2016 (10) TMI 813 - HC - VAT and Sales Tax

Taxability - procurement of Fly Ash - exemption on clearance to SEZ - manufacture of PPC and OPC cement - service charges paid on procurement of Fly Ash - whether payment to Thermal Power Station is in the nature of royalty? - Held that - the decision of the Hon ble Supreme Court in the case of State of H.P. and others Vs Gujarat Ambuja Cement Ltd. and another 2005 (7) TMI 353 - SUPREME COURT OF INDIA relied upon. Therefore, the finding to the said effect and the stand taken in that regard in the counter affidavit at paragraph No.7, deserves to be set aside. Whether the respondent could have given different interpretation to the agreement which was entered into between the TNEB and the petitioner. The specific case of the petitioner is that if the agreement is treated to be as one of the agreement for sale, it would violate the notification issued by the Central Government of India as clearance of fly ash is a part of environmental protection exercise. However, this aspect has not been gone into in a proper prospective by the respondent. Disallowance of exemption on clearance effected to SEZ - the respondent appears to have put the matter in cold storage for nearly ten months after the personal hearing and all of a sudden, has passed the impugned order that certain certificates produced by the petitioner are defective. However, it is seen that before doing so, no opportunity was granted to the petitioner. This Court had an occasion to consider the aspect, as regards the zero rated sale and exempted sale with regard to the sales effected to the units located in SEZ and a decision was rendered in the case of Tulsyan NEC Limited Vs Assistant Commissioner CT Harbour- III , Assessment Circle, Chennai 2015 (2) TMI 564 - MADRAS HIGH COURT . This decision also should have been borne in mind by the Assessing Officer, since the impugned assessment order was passed, much after the order in the case of Tulsyan. Thus, for all the above reasons, the impugned assessment under these two heads alone require to be reconsidered. Writ Petition allowed - impugned order set aside insofar as the findings rendered by the Assessing Officer on the aforesaid two heads and the assessment shall be re-done, after affording an opportunity of personal hearing by clearly appreciating the scope of the agreement between the petitioner and the TNEB and the legal position which is prevailing as on date.

Summary

Issues:
1. Tax liability on the procurement of fly ash for cement production.
2. Disallowance of exemption on clearance to Special Economic Zone (SEZ) units.

Issue 1: Tax liability on the procurement of fly ash for cement production
The petitioner, a Public Limited Company manufacturing cement, procured fly ash from a power station for its production process. The Commercial tax department raised objections regarding the purchase of fly ash, alleging liability for purchase tax under Section 12 of the Act. The petitioner contended that a taxable event of sale or purchase must occur to attract liability under the Act. The assessment was completed, valuing the fly ash based on prices paid to other suppliers and imposing tax under Section 12(1)(a) of the Act. The petitioner challenged this, arguing errors in the assessment order and misinterpretation of agreements. The court noted discrepancies in the assessment, set aside the findings, and directed reassessment, emphasizing the need for a proper understanding of agreements and legal provisions.

Issue 2: Disallowance of exemption on clearance to SEZ units
The respondent disallowed exemption claimed by the petitioner under a government notification on clearance to SEZ units. The petitioner argued for the rightful exemption based on relevant government orders. The assessment order disallowing the exemption was challenged, highlighting delays in decision-making and alleged defects in certificates produced by the petitioner. The court observed that the matter was not considered in a timely manner and referenced a previous decision on zero-rated and exempted sales to SEZ units. The court concluded that the assessment under this issue required reconsideration, emphasizing the need for a fair assessment based on legal provisions and precedents.

The judgment allowed the writ petition, setting aside the assessment findings on both issues and directing reassessment with a focus on understanding agreements, legal provisions, and relevant government orders. The court emphasized the importance of a proper assessment process, granting the petitioner the opportunity to contest any adverse findings before the appellate authority.