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TMI Blog2010 (10) TMI 938X X X X Extracts X X X X X X X X Extracts X X X X ..... revisions, as well as the writ petitions, the common questions of law that arises for consideration are as under: (1) Whether the Tribunal has committed an error of law in failing to see that Section 3(4) had no operation since the situs of the export sales of the petitioners was the State of Tamilnadu ? (2) Whether Section 3(4) has operation when the situs of the export sales determined in accordance with Section 4 of the Central Sales Tax Act, 1956 read with Explanation (3) to Section 2 of the Tamil Nadu General Sales Tax Act, 1959, is inside the State of Tamilnadu ? 2. For the sake of convenience and to understand the scope of the controversy, we refer to the facts involved in T.C.No.39 of 2009. 3. The issue pertains to the Assessment Year 2003-04. The petitioners effected purchase of chemicals, consumables and packing materials by using Form-XVII declaration and availed concessional rate of tax at 3% as provided under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959, hereinafter called 'the Act'. Such materials were used for the manufacture of automobiles parts and industrial chains. The petitioners also exported a part of the manufactured goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not provide any scope for creating notional sales tax liability. In support of his submissions, the learned senior counsel relied upon the decision reported in (2002) 8 SCC 139 (Cemento Corporation Ltd Vs. Collector, Central Excise) and (2009) 22 VST 1 (SC) (State of Haryana and Others Vs. Liberty Enterprises). 8. Mr.N.Sriparkash, learned counsel who appeared for the petitioners in T.C.Nos.39 of 2009 and in some other cases, in his submissions contended that the petitioners purchased chemicals and packing materials by using Form-XVII and the seller charged 3% tax on the sales. The learned counsel pointed out that for using such materials, the petitioners manufactured automobile parts and industrial chains, part of which were exported to outside countries through Seaport as well as Airport. 9. The contention of the learned counsel was two fold. In the first place by virtue of Article 286(1)(b) of the Constitution, there is a fetter on the States to tax on exports and that Section 5(1) of the Tamil Nadu General Sales Tax Act prescribes what is an export. Therefore, though there is a sale by way of export, no tax could have been levied. For that proposition, the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er pointed out that every return included 'export sale' and only if the assessee failed to prove the export sale, it will result in sufferance of the tax under the Act. He also pointed out that even under Section 3(3) of the Act, certain exempted goods are specified, for which, under no circumstances any tax liability could be imposed. The learned counsel placed reliance upon the decisions reported in 41 STC 409 (Polestar Electronic P.Ltd Vs. Additional Commissioner Sales Tax and Another), 63 STC 169 (Madras Marine Co., Vs. State of Madras), 98 STC 426 (Sri Easwari Extractions Vs. IC-III (SMR) of CT, Madras), 134 STC 473 (Ashok Leyland Ltd., Vs. State of Tamil Nadu another) and AIR 2008 SC 1120 (Sudesh Kumar Vs. State of Uttarakhand). 12. Mr.N.Prasad, learned counsel appearing for the petitioners in T.C.No.92 of 2009, pointed out that Section 5(3) of the Act came to be introduced on 01.07.1976, after the Judgment of the Hon'ble Supreme Court reported in 36 STC 136, which provided for exemption of tax liability under the Act. The learned counsel by referring to the decision of the Hon'ble Supreme Court reported in 107 STC 571 (State of Karnataka Vs. B.M.Ashraf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, the possibility of total evasion of tax which alone would attract Section 7(A) cannot be equated to Sections 3(3) and 3(4) of the Act. The learned counsel relied upon the decisions reported in 1994 (2) SCC 434 (Printers (Mysore) Ltd Another Vs. Astt. Commercial Tax Officer and others) and (2009) 8 SCC 483 (Bihar School Examination Board Vs. Suresh Prasad Sinha). 17. Mr.N.Inbarajan, learned counsel who is also appearing for the petitioners in T.C.No.39 of 2009, by referring to Rule 6(e) of the Tamil Nadu General Sales Tax Rules, pointed out that the rules themselves provide for a reduction of Export Sale from the taxable turnover, meaning thereby that such 'Export Sale' though a 'Sale' within this State, is none the less not eligible to tax by virtue of Constitutional exemption. 18. As against the above submissions, Mr.Haja Nasiruddin, learned Special Government Pleader (Taxes) contended that Section 3(3) overrides Sections 3(2), 3(2-A) and 3(2-C). According to the learned Special Government Pleader while under Section 3(2) reference is to the first sale in the State for sufferance of tax at the rates specified in the First Schedule. Section 3(3) provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved, the relevant provisions to be noted are Sections 2(n) read along with Explanation (3)(a), Sections 3(3) and 3(4) of the Act and Section 5 of the Central Sales Tax Act as well as Article 286(1) of the Constitution of India. 23. For the sake of convenience these provisions are extracted here under: Tamil Nadu General Sales Tax Act Section 2(n): 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes-- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a work contract; (iii) a delivery of goods on hire-purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period, declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority : PROVIDED FURTHER that any dealer who, after purchasing the goods in respect of which he had furnished any declaration, fails to make use of the goods so purchased for the purpose specified in the declaration but disposes of such goods in any other manner, shall pay the difference of tax payable on the turnover relating to sale of such goods at the rate prescribed and three per cent : PROVIDED ALSO that the dealer purchasing the goods maintains a separate stock account for each of the goods purchased by him showing such particulars as may be prescribed. Section 3(4): Where any dealer, after availing the concessional rate of tax under sub-section (3), does not sell the goods so manufactured, but despatches them to a place outside the State either by branch transfer or by transfer to an agent, by whatever name called, for sale, or in any other manner, except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay in addition to the concessional rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the import of the goods into, or export of the goods out of, the territory of India. 