Kongarar Spinners (P) Ltd., Pethappampatti – 642 205, Udumalpet v. The Commercial Tax Officer, Udumalpet

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 09.07.2009C O R A M:THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLAandTHE HONOURABLE MR.JUSTICE B.RAJENDRANW.P.No.12241 of 1999 and W.M.P. No.17460 of 1999 Kongarar Spinners (P) Ltd.,Pethappampatti – 642 205,Udumalpet. .. Petitioner-Vs-1. The Commercial Tax Officer, Udumalpet.2. The Appellate Assistant Commissioner (CT), Pollachi.3. The Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), represented by its Secretary, Coimbatore – 641 018... RespondentsWrit Petition filed under Article 226 of the Constitution ofIndia for the issuance of a Writ of Certiorarified Mandamus callingfor the records on the files of the third respondent herein inC.T.A.No.248/93, dated 09.01.98 and quash the same as well as directre-disposal of the aforesaid appeal in C.T.A.No.248/93 by the thirdrespondent herein after considering the Notification Nos.197(a) & 197(b) of 1970 dated 27.07.70 issued under Section 8(5) of the CentralSales Tax Act, 1956. For Petitioner :Mr.N.Sri PrakashFor Respondents :Mr.Haja Nazaruddin Spl.G.P. (Taxes)O R D E R(Order of the Court was made by F.M.IBRAHIM KALIFULLA, J.)In this writ petition the assessee seeks to challenge thelevy of Central Sales Tax on the alleged export of cotton yarn by theassessee to an extent of Rs.1,50,32,547/21 for the assessment year1988-89. https://hcservices.ecourts.gov.in/hcservices/

2. By an order of revision of assessment dated 08.04.1991, thefirst respondent determined the revised taxable turnover of this itemalone at a sum of Rs.1,05,11,878/- and determined the tax in a sum ofRs.2,10,238/-3. The petitioner’s appeal before the Additional AppellateCommissioner as well as the Tribunal having been rejected thepetitioner has come forward with this writ petition challenging theorder 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 thepetitioner and Mr.Haja Nazaruddin learned Special Government Pleader(Taxes) appearing for the respondents.5. The contention of Mr.N.Sri Prakash, learned counsel appearingfor the petitioner is two fold. In the first place he relied uponthe Notification of the State Government issued under Section 8(5) ofthe Central Sales Tax Act dated 27.07.1970 and contended that byvirtue of the said Notification, the petitioner having satisfied thatthe supply effected by him was to a registered exporter and proof ofsuch export having been satisfactorily established before theAssessing Authority himself in the form of 'Form-H' and AR 4A Form,no tax liability as prescribed under Section 8 and as provided underSection 6(1) of the Act could have been levied. 6. The learned counsel for the petitioner then contended thateven by virtue of Section 5(3) of the Act, in as much as, thepetitioner has proved that the sale and supply effected by it in itsinvoice dated 14.11.1988, was much later in point of time vis-a-visforeign buyer order of the registered exporter dated 26.12.1997,there was total exemption from the charging section namely Section 6of the Act and on that ground as well there could have been no taxliability under the Act. The learned counsel for the petitionerrelied upon the decisions reported in 46 STC 164 (ConsolidatedCoffee Ltd. Vs. Coffee Board, Bangalore) and 8 STC 561 (A.V.FernandezVs. The State of Kerala).7. As against the above submissions, Mr.Haja Nazaruddin learnedSpecial Government Pleader (Taxes) appearing for the respondents byreferring to the then existing Section 5 with sub-sections 1 & 2prior to the notification of Section 5(3) under the Act 103/76w.e.f.01.04.1976, and by relying upon the decision of the Hon'bleSupreme Court reported in 36 STC 136 (Mod.Serajuddin Vs. The State ofOrissa) contended that the Notification relied upon by the petitionerin Notification No.187(b) of 1970, dated 27.07.1970, cannot be reliedupon by the petitioner. According to the learned Special GovernmentPleader, in as much as, Section 5(3) having now been introduced on01.04.1976, and the present assessment related to the year 1988-89,the petitioner will have to stand or fall on what is provided underSection 5(3) and it should be held that by virtue of the coming intoforce of Section 5(3), the Notification stood automaticallyrescinded. https://hcservices.ecourts.gov.in/hcservices/

8. The learned Special Government Pleader, also contended thatfor application of Section 5(3), the penultimate sale in case ofexports should be subsequent to the date of firm order of export andsince the purchase order by the exporter in the case of thepetitioner is dated 17.12.1987, while the foreign buyer order of theregistered exporter was dated 26.12.1987, the petitioner was rightlynot 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 theNotification dated 27.07.1970, merits acceptance and that even therelief as claimed under Section 5(3) also has to be granted. Toappreciate the contention of the respective parties, we deem itappropriate to refer to Section 5(1) to (3), 6(1) with its provisoand 8(1) & (5) along with Notification dated 27.07.1970, which readsas under:"Section 5: When is a sale or purchase of goodssaid to take place in the course of import or export:-(1) A sale or purchase of goods shall be deemed totake place in the course of the export of the goods outof the territory of India only if the sale or purchaseeither occasions such export or is effected by atransfer of documents of title to the goods after thegoods have crossed the customs frontiers of India.