job worker s factory at Ranipet and complete the assessment for the relevant year in accordance with law. - Decided against the revenue.

Summary

Issues Involved:
1. Eligibility for concessional rate of tax under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act).
2. Classification of the transaction as local sale or interstate sale.
3. Validity of the clarifications issued by the Commissioner of Commercial Taxes.

Detailed Analysis:

1. Eligibility for Concessional Rate of Tax under Section 3(3) of the TNGST Act:
The petitioner, a company manufacturing Linear Alkyl Benzene (LAB), contended that it should be eligible for the concessional tax rate of 3% under Section 3(3) of the TNGST Act. The petitioner argued that LAB was sold to Hindustan Lever Limited (HLL), a registered dealer in Tamil Nadu, for manufacturing Acid Slurry within Tamil Nadu. The petitioner emphasized that the delivery of LAB occurred within Tamil Nadu and was used in the manufacturing process by HLL's job worker at Ranipet, making it eligible for the concessional rate.

2. Classification of the Transaction as Local Sale or Interstate Sale:
The petitioner sought clarification from the Commissioner of Commercial Taxes on whether the transaction should be treated as a local sale or an interstate sale. The Commissioner initially clarified that the petitioner was not eligible for the concessional rate because the manufactured goods were not for sale in Tamil Nadu, and LAB was taxable at 11%. The petitioner argued that the sale was completed within Tamil Nadu as LAB was delivered to the job worker at Ranipet, and the manufactured product, Acid Slurry, was a different commodity stock transferred to HLL's factory in Mangalore.

3. Validity of the Clarifications Issued by the Commissioner of Commercial Taxes:
The Commissioner issued multiple clarifications, reiterating that the petitioner was not eligible for the concessional rate as the goods were not intended for sale within Tamil Nadu. The petitioner challenged these clarifications, arguing that HLL was a registered dealer in Tamil Nadu and the manufacturing activity occurred within the state. The petitioner also highlighted that HLL's principal place of business was in Chennai during the relevant assessment years.

Court's Findings:

1. Eligibility for Concessional Rate of Tax:
The court noted that the petitioner sold LAB to HLL, which was used to manufacture Acid Slurry within Tamil Nadu. The court emphasized that the sale of LAB was completed within Tamil Nadu, and the manufactured product, Acid Slurry, was stock transferred to Mangalore. The court concluded that the petitioner was entitled to the concessional rate of tax under Section 3(3) of the TNGST Act as the manufacturing activity occurred within Tamil Nadu.

2. Classification of the Transaction:
The court referred to the Supreme Court's decision in NTPC's case, which outlined the criteria for an interstate sale. The court found that the contract of sale was completed within Tamil Nadu upon delivery of LAB to the job worker at Ranipet. The movement of Acid Slurry to Mangalore was an independent transaction and did not constitute an interstate sale. Therefore, the transaction was classified as a local sale.

3. Validity of the Clarifications:
The court held that the clarifications issued by the Commissioner were not justified. The court pointed out that HLL was a registered dealer in Tamil Nadu, and the manufacturing activity occurred within the state. The court quashed the impugned clarifications and directed the first respondent to accept the form-XVII declaration issued by HLL for the sale of LAB to the job worker's factory at Ranipet.

Conclusion:
The court allowed the writ petition, quashed the impugned orders, and directed the first respondent to accept the form-XVII declaration issued by HLL. The court concluded that the petitioner was entitled to the concessional rate of tax under Section 3(3) of the TNGST Act as the transaction was a local sale and the manufacturing activity occurred within Tamil Nadu.