2.Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). Any law of a State shall, in so far as it imposes, or authorises the imposition of- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. 24. Under Section 3(3), the sale of any goods including consumables, packing materials and labels and excluding certain specific goods sold to another dealer for use by such dealer for manufacturing any other goods inside the State of Tamil Nadu for sale of any goods other than certain exempted goods, such sale would attract levy of only 3% by way of sales tax to be collected by the seller. The levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anch transfer or by transfer to an agent for the purpose of sale, it should be construed that the export sale would fall under the said set of expressions in any other manner in as much as such sale is not within the State. 28. To counter the said submission, on behalf of the assessees it is contended that if really the law makers wanted to restrict the sale only to a sale inside the State and not to export sale, such a restriction would have been clearly set out in the Section itself as has been provided in Sections 3(3), 7(A)(b) and 9(b) of the Act. 29. At the very outset, it will be worthwhile to make a mention about the restrictions imposed on imposition of tax by the State on Export sales under Article 286(1)(a) (b) of the Constitution. In fact there is a Constitutional embargo on the States to enact any law providing for levy of tax both on interstate sale or purchase as well as export sale that takes place to any territory outside the country. The apparent purpose is quite clear that in the case of interstate sale the same is covered by the provisions of the Central Sales Tax Act in which the respective States get a part of the tax collection. As far as the export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. In this connection, it may be mentioned that according to theory of the eminent jurist Kelsen (the pure theory of law) in every country there is a hierarchy of laws and the general principle is that a law in a higher layer of this hierarchy will prevail over the law in a lower layer of the hierarchy (see Kelsen's The General Theory of Law and State ) In our country this hierarchy is as follows:- (i) The Constitution of India (ii) Statutory law (which may be either Parliamentary law or law made by the State legislature). (iii) Delegated Legislation (which may be in the form of rules made under the statute, regulations made under the statute, etc) (iv) Purely administrative or executive orders. Applying the said principles to the facts of this case, as in the hierarchy of law, the Constitution provision will supersede any conflicting statutory provision, we hold that the interpretation sought to be laid on behalf of the State, to hold that Section 3(4) will apply to the export sale of the assesses will run counter to the well laid legal principles referred to above and the same cannot be countenanced. 33. On these grounds itself, it can be held that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once we are able to assimilate the definition of 'sale' in the case of an export under the provisions of the Act, we are convinced that such a sale, is nothing but a sale for which an exigency of tax liability would not occur as provided under Section 3(4) of the Act. 39. In other words, the expression but does not sell the goods so manufactured cannot be put against the export sale in order to levy the tax on the value of the goods so purchased by availing the concessional rate of tax under Section 3(3) of the Act. 40. In view of our above conclusions, we have no hesitation to hold that such an export sale cannot be brought under the set of expressions in any other manner as used in Section 3(4) of the Act. 41. As rightly contended by the learned counsel for the petitioners, the said set of expressions having been used following the expression for sale and applying the maxim Ejusdem Generis, it can only mean and taken to the effect that any despatch to a place outside the State either by way of branch transfer or by transfer to an agent by whatever manner called, either for sale or for any other purpose, certainly it cannot be attributed to an export sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent to Kalbhavi, which was admittedly a sale in the course of export under Section 5(3) would not be regarded as sale in the State ...... 43. While examining the reliance placed upon the said decision on behalf of the State, it will have to be noted that Section 6 of the Karnataka General Sales Tax Act is more or less in pari materia with Section 7(A) of the Act i.e., (TNGST Act). From what has been laid down by the Hon ble Supreme Court in the first blush, it does appear that irrespective of the fact that the sale of fish oil by the assessee therein was a sequel to an export order thereby governed by Section 5(3) of the CST Act, but, yet the Supreme Court held that such a sale cannot be construed as a Sale in the State and consequently it does not fall within the Set of expressions specifically stipulated in Section 6(i) of the Karnataka GST Act. 44. But at the very outset, it will have to be stated that the said decision can be considered in the event of a question arising relating to the exigibility of tax (purchase tax) under Section 7-A of the Act. Consequently, it is relevant to note that in Section 6(i) of the Karnataka Act, a specific expression by way of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier decisions has held as under in para 23:- .... 