Category: Recent Decisions: Part B: VAT

Facts:
The appellant, manufacturer of computers, was assessed for the period from 1st May, 1986 to April 30, 1987 under the CST Act, 1956. The appellant filed appeal against the assessment order before the Deputy Commissioner of Sales Tax (Appeal) who allowed the appeal partly and imposed penalty u/s.9(2A) of the CST Act r.w.s. 36(2)(C), Explanation (2) of the BST Act, after giving opportunity of hearing to the appellant, for failure to file returns in time, by passing separate order. The appellant filed appeal before the Tribunal against such penalty order. The Tribunal confirmed the order of penalty passed by the DC (Appeal). The Tribunal, at the instance of the appellant and as per direction of the Court, referred substantial question of law before the Bombay High Court.

Held:
The High Court, considering provisions of section 36(2)(C) and section 55 of the Act, held that as per section 55(6)(a) and (b) of the Act, the Appellate Authority concerned did not have any power of imposing penalty for the first time and expression ‘confer or cancel such order or very it, so as to either enhance or to reduce the penalty’ employed in section 55(6)(b), neither covered the power to impose a fresh penalty for the first time nor did it confer any power upon the Appellate Authority to pass any order of penalty while deciding the appeal. Further it held that on the correct interpretation of section 36(2)(c) of the Act the Tribunal was not justified in holding that the DC (Appeal) in exercise of Appellate power had jurisdiction to initiate action for imposing penalty for the first time.

Sale price — Turnover of sales — Separate charges for amenity facilities and supply of food or liquor — Served in hotel and restaurants — Entire amount forms part of sales price and turnover of sales — Separation of sale price between cost and amenity charges immaterial — Section 2(xxvii) of the Kerala General Sales Tax Act, 1963.

Held:

The question to be considered is whether the amenities separately charged without any facility or service provided is to be excluded from turnover. The dealer has no case that separate tariff is provided in hotel — one for those who do not want to avail of special amenities and the other for those who want to avail so. On the other hand, what is shown is sale price bifurcated between cost and amenities and the dealer is claiming exclusion of amenity charges from turnover for the purpose of levy of sales tax.

Exemptions — Classification of goods — Sale of pan masala in single pouch having two parts — One containing tobacco and other containing pan masala — Sold under brand name ‘Double Maza’ — Is a single commodity — Exempt as pan masala containing tobacco, Entry 82 of Schedule I, West Bengal Sales Tax Act, 1985.

The dealer sold an item under the brand name Double Maza in a single pouch having two parts — one containing tobacco and the other, ‘Pan Masala’ without containing tobacco. The dealer claimed exemption form payment of tax on sale of the above item considering it as a ‘Pan Masala’ containing tobacco, although sold in a separate part, without mixing with each other, but packed in single pouch, duly covered by entry 82 of Schedule I of The West Bengal Sales Tax Act, 1985. The assessing authority held it taxable under Schedule IV not treating it as ‘Pan Masala’ containing tobacco, being poured in a single pouch making two parts separately, but customer has no option to buy it separately and therefore the item was considered as taxable. The dealer filed writ petition before the Calcutta High Court against the decision of the West Bengal Taxation Tribunal.

Held:

 The disputed item manufactured by the dealer containing two separate folders, one for ‘Pan Masala’ and the other for tobacco, but not offered to sale separately, is really a ‘Pan Masala’ containing tobacco classified in Chapter 24 under the tariff heading 2404.49 of First Schedule of Excise Tariff, although the same is presented as unassembled or disassembled article which has the essential character of the complete or finished article. The High Court accordingly held it as covered by Entry 82 of First Schedule of the West Bengal Sales Tax Act, 1944 as such exempt from payment of tax and set aside the orders passed by the Taxation Tribunal and assessing authorities.

Facts
The petitioner purchased goods from the registered dealer and claimed input tax credit. Subsequently the registration certificate of the selling dealer was cancelled after the date of sale by him to the purchasing dealer but he did not disclose the turnover in his returns. The vat department disallowed the input tax credit claimed by the petitioner on the impugned purchases on the ground that the turnover of sales is not declared by selling dealer in his returns and raised ademand . The petitioner filed a writ petition before the Andhra Pradesh High Court against the said assessment order.

