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2019 (3) TMI 771 - HC - VAT and Sales TaxWhether the assessee is liable for payment of sales tax in terms of Section 3(2) of the TNGST Act on the re-sale of sanitary fittings effected by the assessee within the State, which were purchased from WORTH, an organisation, which was granted exemption by the Government of Tamil Nadu under Section 17 of the TNGST Act in G.O.(Ms) No.436, dated 19.04.1983? Held that - Section 17 of the TNGST Act is the power of the Government to notify exemption and redemption of tax. Under sub-Section (1) of Section 17 of the TNGST Act, the Government may, by notification issued whether prospectively or retrospectively, make an exemption or reduction in rate, in respect of any tax payable under the TNGST Act - In the instant case, the petitioner's seller, WORTH was granted exemption in regard to the whole of turnover relating to the sale of its products manufactured and on all sales incidental or ancillary to such manufactures in their various centres by notification published under the Government Gazette. The exemption, which was granted to WORTH, falls under Section 17(1)(ii), as it is for a specified class of person, in regard to the whole of their turnover. Section 7-A of the TNGST Act clearly provided for levy of purchase tax and the contingencies provided therein clearly fell within the said parameters and accordingly, the contention of the assessee was rejected. If the said decision is applied to the facts of the present case, we need to be conscious of the subtle yet marked distinction between the language employed in Section 7-A and an amended Section 3(2) of the TNGST Act - the charging section which stood prior to the amendment, did not contain any clause as contained in Section 7-A of the TNGST Act making the purchaser liable to pay purchase tax when they fall within any one of the contingencies in Section 7-A(1) of the TNGST Act. The order passed by the Tribunal is not sustainable and the point of taxation cannot be shifted - this tax case revision is allowed and the substantial questions of law are answered in favor of the assessee.
Issues Involved:
1. Liability for tax under Section 3(2) of the TNGST Act, 1959 on resale of sanitary fittings. 2. Prospective nature of the amendment to Section 3(2) of the TNGST Act, 1959 by Tamil Nadu Act 38 of 1996. Detailed Analysis: Issue 1: Liability for Tax under Section 3(2) of the TNGST Act, 1959 on Resale of Sanitary Fittings The core issue revolves around whether the assessee is liable for sales tax on the resale of sanitary fittings, which were initially exempted from tax when sold by WORTH Trust to the assessee. The assessee argued that since the first sale by WORTH Trust was exempted under G.O.Ms.No.436 dated 19.04.1983, the resale should not attract tax. The Assessing Officer, however, treated the resale by the assessee as the first taxable sale under Section 3(2) of the TNGST Act and levied a tax of 12%. The court examined the statutory provisions, particularly Section 3(2) of the TNGST Act, which specifies that tax is payable at the rate and point mentioned in the First Schedule. The First Schedule indicated that sanitarywares were taxable at the point of first sale in the State. The court noted that the exemption granted to WORTH Trust did not erase the liability to tax but merely provided a reprieve from payment. The court cited the Supreme Court’s decision in Associated Cement Companies Ltd., which explained that exemption from tax presupposes a liability to tax. The court further referred to the Supreme Court’s ruling in Timber & Fuel Corporation, which held that the point of taxation cannot be shifted. The court concluded that accepting the Revenue’s interpretation would effectively shift the point of taxation from the first sale to the subsequent sale, which is impermissible. Therefore, the court held that the assessee’s resale of sanitary fittings, which were exempted at the first sale, should not be taxed under Section 3(2) of the TNGST Act. Issue 2: Prospective Nature of the Amendment to Section 3(2) of the TNGST Act, 1959 by Tamil Nadu Act 38 of 1996The second issue pertained to whether the amendment to Section 3(2) of the TNGST Act by Tamil Nadu Act 38 of 1996, which introduced a proviso stating that if the first sale is exempted, the tax is payable by the first and earliest of the successive dealers, applies retrospectively to the assessment year 1994-95. The assessee contended that the amendment was prospective and did not apply to the assessment year in question. The court examined the language of the amendment and previous decisions, including the Division Bench ruling in V.Guard Industries Ltd., which held that the amendment to Section 3(2) of the TNGST Act was prospective and did not cover assessment years prior to its enactment. The court observed that the amendment came into effect on 17.07.1996, and thus, it did not apply to the assessment year 1994-95. The court also distinguished the present case from the decision in Ruchi Soya Industries Limited, which dealt with the validity of Section 7-A of the TNGST Act and the imposition of purchase tax under specific contingencies. The court emphasized the distinction between the language of Section 7-A and the pre-amendment Section 3(2) of the TNGST Act, noting that the latter did not contain any clause making the purchaser liable to pay tax in the case of an exempted first sale. Conclusion:The court concluded that the point of taxation cannot be shifted and that the amendment to Section 3(2) of the TNGST Act was prospective and did not apply to the assessment year 1994-95. Therefore, the order passed by the Tribunal was not sustainable, and the substantial questions of law were answered in favor of the assessee. The tax case revision was allowed, and no costs were awarded.
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