23. We have referred to the aforesaid decisions and the principles laid down therein, because often decisions are cited for a proposition without reading the facts of the case and the reasoning contained therein. ... 45. Applying the principles referred to in the above two decisions and the reliance placed upon Ashraf s case, it will have to be held that the said decision rendered in the context of the specific provisions contained in Section 6(i) of the Karnataka Act cannot be mutatis mutandis apply to the case on hand where Section 3(4) are worded differently. While in Section 3(4) the qualifying words are does not sell the goods so manufactured and the expression by way of sale in the State as contained in Section 6(i) of the Karnataka Act is significantly absent in Section 3(4). Therefore, what are to be examined while applying Section 3(4) is as to whether the dealer after availing the concession rate of sale under Section 3(3) failed to effect a sale. It is unnecessary for that dealer to establish that such a sale was a sale either by way of intra state sale or export sale . Keeping the above specific content of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpressions which would convey the intention less clearly, it does not intend to convey that intention at all. We may repeat what Pollock, C.B., said in Attorney-General Vs. Sillem. That if this had been the object of our legislature, it might have been accomplished by the simplest possible piece of legislation ; it might have been expressed in language so clear that no human being could entertain a doubt about it . We think that in a taxing statute like the present which is intended to tax the dealings of ordinary traders, if the intention of the legislature were that in order to qualify a sale of goods for deduction, resale of it must necessarily be inside Delhi, the legislature would have expressed itself clearly and not left its intention to be gathered by doubtful implication from other provisions of the Act. The absence of specific words limiting resale inside the territory of Delhi is not without significance and it cannot be made good by a process of judicial construction, for to do so would be to attribute to the legislature an intention which has chosen not to express and to usurp the legislative function. .... 47. Applying the ratio laid down therein and having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same would ordinarily mean for the purpose of all the provisions of the said Act . ...... Applying the said ratio, it can be safely held that the export sale of the petitioners would squarely fall under the definition of sale. 48. We therefore hold that the 'export sale' is also a 'sale' as contemplated in the first part of Section 3(4) of the Act and consequently the exigibility to tax as provided under the said Section cannot be applied. 49. On behalf of the assesses, reliance was placed upon 2002 8 SCC 139 (CEMENTO CORPORATION LTD VS. COLLECTOR, CENTRAL EXCISE). In paragraph 17, the Hon ble Supreme Court held as under:- .....17. In our view, the Tribunal and the Collector have incorrectly interpreted the provisions of Tariff Item 23 of the First Schedule to the 1944 Act. The tariff heading of the entry is Cement. . Therefore when TI 23(2) speaks of all others it means all other kinds or varieties of cement . It is axiomatic that if the product is not cement but can be used for some purposes like cement, such product is not cement. The test as enunciated by the Tribunal for determination of the question of classification is no doubt how the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 10% as provided in Section 8(2), provided that the certificate of registration of the purchasing dealer specifies the class of goods purchased by him. (In case of declared goods, the selling dealer has to pay tax at the rate applicable to sale of such goods within the appropriate State.) It necessarily means that the selling dealer will collect (pass on) tax from the purchasing dealer only at the said concessional rate. The idea behind this provision is self-evident. It is to ensure that the price of the product manufactured by such purchasing dealers does not go up to the detriment of the consumers of those goods. The Parliament does not want to tax both the raw material and the finished goods at the full rate. Where the finished goods are meant for sale, the raw material utilised or consumed for the manufacture of said finished goods is taxed at the concessional rate, for the reason that the State derives revenue again by taxing the sale of the finished goods. However, it is not necessary that the finished goods are actually subjected to tax on their sale for they may be exempted either by the Act or by a notification issued thereunder. It is enough that the finished goods a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under at page 97:- .....It is the admitted case of the assessee that the sales in question were the sales in the course of inter-State trade and if that is the position then the question of the same sales being the sales within the State did not arise. ....... Having regard to the peculiar facts involved in that case, the decision rendered therein cannot be applied to the facts of this case. 55. Similarly, the Division Bench decision reported in 45 STC 291 (PONNU SAW MILLS VS. THE STTE OF TAMIL NADU) cannot also be applied inasmuch as the said decision came to be rendered while applying Section 7-A of the Act. Inasmuch as the said section varies in very many degrees as compared to 3(3) and 3(4) of the Act, the same cannot be applied to the facts of this case. Similar is the decision reported in 87 STC 315 (STATE OF TAMIL NADU VS. A.S.RAJ CO.,). Therefore, the same cannot be applied to the facts of this case. 56. Having regard to our above conclusions, we hold that Section 3(4) of the Act will have no application since situs of the export sales of the petitioners for the purpose of said Section was the State of Tamilnadu and by virtue of the said factual position, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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