(2) A sale or purchase of goods shall be deemed totake place in the course of the import of the goods intothe territory of India only if the sale or purchaseeither occasions such import or is effected by atransfer of documents of title to the goods before thegoods have crossed the customs frontiers of India.(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goodspreceding the sale or purchase occasioning the export ofthose goods out of the territory of India shall also bedeemed to be in the course of such export, if such lastsale or purchase took place after, and was for thepurpose of complying with, the agreement or order for orin relation to such export.(emphasis added)Section 6:- Liability to tax on inter-State Sales: (1) Subject to the other provisions contained inthis Act, every dealer shall with effect from such dateas the Central Government may, by notification in theOfficial Gazette, appoint, not being earlier than thirtydays from the date of such notification, be liable topay tax under this Act on all sales of goods other thanelectrical energy effected by him in the course ofinter-State trade or commerce during any year on andfrom the date so notified: https://hcservices.ecourts.gov.in/hcservices/ Provided that a dealer shall not be liable to paytax under this Act or any sale of goods which, inaccordance with the provisions of sub-section (3) ofSection 5, is a sale in the course of export of thosegoods out of the territory of India.Section 8: Rates of tax on Sales in the course ofinter-State trade or commerce:-(1) Every dealer, who in the course of inter-Statetrade or commerce-(a) sells to the Government any goods; or(b) sells to a registered dealer other than theGovernment goods of the description referred to in sub-section (3);shall be liable to pay tax under this Act, whichshall be four percent of his turnover.Sub-Section (5)This sub-section in the original Act reads asunder:-(5) Notwithstanding anything contained in thissection, the Central Government may, if it is satisfiedthat it is necessary so to do in the public interest, bynotification in the Official Gazette, direct that inrespect of such goods or classes of goods as may bementioned in the notification and subject to suchconditions as it may think fit to impose, no tax underthis Act shall be payable by any dealer having his placeof business in any Union Territory in respect of thesale by him from any such place of business of any suchgoods in the course of inter-State trade or commerce orthat the tax on such sales shall be calculated at suchlower rates other than those specified in sub-section(1) or sub-section (2) as may be mentioned in thenotification."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 Naduhereby directs that in respect of cotton yarnmanufactured by the mills in Tamil Nadu no tax under thesaid Act shall be payable by them in respect of thesales of such cotton yarn in the course of inter-Statetrade or commerce by the mills to registered exporters, https://hcservices.ecourts.gov.in/hcservices/ outside Tamil Nadu subject to the condition that themills shall produce proof of export before the finalcheck of their accounts for the year concerned, to thesatisfaction of the assessing authority concerned." 10. When we consider the submissions of the learned counsel forthe petitioner based on Section 6(1) vis-a-vis the invocation ofSection 5, as rightly contended by the learned counsel for thepetitioner, while Section 6(1) talks of the liability on interstatesales, the application of that very provision gets excluded in thecase of export obligation when once Section 5(3) gets attracted. Weare convinced that when once Section 5(3) gets attracted, there wouldbe no question for the assessee being called upon to answer paymentof any tax under the provisions of the Central Sales Tax Act in asmuch as the whole consideration for imposing such a tax liabilitywill automatically stand excluded by virtue of the application ofSection 5(3) on the assessee. 11. When once such an incidence of inapplicability of taxliability takes place, the assessee gets protected by the variousbenefits provided under the exempted clause viz., Section 5(3) of theAct. 