2014 (2) TMI 150 - HC - VAT and Sales Tax

Interstate sale or local sale - place of compliance of the contract - head office at Chennai and factory at Pondicherry - the factory at Pondicherry manufactured the required type of laminated H.D.P.E., fabrics and despatched the same to Tamil Nadu to give the shapes of the sacks as per requirement of the parties and to have the logos inprinted thereof. - Penalty u/s 12(3) of the Tamil Nadu General Sales Tax Act - Held that - an appropriation for the purposes of an inter-State sale would be completed, only in respect of goods, which are earmarked for a particular customer. - Even though, the fabric might have been manufactured to the specifications, yet given the fact that the contract is not for the fabric as such, but for stitched sacks on a specified shape, and the compliance of the contract itself arose only in Tamil Nadu, we fail to understand that the mere despatch of fabric, which incidentally might have fitted in with colour or the textiles would not by itself result in appropriation to the contract placed by the customer - Tamil Nadu State was the only State competent to levy Sales Tax. - Decided against the assessee. Whether the assessment is best judgement assessment or not - Held that - The mere fact that the turnover were culled out from the books of accounts by itself does not mean the assessment is not a best of judgment assessment. The material based on which the best of judgment thus made being the account books, we do not find any justifiable grounds to accept the plea of the assessee that the assessment is one based on books and hence not the best of judgment assessment. - Decided against the assessee. Levy of penalty - Held that - he transaction is a of local sale, in the background of the admitted fact that the order placed by customers were for supply of sacks of specified description, we hold that the facts herein certainly attract the provisions under Section 12(3) of the Central Sales Tax Act - however taking lenient view instead of the maximum penalty, the levy of penalty at 50% imposed.

Summary

Issues Involved:
1. Jurisdiction of tax assessment under the Tamil Nadu General Sales Tax Act versus the Central Sales Tax Act.
2. Determination of the place of appropriation of goods.
3. Levy of penalty on the assessee for being an unregistered dealer and failing to submit returns.

Issue-wise Detailed Analysis:

1. Jurisdiction of Tax Assessment:
The primary issue was whether the transactions should be assessed under the Tamil Nadu General Sales Tax Act (TNGST) or the Central Sales Tax Act (CST). The assessee argued that the transactions were inter-State sales, with appropriation occurring at Pondicherry, making them liable under the CST Act. The Assessing Officer, however, determined that the orders were for the supply of laminated sacks, and the final product was delivered in Tamil Nadu, thus falling under the TNGST Act. The Revisional Authority upheld this view, stating that the entire process, including final stitching and lamination, took place in Tamil Nadu, making it the competent state to levy sales tax.

2. Determination of the Place of Appropriation:
The assessee contended that the manufacturing and initial processing of the HDPE fabrics took place in Pondicherry, and only final touches like stitching and lamination were done in Tamil Nadu. The court, however, found that the contract was for the supply of finished sacks, not just the fabric, and the final product was completed and appropriated in Tamil Nadu. The court referenced Section 3 of the CST Act, which defines inter-State trade, concluding that the mere movement of fabric did not constitute appropriation. The final product's completion in Tamil Nadu meant the appropriation occurred within the state, validating the TNGST Act's applicability.

3. Levy of Penalty:
The assessee was penalized for being an unregistered dealer and failing to submit returns, which the court upheld. The court noted that the assessee did not deny its unregistered status and the lack of turnover disclosure. Despite the assessee's argument that the assessment was based on their books of accounts, the court maintained that the assessment was a best of judgment assessment due to the lack of proper registration and reporting. However, considering the circumstances, the court decided to reduce the penalty to 50% of the tax assessed, acknowledging the assessee's partial compliance and the complexity of the appropriation argument.

Conclusion:
The court confirmed the applicability of the TNGST Act for the transactions, as the final product was appropriated in Tamil Nadu. The penalty for the assessee's failure to register and submit returns was upheld, but the amount was reduced to 50% of the assessed tax, providing some leniency due to the specific circumstances of the case.