2017 (11) TMI 746 - HC - VAT and Sales Tax

Sales tax - entry tax - the respondent opined that the petitioner had not remitted the Sales Tax and they have paid only Entry Tax at 6% on the purchase of tractors - Whether the petitioner can be treated as a first seller of tractors inside the State of Tamil Nadu? Held that - the presumption arrived by the Assessing Officer to treat the petitioner as the first seller of the tractor inside the State is mis-conceived. The description of entries found in the invoice should not be the sole guiding factor - the respondent did not endeavour to make any enquiry as to whether the M & M Ltd., have paid Sales Tax at 4% and surcharge at 5% on tax (totally at 4.2%) by way of adjustment under Section 4 (1) of the Tamil Nadu Tax on Entry of Motor Vehicles into the Local Areas Act 1990. Without resorting to such procedure, penalizing the petitioner is incorrect and not sustainable. Petition allowed - decided in favor of petitioner.

Summary

Issues:
Whether the petitioner can be treated as a first seller of tractors inside the State of Tamil Nadu.

Analysis:

1. The petitioner, an authorized dealer of a tractor manufacturer, purchased a tractor and paid a total sum, including an Entry Tax value at 6%. The manufacturer, M&M Ltd., had informed the petitioner that they are required to pay Entry Tax @ 6% when transferring goods within Tamil Nadu. The petitioner argued that they should only pay tax @ 4% as the first purchaser, and the 6% collected by M&M Ltd. included this amount.

2. The Assessing Officer noted an entry of "paid entry tax value at 6%" in the petitioner's returns, leading to the belief that the petitioner had not remitted Sales Tax but only paid Entry Tax at 6%. Consequently, a revision notice was issued proposing to assess the turnover to the best of judgment for the year 2005-2006.

3. The petitioner contended that they were not the first seller within Tamil Nadu and had paid TNGST at 4.2%, while M&M Ltd. confirmed in writing that they were the first seller and had paid Sales Tax at 4% and surcharge at 5% by adjusting the Entry Tax paid. Despite this, the assessment was completed against the petitioner.

4. The High Court found the Assessing Officer's presumption that the petitioner was the first seller to be misconceived. The court emphasized that the description in the invoice should not be the sole determining factor and that an inquiry should have been conducted, especially since M&M Ltd. was a registered dealer in Tamil Nadu.

5. The court criticized the lack of effort by the respondent to verify whether M&M Ltd. had paid the correct Sales Tax and surcharge, as certified in their letter. It was deemed incorrect and unsustainable to penalize the petitioner without following proper procedures or conducting necessary verifications.

6. Consequently, the court held that the impugned order was unsustainable and quashed it, allowing the writ petition in favor of the petitioner. No costs were awarded, and the connected miscellaneous petition was closed.