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TMI Blog2007 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 7A. Taxation, as such, is not an infringement of the freedom guaranteed by article 301. Yet, it is settled law that tax laws are not outside the purview of Part XIII of the Constitution.However, where the levy is not discriminatory or restrictive or having a direct and immediate restriction on the trade and intercourse, on a mere inconsequential indirect remote impediment, the levy cannot be struck down under article 301. The flow of trade and commerce depends upon a variety of factors like location, availability of market, materials and other infrastructural facilities. In the circumstances, we do not find any basis to sustain this objection that the levy is restrictive of the trade and commerce. As to the contention based on article 304(b), unless and until the petitioner is able to show that the provisions of article 301 or 303 are offended, the question of invoking article 304(b) does not arise. The contentions of the petitioner cannot be upheld and the same is rejected. As already held "that section 7A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax". Assessee appeal dismissed. - Writ P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1959 as well as under the Central Sales Tax Act, 1956. It is stated that the petitioner was served with a notice to revise the assessment on March 24, 2003 with reference to the liability under section 7A of the Tamil Nadu General Sales Tax Act, 1959. The objection of the petitioner was overruled ultimately, to result in the passing of the assessment order. The petitioner challenged the same before the Tamil Nadu Taxation Special Tribunal. It is stated that the petitioner purchased sunflower oil, soyabean oil and refined RBD palmolein from various registered dealers enjoying the benefit of exemption under G.O. Ms. No. 109 dated April 7, 1998, G.O. Ms. No. 36 dated March 1, 1999 and G.O. Ms. No. 93 dated June 2, 2000, as amended by G.O. Ms. No. 105 dated June 22, 2000 (with effect from April 1, 1999). G.O. Ms. No. 109 dated April 7, 1998, issued under section 17(1) of the Tamil Nadu General Sales Tax Act, 1959, granted exemption with effect from March 27, 1998, in respect of tax payable under the Act on the sale of coconut oil, groundnut oil, gingelly oil, sunflower oil and all refined oils including refined palm oil, refined cotton seed oil and refined rice bran oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the objections and passed the orders of assessment. The petitioner challenged the orders by way of original petitions before the Tamil Nadu Taxation Special Tribunal. The assessee took the plea that taxable goods could not fall for consideration under section 7A of the Act. The assessee took the stand that the phrase in circumstances in which no tax is payable under section 3 or 4 of the Act, as the case may be , referred only to those circumstances where there was no liability at all under any of the provisions of the Act, that it did not include a case of exemption: it being in relation to the taxable goods, and the point of taxation could not be shifted by reason of the notification to visit with liability under section 7A. The Taxation Special Tribunal allowed the case of the petitioner as regards the assessment year 1998-99 that the exemption enjoyed by the dealers was a total exemption and that the decision of the Supreme Court reported in [1975] 36 STC 191 at 197 (State of Tamil Nadu v. M.K. Kandaswami) applied to the case. Consequently, the transaction could not be brought under section 7A(1)(c). It however, rejected the plea of the assessee as regards the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein up to the turnover of Rs. 300 crores are exempted from payment of tax. Section 17 of the Act grant the power to the State to issue notification to exempt or reduce the tax in respect of tax payable under this Act. The exemption or reduction may be with reference to specified goods or class of goods at all points or at specified points or points in the series as well as by successive dealers or by any specified class of persons with regard to the whole or any part of his turnover or on the sale or purchase of any specified classes of goods by specified classes of dealers in regard to the whole or part of that turnover. Learned Senior Counsel submitted that a notification issued under section 17 of the Act has to be read in consonance with the taxation policy expressed in the Scheme of the Act. The notification under section 17 of the Act granting exemption cannot be read as having the effect of disturbing or altering the scheme of taxation fixing the taxable point. If the notification has the effect of shifting the event or the charge from what is contemplated in the Schedule under the Act, necessarily this has to be placed before the Legislature for its approval. In shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover or as regards the persons or with reference to class of goods. Learned Senior Counsel pointed out that under section 3(1), tax is payable by a dealer only if and when the total turnover of the year exceeded Rs. 3 lakhs. Referring to the definition of business under section 2(d), dealer in section 2(g) and turnover under section 2(r), he submitted hat the Act imposes liability not on all sales and persons dealing in goods but excludes certain turnover from the concept of turnover and thereby, certain persons. A sale by the agriculturist is not included under the definition of turnover . He submitted that the scheme of section 7A has to be understood looking at the entire scheme of the