(Order of the Court was made by F.M.IBRAHIM KALIFULLA, J.) In this writ petition the assessee seeks to challenge the levy of Central Sales Tax on the alleged export of cotton yarn by the assessee to an extent of Rs.1,50,32,547/21 for the assessment year 1988-89.
2. By an order of revision of assessment dated 08.04.1991, the first respondent determined the revised taxable turnover of this item alone at a sum of Rs.1,05,11,878/- and determined the tax in a sum of Rs.2,10,238/-
3. The petitioners appeal before the Additional Appellate Commissioner as well as the Tribunal having been rejected the petitioner has come forward with this writ petition challenging the order of the Tribunal dated 09.11.1988, passed in C.T.A. No.248/93.
4. We heard Mr.N.Sri Prakash, learned counsel appearing for the petitioner and Mr.Haja Nazaruddin learned Special Government Pleader (Taxes) appearing for the respondents.
5. The contention of Mr.N.Sri Prakash, learned counsel appearing for the petitioner is two fold. In the first place he relied upon the Notification of the State Government issued under
Section 8(5) of the Central Sales Tax Act dated 27.07.1970 and contended that by virtue of the said Notification, the petitioner having satisfied that the supply effected by him was to a registered exporter and proof of such export having been satisfactorily established before the Assessing Authority himself in the form of 'Form-H' and AR 4A Form, no tax liability as prescribed under Section 8 and as provided under
Section 6(1) of the Act could have been levied.
6. The learned counsel for the petitioner then contended that even by virtue of
Section 5(3) of the Act, in as much as, the petitioner has proved that the sale and supply effected by it in its invoice dated 14.11.1988, was much later in point of time vis-a-vis foreign buyer order of the registered exporter dated 26.12.1997, there was total exemption from the charging section namely
Section 6 of the Act and on that ground as well there could have been no tax liability under the Act. The learned counsel for the petitioner relied upon the decisions reported in 46 STC 164 (Consolidated Coffee Ltd. Vs. Coffee Board, Bangalore) and 8 STC 561 (A.V.Fernandez Vs. The State of Kerala).
7. As against the above submissions, Mr.Haja Nazaruddin learned Special Government Pleader (Taxes) appearing for the respondents by referring to the then existing Section 5 with sub-
sections 1 &
2 prior to the notification of
Section 5(3) under the Act 103/76 w.e.f.01.04.1976, and by relying upon the decision of the Hon'ble Supreme Court reported in 36 STC 136 (Mod.Serajuddin Vs. The State of Orissa) contended that the Notification relied upon by the petitioner in Notification No.187(b) of 1970, dated 27.07.1970, cannot be relied upon by the petitioner. According to the learned Special Government Pleader, in as much as,
Section 5(3) having now been introduced on 01.04.1976, and the present assessment related to the year 1988-89, the petitioner will have to stand or fall on what is provided under
Section 5(3) and it should be held that by virtue of the coming into force of
Section 5(3), the Notification stood automatically rescinded.
8. The learned Special Government Pleader, also contended that for application of
Section 5(3), the penultimate sale in case of exports should be subsequent to the date of firm order of export and since the purchase order by the exporter in the case of the petitioner is dated 17.12.1987, while the foreign buyer order of the registered exporter was dated 26.12.1987, the petitioner was rightly not granted the benefit of
Section 5(3).9. Having heard the learned counsel for the respective parties, we are of the view that the petitioner's claim based on the Notification dated 27.07.1970, merits acceptance and that even the relief as claimed under
Section 5(3) also has to be granted. To appreciate the contention of the respective parties, we deem it appropriate to refer to
Section 5(1) to (3), 6(1) with its proviso and 8(1) & (5) along with Notification dated 27.07.1970, which reads as under:
"Section 5: When is a sale or purchase of goods said to take place in the course of import or export:-
(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.(emphasis added) Section 6:- Liability to tax on inter-State Sales:
(1) Subject to the other provisions contained in this Act, every dealer shall with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified:
Provided that a dealer shall not be liable to pay tax under this Act or any sale of goods which, in accordance with the provisions of sub-section (3) of
Section 5, is a sale in the course of export of those goods out of the territory of India.
Section 8: Rates of tax on Sales in the course of inter-State trade or commerce:-
(1) Every dealer, who in the course of inter-State trade or commerce-
(a) sells to the Government any goods; or
(b) sells to a registered dealer other than the Government goods of the description referred to in sub-section (3);
shall be liable to pay tax under this Act, which shall be four percent of his turnover.
* * * * * Sub-Section (5) This sub-section in the original Act reads as under:-
(5) Notwithstanding anything contained in this section, the Central Government may, if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazette, direct that in respect of such goods or classes of goods as may be mentioned in the notification and subject to such conditions as it may think fit to impose, no tax under this Act shall be payable by any dealer having his place of business in any Union Territory in respect of the sale by him from any such place of business of any such goods in the course of inter-State trade or commerce or that the tax on such sales shall be calculated at such lower rates other than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification."
