WHETHER THE PROVISIONS RELATING TO CLARIFICATION AND ADVANCE RULINGS CONTAINED IN SECTION 67 OF A.P.VAT ACT, 2005 WOULD AUTMATICALLY APPLY TO ASSESSMENTS UNDER THE CENTRAL SALES TAX ACT, 1956?

[Mr. M. GOVINDARAJAN]

Introduction

The Central Sales Tax Act, 1956 is enacted by the Parliament under Article 246(1) of the Constitution of India pursuant to the exclusive power to make law with respect to the matters enumerated in Entry 92A and 92B in List – I in the Seventh Schedule.  The Value Added Tax Act is enacted by Andhra Pradesh State Legislature under Article 246(2) of the Constitution of India with respect to the matters enumerated in Entry 54 of List – II in the Seventh Schedule.

Scheme of CST

In ‘International Corporation (P) Limited V. Commercial Tax Officer’ – 1974 (10) TMI 70 - SUPREME COURT OF INDIA the Supreme Court held that the whole scheme of the Central Sales Tax Act is to adopt the machinery of the law relating to the sales tax Acts of the various States, in cases where those States happen to be the appropriate States as also the rates prescribed by those Acts.   The adoption of the machinery of and the rate of tax prevalent in the State is for the convenience of assessment as well as for the convenience of the parties so that they will not have to deal with two sets of officers and two sets of laws in addition to avoiding discrimination between inter-State and intra-State sales.  The very purpose of the Act and its scheme would be defeated or at least considerably impeded if the rates of tax applicable in any State in respect of intra-State sales were not applicable to inter-State Sales where the State is the appropriate State.

Sec.67 of AP VAT Act, 2005 – Clarification and Advance Rulings

Section 67 of Andhra Pradesh Value Added Tax Act, 2005 provides that the Commissioner may constitute a State level ‘Authority for Clarification and Advance Rulings’ comprising of 3 officers not below the rank of Joint Commissioner to clarify, in the manner prescribed any aspect of the implementation of the Act.

No application shall be entertained where the question raised in the application-

• is already pending before any officer or authority of the Department or Appellate Tribunal or any Court;
•    relates to a transaction or issue which is designed apparently for the avoidance of tax:

Provided that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard and where the application is rejected, reasons for such rejections shall be recorded in the order.

• No officer or any other authority of the Department shall proceed to decide any issue in respect of which an application has been made by an applicant under this Section and is pending.
• The order of the authority shall be binding:-

• On the applicant who had sought clarification;
• in respect of the goods or transaction in relation to which a clarification was sought; and
• on all the officers other than the Commissioner:
• Provided the dealer does not file an appeal before Sales Tax Appellate Tribunal within 30 days of the Ruling in the manner prescribed.
• The authority for clarifications shall have power to review, amend or revoke its rulings at any time for good and sufficient cause by giving an opportunity to the affected parties.
• An order giving effect to such review or amendment or revocation shall not be subject to the period of limitation.

• The Commissioner may also refer any matter for opinion of the Authority for clarification without prejudice to his authority.

In ‘Tirupati Chemicals V. DCTO’ – 2010 (11) TMI 864 - ANDHRA PRADESH HIGH COURT the High Court interpreted the nature of power conferred under Section 67 of the VAT.   The High Court held that as is evident from the title of section 67 the clarification/ruling which the Advance Ruling Authority is required to give, is in ‘advance’.   The word ‘advance’ means made or given ahead of time.   It is only a ruling given ahead of time which is an ‘advance ruling’.   The object of giving a clarification in absence is to ensure uniformity in orders of assessment, appellate and revisional orders (other than a revision order passed by the Commissioner), with regards classification of goods under different entries of the various schedules of the Act, or the rate of tax applicable to such goods etc., thereby authorities under the Act.   It is in furtherance of this object that Section 67(2) and (3) of the Act respectively prohibit Advance Ruling Authority and the officers or subordinates in the commercial tax department, from entertaining an application seeking clarification, or to decide any issue for which an application has been made by an applicant under the Section and is pending before Advance Ruling Authority.   The effect of these two provisions is that the applicant-dealer is required to seek a clarification from the Advance Ruling Authority prior to assessment proceedings being initiated against him, or before an appeals filed either before the appellate authority or the Tribunal.

