2015 (7) TMI 896 - HC - VAT and Sales Tax

Partial exemption scheme - to increase inter-State sales and decrease the quantum of branch transfers - constitutional validity of Sections 26 and 82(3) of the Rajasthan Value Added Tax Act, 2003 - method of calculations - Held that - under the notification dated 6.5.1986 incentive is given with a view to enhance inter State sales with a view to enhance State revenue in the form of sales tax and that object can be served with the cooperation of dealers only. The purpose of the notification can very well be failed, if the dealers do not act as desired by the State by increasing inter State sales and reducing branch transfers. The State Government only to have support of the dealers extended partial exemption to them. This incentive is given to the dealers by the State from its own revenue in the form of exemption to have a positive action by the dealers for shifting to inter State sale from branch transfers, as such, the notification dated 6.5.1986 though uses the term partial exemption but in fact is a partial disbursement of State revenue earned due to the efforts made by the dealers for its enhancement. In view of whatever stated above, these petitions for writ deserve acceptance, accordingly, the same are allowed. The initiation of impugned proceedings against the petitioner as per Section 26 of the VAT Act is declared illegal and the notices issued thereunder and orders made thereon are also declared illegal, hence are quashed - Decided in favor of assessee.

Issues Involved:
1. Challenge to the order dated 21.3.2014 by the Commercial Taxes Officer, Anti Evasion Circle, Bhilwara.
2. Constitutional validity of Sections 26 and 82(3) of the Value Added Tax Act, 2003 (VAT Act).
3. Interpretation and applicability of the notification dated 6.5.1986 under Section 8(5) of the Central Sales Tax Act, 1956 (CST Act).
4. Legality of reassessment proceedings initiated under Section 26 of the VAT Act.

Issue-wise Detailed Analysis:

1. Challenge to the Order Dated 21.3.2014:
The petitioner, a public limited company, questioned the correctness of the order dated 21.3.2014 by the Commercial Taxes Officer, Anti Evasion Circle, Bhilwara, which demanded tax based on the premise that the petitioner wrongly retained partial exemption while collecting full CST from consumers. The court noted that the petitioner had been granted partial exemption for several years based on increased inter-State sales and decreased branch transfers, as per the notification dated 6.5.1986.

2. Constitutional Validity of Sections 26 and 82(3) of the VAT Act:
The petitioner challenged the constitutional validity of Sections 26 and 82(3) of the VAT Act. The court observed that no argument was advanced to impugn Section 82(3) and focused on Section 26. Section 26 relates to 'escaped assessment' and allows reassessment if tax has been under-assessed or escaped. The petitioner argued that Section 26 confers uncontrolled and unguided powers to the assessing authority, which could lead to arbitrary reassessment without specifying reasons, thus violating Articles 14, 19, 265, and 300-A of the Constitution of India.

3. Interpretation and Applicability of the Notification Dated 6.5.1986:
The notification dated 6.5.1986 aimed to increase inter-State sales and reduce branch transfers to augment State revenue. It granted partial exemption from CST payable on inter-State sales, provided there was a corresponding decrease in branch transfers. The court emphasized that the notification's incentive was to promote inter-State sales, thereby increasing State revenue. The exemption could only be determined at the end of the assessment year based on actual sales data, making it impractical for dealers to charge reduced tax rates at the beginning of the year.

4. Legality of Reassessment Proceedings Initiated Under Section 26 of the VAT Act:
The court held that the reassessment proceedings initiated under Section 26 of the VAT Act were illegal. The Commercial Taxes Officer, Anti Evasion, Bhilwara, issued reassessment notices without satisfying whether the case fell under the criteria for 'escaped assessment.' The court noted that the petitioner had not escaped tax liability as the partial exemption was granted after due assessment. The court also highlighted that the reassessment notice did not dispute the petitioner's disclosure of facts.

Conclusion:
The court concluded that the notification dated 6.5.1986 was an incentive to dealers to increase inter-State sales and reduce branch transfers, thereby enhancing State revenue. The partial exemption was a form of "partial disbursement of State revenue" earned due to the dealers' efforts. The reassessment proceedings under Section 26 of the VAT Act were declared illegal, and the notices and orders issued thereunder were quashed. The petitions were allowed, and no costs were ordered.

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