2023 (1) TMI 1179 - HC - VAT and Sales Tax

Levy of purchase tax - penultimate sale - raw hides and skin purchased without tax were converted as dress hides using materials purchased at concessional rate of tax under Section 3(3) of the TNGST Act - whether the exemption under Section 5(3) of the Centrals Sales Tax Act, 1956 r/w. Article 286 of the Constitution of India would inure to an exporter like the petitioner who purchased goods from a dealer without payment of sales tax, part of which was utilized for export? HELD THAT - To facilitate a selling dealer to avail exemption, the exporter has to obtain Form-H prescribed under Rule 12(10) of the Central Sales Tax Act (Registration and Turnover) Rules, 1957 and furnish it to the dealer who effected such penultimate sale to the exporter. Only such penultimate sale prior to the export is exempt from sales tax under the respective enactment when read in conjunction with Article 286 of the Constitution of India - It is on the strength of Form H given by an exporter, the local dealer effecting a local sale or an inter-State sale can treat the sale as an exempted sale under Section 5(4) of the Central Sales Tax Act, 1956. This is the statutory mechanism prescribed for exempting a dealer effecting penultimate sale of goods to an exporter prior to export. As far as payment of purchase tax under Section 7A is concerned, there is no mechanism provided under the Act. If the ratio of the Hon ble Supreme Court in STATE OF KARNATAKA VERSUS AZAD COACH BUILDERS PVT. LTD. AND ANOTHER 2010 (9) TMI 879 - SUPREME COURT is to be applied to the facts of the present case, the petitioner would be entitled to claim exemption provided the petitioner is able to establish an inextricable link between the purchase of raw hides and the export of goods viz., raw hides with the export order. There are no records to establish the same in the present case. Further, the petitioner also had local sales of dressed hides and skin. Though, on a cursory reading of the decision of the Hon ble Supreme Court, it may appear that there was an apparent contradiction between the law declared by it in Paragraph 19 and its conclusion in Paragraph 31. However, it must be borne in mind that what was sold by the assessee M/s.Azad Coach Builders (P) Limited to the exporter Tata Engineering Locomotive Co. Limited was bus body manufactured by it which was mounted on the chassis supplied by the exporter Tata Engineering Locomotive Co. Limited for export. Thus, sale of bus body was prior to the export and was a penultimate sale. It is in this background the Court held that same goods theory was not applicable to the facts of the case. In the present case, the petitioner purchased the raw hides and converted it into dress hides and skins. Thus, there was a change in the character of the goods in the hands of the petitioner before the goods were exported by the petitioner. What was purchased by the petitioner was different and what was exported by the petitioner was different - the petitioner is therefore not entitled to exemption under Sections 5(3) and 5(4) of the Central Sales Tax Act, 1956 in the light of the observations of the Hon ble Supreme Court in Paragraph No.19 in Azad Coach Builders (P) Ltd. There are no merits in the present case - petition dismissed.

Summary

Issues Involved:
1. Validity of the assessment order dated 29.10.2004.
2. Validity of the consequential order dated 08.03.2006.
3. Imposition of tax on the last purchase of raw hides and skins pursuant to the export order.
4. Applicability of Section 5(3) of the Central Sales Tax Act, 1956.

Detailed Analysis:

1. Validity of the Assessment Order Dated 29.10.2004:
The petitioner challenged the assessment order dated 29.10.2004, wherein the total and taxable turnover were determined by the Commercial Tax Officer for the Assessment Year 2002-2003. The petitioner reported a total turnover of Rs.4,68,46,396/- and taxable turnover of Rs.60,93,882/-, while the first respondent determined the total turnover as Rs.5,59,31,898/- and taxable turnover as Rs.5,54,07,663/-. The petitioner was asked to pay purchase tax under Section 7A of the TNGST Act for purchasing raw hides and skins without sales tax and converting them into dressed hides for export.

2. Validity of the Consequential Order Dated 08.03.2006:
The second respondent's order dated 08.03.2006 partly set aside and partly confirmed the assessment order dated 29.10.2004, remanding the case back to the first respondent regarding the imposition of penalty under Section 12(5) of the TNGST Act. The petitioner did not file a statutory appeal but instead filed this writ petition.

3. Imposition of Tax on the Last Purchase of Raw Hides and Skins Pursuant to the Export Order:
The petitioner contended that the tax on the last purchase of raw hides and skins should not be imposed until the disposal of Civil Appeal No.3773/2000 pending before the Supreme Court. The court noted that the petitioner had not disputed the amount confirmed under Section 3(4) of the TNGST Act. The court examined the applicability of Section 5(3) of the Central Sales Tax Act, 1956, which provides an exemption for the last sale or purchase preceding the export if it is for complying with an export order.

4. Applicability of Section 5(3) of the Central Sales Tax Act, 1956:
The court analyzed Section 5(3) of the Central Sales Tax Act, 1956, and its applicability to the petitioner's case. The court referred to the Supreme Court's decision in Azad Coach Builders Private Limited, which held that the exemption under Section 5(3) applies if there is an inextricable link between the local sale/purchase and the export. The court found that the petitioner failed to establish such a link and noted that the goods purchased (raw hides) were different from the goods exported (dressed hides). Therefore, the petitioner was not entitled to the exemption under Section 5(3).

Conclusion:
The court dismissed the writ petition, stating that the petitioner was not entitled to the exemption under Sections 5(3) and 5(4) of the Central Sales Tax Act, 1956, due to the change in the character of the goods. The court upheld the imposition of purchase tax under Section 7A of the TNGST Act and found no merit in the petitioner's arguments. Consequently, the connected miscellaneous petitions were also closed.