Allowed

The S.A.P Its S.T.A.T Hyd v. M\S.Bahadurmal Chowdary Nizamabad

Telangana HC10 Dec 2012TRC/232/1999

Case brief

AI extract

What is this about?

This revision challenges the Sales Tax Appellate Tribunal's reduction of the tax rate on inter-state sales of maize from 8% to 6% under Section 8(2-A) of the CST Act. The High Court held that additional tax and surcharge under the state law must be included in the 'rate', making the total 4.4%, thus triggering the 8% rate.

What did the court decide?

The Tribunal order reducing the tax rate to 6% is set aside; the Deputy Commissioner's order imposing tax at 8% is restored.

The S.A.P Its S.T.A.T Hyd Vs M\S.Bahadurmal Chowdary… — Cheque Dishonour | Telangana HC (2012)

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HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO

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T.R.C.No.232 of 1999

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JUDGMENT

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(per Hon’ble Sri Justice M.S.Ramachandra Rao):

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This Revision is filed by the Revenue under Section 22 (1) of the AP General Sales Tax Act, 1957 (for short “the APGST Act”) challenging the order dated 04-06-1999 in T.A.No.669/95 relating to the assessment year 1987-88 (CST).

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2. The respondent is involved in the business of sale and purchase of maize as a Commission Agent. It is registered as a dealer under the APGST Act, 1957 and the Central Sales Tax Act, 1956 ( for short “the CST Act”) on the rolls of the CTO-II, Nizamabad.

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3. The respondent filed its return under the CST Act for the assessment year 1987-88 showing a gross turnover of Rs.21,99,070/- and showed it as exempted turnover. The CTO-II, Nizamabad by order dated 31-10-1991 assessed the respondent on a gross turnover of Rs.33,78,800/- , treated it as exempted turnover and did not levy any tax.

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4. The Deputy Commissioner (CT), Nizamabad in exercise of powers under Section 20 (2) of the APGST

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Act proposed to revise the assessment order dated 3110-1991 of the CTO-II, Nizamabad on the ground that sales of maize of Rs.5,56,940/- were made by the respondent on behalf of principals M/s.Chowdary Bahadurmal Banwarlal, Rajampet and M/s.Sri Dhanalakshmi Industries, Rajampet on 20-07-1987 to outside the State dealers M/s.Unique Sugar Limited, Dondiache ; that the above sale of goods by the dealer in his selling agency occasioned the movement of goods to outside the State; that the transaction falls within the ambit of Section 3 (a) of the CST Act and is liable to tax under Section 8 (2) (a) of the said Act. He was prima facie of the opinion that the respondent neither reported the above inter-state sale of maize in the returns filed by him under the CST Act nor the assessing authority brought it to tax in the final assessment under the said Act, that the interstate sales turnover of maize of Rs.5,56,990/- has escaped assessment warranting reassessment of the turnover so escaped under Section 9 (2) of the CST Act read with Section 14 (4-C) of the APGST Act and therefore issued a show cause notice dated 06-05-1995 proposing to impose a tax Rs.45,559/- on the above turnover.

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5. To the said show cause notice, the respondent gave a reply dated 28-06-1995 contending that they have disclosed the statement of buying agency transactions in maize before the assessing authority; that

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in respect of unpaid purchasers, they have remitted sales tax along with their return for May 1987; that the principals did not give despatch instructions but asked them to sell it at reasonable price when there was a good offer; that one of the buying principals M/s.Unique Sugar Limited, Dondiache gave telephonic instructions to buy and despatch maize; that the above maize of their resident agents was purchased by them in the capacity of buying agents and despatched to them; and that they have not effected any interstate sales of maize.

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6. A personal hearing was provided to the respondent by the Revisional authority but they did not produce any evidence in support of their contentions.

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7. By order dated 11-10-1995, the revisional authority held that the respondent had acted as a selling agent for resident principals and also as buying agent for non-resident dealer for the same goods, for the same value and the same time and on the same day, that the respondent at the first instance transferred his own goods to local dealers in his selling agency, that when he got orders from outside the State buyers, he simply brought the goods from those resident principals and moved the goods the same day outside the State and therefore the goods are deemed to have moved outside the State on account of his contract with outside buyers and said transaction falls within the ambit Section 3 (a) of the CST

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Act and is liable to tax under Section 8 (2) (a) of the CST Act. He therefore confirmed levy of tax at the rate of 8% on the turnover of Rs.5,56,990/-.

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8. Aggrieved thereby, the respondent filed an appeal before the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad in T.A.No.669 of 1995.

