The Special Appeal by a steel re-rolling mill against a sales tax assessment. The Court upheld the Commissioner's order disallowing exemption on scrap purchases when tax was not paid at earlier stages, dismissing the appeal.
Special Appeal dismissed; no order as to costs.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
THE HON’BLE SRI JUSTICE K.C. BHANU
AND
THE HON’BLE SRI JUSTICE M.SEETHARAMA MURTI
Special Appeal No.14 of 2001
JUDGMENT:( per Hon’ble Sri Justice M.Seetharama Murti)
This appeal by the appellant/assessee under Section 23(1) of the Andhra Pradesh General Sales Tax Act, 1957 (‘the Act’ for short) read with Rule 41 of the Rules under the said Act is directed against the orders dated 30.05.2001 of the Commissioner of Commercial Taxes in CCT’s Ref.L.III(2)/1028/98.
2. We have heard the submissions of the learned counsel for the appellant/assessee (‘the assessee’ for brevity) and the learned Special Standing Counsel for Commercial Taxes representing the Commissioner/respondent. We have perused the material record.
3. The introductory facts necessary for consideration, in brief, are as follows: - ‘The appellant i.e., M/s Roxy Steel Re-rolling Mills, Langer House, Hyderabad, is an assessee on the rolls of the Commercial Tax Officer, Mehdipatnam Circle. The assessee carries on business in manufacture of M.S.Rods by using iron and steel scrap as raw material. The business premises of the assessee was inspected by the Assistant Commissioner (CT) (Intelligence-I) of Enforcement Wing ( for brevity ‘the AC (Int)’) on 15.07.1996. After verifying the transactions of purchases and sales of the assessee with reference to relevant records, the said Officer had provisionally assessed the assessee for the year 1995-96 determining the turnovers and tax
liability as shown hereunder.
| Total turnover | Rs.3,16,62,780/- |
|---|---|
| Exempted | Rs.NIL |
| Net turnover | Rs.3,16,62,780/- |
| Total Tax already levied on finished goods and | Rs. 12,66,511/- |
| raw materials | |
| Set off tax (under entry 2A) | Rs. 4,31,771/- |
| Net tax due and payable | Rs. 8,34,739/- |
Aggrieved of the provisional assessment order passed by the
AC (Int), the assessee had filed an appeal before the Appellate Deputy Commissioner (CT), Panjagutta (‘the ADC’ for brevity). The said appeal was allowed by the ADC by his orders dated 09.06.1997. The Commissioner having found the order of the ADC prejudicial to the interests of the revenue of the State had entertained a revision suo motu in exercise of the powers vested in him under Section 20(1) of the Act. Finally, the Commissioner had passed the orders dated 30.05.2001, which are now under challenge. By the said orders, the Commissioner had confirmed the proposal to revise the order of the ADC with regard to turnover of Rs.1,28,58,278/- and restore the original order of the AC (Int). Therefore, the aggrieved assessee is before this Court.’
4. The learned counsel for the appellant/assessee would contend as follows: - ‘The appellant had contended before the AC (Int) that the items of iron and steel scrap purchased by the appellant are taxable under entry 2(xvi) to the third schedule of the Act as defectives, cut ends and rejects at the point of sale in the hand of the seller and non collection of tax by the seller has no bearing on the appellant’s assessment; but, the assessing authority purportedly made enquiries regarding the nature of the goods sold by immediate sellers to the appellant who are registered dealers and drew conclusion that what they purchased are re-rollable scrap and MS rail scrap from South Central Railway, Secunderabad in open auction and that the registered dealers who purchased from South Central Railways resold the scrap to the appellant exclusive of APGST by mentioning the same in the sale bills. The assessing authority had erroneously rejected the objections of the appellant and had erroneously relied on the circumstance that the South Central Railway did not collect sales tax on MS rails, MS scrap and that the immediate seller who sold the scrap to the appellant also did not pay tax and had erroneously levied tax on purchases worth Rs.1,28,58,278/- by his order dated 28.02.1997 and had granted set off of Rs.4,31,771/-. Then the assessee had preferred an appeal before the ADC and the same was allowed. The assessing authority was directed by the said orders of the ADC to re-compute the set off. The territorial assessing authority passed orders dated 25.05.1998 deleting the purchase turnover of Rs.1,28,58,278/- as goods taxable at sale point and recomputed the set off. While so, the respondent had entertained the revision and a revision notice dated 19.03.2001 referring to the assessment year 1996-97 and a revision notice dated 21.01.2001 was issued. The assessee sent a reply on 23.03.2001 and made a request for supply of copy of revision notice dated 21.01.2001. Copy of the revision notice dated 21.01.2001 for
the year 1995-96 was served on the appellant on 03.04.2001. The assessee had sought time. However, another notice dated 08.05.2001 was served on 10.05.2001 asking to file reply within ten days. The assessee’s counsel filed vakalat and sought one month time to gather necessary particulars and file reply. The respondent passed the impugned orders dated 30.05.2001 on the ground that limitation is expiring on 08.06.2001. Thus, no reasonable and fair opportunity was given to the assessee and the respondent had passed the impugned orders confirming the levy without giving an opportunity of hearing on the pretext that limitation is expiring on 08.06.2001. The respondent ought to have given one more opportunity to the appellant before passing the impugned orders. The order treating the goods purchased by the appellant as scrap, based on the conduct of the sellers in not charging sales tax to the appellant, is untenable. The respondent ought to have appreciated that the goods purchased by the appellant are only defectives/rejects, cuttings and end pieces in the hands of the sellers and the alleged non collection of tax by the seller to the appellant on the assumption that the goods are scrap does not shift the liability to the appellant. The order of the respondent is vitiated and is liable to be set aside.’
