2017 (10) TMI 258 - HC - VAT and Sales Tax

Scope of SCN - Inter-state Sale - validity of assessment order - the petitioner s case is that while the sale has taken place in the course of interstate trade, the quantities to be delivered on a given day are fixed online and delivered as per online confirmation in ALL web portal. However, the true intent and purport of the contract has not been appreciated by the respondent, which has resulted in issuance of revision notice dated 13.10.2016. Whether the respondent/assessing officer proceeded to travel beyond the scope of the proposal made in the show case notice? - Held that - In the show cause notice dated 13.10.2016, as pointed out, the allegation was that the tyres which were manufactured by the petitioner in their Mysore plant were not directly supplied to the buyers, but supply is made as and when the buyers made request to supply the tyres - The respondent stated that the materials brought from the other States are being stored in the transporter s place and supplies are being made from their godown with a condition to supply the tyres just in time . This, according to the respondent, has to be construed as local sale and taxable at higher rate of tax at 14.5% under the TNVAT Act. Thus, in the show cause notice, the respondent did not dispute the fact that the tyres were manufactured outside the State of Tamil Nadu and dispatched from the place of manufacturer and retained in the transporter s godown. The crucial question would be, for the transaction to qualify as an interstate sale, the test would be as to where the appropriation of goods took place. In fact, the proposal in the show cause notice does not seriously dispute or contest the place of appropriation, as there is no clear indication as to what has passed in the minds of the assessing officer. The chain of events clearly show that the respondent obviously could not have appreciated the details placed by the petitioner, which he had called for vide notice dated 26.12.2016. Probably after all the details have been furnished, the assessing officer thought fit to summon the purchaser to understand the nature of transaction. While the move taken by the assessing officer is appreciable, but, the time at which he exercised such discretion is not the proper time as, by then, the respondent had already pre-concluded the matter. In other words, such exercise said to have been done by the respondent is much prior to forming any opinion on the nature of transaction between the parties. Nevertheless, the officials of the purchaser responded to the summon and have given statements. The assessment order appeares to have been completed in a very hasty manner, without analysing the nature of transaction as projected by the petitioner. As mentioned earlier, the respondent does not dispute the fact that the purchase order has been placed by the purchaser with the factory at Karnataka. The impugned proceedings are wholly unsustainable warranting interference at the hands of this Court - the impugned assessment orders dated 30.01.2017 are set aside and the matters are remanded to the respondent for fresh consideration - petition allowed by way of remand.

Summary

Issues Involved:
1. Classification of sales as interstate or local.
2. Appropriation of goods and place of appropriation.
3. Procedural errors and principles of natural justice.
4. Validity of industrial input certificates.

Issue-wise Detailed Analysis:

1. Classification of Sales as Interstate or Local:
The petitioner, a public limited company, engaged in the manufacture of tyres, contested the classification of their sales to M/s. Ashok Leyland Limited (ALL) as local sales by the respondent. The petitioner argued that the sales were interstate, as the tyres were manufactured in Karnataka and delivered to ALL in Tamil Nadu. The respondent, however, treated these transactions as local sales, subject to higher tax under the TNVAT Act, arguing that the tyres were stored in the transporter’s godown in Tamil Nadu before delivery.

2. Appropriation of Goods and Place of Appropriation:
The petitioner detailed their sales process, stating that tyres were manufactured and appropriated to the contract at their factory in Karnataka. The tyres were then dispatched directly to ALL’s factories in Tamil Nadu. Occasionally, due to ALL’s inability to handle continuous consignments, tyres were temporarily stored in the transporter’s godown. The petitioner maintained that the appropriation and transfer of title occurred in Karnataka, making it an interstate sale under Section 4 of the CST Act, 1956.

3. Procedural Errors and Principles of Natural Justice:
The court found that the assessing officer had proceeded beyond the scope of the show cause notice by relying on statements from ALL’s officials, which were not disclosed to the petitioner. This lack of disclosure and opportunity to rebut these statements constituted a violation of natural justice. The court noted that the assessing officer should have examined the nature of the contract and the modus operandi before issuing the show cause notice. The assessment order was deemed hasty and flawed, as it did not adequately consider the petitioner’s explanations and additional documents.

4. Validity of Industrial Input Certificates:
The petitioner challenged the rejection of industrial input certificates issued by ALL, which confirmed the purchase of tyres on a CST basis. The respondent rejected these certificates, arguing they were issued in the name of the Mysore plant instead of the Chennai plant. The court held this reasoning erroneous, noting that the certificates were rightly issued in the name of the Mysore plant, where the tyres were manufactured. The court referenced the Delhi High Court’s decision in C. Jairam Pvt. Ltd. vs. Commissioner of Sales Tax, which supported the validity of such certificates despite address discrepancies.

Conclusion:
The court set aside the impugned assessment orders and remanded the matters for fresh consideration, emphasizing the need for a fair hearing and proper examination of the transactions. The respondent was directed to afford the petitioner an opportunity to explain the nature of the transactions and to summon ALL’s representatives for a hearing in the petitioner’s presence. The orders rejecting the industrial input certificates were also set aside, affirming their validity. The court allowed the writ petitions, highlighting significant procedural lapses and ensuring compliance with legal principles.