2018 (12) TMI 148 - HC - VAT and Sales Tax

Exemption from payment of sales tax - supply of the specified drugs to WHO - Sub-section 3 of Section 6 of CST Act - Held that - If the sales had been made to WHO, the exemption from payment of tax in terms of Sub-section 3 of Section 6 would have been available. In the present case, as a matter of fact concurrently and if we may add correctly the Revenue Authorities and the Tribunal have come to the conclusion that the sale was not made by the assessee to WHO. Sub-section 3 of Section 6 of the CST Act, therefore, would not apply. Reference to the proviso to Sub-section 1 of Section 6 also would not help the assessee. As per the said proviso, irrespective of the provisions contained in Sub-section 1 a dealer would not be liable to pay tax on any sale of goods on sale in course of export of the goods out of the territory of India. In order to claim this benefit, therefore, the sale had to be export sale of goods travelling out of territory of India. The Tribunal, therefore, correctly did not accept this contention. The interplay of the provisions of the Sub-section 3 and Sub-section 1 of Section 6, in the present case would lead to some what harsh consequences. However, when the provisions of law are clear, the consequences cannot be avoided - appeal dismissed.

Summary

Issues:
Liability of the assessee to pay sales tax on the sale of a drug called "Albendazole" claimed to be sold to the World Health Organization (WHO).

Analysis:
The tax appeal challenges the judgment of the Maharashtra Sales Tax Tribunal regarding the liability of the assessee to pay sales tax on the sale of a drug. The questions presented for consideration involve the interpretation of Section 6(3) of the Central Sales Tax Act, 1956, regarding the exemption from Central Sales tax. The key issue revolves around whether the sale by the appellant to WHO should be exempt from sales tax liability under Section 6(3) of the Act.

The facts indicate that the assessee, a manufacturer of pharmaceutical products, sold batches of the drug to GSK Exports, U.K., which were then supplied to WHO in India. The billing was done in the name of GSK, U.K., and the assessee claimed that the sale should be treated as made to WHO, thus exempt from sales tax. However, the Revenue authorities and the Tribunal did not accept this claim, concluding that the sale was made to WHO and therefore, the exemption under Section 6(3) of the CST Act was not applicable.

The assessee argued that the drugs were ultimately received by WHO in India, and WHO issued a necessary certificate supporting this. The appellant contended that under Section 6(3) of the CST Act, the sale did not involve any sales tax liability. Additionally, the appellant argued that if the sale was considered to be made to GSK, U.K., it would qualify as an export sale and be exempt from sales tax. However, the Tribunal rejected these arguments, emphasizing that the goods did not leave the country for export, thus not meeting the criteria for an export sale.

The Court analyzed the relevant provisions of Section 6 of the CST Act, specifically Sub-sections 1 and 3. It was noted that Sub-section 3 provides an exemption from tax for sales made to certain entities, including the United Nations, under specific conditions. The Court concluded that the sale in question did not meet the requirements of Sub-section 3 and that the proviso to Sub-section 1, regarding export sales, also did not apply in this case. Despite acknowledging the potential harsh consequences of the interpretation, the Court held that when the provisions of the law are clear, the consequences cannot be avoided. Consequently, the tax appeals were dismissed.

In summary, the judgment addresses the liability of the assessee to pay sales tax on the sale of a drug to WHO, examining the applicability of Section 6(3) of the CST Act and the criteria for exemption from sales tax under the Act. The Court's analysis focused on the specific provisions of the Act, the factual circumstances of the sale, and the arguments presented by the appellant, ultimately concluding that the assessee was not entitled to the claimed exemption, and the tax appeals were dismissed.