2007 (3) TMI 259 - SC - VAT and Sales Tax

Whether taxable seller having sold the goods to another dealer of steel from whom the assessee have purchased the scrap and the application for grant could have been allowed subject to the proof of the respondent that the raw material used by it for manufacturing purposes was the goods in respect whereof the tax was paid by the first seller? Held that - No doubt in our mind that the exemption could be granted on the basis of the price of the goods on first sale thereof. State can only refund what it actually collected and not any amount which it had not collected. We, therefore, are of the opinion that the interest of justice would be subserved if an opportunity is given to the respondent to produce evidence before the assessing authority in regard to existence of the legal requirements, as noticed hereinbefore, for maintaining its claim of refund. The assessing authority shall give an opportunity to the respondent to place all materials in connection therewith or in relation thereto. It would also be open to the assessing authority, if any situation arises therefor, to call for any record from the Rourkela Steel Plant or any other dealer . We, furthermore, are of the opinion that the respondent would not be entitled to any interest on the refund amount for the present as the quantum thereof is yet to be determined. Appeals are accordingly allowed to the extent mentioned hereinbefore

Issues Involved:
1. Applicability of the exemption notification under the Industrial Policy of 1986.
2. Entitlement to refund of sales tax paid on raw materials.
3. Correct form and procedure for claiming refund.
4. Calculation and proof of the tax paid by the first seller.
5. Entitlement to interest on the refund amount.

Issue-wise Detailed Analysis:

1. Applicability of the exemption notification under the Industrial Policy of 1986:
The respondent, a company owning a re-rolling mill, was granted sales tax exemption under the Industrial Policy Resolution of 1986. This exemption applied to raw materials sold to or purchased by a registered dealer certified as a small-scale industry. The notification dated 22-12-1989 altered the taxable event to the first sale point, complicating the exemption mechanism. The High Court upheld the applicability of the exemption notification to the respondent's case.

2. Entitlement to refund of sales tax paid on raw materials:
The respondent sought a refund of sales tax paid on raw materials, invoking Section 14 of the Orissa Sales Tax Act, 1947. The High Court directed the authorities to consider the refund application without objection of limitation. However, the assessing officer found that the respondent had purchased "first point tax paid" materials from subsequent sellers, and no sales tax was collected from the respondent, thus denying the refund claim.

3. Correct form and procedure for claiming refund:
The High Court identified that the respondent had incorrectly submitted the refund application in Form XII-A under Rule 42-A, which was not applicable. The correct procedure required submission in Form XII under Rule 39 for refund under Section 14 of the Act. The High Court quashed the assessing officer's order and directed the respondent to re-submit the application in the correct form.

4. Calculation and proof of the tax paid by the first seller:
The Supreme Court emphasized that the refund claim must be based on the tax paid by the dealer effecting the first point of sale. The respondent needed to establish the quantum of tax paid by the first seller and prove that the tax-paid goods were used in manufacturing. The refund should be calculated on the value of goods at the first sale point, not on subsequent transactions.

5. Entitlement to interest on the refund amount:
The High Court did not grant interest on the refund amount due to the incorrect form submission by the respondent. The Supreme Court upheld this decision, stating that the respondent was not entitled to interest until the correct quantum of refund was determined. The Court allowed the respondent to produce evidence before the assessing authority to substantiate the refund claim.

Conclusion:
The Supreme Court allowed the appeals partially, directing the respondent to submit fresh applications in the correct form and produce necessary evidence to establish the refund claim. The assessing authority was instructed to determine the refund amount based on the tax paid by the first seller and refund it within 90 days. The respondent was not entitled to interest on the refund amount until the quantum was determined. The Court emphasized that the State must act in accordance with the statutory provisions of exemption. No costs were awarded.

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