5 . On the other hand, the learned Special Standing Counsel would contend as follows: - ‘The Iron and steel scrap purchased by the assessee is re-rolled scrap generated by railways in the form of railway sleepers, coach wagaon cuttings etcetera. The assessee is liable to pay tax on purchases of iron and steel scrap as the last purchaser of the scrap in the State under entry 2(A). The ADC had erred in holding that the appellant is not liable to pay tax on the purchase of scrap. Several opportunities were given to the assessee to file its objections before the respondent. When a final opportunity to file objections was given vide notice dated 08.05.2001, the appellant has not filed any objections. The order was passed on 30.05.2001 long after such opportunity was given. Therefore, it is incorrect to state that no reasonable and fair opportunity or opportunity of hearing was given to the appellant/assessee. The GO.Ms.No.763 dated 21.08.1990 is intended for promotion of industrial development in the State. The appellant admittedly purchased from local registered dealers the commodities viz., MS rail scrap and MS re-rollable scrap. They in turn had purchased such goods from South Central Railway in open auction. Therefore, it is undisputed that they did not pay any sales tax on these purchases on the ground that the goods are liable to sales tax at the point of
purchase by the steel re-rollers etcetera or the last buyers in the State of Andhra Pradesh. Thus, the purchase made by the assessee had not suffered any tax. Hence, when no tax was paid, the appellants cannot claim set off of tax on assumptions. Having regard to the facts and law, the order impugned was correctly passed. The order is perfectly valid and does not call for any interference.’
6. Now the points that arise for consideration are:
Whether the turnover of Rs.1,28,58,278/- which represents purchase of iron and steel scrap/ the items of iron and steel scrap purchased by the appellant/assessee from the local registered dealers falls under entry 2(xvi) to the third schedule of the Act and is taxable at the point of first sale in the State as contended by the assessee and as held by the ADC? And, if so, whether the order holding that the scrap is taxable at the point of last purchase under entry 2(A) of the third schedule is not correct? And, whether the set off claimed by the assessee from the tax payable by him on the finished goods i.e., MS rods is incorrect and is not permissible?
7. POINTS:
7. (a) The facts leading to the present stage of the matter and the issues involved are already stated supra. We have given earnest consideration to the facts and the submissions. To begin with, the AC (Int) visited the business premises of the assessee on 15.07.1996. As per the records available for the year 1995-96 of the assessee, he had noticed the following turnovers.
1 . Local purchase of M.S. Scrap, S.T.Seleeper, M.S.Scrap rails, M.S.Re-rolling scrap.
| Period of purchase | M.S.Tons Rupees |
|---|---|
| From 01.04.1995 to | 1474.060 1,28,58,278/- |
| 22.01.1996 | |
| From 23.01.1996 to | 43,925 4,20,412/- |
| 31.01.1996 | |
| From 01.02.1996 to | 59,815/- 3,50,372/- |
| 29.02.1996 | |
| From 01.03.1996 to | 63.420 6,00,442/- |
| 31.03.1996 | |
| 2. Out of State purchas | e (01.04.1995 to 31.03.1996) of above items 131.505 11,73,584/- |
| 3. Sales of MS.Rounds (95-96) |
1248.840 1,70,89,001/- |
| 4. Sales of Melting | 56.170 3,44,275/- |
| Scrap |
The following further facts were also noticed by him: ‘The assessee has claimed exemption on the purchase of MS Scrap, S.T. Sleeper, rails etcetera from 01.04.1995 to 22.01.1996. The aseessee had purchased the said goods from registered dealers like M/s.Narayana Steel Centre, Secunderabad, M/s.Dilshad Iron Traders, Secunderabad, M/s.Sagar Enterprises etcetera’. Therefore, the said assessing authority had verified the genuineness and payment of taxes by visiting the business places of the above concerns and had also verified the books of accounts of the above dealers and had noticed that corresponding purchases are from South Central Railway and that the said concerns have not paid any sales tax thereon and that the sales affected by them are exclusive of sales tax. On verification of invoices, he had noticed that M/s.Narayana Steel Centre had issued sale invoices to the assessee herein that the goods sold are exclusive of APGST and that the said fact is clearly mentioned in the bills. Therefore, he has taken the view that iron scrap is liable to tax at the last purchase in the State under entry 2-A of the third Schedule to the Act.’ On verification of the sale bills issued by the South Central Railways and its records, it has come to the notice of the AC (Int) that the South Central Railway had not collected any sales tax on the sales of MS rail and MS scrap and any other scrap sold by them with effect from 14.02.1989 on the ground that the point of levy is not at the hands of the first seller but at the hands of the purchaser as per entry 2-A of the third schedule. The AC (Int) had also verified the books of accounts of the buyers from the South Central Railway and had come to notice that they had also not paid sales tax on the corresponding purchases. As such, the fact is that the purchases made by the assessee herein had not suffered tax at any stage and therefore, it is obvious that they are not entitled for any set off of tax according to G.O.Ms.No.793. Therefore, on the undisputed facts which had come to light on the inspection and verification made by the AC (Int), it is appropriate that the exemption claimed on the purchase of scrap from 01.04.1995 to 22.01.1996 is disallowable. Accordingly, the AC (Int) by his orders dated 28.02.1997 had disallowed the same. However, as already noted the appeal preferred by the assessee before the ADC was allowed. The ADC while dealing with the tax liability on the said turnover of Rs.1,28,58,278/- had observed that it was argued that this turnover represents the purchase value of ST sleeper, condemned coach wagon cuttings, bearing plates, tie bar, defective bloom, bar cuttings, plate cuttings etcetera and that the same fall under entry 2(xvi) of the third schedule to the Act and the same is liable to tax at the point of first sale in the State. Having noted the said argument, he did not consider
the aspects which the assessing authority [AC (Int) ] had considered. The ADC had also noted that merely because the said turnover did not suffer tax, the liability cannot be shifted on the assessee which is a second seller of the goods and had further held that the said goods fall under entry 2(xvi) under the third schedule and not under entry 2-A of the third schedule as the same were purchased from local registered dealers. The ADC had also inter alia observed that the point of levy of tax on scrap cannot be shifted from the point of first sale to the point of last purchase merely because the seller had claimed exemption. Thus, the ADC had set aside the orders of the AC (Int) insofar as it related to levying tax on the said turnover even without recording any factual findings contrary to the findings of the AC (Int) though in fact the findings of the AC (Int) are based on detailed verification of the facts and records not only of the assessee but also of the South Central Railways and local registered dealers from whom the purchases were made by the assessee.
7. (b) Now, it is necessary to refer to the two entries in the third schedule viz., entry 2(xvi) and entry 2-A as on 21.01.1996 since from 23.01.1996 all types of scrap is taxable under one entry i.e., 2-A of the third schedule. The said two entries are as follows:
Entry 2(xvi)
Defectives rejected cuttings or end pieces of any of the above categories.
Entry 2A
Iron and Steel Scrap, that is, to say
Coming to the material facts of the case, the AC (Int) who had passed the earliest order had made personal inspection of the business premises of the assessee and had personally verified the available records of the assessee for the year 1995-96. Since the assessee had purchased the goods from dealers like M/s.Narayana Steel Centre, Secunderabad, M/s.Dilshad Iron Traders, Secunderabad, M/s.Sagar Enterprises etcetera, the AC (Int) had also visited the above concerns and verified their books of accounts in regard to corresponding purchases which are from South Central Railway and had come to note that the said dealers have not paid any sales
tax thereon and that the sales affected by them are also exclusive of sales tax. Since the assessee herein had claimed set off on the sales turnovers on the ground that the corresponding purchases suffered tax and as the said claim is found to be contrary to the facts, the exemption claimed on the purchase of scrap from 01.04.1995 to 22.01.1996 was disallowed. Except contending that the orders are erroneous, no evidence was produced before this Court to show that corresponding purchases suffered tax. Therefore, when the issue involved is a mixed question of fact and law and when the orders of the AC (Int) are passed based on verification of facts and the records not only of the assessee but also of the concerned dealers and also of the South Central Railway, we do not find any merit in this appeal. In the facts and circumstances, the Commissioner had rightly found that the orders of the ADC are prejudicial to the interests of the revenue of the State and had passed the impugned orders setting aside the orders of the ADC and restoring the orders of the AC (Int). We, therefore, hold that the orders of the Commissioner brook no interference.
8. Accordingly, the Special Appeal is dismissed. There shall be no order as to costs.
Miscellaneous petitions, if any, pending in this appeal shall stand closed.
K.C. BHANU, J
M. SEETHARAMA MURTI, J
27th March 2015
Vjl
3 issues framed by the court
Whether the purchase of iron and steel scrap falls under Entry 2(xvi) and is taxable at the point of first sale under Entry 2(A)?
Whether the set off claimed by the assessee from tax on finished goods is permissible given no tax was paid at purchase?
Whether the Commissioner properly set aside the advance ruling/ADC order confirming exemption?
5 provisions across 2 enactments
M/s Roxy Steel Re-rolling Mills
Commissioner of Commercial Taxes
K.C. BHANU
M.SEETHARAMA MURTI
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
