2016 (5) TMI 911 - HC - VAT and Sales Tax

Imposition of VAT on the dyes, chemicals etc. - treating them to be deemed sales - used in the dyeing, colouring and printing of cloth for various traders - Held that - it was no longer open to the assessing authorities to take a different stand as given by the State Government, which has also been affirmed by this Court. The State Government has clearly given a decision that dyes and chemicals used in the processing of the cloth loose their identity and are, therefore, consumables and is not a deemed sale, which finding is binding upon the assessing authority. The payment of additional excise duty is wholly irrelevant to the transactions made under the VAT Act. The charge under the VAT Act is on the turnover of sale and not on the manufacture. A transaction may or may not be a manufacture but it has to come within the definition of sale as provided under the Vat Act. If the transaction does not satisfy the definition of sale, the question of subjecting it to tax under Vat Act does not arise. Consequently, omission of additional excise duty as contended by the learned Special Counsel for the State has no relevance to the issue. - Decided in favour of petitioner

Summary

Issues:
Challenge to assessment order imposing VAT on dyes and chemicals used in dyeing, colouring, and printing of cloth.

Analysis:
1. The petitioners contested the assessment order imposing VAT on dyes and chemicals used in dyeing, colouring, and printing of cloth for traders. The controversy revolved around whether the dyes and chemicals should be considered consumables or subjected to tax as a deemed sale. The tax authorities justified the tax imposition based on a circular, while traders argued that no transfer of property occurred, making the items consumables not liable for tax.

2. Despite representations and a decision by the State Government determining that dyes and chemicals used in cloth processing are consumables and not subject to tax, assessing authorities continued to levy tax on traders. This led to multiple writ petitions challenging the tax imposition, with the court emphasizing the binding nature of the State Government's decision and ruling in favor of traders.

3. The court reiterated that the State Government's decision, along with its own previous judgments, should guide assessing authorities in tax matters. The court highlighted the importance of judicial discipline, emphasizing that authorities should adhere to established precedents and not deviate from decisions upheld by higher authorities. The court dismissed arguments related to additional excise duty and clarified that the imposition of tax under the VAT Act is based on the turnover of sale, not manufacturing processes.

4. Ultimately, the court concluded that the assessing authority's imposition of tax on dyes and chemicals used in cloth processing was unfounded and quashed the orders. The court upheld the traders' contentions, emphasizing the binding nature of previous decisions by the State Government and the court itself, and ruled in favor of the petitioners, allowing the writ petitions.