Notification No.197(b) of 1970, dated the 27th July, 1970:-
In exercise of the powers conferred by sub-section (5) of Section 8 of the Central Sales Tax Act, 1956 (Central At 74 of 1956), the Governor of Tamil Nadu hereby directs that in respect of cotton yarn manufactured by the mills in Tamil Nadu no tax under the said Act shall be payable by them in respect of the sales of such cotton yarn in the course of inter-State trade or commerce by the mills to registered exporters, outside Tamil Nadu subject to the condition that the mills shall produce proof of export before the final check of their accounts for the year concerned, to the satisfaction of the assessing authority concerned."
10. When we consider the submissions of the learned counsel for the petitioner based on
Section 6(1) vis-a-vis the invocation of Section 5, as rightly contended by the learned counsel for the petitioner, while
Section 6(1) talks of the liability on interstate sales, the application of that very provision gets excluded in the case of export obligation when once
Section 5(3) gets attracted. We are convinced that when once
Section 5(3) gets attracted, there would be no question for the assessee being called upon to answer payment of any tax under the provisions of the Central Sales Tax Act in as much as the whole consideration for imposing such a tax liability will automatically stand excluded by virtue of the application of
Section 5(3) on the assessee.
11. When once such an incidence of inapplicability of tax liability takes place, the assessee gets protected by the various benefits provided under the exempted clause viz.,
Section 5(3) of the Act.
12. Therefore, in the event of the assessee failing to satisfy the prescribed condition under Section 5(3) of the Act, thereafter, the whole gamut of rest of the provisions of the Act starting from
Section 6 comes into play. The resultant position would be of other consequential additional benefits and liability created under the Statute under the rest of the provisions starting from
Section 6 would automatically fall on the assessee. In other words, it will have to be held that when once the applicability of Section 5(3) stands excluded in respect of the assessee, thereafter the liability to tax as stipulated under
Section 6 and the rate of tax as prescribed under Section 8 with all their allied benefits provided under those provisions would automatically apply to the assessee. If such a legal position can be stated without any ambiguity and when we analysis the position on that footing, while under
Section 6 the liability of tax on Inter-State sales is provided, Section 8 prescribes the rate of tax applicable on the assessee in respect of such Inter-State sales. Under sub-section 1 of Section 8 at the relevant point of time in respect of any sale in the course of Inter-State trade and commerce is carried on, such sales in respect of goods referred to under sub-
section 3 is liable to be taxed at the rate of 4% of the turnover. The other provisions of
Section 5 empowers the State Government to issue Notification prescribing such conditions therein and provide either total exemption or any reduction in the rate of tax as prescribed under
Section 8(1) of the Act.
13. In fact, in this context, it will be appropriate to refer to the submissions of Mr.N.Sri Prakash, based on
Article 286 of the Constitution of India which creates an embargo on the State Government to impose tax liability on the sale or purchase of goods in respect of inter-state sales for any sale by way of import or export outside the territory of India.
14. In fact, the statement of objects and reasons while introducing
Section 5(3) under Act 103 of 1976 with effect from 01.04.1976, also indicates as to how the Parliament thought it fit to even include penultimate sale in respect of sales on exports in the interest of the nation or otherwise any levy of tax at the State level would result in corresponding increase in the price of goods which will have its consequential repercussion in the price of goods meant for exports which would ultimately create an uncompetitive situation for the exporters in the international market. In fact the introduction of that very provision seems to have been thought of after taking note of the Full Bench decision of the Hon'ble Supreme Court rendered in Mod.Serajuddin Vs. The State of Orrisa (36 STC 136), wherein the Hon'ble Supreme Court rejected the claim of the assessee who is stated to have effected supplies to a State Trading Corporation in respect of its export order in the course of export sale made by the Corporation by strictly construing the then existing
Section 5(1) & (2) of the Act which provided for exemption of the provisions of the Act confined to the exporters alone and relating to any sale made by such exporters and not to anybody else.
15. A cumulative consideration of the above development in law viz., how
Section 5(3) came to be introduced in the statute book enabling even a penultimate seller in export transaction to seek for an exemption further strengthens the submissions of the learned counsel while considering his submissions based on
Section 8(5) of the Act.
16. Therefore, applying the said legal position to the facts of this case when we consider the first submission of the learned counsel, as rightly contended by him, by virtue of the proviso to
Section 6(1) of the Act, if the petitioner held to be not entitled to have the benefit of
Section 5(3) then the petitioner becomes liable to be taxed as provided under Section 6 and at the rate applicable under
Section 8(1) of the Act. When once we stear clear of the said position and apply
Section 8(3) of the Act, the applicability of Notification under
Section 8(5) of the Act has to be necessarily examined. In other words, we hold that having regard to the operation of
Section 6(2) along with its proviso, if applicability of
Section 5(3) of the Act stands excluded to the petitioner, thereafter the applicability of Section 8 including any Notification issued under
Section 8(5) would automatically come into play.
