2020 (2) TMI 1190 - HC - VAT and Sales Tax

100% EOU - benefit of concessional rate of tax as per Notification in G.O.No.528 dated 21.11.1997 - cotton purchased by it in the declaration in Form No.17 - benefit denied for the reason that the explanatory note attached to the said Notification issued by the State is not part of the Notification - denial of benefit also on the ground that the export sale made by the Assessee of the fabric made out of the cotton purchased by it did not amount to a sale and therefore the condition of making a sale within the State was not satisfied by the Assessee. HELD THAT - Issue decided in the case of USR. TYRES AND TUBES PVT. LIMITED VERSUS COMMERCIAL TAX OFFICER, TIRUVERUMBUR ASSESSMENT CIRCLE, TRICHY 2011 (4) TMI 1245 - MADRAS HIGH COURT , in which the learned Single Judge of this Court decided the issue with regard to G.O.Ms.No.528, CT RE dated 21.11.1997 where it was held that petitioners are entitled to exemption being an Export Oriented Unit. It is not necessary that the petitioners should involve in the sale of raw material to another Export Oriented Unit to claim the benefit of exemption. They are entitled to exemption at the last purchase, being the manufacturer. The other issue raised by the learned counsel for the petitioner has been decided by the Division Bench of this Court in 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 in which the Division Bench of this Court held that even 'exports sale satisfy the definition of 'Sale' under Section 2(n) read with Explanation to Section 3(a), 3(3) and (4) of the Central Sales Tax Act, and therefore the conditions of the Notification should be deemed to have been satisfied. The order passed by the learned Tribunal is unsustainable and the writ petition deserves to be allowed - decided in favor of petitioner.

Summary

Issues:
1. Denial of concessional rate of tax on raw materials purchased by the Assessee.
2. Dispute regarding the export sale made by the Assessee.

Analysis:
1. The Assessee, a 100% Export Oriented Unit (EOU), challenged the order of the Tamil Nadu Sales Tax Appellate Tribunal denying the benefit of concessional tax rate on cotton purchased. The Tribunal considered export sales for turnover assessment under Section 3(4) of the Act. The Tribunal held that export sales, including direct sales, are taxable under Section 3(4) unless specifically excluded. The Tribunal referred to legal precedents emphasizing strict interpretation of tax laws without implying additional conditions. The Tribunal concluded that the State imposed purchase tax to ensure revenue from goods manufactured using concessional raw materials and sold outside the State, including export sales.

2. The Tribunal also assessed the last purchase of cotton by the Assessee. The notifications exempted tax on sales to 100% EOUs for raw materials, packing materials, and consumable goods. The Assessee contended that the explanatory note extended the exemption to all raw materials, but the Tribunal ruled that the note cannot replace the official notification. The Tribunal upheld the assessment on the last cotton purchase, stating the exemption applied only to sellers of raw materials to 100% EOUs. The Assessee argued that recent court judgments supported their position, citing a case involving raw rubber purchases for manufacturing activities by an EOU.

3. The High Court noted that previous judgments had addressed both issues raised by the Assessee. In one case, the court ruled that EOUs are entitled to exemption for purchasing raw materials for manufacturing, even without selling to another EOU. Another judgment confirmed that export sales satisfy the definition of 'sale' under relevant tax laws, fulfilling conditions for exemptions. The High Court found the Tribunal's order unsustainable in light of these judgments and allowed the writ petition, setting aside the assessment order and the Tribunal's decision.

Conclusion:
The High Court ruled in favor of the Assessee, overturning the Tribunal's decision on denying concessional tax rates and disputing the export sale assessment. Recent court judgments supported the Assessee's claims, leading to the High Court's decision to set aside the Tribunal's order and assessment.