State Taxation Tribunal - Tamil Nadu
Kodal Industries Limited vs State Of Tamil Nadu [Alongwith T.C. (R.) ... on 14 September, 2000
Equivalent citations: [2001]124STC52(TRIBUNAL)
JUDGMENT
J. Kanakaraj, J. (Chairman)
1. In T.C. (R) No. 2427 of 1997, the facts are as follows :
The petitioner/assessee reported a total turnover of Rs. 1,39,93,476.59 and taxable turnover of Rs. 1,00,20,985.27. In this return, the petitioner included a turnover of Rs. 1,00,000 being the hire on lease of machinery at 3 per cent. Later, he filed a revised turnover claiming that the said turnover of Rs. 1,00,000 is not exigible to tax, because the machinery was leased out to a flour mill situate outside the State of Tamil Nadu. This contention was not accepted by the assessing authority and he proceeded to include the said sum of Rs. 1,00,000 as assessable at 3 per cent. He also levied penalty of Rs. 1,572 on account of short payment of surcharge. A further penalty of Rs. 10,734 was imposed under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 read with the Tamil Nadu Additional Sales Tax Act, 1970, for failure to submit correct return and adopting a lesser rate of additional sales tax. A sum of Rs. 120 was levied as penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, for collection of excess surcharge.
2. Two appeals were preferred before the first appellate authority, one in respect of a turnover of Rs. 1,00,000 and the levy of penalties (A.P. 342/91) and another appeal (A.P. 1/91) related to the levy of additional sales tax of Rs. 29,490. Before the first appellate authority, it was argued that the machinery moved from the assessees' business place to the lessees' place of business in Maharashtra. The deed of lease was made on February 1, 1988 at Tamil Nadu only. Two arguments were raised, namely, that the movement of the machinery from Tamil Nadu to Maharashtra was on the basis of the lease and therefore, it is an inter-State transaction. Secondly, it was contended that the situs of the transaction was totally outside Tamil Nadu and therefore, the assessment under Section 3-A of the Tamil Nadu General Sales Tax Act, was illegal. In respect of A.P. 1/91, which relates to the additional sales tax of Rs. 29,490 the contention was that if the turnover of Rs. 1,00,000 on account of lease of machinery is deleted, then the entire turnover falls below Rs. 1,00,00,000 and the rate of additional sales tax will be only 1.6 per cent reducing the additional sales tax to Rs. 1,46,502 instead of Rs. 1,75,992 as imposed by the assessing authority. The appellate authority rejected the contention on the ground that the lessor/assessee was within Tamil Nadu and he had also received the lease amount in Tamil Nadu. No clear finding was given on the question of inter-State sale. He confirmed the levy of penalties and dismissed the appeals.
3. Two second appeals were preferred before the Sales Tax Appellate Tribunal, namely, M.T.A. Nos. 20 and 21/92 against the orders of the Appellate Assistant Commissioner. Before the Appellate Tribunal, the very same arguments were pressed. The second appellate authority also held that inasmuch as the agreement was entered into between the parties in Tamil Nadu and the fact that the lessor was in Tamil Nadu, gave jurisdiction to the authorities to levy tax under Section 3-A of the Tamil Nadu General Sales Tax Act. The Appellate Tribunal, however, agreed that the machineries were moved to Maharashtra State, but observed that on that account, it cannot be stated that the assessment is to be made under the Central Sales Tax Act. The reasoning of the Appellate Tribunal is not very clear on the question of inter-State sale, because it only observes that no sale of goods is effected to attract Section 3(a) of the Central Sales Tax Act. The Appellate Tribunal also observed that the machinery was leased out to the lessee in Maharashtra and the goods were brought back to Tamil Nadu after its use. The Appellate Tribunal also confirmed the levy of penalty, except the levy of penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act, which was deleted. Consequently, the Appellate Tribunal dismissed both the appeals.
4. The petitioner has filed only one tax revision case against the order of the Appellate Tribunal in M.T.A. No. 20/92, but has indicated that it is a common order for M.T.A. Nos. 20 and 21/92. In fact, in the grounds of revision, the levy of additional sales tax at an enhanced rate is also disputed on the ground that the total turnover will be reduced below rupees one crore and therefore, the additional sales tax can be levied only at 1.5 per cent. The main dispute in this tax revision case is, therefore, whether the lease of machinery to the party in Maharashtra, is taxable under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
5. In T.C. (R) No. 2753 of 1997, the facts are as follows :
The petitioner is Tvl. Hindustan Packaging Co., Ltd., at Anand, in the State of Gujarat. While the place of business of Tvl. Salem District Co-operative Milk Producers Union Ltd., at Salem, was inspected by the Enforcement Wing Officers on February 24, 1989, it was found that the petitioner/assessee had leased out three machineries as per agreement dated April 7, 1988, to the said Salem Co-operative Milk Society. As per the accounts of the society, it was found that the assessee/dealer had received lease amounts as follows :
April, 1988 to June, 1988 Rs. 4,50,000 July, 1988 to September, 1988 Rs. 4,50,000 October, 1988 to December, 1988 Rs. ... {amount waived) January, 1989 to March, 1989 Rs. 4,50,000 (Debit note dated February 8, 1989 raised and pending payment).
Spares as per debit note dated February 8, 1989 pending payment.
Rs. 1,05,820.18 Total taxable turnover to be assessed under section 3-A of the Tamil Nadu General Sales Tax Act at 3 per cent.