17. The contention of the learned Special Government Pleader (Taxes) that by virtue of the Notification of
Section 5(3), the existing Notification issued under
Section 8(5) prior to the introduction of
Section 5(3) will automatically cease to operate cannot therefore be accepted. To put it differently, we are unable to accept the said submission of the learned Special Government Pleader, in as much as, we hold that non-applicability of rest of the provisions of the Act commencing from
Section 6 in respect of the assessee for whom
Section 5(3) applies would make it clear that in the event of a case where the assessee is not in a position to gain the benefit of
Section 5(3) and there by has to answer the taxable
Section 6 and the charging Section 8 it would only mean that any of the provision including the Notification issued on any date prior to the introduction of
Section 5(3) in particular and the one issued under
Section 8(5) would be available and any such contention to the contrary cannot be accepted.
18. We therefore hold that the petitioner herein is entitled to the relief of the Notification dated 27.07.1970, issued under
Section 8(5) of the Act which automatically continue to remain in force even as on date and consequently the only condition to be satisfied by the petitioner is that he effected Inter-State sale in favour of a registered exporter outside the State of Tamil Nadu and that by virtue of such sale, the export obligation was carried out before the final check of its accounts for the year concerned.
19. The fact that the petitioner effected an Inter-State sale by way of export through its invoice dated 14.11.1988, is not in dispute and the further fact that the foreign buyer order to the exporter was dated 26.12.1987, is also not in dispute. The order of revised assessment dated 08.04.1991, itself discloses that the petitioner filed Form 'H' and Form 'AR 4A' along with Bill of Lading and invoice copies to the value of Rs.1,05,11,878/- in proof to the fact that such export obligation was carried out to a registered exporter before the final check of their accounts to the concerned year viz., 1988-89. The petitioner having thus satisfied the conditions stipulated in the Notification dated 27.07.1970, the petitioner is entitled for the benefit of any liability to tax as prescribed under
Section 8(1) of the Act read along with
Section 6 and consequently the impugned order of revised assessment dated 08.04.1991, cannot stand and the order of the Appellate Assistant Commissioner as well as that of the Tribunal are also liable to be set aside.
20. Our conclusion is also supported by the decision relied upon by the learned counsel for the petitioner reported in 8 STC 561 (A.V.Fernandez Vs The State of Kerala) where the Hon'ble Supreme Court has laid down the preposition of law to such a situation to the following effect at page 574 viz., "There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The Legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax. If they are thus not liable to tax, no tax can be levied or imposed on them and they do not come within the purview of the Act at all. The very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sales tax can be levied or imposed."
21. As far as the said contention is concerned, the question to be examined is as to whether the date of invoice of the petitioner is to be taken for the applicability of
Section 5(3) or the date of purchase order under
Section 5(3) of the Act. The penultimate sale should be on the date subsequent to the date of export order to a registered exporter while the rejection of the petitioner's export sale to an extent of Rs.1,05,11,878/- came to be rejected on the ground that the purchase order dated 17.12.1987, was prior to the date of foreign buyer order with the registered exporter which was dated 26.12.1987. The petitioner contended that the sale was really effected by it through its invoice dated 14.11.1988, which was long after the export order dated 25.12.1987.
22. In this context, we find force in the reliance placed by the learned counsel for the petitioner on the decision reported in 46 STC 164 (Consolidated Coffee Ltd., Vs. Coffee Board, Bangalore) which fully supports the stand of the petitioner. In the said decision, the Hon'ble Supreme Court has held as under at page 182 :
".....It is true that the benefit of the exemption was intended to be extended to small and medium scale manufactures desirous of exporting their goods but the requirement of the new provision is not that they must procure or have with them a foreign buyer's contract but the requirement is that before they complete the sale of their goods to the canalising agency or the private export house there must be in existence a foreign buyer's contract to implement which they should have sold their goods to such agency or export house....." (Emphasis added) Applying the ratio laid down by the Hon'ble Supreme Court, we have no hesitation to hold that the date of invoice of the petitioner should be the relevant date to find out whether the penultimate sale occurred either prior to or after the date of the export order.
23. In the case on hand, the export order was admittedly on 26.12.1987, the invoice prior to which the sales came to be effected by the petitioner was on 14.11.1988, which was long after the date of export order and consequently on this ground as well the petitioner is bound to succeed.
24. For all the above stated reasons, the impugned order of assessment of the first respondent dated 08.04.1991 and the order of the Appellate Assistant Commissioner dated 05.11.1992, as well as that of the Tribunal dated 09.01.1998, is hereby set aside. The writ petition stands allowed. Consequently, the connected miscellaneous petition is closed. No costs.
kk To
1. The Commercial Tax Officer, Udumalpet.
2. The Appellate Assistant Commissioner (CT), Pollachi.
3. The Secretary, The Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Coimbatore 641 018