Section 67(1) of the Act which deals with ‘clarification and advance ruling’ empowers the Commissioner to constitute a State level authority for clarification and advance rulings comprising three officers not below the rank of Joint Commissioner to clarify in the manner prescribed any aspect of the implementation of the Act i.e., the said Authority can only clarify and aspect of the implementation of the VAT Act. 

Section 9(2) of CST

Section 9(2) of the CST Act provides that subject to the other provisions of this Act and the rules made there under, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any interest or penalty, payable by a dealer under this Act as if the tax or interest or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State ; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties, charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly.

In ‘Mysore Electrical Industries Limited V.  Commercial Tax Officer’ – 1969 (11) TMI 83 - MYSORE HIGH COURT the High Court held that Section 9(2) of the CST Act had adopted the procedure prescribed by the general sales tax law of the appropriate State in the matter of assessment, reassessment, collection and enforcement of payment of tax.  The said Act, if it had intended, could have delegated to the State Government the power to frame rules providing for assessment, reassessment, collection and enforcement of payment of tax under the CST Act.   Instead of doing so, by Section 9(2) of the Act, it had adopted the procedural law of the State, the Parliament cannot be said to abdicate its essential legislative function.

In ‘State of Tamil Nadu V.K.A. Ramudu Chettiar’ – 1973 (2) TMI 116 - SUPREME COURT OF INDIA  the Supreme Court held that the power conferred under the amended Section 9(2) of the CST Act embraces all its powers, that the assessing authority had under the Sales Tax Law of the State in force during the relevant assessment year.   By virtue thereof, the Appellate Assistant Commissioner, at the time he decided the appeal of the assessee, had the power to enhance the assessment because of the existence of such a power under the Madras General Sales Tax Act, 1999.

Case law relating to issue

In ‘Prathista Industries Limited V. Commercial Tax Officer, Bhongir’ – 2014 (9) TMI 301 - ANDHRA PRADESH HIGH COURT the petitioner is a company registered as a dealer under the A.P. Value Added Tax, 2005 and the Central Sales Tax Act, 1956. The petitioner is engaged in the manufacture of eco-friendly organic fertilizers for the benefit of various agricultural crops besides feed supplements, organic acids, chelated minerals/mineral mixtures for poultry and veterinary segments and has technical collaboration with Council of Scientific and Industrial Research, Department of Bio-Technology, Government of India etc.,  The petitioner made an application on 06.02.2009 under Section 67(1) of the VAT Act to the Authority for Clarification and Advance Ruling and sought an advance ruling with regard to classification of its 17products under the said Act.   The Advance Ruling Authority, vide their order dated 16.11.2011 held that all the products fall under Entry No. 19 of IV Schedule and they are liable to tax at the rate applicable in that schedule.  The said order copy was received by the petitioner on 01.05.2012.

Against the order of Advance Ruling Authority the petitioner filed an appeal before the Tribunal under Section 67(4) of the Act on 01.06.2012.  While the appeal is pending before the Tribunal the Assessing Authority made assessments for the years 2005 – 06 and 2006 – 07 under the AP VAT Act and CST Act.   The Appellate Authority set aside the order of the Assessing Authority remanding the matter to Assessing Authority to decide the case in line with the direction of Advance Ruling Authority. 

A show cause notice was issued on 07.02.2011 and 08.03.2011 for the year 2007 – 08 and 2008 – 09 under Central Sales Tax Act proposing to complete the assessment among others on the products on which Advance Ruling was sought.   The notice proposed to levy a tax on a net turnover of ₹ 19,54,24,967/- and ₹ 30,15,59,241/- respectively at the applicable rates.  Despite the objections raised by the petitioner the Assessing Authority confirmed the demand  and issued notices to pay the assessed tax.  The said orders have also been challenged by the petitioner before the High Court.