Rs. 14,55,820.18 or Rs. 14,55,820.00
6. The assessing authority, therefore, came to the conclusion that the assessee is not a registered dealer under the Tamil Nadu General Sales Tax Act, 1959 for the year 1988-89, but they have to pay tax at 3 per cent on the said turnover under Section 3-A of the Tamil Nadu General Sales Tax Act on the transfer of right to use the machineries. He, therefore, proposed assessment as follows :
Actual suppression Rs. 14,55,820.00 Tax due at 3 per cent Rs. 43,675.00 Surcharge due at 5 per cent Rs.
2,184.00 Additional sales tax due at 1.25 per cent Rs. 18,198.00 Rs. 64,057.00 Section 12(3) penalty : Penalty proposed at 150 per cent of the tax, surcharge and additional sales tax due on a turnover of Rs. 14,55,820 for non-reporting of turnover to the department and tax paid and not registered under Tamil Nadu General Sales Tax Act, 1959. Rs. 96,085,00 Total revenue involved Rs. 1,60,142.00
7. In answer to the notice issued by the assessing authority, the assessee contended that the goods were moved from Gujarat and Maharashtra and the transaction was inter-State sales within the meaning of Section 3(a) of the Central Sales Tax Act, 1956. By some curious reasoning, the assessing authority rejected the contention and held that the transaction was assessable under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
8. In the appeals before the Appellate Assistant Commissioner, specific contention was raised that Article 286 of the Constitution of India restricted the State Legislature from imposing sales tax on outside sales, inter-State sales and import/export sales. It was specifically claimed that the movement of machineries from Gujarat to Tamil Nadu was an inter-State sale and therefore not liable to be taxed under the Tamil Nadu General Sales Tax Act, 1959. Before the Appellate Assistant Commissioner, there were two appeals, one against the turnover of Rs. 14,55,820 at 3 per cent the penalty levied under Section 12(3) to the tune of Rs. 96,085, surcharge of Rs. 2,185 and additional sales tax of Rs. 18,198 and the other relating to the levy of additional sales tax to the tune of Rs. 18,198, which is consequential to the addition of the turnover in the main appeal to the tune of Rs. 14,55,820. The first appellate authority dismissed the appeal relating to the turnover of Rs. 14,55,820 and the consequential levies. However, he reduced the penalty to 75 per cent of the tax due on the turnover. The appeal relating to the levy of additional sales tax at a higher rate, was also dismissed.
9. The matter was taken up to the Sales Tax Appellate Tribunal in C.T.A. No. 553 of 1990 relating to the main issue under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959. Holding the subject-matter of the transfer of right to use goods is delivered in the State of Tamil Nadu, the Appellate Tribunal upheld the levy. They, however, reduced the penalty to 50 per cent of the tax. The assessee has filed the present tax revision case against the said order of the Appellate Tribunal.
10. In fine, in both the tax revision cases, the only issue to be decided is whether the transactions are inter-State in nature and on that account, whether the Tamil Nadu authorities have jurisdiction to levy sales tax under the Tamil Nadu General Sales Tax Act or not. Once this main issue is decided, the other levies are only consequential and will take care of themselves.
11. Further, the issue itself is, in our opinion, clearly covered by the judgment of the Supreme Court in [2000] 119 STC 182 (20th Century Finance Corpn. Ltd. v. State of Maharashtra). The Supreme Court had to consider whether a transaction of transfer of right to use goods can be subjected to sales tax by more than one State. The issue arose before the Supreme Court of India, because some States levied tax on the assessees merely because the goods were found to be located in their States at the time of execution of contract, which execution took place outside the State. Some States levied tax when the goods were delivered in their States for use in pursuance of agreements of transfer executed outside their States, Some other States levied tax on such transactions of deemed sales on the ground that the agreements for transfer of right to use goods had been executed within their States. Incidentally, the Supreme Court had to decide whether Article 286 of the Constitution of India prevented the law of a State from imposing a sales tax on goods where the sale or purchase takes place (1) outside the State ; (2) in the course of import of goods into or export of the goods out of the territory of India and (3) in the course of inter-State trade or commerce.
12. We are concerned in these cases only on the question whether the transactions are in the nature of inter-State sale or purchase. The Supreme Court of India expressly set aside the judgment of the Bombay High Court, which had expressed the view that in the case of transfer of right to use goods by an agreement in one State for giving delivery of goods for use by the lessee in another State, the movement precedes a transfer of right to use, i.e., the movement is antecedent to the completed transaction and only upon delivery of goods, the transfer of right to use goods is completed and that the transfer of right to use goods is not concluded merely by execution of an agreement or a document. The Supreme Court pointed out that the above view of the Bombay High Court was not only erroneous, but also contrary to the two earlier decisions of the Supreme Court, namely [1989] 73 STC 370 (Builders' Association of India) and [1993] 88 STC 204 (Gannon Dunkerley & Co.). For the purpose of our case, it is enough if we notice the first conclusion of the Supreme Court of India, which is as follows :
"35. As a result of the aforesaid discussion our conclusions are these :
(a) The States in exercise of power under entry 54 of List II read with Article 466(29A)(d) are not competent to levy sales tax on the transfer of right to use goods, which is a deemed sale, if such sale takes place outside the State or is a sale in the course of inter-State trade or commerce or is a sale in the course of import or export."
13. It is not necessary, therefore, to decide the question as to where the agreement was executed, to determine the situs of the sale. In both the cases before us, there is absolutely no doubt that goods moved from one State to another, on account of the transfer of right to use the machineries. Therefore, we have no hesitation in coming to the conclusion that the turnovers in question in both the cases, are not liable to be assessed under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.
14. Once the main turnover escapes assessment, the consequential levies based on the main turnover have also to be deleted. In this view of the matter, both the tax revision cases are allowed.
And this Tribunal doth further order that this order being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the 14th day of September, 2000.