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9. The Tribunal by its order dated 04-06-1999 held that the respondent was acting as an agent of the selling dealer of the goods on the day they were sold and he was also acting as an agent of the purchasing dealer when they purchased the goods and despatched them to the outside dealers who were supposed to be their principals; that even if the respondent had acted on the instructions of the non-resident principals to buy the goods and to despatch them outside the State, as the seller of the goods in the capacity of the selling agent for selling dealer, it had despatched them outside the State; that the whole chain of events of sale and purchase and movement of goods was the result of instructions from non-resident principals to purchase the goods and to send them outside the State; and that the sale in the hands of the dealers on behalf of the resident principal is therefore an inter-state sale. Coming to the rate of tax, however it held that it should be 6% under Section 8 (2-A) of the Act. The basis of the reasoning of the Tribunal in coming to this conclusion is that at the relevant time,

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maize was liable to tax @ 3% at the point of first purchase in the State in the Third Schedule to the APGST Act dealing with declared goods and under Section 8 (2) (a) of the CST Act, the rate of tax on declared goods not covered by C or D Forms is twice the rate applicable to the sale or purchase of goods inside the appropriate State i.e. 3% X 2 = 6%.

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10. Aggrieved thereby, the State had filed the present T.R.C. insofar as the STAT had held that the rate of tax is only 6% and not 8% as determined by the Deputy Commissioner (CT), Nizamabad in his order dated 11-101995.

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11. Heard Sri Balaji Varma, learned Special Government Pleader for Taxes. None appeared for the respondent even though the name of Sri P.Chandra Sekhar, learned counsel for the respondent was printed in the cause list.

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12. Learned Government Pleader contended that the interstate sales of maize do not fall under Section 8 (2-A) of the CST Act; that for the purposes of Section 8 (2-A), all the items of tax like basic tax, additional tax and surcharge are to be considered to find out whether the tax under the APGST Act is less than 4% ; that at the relevant time , maize was taxable at the basic rate of 3% (u/s.5) with 1% additional tax(u/s.5-A as it stood then) apart from surcharge @ 10% of basic rate (u/s.6-B as it stood then) ;

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that it comes to 3% + 1% + 0.4% = 4.4%; that when the APGST rate of tax is 4.4%, the transactions do not fall under Section 8 (2-A) of the CST Act, and therefore these sales are exigible to tax under Section 8 (2) (a) of the CST Act @ 8% in the absence of C/D Forms. He also relied upon the judgment in Sri Satyanarayana Spinning Mills

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Vs. Commercial Tax Office r^[1] a n d Deputy Commissioner of Sales Tax Vs. Aysha Hosiery . Factory (P) Limited^[2]

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13. Section 3 of the CST Act, 1956 states as

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follows:

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3. When is a sale or purchase of goods said to take place in the course of inter- State trade or commerce. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase--

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(a) occasions the movement of goods from one State to another; or

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(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.

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Explanation 1.-- Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

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Explanation 2.-- Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.”

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14. Section 8 of the CST Act, 1956 insofar as it is

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relevant is as follows:

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“8. Rates of tax on sales in the course of inter- State trade or commerce. 1[

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(1) Every dealer, who in the course of inter- State trade or commerce--

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(a) sells to the Government any goods; or

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(b) sells to a registered dealer other than the Government goods of the description referred to in sub- section (3);

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shall be liable to pay tax under this Act, which shall be 2[ four per cent.] of his turnover.

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(2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter- State trade or commerce not falling within sub- section (1)--

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(a) in the case of declared goods, shall be calculated 2[ at twice the rate] applicable to the sale or purchase of such goods inside the appropriate State; and

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(b) in the case of goods other than declared goods, shall be calculated at the rate of 3[ ten per cent.] or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher;

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and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.

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(2A) [ Notwithstanding anything contained in subsection (1A) of section 6 or sub- section (1)[ or clause (b) of sub- section (2)] 2[ of this section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods, the sale or, as the case may be, the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally or subject to tax generally at a rate which is lower than 2[ four per cent] (whether called a tax or fee or by any other name), shall be nil or, as the case may be, shall be calculated at the lower rate.

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Explanation.-- For the purposes of this sub- section a sale or purchase of any goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law the sale or purchase of such goods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the turnover of the goods.] ”

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15. From the above it is clear that ,if the intrastate sale of a dealer in respect of declared goods is taxed at a rate which is lower than 4%, then his inter-state sale of the same commodity shall also have to be taxed at the lower rate applicable in the State. But when the rate of tax applicable to intra-state sale was more than 4% then the rate applicable for inter-state sale will be the twice the rate applicable in the case of declared goods u/s.8(2)(a) of the CST Act.

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16. In the present case no documentary evidence was produced by the respondent to show when the goods were actually purchased and what were the instructions of their buying non-resident principals and when the goods were despatched. As rightly held by the Revisional authority and by the Tribunal, even if the respondent had acted on the instructions of the nonresident principals to buy the goods and to despatch them outside the State, the movement of goods was the result of instructions from the non-resident principals. Therefore in view of Section 3 (a) of the CST Act, the sale in the hands of the respondent on behalf of the resident principal is an inter-state sale. Therefore it is liable to tax at the rate specified in Section 8 (2) (a) of the Act.

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17. It is not disputed that the rate of tax as regards maize under the APGST Act at the relevant time was 3% but additional tax at 1% and surcharge @ 10% of

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basic rate was also being levied on maize. The question for consideration is whether the additional tax and surcharge levied under the APGST Act is also to be considered as sales tax under the “Sales Tax Law” of the State.