Act relating to the chargeability under the Act. Hence, section 7A must carry a purposive interpretation as not to impose a burden in circumstances where there is a liability under the Act. Section 7A operates only on such of those circumstances that do not fall under the concept of chargeability and that payability under the provision has to be understood as absence of chargeability contemplated under the Act. Learned Senior Counsel submitted that the proceeding taken under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted n [1972] 30 STC 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai) wherein, the contentions taken similar to the one taken herein were rejected. He pointed out that once the constitutionality of these provisions is decided and settled already, the very same issues cannot be reagitated again. Referring to the contention of the petitioner that the purchase tax is really in effect one on the consignment and hence beyond the scope of legislative competence, he submitted that the decision of the Supreme Court reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh) had already considered the identical contention and rejected the same. The decision referred to above covers the entire gamut of the argument both on the interpretation front as well as on the plea invoking article 304(b) of the Constitution of India. He submitted that to bring the case under article 301 of the Constitution of India, the assessee should prove that the tax was really a restriction of the trade. The decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh) has answered the challenge that the levy is not on the consignment but it is on the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The provisions give no scope for such understanding. He relied on the decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh) which was again applied in [1994] 95 STC 170 (SC) (Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab) and pointed out that section 59 is similar to section 39 of the Punjab General Sales Tax Act. He referred to the decision of the Supreme Court in Civil Appeal Nos. 159 and 2875 of 2001 dated March 20, 2007 and pointed out that the provisions of sections 59 and 17 have to be read in the context of the scheme of the Act. As such, there is no tinkering of the Schedule or the legislative policy while issuing notification under section 17 of the Act. He submitted that in the wake of the decision of the Supreme Court settling the law, the prayer of the writ petitioner has to be rejected. In reply, learned Senior Counsel for the petitioner submitted that section 7A of the Act applies to cases where there was no liability declared under law. Referring to the language under the provisions relating to sections 3(2), 3(3) and 4 of the Act, he submitted that section 7A of the Act can be activated only in cases where there was no paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods in any manner other than by way of sale in the State; or (c) despatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in sections 3 or 4, as the case may be. Section 7A was inserted into the statute book under the Tamil Nadu General Sales Tax (Amendment) Act of 1970 with effect from November 27, 1969. The provision under section 7A underwent amendments periodically from what was considered originally in the decision reported in [1975] 36 STC 191 (State of Tamil Nadu v. M. K. Kandaswami). The provision as it stood originally is as follows (at page 195): 7A. Levy of purchase tax. (1) Every dealer who in the course of his business, purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be, and either, (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the householders and then converted into ghee and case of castor seeds purchased from unregistered dealers under bought notes and thereafter crushed into oil. In substance, these cases covered instances where the purchases were from non-dealers, purchases from unregistered dealers, purchases from persons whose turnover were not falling within the definition of turnover and purchases from persons, who did not fall within the definition of dealers . Hence, in none of these cases, being of the circumstances stated under the Act, viz., sellers being agriculturists, house holders and nondealers, tax was payable by them on these sales. The result was, even though the goods were liable to be taxed, the sales took place in circumstances in which no tax was payable at the point at which tax was levied under the Act. After the purchase, the transaction of the dealers covered cases of (a) transport on consignment basis otherwise than by way of sale to outside the State for sale or (b) consuming them in the manufacture of other goods for sale or (c) disposed of otherwise than by way of sale. The Supreme Court held that after the purchase, if the goods are not available in the State for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, are not mutually exclusive and the existence of one does not necessarily negate the other. The Supreme Court held that section 7A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax. A reading of the various decisions of the Supreme Court on the question of purchase tax show that every aspect projected in this case has been considered right from [1969] 24 STC 343 (SC) (Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh), [1972] 30 STC 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai), [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami), [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh), [1994] 95 STC 170 (SC) (Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab) and [1995] 96 STC 344 (SC) (Jagatjit