12. Therefore, in the event of the assessee failing to satisfythe prescribed condition under Section 5(3) of the Act, thereafter,the whole gamut of rest of the provisions of the Act starting fromSection 6 comes into play. The resultant position would be of otherconsequential additional benefits and liability created under theStatute under the rest of the provisions starting from Section 6would automatically fall on the assessee. In other words, it willhave to be held that when once the applicability of Section 5(3)stands excluded in respect of the assessee, thereafter the liabilityto tax as stipulated under Section 6 and the rate of tax asprescribed under Section 8 with all their allied benefits providedunder those provisions would automatically apply to the assessee. Ifsuch a legal position can be stated without any ambiguity and when weanalysis the position on that footing, while under Section 6 theliability of tax on Inter-State sales is provided, Section 8prescribes the rate of tax applicable on the assessee in respect ofsuch Inter-State sales. Under sub-section 1 of Section 8 at therelevant point of time in respect of any sale in the course of Inter-State trade and commerce is carried on, such sales in respect ofgoods referred to under sub-section 3 is liable to be taxed at therate of 4% of the turnover. The other provisions of Section 5empowers the State Government to issue Notification prescribing suchconditions therein and provide either total exemption or anyreduction in the rate of tax as prescribed under Section 8(1) of theAct.13. In fact, in this context, it will be appropriate to refer tothe submissions of Mr.N.Sri Prakash, based on Article 286 of theConstitution of India which creates an embargo on the StateGovernment to impose tax liability on the sale or purchase of goodsin respect of inter-state sales for any sale by way of import or https://hcservices.ecourts.gov.in/hcservices/ export outside the territory of India.14. In fact, the statement of objects and reasons whileintroducing Section 5(3) under Act 103 of 1976 with effect from01.04.1976, also indicates as to how the Parliament thought it fit toeven include penultimate sale in respect of sales on exports in theinterest of the nation or otherwise any levy of tax at the Statelevel would result in corresponding increase in the price of goodswhich will have its consequential repercussion in the price of goodsmeant for exports which would ultimately create an uncompetitivesituation for the exporters in the international market. In fact theintroduction of that very provision seems to have been thought ofafter taking note of the Full Bench decision of the Hon'ble SupremeCourt rendered in Mod.Serajuddin Vs. The State of Orrisa (36 STC136), wherein the Hon'ble Supreme Court rejected the claim of theassessee who is stated to have effected supplies to a State TradingCorporation in respect of its export order in the course of exportsale made by the Corporation by strictly construing the then existingSection 5(1) & (2) of the Act which provided for exemption of theprovisions of the Act confined to the exporters alone and relating toany sale made by such exporters and not to anybody else.15. A cumulative consideration of the above development in lawviz., how Section 5(3) came to be introduced in the statute bookenabling even a penultimate seller in export transaction to seek foran exemption further strengthens the submissions of the learnedcounsel while considering his submissions based on Section 8(5) ofthe Act.16. Therefore, applying the said legal position to the facts ofthis case when we consider the first submission of the learnedcounsel, as rightly contended by him, by virtue of the proviso toSection 6(1) of the Act, if the petitioner held to be not entitled tohave the benefit of Section 5(3) then the petitioner becomes liableto be taxed as provided under Section 6 and at the rate applicableunder Section 8(1) of the Act. When once we stear clear of the saidposition and apply Section 8(3) of the Act, the applicability ofNotification under Section 8(5) of the Act has to be necessarilyexamined. In other words, we hold that having regard to theoperation of Section 6(2) along with its proviso, if applicability ofSection 5(3) of the Act stands excluded to the petitioner, thereafterthe applicability of Section 8 including any Notification issuedunder 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), theexisting Notification issued under Section 8(5) prior to theintroduction of Section 5(3) will automatically cease to operatecannot therefore be accepted. To put it differently, we are unableto accept the said submission of the learned Special GovernmentPleader, in as much as, we hold that non-applicability of rest of theprovisions of the Act commencing from Section 6 in respect of theassessee for whom Section 5(3) applies would make it clear that inthe event of a case where the assessee is not in a position to gain https://hcservices.ecourts.gov.in/hcservices/ the benefit of Section 5(3) and there by has to answer the taxableSection 6 and the charging Section 8 it would only mean that any ofthe provision including the Notification issued on any date prior tothe introduction of Section 5(3) in particular and the one issuedunder Section 8(5) would be available and any such contention to thecontrary cannot be accepted.18. We therefore hold that the petitioner herein is entitled tothe relief of the Notification dated 27.07.1970, issued under Section8(5) of the Act which automatically continue to remain in force evenas on date and consequently the only condition to be satisfied by thepetitioner is that he effected Inter-State sale in favour of aregistered exporter outside the State of Tamil Nadu and that byvirtue of such sale, the export obligation was carried out before thefinal check of its accounts for the year concerned. 