The petitioner submitted the following before the High Court:

• The respective assessment orders impugned  are void as the Assessing Authority has no jurisdiction to pass them in view of Section 67 of VAT Act being applicable to assessments and collection of tax under the CST Act in view of Section 9 thereof;
• The petitioner had made an application for advance ruling on 06.02.2009 and the authority gave rulings for the same and the petitioner challenged the same before the High Court;
• Pending such appeal the Assessing Authority is barred from deciding any issue;
• The impugned orders of assessment are in violation of Article 14, 265 and 300A of the Constitution of India.

The Revenue contended the following:

• There is no provision under the Central Sales Tax Act, 1956 for advance ruling as in the VAT Act;
• Merely because Section 9(2) of the CST Act states that the provisions of the general sales tax law of the appropriate state shall apply in respect of the assessment and collection of Central Sales Tax, it would not mean that Section 67 of the VAT Act dealing with clarification and advance are automatically applicable in respect of assessments under the CST Act;

The High Court has to consider whether the provisions in Section 67 of the VAT Act which provides for ‘Clarification and Advanced Ruling’ are merely procedural provisions and by virtue of Section 9(2) of the Central Sales Tax Act, these provisions would also apply in respect of assessment of sales tax in respect of inter-State sale transactions.

In the view of the High Court the provision for ‘Advance Ruling’ is a mechanism introduced by the Legislature to ensure uniformity in orders of assessment, appeals and revisional orders (other thank a revision order passed by the Commissioner) with regard to the classification of goods under different entries of the various schedules to the Act or the rate of tax applicable to such goods etc., thereby avoiding conflicting orders passed by different Assessing/Appellate/Revisional Authorities.   Such a mechanism can only be introduced by way of a substantive provision in a Statute and cannot be implied.   The said view has been supported by Section of the Central Sales Tax Act, the High Court held that the Section 9(2) only makes applicable provisions of the State Sales Tax Law relating to assessment, reassessment, collection and enforcement of tax, including any interest or penalty.  A provision relating to ‘Advance Ruling’ would not fall into any of the above categories.   An Advance Ruling may be an aid to an assessment, re-assessment, collection or enforcement of payment of tax but it is not in itself a mechanism for assessment, re-assessment, collection and enforcement of tax which are normally done under the provisions of the Central Sales Tax Act by the competent authorities under the VAT Act.  The above activities, it cannot be denied, can be done by such authorities without benefit of an Advance Ruling also.

It may be that the tax collected under the Central Sales Tax Act is ultimately assigned to the State in view of Article 269 of the Constitution and the Central Sales Tax though levied for and collected in the name of the Central Government is a part of the sales tax levied and imposed for the benefit of the State.   But from this it does not follow nor does it follow from Section 9 of the CST Act that every provision of the VAT Act including provisions relating to ‘Advance Ruling’ would apply to proceedings for assessment, re-assessment, collection and enforcement of payment of tax in relation to inter-State sale transactions under the Central Sales Tax Act.

The High Court held that the provision imposing time limit on the powers of the assessing authority to make a best judgment assessment was held to be only a rule of procedure.  The provision relating to ‘Advance Ruling’ would fall in the same category as one relating to ‘penalty’ or ‘interest’ both of which were held to be substantive provisions.  The High Court further held that the Assessing Authority is entitled to initiate and complete the assessment order under the CST Act in respect of the petitioner when its application for ‘Advance Ruling’ was pending before Authority for Advance Ruling and pendency of its appeal against the said ruling before the Tribunal would not impede or operate to disentitle the Assessing Authority in any way in initiating or completing assessment under the Central Sales Tax Act, as provisions of Section 67 of the VAT Act would not apply to assessments made under the Central Sales Tax Act.  The High Court, therefore, held it could not be said that the impugned orders passed by the Assessing Authority under the CST Act are without jurisdiction.  The High Court dismissed the writ petitions.