Sugar Mills v. State of Punjab) and there is hardly any justification in the contentions of the learned counsel appearing for the assessee. Learned counsel for the assessee placed reliance on the decision of the Supreme Court reported in [2000] 5 SCC 488 at 498 (Arnit Das v. State of Bihar) and submitted that questions not consciously decided can be rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is granted either partially or in absolute. Where the seller is not taxed, the purchaser is taxed. By the same reasoning, when the seller is taxed, the purchaser is not taxed. As already seen there may be several contingencies wherein no such first sale liable to tax is assessed and that goods are no longer available either because they cease to exist or be available for further consideration attracting tax. In such contingencies, if the selling dealer cannot be taxed, the purchasing dealer is taxed by levy of purchase tax. The Supreme Court in the decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh), held that the postponement does not convert what is avowedly a purchase tax to a consignment tax or tax on consumption. In so taxing, the question of shifting the point of taxation also does not take place. It is relevant to note that even in the case of local sales, where the first sale has not suffered tax, the same are brought under the net of taxation by reason of the second proviso to section 3(2). Section 3(2) as it stood at the material point of time under consideration: Section 3(2). Subject to the provisions of sub-section (1), in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the assessee to pay the sales tax without adjustment on the entry tax paid. The said proceedings were challenged before the High Court. The same was dismissed. A further appeal was preferred before the Supreme Court. Reversing the decision of the High Court, the apex court held that the liability to pay tax under the charging provision is different from the quantification of tax payable on a compensation. Liability to pay tax and actual payment of tax are conceptually different. The apex court held that merely because the assessee was exempted from payment of tax, it could not be said that there was no liability under the Act. The assessee was liable to pay tax under the Entry Tax Act. Consequently, the assessee was entitled to reduction to the extent of tax paid under the Entry Tax Act while working out the tax payable under the General Sales Tax Act. The apex court pointed out to the notification granting the reduction and held that granting of exemption arises only when there is a liability. Exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the statute and the latter on computation in accordance with the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved the condition of first stage tax fixed at the point of first sale. The apex court, following the decision reported in [1992] 85 STC 432 (SC) (Pine Chemicals Ltd. v. Assessing Authority) and [1975] 36 STC 300 (Mad) (Kannan Company v. State of Tamil Nadu), applied the decision reported in [1999] 114 STC 1 (SC) (Shanmuga Traders v. State of Tamil Nadu) that the exemption under section 10 did not negate the liability to tax under section 5 of the State Act and that any subsequent levy would fall foul of the conditions in section 15 of the Central Sales Tax Act. In this context, the apex court rejected the stand of the State to levy purchase tax. As seen, the decision relied on by the assessee pertains to the case of declared goods subject to the provisions of section 15 of the Central Sales Tax Act. It is not denied by the learned counsel for the petitioner that the exemption notification given was a conditional one and not an absolute one. It is also equally not denied by the learned counsel that exemption notification works where there is a liability. In the decision reported in [1987] 66 STC 358 (Mad) (Vasu General Traders v. State of Tamil Nadu), while considering the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the levy is in effect one on consignment and beyond the legislative competence of the State under entry 54, List II of the Seventh Schedule to the Constitution of India and hence ultra vires entry 92B of List I of the Seventh Schedule to the Constitution and void as repugnant to article 14, violative of article 301 and not saved by article 304(b) of the Constitution of India, as rightly submitted by the learned Additional Advocate-General, the Supreme Court considered the same in the decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh). The apex court once again applied the decision reported in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami) and [1972] 30 STC 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai) in the decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh) and rejected the contention of the assessee to hold that the levy was not one on consignment. The decision reported in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh) relates to the challenge made on the validity of the provisions of the Andhra Pradesh General Sales Tax Act, 1957 the Gujarat General Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods purchased are not available for taxation inside the State and that by reason of one of the contingencies, the State is not to lose its revenue. The levy created by the provision is one on the purchase of materials within the State, which is dealt with in any one of the manners specified therein. Touching on the policy behind such a levy, the Supreme Court held that it is no doubt true that the levy materialises only when the purchase of goods is dealt with in any one of the