19. The fact that the petitioner effected an Inter-State sale byway of export through its invoice dated 14.11.1988, is not in disputeand the further fact that the foreign buyer order to the exporter wasdated 26.12.1987, is also not in dispute. The order of revisedassessment dated 08.04.1991, itself discloses that the petitionerfiled Form 'H' and Form 'AR 4A' along with Bill of Lading and invoicecopies to the value of Rs.1,05,11,878/- in proof to the fact thatsuch export obligation was carried out to a registered exporterbefore the final check of their accounts to the concerned year viz.,1988-89. The petitioner having thus satisfied the conditionsstipulated in the Notification dated 27.07.1970, the petitioner isentitled for the benefit of any liability to tax as prescribed underSection 8(1) of the Act read along with Section 6 and consequentlythe impugned order of revised assessment dated 08.04.1991, cannotstand and the order of the Appellate Assistant Commissioner as wellas that of the Tribunal are also liable to be set aside. 20. Our conclusion is also supported by the decision relied uponby the learned counsel for the petitioner reported in 8 STC 561(A.V.Fernandez Vs The State of Kerala) where the Hon'ble SupremeCourt has laid down the preposition of law to such a situation tothe following effect at page 574 viz.,"There is a broad distinction between theprovisions contained in the statute in regard to theexemptions of tax or refund or rebate of tax on the onehand 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 orrefund or rebate of tax, the sales or purchases wouldhave to be included in the gross turnover of the dealerbecause they are prima facie liable to tax and the onlything which the dealer is entitled to in respectthereof is the deduction from the gross turnover inorder to arrive at the net turnover on which the taxcan be imposed. In the latter case, the sales orpurchases are exempted from taxation altogether. TheLegislature cannot enact a law imposing or authorising https://hcservices.ecourts.gov.in/hcservices/ the imposition of a tax thereupon and they are notliable to any such imposition of tax. If they are thusnot liable to tax, no tax can be levied or imposed onthem and they do not come within the purview of the Actat all. The very fact of their non-liability to tax issufficient to exclude them from the calculation of thegross turnover as well as the net turnover on whichsales tax can be levied or imposed."21. As far as the said contention is concerned, the question tobe examined is as to whether the date of invoice of the petitioner isto be taken for the applicability of Section 5(3) or the date ofpurchase order under Section 5(3) of the Act. The penultimate saleshould be on the date subsequent to the date of export order to aregistered exporter while the rejection of the petitioner's exportsale to an extent of Rs.1,05,11,878/- came to be rejected on theground that the purchase order dated 17.12.1987, was prior to thedate of foreign buyer order with the registered exporter which wasdated 26.12.1987. The petitioner contended that the sale was reallyeffected by it through its invoice dated 14.11.1988, which was longafter the export order dated 25.12.1987.22. In this context, we find force in the reliance placed by thelearned counsel for the petitioner on the decision reported in 46 STC164 (Consolidated Coffee Ltd., Vs. Coffee Board, Bangalore) whichfully 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 exemptionwas intended to be extended to small and medium scalemanufactures desirous of exporting their goods but therequirement of the new provision is not that they mustprocure or have with them a foreign buyer's contract butthe requirement is that before they complete the sale oftheir goods to the canalising agency or the privateexport house there must be in existence a foreignbuyer's contract to implement which they should havesold their goods to such agency or export house....."(Emphasis added)Applying the ratio laid down by the Hon'ble Supreme Court, we have nohesitation to hold that the date of invoice of the petitioner shouldbe the relevant date to find out whether the penultimate saleoccurred either prior to or after the date of the export order.23. In the case on hand, the export order was admittedly on26.12.1987, the invoice prior to which the sales came to be effectedby the petitioner was on 14.11.1988, which was long after the date ofexport order and consequently on this ground as well the petitioneris bound to succeed.24. For all the above stated reasons, the impugned order ofassessment of the first respondent dated 08.04.1991 and the order ofthe Appellate Assistant Commissioner dated 05.11.1992, as well as https://hcservices.ecourts.gov.in/hcservices/ that of the Tribunal dated 09.01.1998, is hereby set aside. The writpetition stands allowed. Consequently, the connected miscellaneouspetition is closed. No costs.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarkkTo1. 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 – 641 018.1 cc To Mr.N.Inbarajan, Advocate, SR.298191 cc To Spl. The Government Pleader, SR.30088W.P.No.12241 of 1999 andW.M.P. No.17460 of 1999 ks(co)pmk.10.8.2009.