2018 (3) TMI 1044 - HC - VAT and Sales Tax

Levy of turnover tax - export sale - purchases of raw materials, against Form XVII - concessional rate of tax - violation of Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959 - Held that - reliance placed in the decision in the case of Tube Investments of India Ltd. (Formerly known as M/s. TI Diamond Chain Ltd.) Versus The State of Tamil Nadu, represented by the Commercial Tax Officer 2010 (10) TMI 938 - MADRAS HIGH COURT , where it was held that Section 3(4) of the Act will have no application since situs of the export sales of the petitioners for the purpose of said Section was the State of Tamilnadu and by virtue of the said factual position, the applicability of Section 3(4) stands excluded for the exigibility of tax. Tax Case Revisions are dismissed.

Issues Involved:
1. Interpretation of the expression "does not sell the goods so manufactured" in Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959.
2. Applicability of the principle of situs in interpreting Section 3(4) of the Act.
3. Relevance of the Supreme Court judgment in State of Karnataka vs. B.M. Ashraf & Co. for the present case.
4. Whether the levy of tax under Section 3(4) contravenes Article 286 of the Constitution.
5. Interpretation of the expression "in any other manner" in Section 3(4) of the Act.
6. Whether Sections 3(3) and 3(4) of the Act are designed as charging provisions.
7. The scope of the Tamil Nadu General Sales Tax Act, 1959 in terms of its territorial application.

Detailed Analysis:

1. Interpretation of "does not sell the goods so manufactured" in Section 3(4) of the Act:
The core issue revolves around whether export sales can be considered as "sales" under Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959. The Tribunal, following the decision in Tube Investment of India Ltd. v. State of Tamil Nadu, held that export sales qualify as sales within the meaning of Section 3(4). The Tribunal reasoned that the term "sale" includes export sales, and therefore, the purchase of raw materials used for manufacturing goods for export should not attract additional tax under Section 3(4).

2. Applicability of the principle of situs:
The Tribunal rejected the State's argument that the principle of situs, as outlined in Explanation 3(a) to Section 2(n) of the Act, should be applied to interpret Section 3(4). The Tribunal held that the principle of situs is irrelevant in this context and that the export sale should be considered as a sale under the Act.

3. Relevance of the Supreme Court judgment in State of Karnataka vs. B.M. Ashraf & Co.:
The Tribunal distinguished the Supreme Court's judgment in State of Karnataka vs. B.M. Ashraf & Co. from the present case. The Supreme Court's decision was based on the interpretation of Section 6 of the Karnataka Sales Tax Act, which deals with purchase tax, whereas the present case concerns the tax liability under Section 3(4) of the Tamil Nadu General Sales Tax Act. The Tribunal emphasized that the legal principles applicable to Section 6 of the Karnataka Act do not apply to Section 3(4) of the Tamil Nadu Act.

4. Levy of tax under Section 3(4) and Article 286 of the Constitution:
The Tribunal held that imposing tax under Section 3(4) on export sales would contravene Article 286 of the Constitution, which prohibits states from taxing export sales. The Tribunal reasoned that any indirect tax liability imposed on export sales through Section 3(4) would violate the constitutional embargo on taxing exports.

5. Interpretation of "in any other manner" in Section 3(4) of the Act:
The Tribunal concluded that the phrase "in any other manner" in Section 3(4) cannot be interpreted to include export sales. The Tribunal applied the maxim Ejusdem Generis, which means that general words following specific words should be interpreted in the context of the specific words. Therefore, "in any other manner" should be read in the context of branch transfers and transfers to agents, not export sales.

6. Sections 3(3) and 3(4) as charging provisions:
The Tribunal noted that Sections 3(3) and 3(4) are not designed as charging provisions but as provisions to regulate the concessional rate of tax for raw materials used in manufacturing. The Tribunal emphasized that these sections do not create a separate tax liability but regulate the conditions under which concessional rates are granted.

7. Territorial scope of the Tamil Nadu General Sales Tax Act, 1959:
The Tribunal reiterated that the Act is intended to levy tax on sales or purchases within the State of Tamil Nadu. The Tribunal dismissed the State's argument that the Act's territorial scope should include export sales, emphasizing that the Act's preamble and provisions are confined to intra-state transactions.

Conclusion:
The High Court dismissed the Tax Case Revision petitions, affirming the Tribunal's decision that export sales are considered sales under Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959. Consequently, the purchase of raw materials for manufacturing goods for export does not attract additional tax under Section 3(4). The Court held that the Tribunal's interpretation aligns with constitutional provisions and established legal principles, and no substantial question of law arises for further consideration.

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