Held
Section 13(1) of the Act entails input tax credit to the VAT dealer for the tax charged in respect of all purchases of taxable goods, made by that dealer during the tax period. It is not disputed that the registration of the selling dealer was cancelled after the transaction in question occurred. The failure on the part of the selling dealer to file returns or remit the tax component of the sale made to the petitioner dealer cannot per se be a ground for denial of input tax credit. Accordingly, the High Court quashed the order of assessment and it was made open to the vat department to pass revised order if there be material on the basis of which the input tax credit can be denied except on the ground that the selling dealer, despite being a registered dealer on the relevant date, did not remit the tax. The writ petition was allowed by the High Court.

Introducer Who Signed on Application For Registration – Later Withdrawing – Duty of Department – To Inform Dealer – Failure to Inform – Refusal of Registration- Not Improper—S/s. 2(18), 18(1), 19(3) of The Tripura Value Added Tax Act, 2004 – R. 11(VII) of The Tripura Value Added Tax Rules, 2005.

Facts
The dealer company applied for registration under The Tripura Value Added Tax Act and CST Act. The Superintendent of Taxes rejected the applications for registration on the ground that the company failed to produce requisite Pollution Clearance Certificate, registered deed of lease and certificate of incorporation of change in address of the company and that the introducer of the dealer, in it’s application in form 1, had withdrawn on 31st December, 2010. The dealer company filed writ petition before the Gauhati High Court against the said order refusing to grant registration under the VAT and CST Act.

Held
The basic object behind the enactment of the Tripura Value Added Tax Act, 2004 and the Central Sales Tax Act, 1956 is to levy and collect tax. Registration of dealers enables the State authorities to keep track of assessable transactions and also of persons who indulge in such assessable transactions so that levy and collection of tax can be effectively ensured. If a dealer is not registered, it may be difficult for the State to know about, and/or keep track of, each of the assessable transactions, which the dealer may have entered into, and the value of the taxable goods, which the dealer sells. A dealer is not required to be compulsorily registered unless he becomes liable to pay tax.

A careful reading of section 19(3) of the 2004 Act shows that the enquiry which may be conducted by the authorities concerned, is such as is required to satisfy the authorities concerned that the application for registration is in order, meaning thereby that by such an enquiry, the authority concerned has to ascertain as to whether the particulars required to be furnished in an application for registration have or have not been furnished by the applicant. The enquiry cannot, however, be in the nature of a judicial enquiry. The enquiry, thus, must be confined to the ascertainment of the fact as to whether the information given, and/or particulars furnished, by a dealer, seeking registration are correct or not.  The satisfaction, to be arrived at by the authorities concerned, has to be relevant to the objects sought to be achieved by means of such registration.

The satisfaction to be reached by the authority concerned has to be, therefore, based on such materials, which are required under the relevant Acts and the Rules framed thereunder, and only those materials can be regarded as relevant, which have nexus with the objects sought to be achieved by way of registration of dealer. Material which has no nexus whatsoever with the objects sought to be achieved by way of registration would be irrelevant and the dealer applying for registration cannot be refused registration on the ground of failure on the part of the dealer, to furnish such irrelevant information/particulars. If the authority seeks to obtain any information which is not relevant within the ambit of the 2004 Act read with the 2005 Rules, and/or the 1956 Act, read with the 1957 Rules, the refusal to grant registration to the petitioner, as a dealer, would not be sustainable in law.

The failure to produce the pollution clearance certificate was a totally irrelevant consideration and ought not to have been taken into account by the Superintendent of Taxes for the purpose of reaching his satisfaction as contemplated by section 19(3). Rejection of the petitioner’s application for registration, on such a ground, was not sustainable.

The sales tax authorities had nothing to do with whether a lease deed was or was not registered, when the place of the business of the petitioner had been disclosed and the petitioner, being a company, had its principal place of business at its registered office. The Superintendent of Taxes could not have rejected the application seeking registration for the purpose of trading in coal in as much as the petitioner had submitted a registered lease deed of its stockyard enabling it to trade in coal.

The rejection of the petitioner’s applications seeking certificate of registration under the 2004 Act and the 1956 Act, on the ground of failure to furnish the certificate of incorporation of change of address of the petitioner-company was bad in law in as much as there was, admittedly, only one Registrar of Companies at Shillong for the North Eastern States, therefore section 17A of the Companies Act, 1956, had no application.

Form A of the Rules of 1957 relating to the grant of registration under the 1956 Act does not require any introducer for obtaining registration as a dealer and, hence, the application seeking registration under the 1956 Act, could not have been rejected on the ground that its introducer had withdrawn.