manners specified therein. The Supreme Court, in the decision reported in [1993] 88 STC 98 at page 101, (Hotel Balaji v. State of Andhra Pradesh), held that . . . The tax was directed towards ensuring levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products manufactured out of them. The apex court further referred to the observations of the learned single judge in the decision reported in [1972] 30 STC 537 (Ker) (Malabar Fruit Products Company v. Sales Tax Officer, Palai), which was approved in the decision of the Supreme Court reported in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami) to hold that the tax imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no reason to differ from the decision reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh) and that the contentions raised as to the constitutionality of the provisions based on entry 54 of List II of the Seventh Schedule to the Constitution of India were rejected by the apex court. Learned counsel appearing for the petitioner referred to the decision of the apex court reported in AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) in support of his contention that the object of article 301 is to allow free flow of trade and commerce and intercourse throughout the territory of India. The apex court held that the tax laws are not outside the scope of Part XIII. Article 304(b) empowers the State Legislature to impose reasonable restrictions on the freedom of trade with other States or within its territory. Taxes which directly and immediately restrict the trade would fall within the purview of article 301. Consequently, where any imposition has the effect of impeding the free trade and commerce, then it must pass the test prescribed under article 304(b). Learned Senior Counsel appearing for the petitioner referred to the decision reported in [1989] 74 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in the decision reported in [1989] 74 STC 447 (SC) (Buxa Dooars Tea Co. Ltd. v. State of West Bengal), while considering the plea based on articles 301 and 304(b), following the decisions in [1961] 1 SCR 809; AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) and [1963] 14 STC 355 (Firm A.T.B. Mehtab Majid Co. v. State of Madras), the apex court held that in order to determine the true nature of the legislation, the reality whatsoever of the legislation must be taken into account to ascertain the essential substance of it. The apex court further held that the statutory provisions need to be looked at as a whole to find out whether in reality the tax has a restriction on movement of goods in inter-State trade and commerce. Considering the declaration by the Supreme Court reported in [1993] 88 STC 98 (Hotel Balaji v. State of Andhra Pradesh) as well as the decision reported in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami) as to the nature of levy which had been elaborately discussed earlier, we do not find that there is any justification in accepting the plea of the assessee based on the decisions referred to above. In fact, in the decision reported in [1961] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 301. Yet, it is settled law that tax laws are not outside the purview of Part XIII of the Constitution. In the decision reported in AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) as well as the decision reported in AIR 1962 SC 1406 (Automobile Transport Ltd. v. State of Rajasthan), the Supreme Court held that in determining whether a tax directly offends article 301, the movement of the goods which are the subject of the trade has to be borne in mind. If the tax is imposed solely on the basis that the goods are carried or transported, then it is to be held that the tax directly affects the freedom of trade as contemplated by article 301, and hence offensive of article 301. However, where the levy is not discriminatory or restrictive or having a direct and immediate restriction on the trade and intercourse, on a mere inconsequential indirect remote impediment, the levy cannot be struck down under article 301. The flow of trade and commerce depends upon a variety of factors like location, availability of market, materials and other infrastructural facilities. In the circumstances, we do not find any basis to sustain this objection that the levy is restrictive of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apex court considered this line of contention in the decision reported in AIR 1973 SC 974 [T. Govindaraja Mudaliar v. State of Tamil Nadu]. The case therein related to the validity of Chapter IV A of the Motor Vehicles Act, 1939. The contention of the petitioner therein was that the question regarding the validity of Chapter IVA on the ground of infringement of article 19(1)(f) was not raised in the earlier writ petitions and hence, re-agitated the same. The apex court rejected such a contention by holding that the binding effect of a decision did not depend upon whether a particular argument was considered therein or not. Referring to the decision reported in AIR 1965 SC 1623 in the case of Md. Ayub Khan v. Commissioner of Police, Madras, the apex court held that even if certain aspects of a question were not brought to the notice of the court, it would decline to enter upon re-examination of the question since the decision had been followed in other cases . The apex court also referred to the decision reported in AIR 1963 SC 151 (Smt. Somawanti v. State of Punjab) and quoted a passage from the said decision, which may usefully be extracted as follows: The binding effect of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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