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18. In Aysha Hosiery Factory’s case (2 supra), the Supreme Court, while considering provisions of the Kerala Additional Sales Tax Act, 1978, the Kerala General Sales Tax Act, 1963 and the Central Sales Tax Act, 1956 , held that additional sales tax levied by the Kerala Legislature on goods, even if it is by a separate enactment in 1978, is also sales tax of the same category as the one levied under the 1963 Act and that this additional sales tax also should be taken into consideration for the purposes of Section 8 (2) and Section 8

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(2-A) of the CST Act, 1956 along with the sales tax levied under the 1963 Act. The Supreme Court observed as follows:

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“The question for consideration is as to whether the additional tax levied under Kerala Additional Sales Tax Act is also to be considered as sales tax under the `sales tax law' of the State. The question could not have arisen but for the fact that this additional levy came to be imposed under a separate Act. Had the additional Sales Tax been imposed by simply amending the rates in the original Act the question would not have arisen. But we are of the view that this makes no difference and it is merely a matter of style of legislation. The additional sales tax levied under the Sales Tax Act is also a sales tax of the same category as in the original Act. The Kerala Additional Sales Tax Act provides that "The tax payable under Kerala General Sales Tax Act, 1963 (15 of 1963) (hereinafter referred to as the State Act) for every financial year commencing from the financial year

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1978-79 shall be increased by 10 per cent of such tax" instead of increasing the rate of tax for each of the commodities which are covered by the Kerala General Sales Tax Act by one comprehensive provision, the tax is increased by 10% over the rate provided under the original Act in respect of all the commodities the sale or purchase of which are taxable. Both take the form of sales tax and in the case of assessment of local sales it makes no difference whether it is called tax and additional tax or one higher percentage of tax. In truth and effect it is a levy of tax on the sales or purchase of the dealers. However, it was contended on behalf of the assessees that the words "under the sale tax law of the appropriate State" in Section 8 (2-A) of the CST refers to only the General Sales Tax Act provisions and not the additional Sales Tax Act provisions. Section 2(i) of the Central Sales Tax Act defines sales tax law' as meaning "any law for the time being in force in any State or part thereof which provides for the levy of taxes on the sale or purchase of goods generally or on any specified goods expressly mentioned in that behalf, and general sales tax law' means the law for the time being in force in any State or part thereof which provides for the levy of tax on the sale or purchase of goods generally." The definition does not say that the sale tax law or the general sales tax law which levies taxes on sale or purchase of goods shall be under a single enactment. What is relevant is whether the tax partakes the character of sales tax or purchase tax. Any other construction would restrict the applicability of section 8 (2-A) of the Central Sales Tax Act to the sales tax law was in force in 1956 when the Central Sales Tax Act came into force and any amendment to the local law would not have any effect on the applicability of that provisions. We do not see any logic or reason for such a construction.”

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Therefore it is clear that the additional tax of 1% on maize imposed under Section 5-A of the APGST Act (as it then stood) is also to be added to the 3% leviable u/s.5 of the APGST Act for purpose of applying Section 8 (2-A) of the Act.

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19. As regards surcharge levied under Section 6-B of the APGST Act, 1957 on maize (which was later omitted by Act 22 of 1995 with effect from 01-04-1995), a Division Bench of our High Court in Sri Satyanarayana

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Spinning Mills’s case (1 supra), held that the expression “rate” employed in sub section (2-A) of Section 8 of the CST Act refers to not only sales tax charged under the State enactment but also additional tax chargeable under Section 5-A of the State Act and surcharge under Section 6-B of the State Act.

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20. In view of the above decisions, we hold that the STAT erred in law in reducing the rate of tax leviable on the turnover of interstate sales of the respondent of Rs.5,56,990/- from 8% to 6% by invoking Section 8 (2-A) of the CST Act and that for the purpose of the said provision, the basic rate of 3%, the additional tax of 1% and the surcharge @ 10% of the basic rate are to be added i.e. 3% + 1% + 0.4% which comes to 4.4% which is more than 4%. Therefore, Section 8 (2-A) of the CST Act will not apply and Section 8 (2) (a) of the CST Act would apply and the rate of tax has to be twice the rate applicable to the sale of goods i.e. 4% X 2 = 8%.

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21. Therefore the Revision is allowed and the order dated 04-06-1999 of the STAT in T.A.No.669 of 1995 is set aside insofar as it has reduced the rate of tax to 6% and the order of the Deputy Commissioner (CT) in R.R.No.KA2/12/95 dated 11-10-1995 is restored. No costs.

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JUSTICE GODA RAGHURAM

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__________________________________ JUSTICE M.S.RAMACHANDRA RAO

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Date: 10-12-2012 Kvr

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[1] (1987) 5 APSTJ 142 [2] (1992) 85 STC 106 (SC)

The S.A.P Its S.T.A.T Hyd v. M\S.Bahadurmal Chowdary Nizamabad

Case brief

What is this about?

What did the court decide?

The S.A.P Its S.T.A.T Hyd v. M\S.Bahadurmal Chowdary Nizamabad

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

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