As far as the VAT Rules were concerned, form 1 thereof requires signature of a registered dealer or a responsible person as an introducer. This requirement was complied with by the petitionercompany on 27th November, 2010, at the time of submission of the application seeking registration. The application having been acted upon by the authorities, the need of the introducer’s signature became irrelevant. This apart, even if the signature of the introducer ought to have remained present all through it was the bounden duty of the authorities to inform the petitioner-company about the withdrawal of the signature by the introducer so that the petitioner could remove the defect.

In any case, the certificate of incorporation ought to have been treated as a conclusive evidence of all the requirements of the Companies Act, 1956, having been complied with by the petitionercompany. The requirement, therefore, of an introducer, in the case of an incorporated body does not arise at all. The requirement of a registered dealer or a responsible person introducing a person for being registered under the 2004 Act is a requirement meant for persons other than an incorporated body.

It would, thus, be transparent that the Superintendent of Taxes had taken into account an extraneous and irrelevant factor into consideration for rejecting the petitioner’s application for registration. The action disclosed malice in law. This was a fit case for a direction for payment of reasonable costs to the petitioner. Accordingly the High Court allowed the writ petition filed by the company with cost of Rs. 10,000. The Department was directed to grant registration certificate in accordance with law without any further delay.

Goods – Exposed Photographic Film Rolls and Negatives –
No Marketable Value – Not Goods – S/s. 2(15), (33), (38)(Iv), 8(1)(E) ;
Sch. VI, Entry 24 of The Assam General Sales Tax Act, 1993— Art.
366(12), (29A) of the Constitution of India.

Facts
The
dealer carried on the business of developing exposed photographic film
rolls into negatives and then processing the negatives into positive
photographs. They also processed negatives received from customers into
positive photographs. The developing and processing was done on a
job-work basis. Demands for sales tax under the Assam General Sales Tax
Act, 1993 were raised against the appellants and were affirmed in
appeals. The appellants filed writ petitions which were dismissed by the
single judge. The dealer filed appeal before the division bench of the
High Court against the judgment of the single judge.

Held
The
question that required to be answered was whether the transactions
entered into by the appellants are works contracts (that is composite
contracts having both a service element and a sale element) with deemed
sales or mutant sales of goods for the purposes of liability to sales
tax.

If there is an agreement both for transfer of property in
goods and for processing or otherwise treating or adapting any goods,
then the agreement is a works contract involving a sale, otherwise not.
Therefore, three ingredients are necessary:

(i) the existence of goods,
(ii) the transfer of property in those goods,
(iii) the processing or treating or adapting of those goods.

To
qualify as “goods” as defined in section 2(15) of the Act an item must
have some utility and must be marketable. Exposed photographic film
rolls and negatives are not goods per se they have absolutely no utility
for anyone—not even for the owner. It is only when they are developed
or processed that they have some personal value for the owner of the
photographs.

Therefore, if exposed photographic film rolls and
negatives are not “goods” they cannot be the subject-matter of a works
contract which concerns itself with the processing or otherwise treating
or adapting any goods as defined in section 2(38)(iv) of the Act.
Alternatively, if the transactions entered into between the appellants
and their customers are not works contracts, would the utilisation of
chemicals in developing exposed photographic film rolls into negatives
and then processing the negatives into positive photographs be a “sale”
of such chemicals?

To be a sale, there must be a transfer of
property in goods involved in the execution of a works contract.
Assuming that the chemicals used in developing exposed photographic film
rolls into negatives and then processing the negatives into positive
photographs are “goods”, these chemicals are not used in the execution
of a works contract. Therefore, there was no “sale” of chemicals within
the meaning of section 2(33) of the Act. 

Since exposed
photographic film rolls and negatives are not “goods” the provisions of
sections 7, 8 of the Act and Schedule VI thereto do not come into play
at all. When a customer goes to the appellants to have his exposed
photographic film rolls developed or negatives processed, there may be
an agreement for the transfer of property in the chemicals used in the
processing or otherwise treating or adapting the exposed photographic
film rolls and negatives. But since they are not “goods” within the
meaning of the Act, the question of taxing the “sale” of the chemicals
does not at all arise. The conversion of exposed photographic film rolls
into negatives and then into positive photographs or the conversion of
negatives into positive photographs is nothing but a rendering of
service specific to a customer and was a matter of skill and expertise
of the developer – it was not a works contract.

The High Court
further held that the case of the appellants is fully covered in their
favour by the law laid down by the Supreme Court in Bharat Sanchar Nigam
Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1.
Accordingly, the High Court allowed appeals and the judgment and order
of the learned single judge was set aside.