IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED 12.07.2010 CORAM THE HONOURABLE MR. JUSTICE F.M.IBRAHIM KALIFULLA AND THE HONOURABLE MR. JUSTICE M.M.SUNDRESH TAX CASE (REVISION) NO.2286 OF 2008 The State of Tamil Nadu Represented by the Deputy Commissioner (CT) Tirunelveli Division Tirunelveli 627 002. .. Petitioner Versus Tvl. Pari Trading Co., 61-G-C Road Tuticorin. .. Respondent PRAYER : Tax Case Revision filed Under Section 38 of the Tamil Nadu General Sales Tax Act, against the order of the Tamil Nadu Sales Tax Appellate Tribunal (AB), Madurai passed in M.T.A. No.238 of 1998, dated 04.04.2000. For Petitioner : Mr.Haja Naziruddin Special Government Pleader (Taxes) For Respondent : Mr.S.Balamurugan * * * * * O R D E R
M.M.SUNDRESH, J
The Revision has been filed by the Revenue challenging the order passed by the Sales Tax Appellate Tribunal in Appeal No.238 of 1998 dated 04.04.2000 whereby the order of the Appellate Assistant Commissioner dated 07.11.1997 confirming the order of the assessment officer dated 29.11.1996 for the assessment year 1992-93 has been set aside.
2.The brief facts of the case in a nutshell are as follows:
2.1.The respondent / assessee is an oil miller being a manufacturer of coconut oil and coconut oil cake. It has purchased coconuts and copra from both dealers and the agriculturists.
2.2.Based upon the checking of the accounts a best of judgment assessment has been made making the assessee liable for tax on the purchase of coconuts and copra at 4% under Section 7-A of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called as ‘Act’) in T.N.G.S.T. 845223/92-93 dated 29.11.1996 for the assessment year 1992-93 by fixing the turnover at Rs.4,79,650/-. Challenging the said assessment an appeal was filed by the assessee to the First Appellate Authority contending that inasmuch as the sale of coconuts and copra having been exempted and the purchases are not being first one purchase tax cannot be levied on the assessee. It was also contended that the assessing authority cannot shift the point of levy merely because the oil millers are liable to tax. Hence according to the assessee the commodity being not liable to tax at the point of purchase the question of assessment under Section 7-A of the Act does not arise.
2.3.However the First Appellate Authority after holding that coconuts and copra are taxable under entry 6(viii) of the II Schedule to the Act, and the appellants being the manufactures of coconut oil and coconut oil cake having purchased the same has held that it is liable for purchase tax under Section 7-A of the Act at the rate of 4%. It has further held that the exemption is only for the sale and not for the purchase and in any case the exemption granted in G.O.Ms.No.976, Revenue, dated 28th March, 1959 in Serial No.3 to 9 is not applicable to the oil millers, since it is specifically made applicable to the purchase of coconuts by any dealer other than the oil millers.
2.4.Not satisfied with the same, the assessee filed a further appeal before the Tribunal and the Tribunal has allowed the appeal relying upon the judgment of the Apex Court rendered in SHANMUGA TRADERS v. STATE OF TAMIL NADU [VOL.114 1999 STC PAGE 1] and held that inasmuch as the first sale is exempted the point of levy cannot be shifted to fix the liability on the oil miller who is a second purchaser of the coconuts. Being aggrieved against the same, the present revision has been filed by the Revenue.
3.We have heard Mr.Haja Naziruddin, learned Special Government Pleader (Taxes) appearing for the petitioner as well as Mr.S.Balamurugan, learned counsel appearing for the respondent.
4.The one and only point for consideration is as to whether the purchase made by the assessee being an oil miller is liable for purchase tax or not.
5.In the present case on hand the facts are not in dispute. The assessee is an oil miller having been purchased the coconuts and copra for the purpose of manufacturing the coconut oil and coconut oil cake. It is also not in dispute that there is an exemption notification exempting the sale of coconuts and copra which are specified items taxable under entry 6(viii) of the II Schedule to the Act. It is also further seen that as per the exemption notification passed in G.O.Ms.No.976, Revenue, dated 28th March, 1959 exemption is given to the purchase of coconuts by any dealer other than oil millers. Therefore the question to be decided is as to whether the respondent is liable to be taxed under Section 7-A of the Act or not.
6.The Tribunal has made reliance upon the judgment of the Apex Court rendered in SHANMUGA TRADERS v. STATE OF TAMIL NADU [VOL.114 1999 STC PAGE 1] and held that when the first sale is exempted the point of levy cannot be shifted to fix a liability on the assessee. It is further held that point of levy of tax cannot be shifted on the assessee after the first sale. A reading of the order of the Tribunal would clearly show that the Tribunal has totally misconceived the facts of the case and applied the judgment rendered in SHANMUGA TRADERS v. STATE OF TAMIL NADU [VOL.114 1999 STC PAGE 1] wrongly.
7.It is an case of wrong application of a judgment to the facts involved in a particular case. Admittedly the assessee is a purchaser and not a seller. The facts involved in the judgment reported in SHANMUGA TRADERS v. STATE OF TAMIL NADU [VOL.114 1999 STC PAGE 1] are concerned with the sale and not a purchase. Therefore the decision of the Tribunal basing reliance upon the said judgment is totally erroneous and liable to be set aside.
8.Section 7-A of the Act is both a remedial and a charging provision. The main object is to plug leakage and prevent evasion of tax. Section 7-A creates a liability against the dealer on his purchase turnover with regard to goods which are otherwise taxable but not taxed due to other factors such as exemption etc. The Scope of Section 7-A has been considered at length by the Hon’ble Apex Court in VOL.36 1975 STC 191 [STATE OF TAMIL NADU v. M.K.KANDASWAMI AND OTHERS] wherein the Hon’ble Apex Court has observed as follows:
“The words “under the Act” will evidently include a charge created by Section 7-A also. It is to be noted that section 7-A is not subject to section 3; it is by itself a charging provision. Section 7-A brings to tax goods the sale of which would normally have been taxed at some point in the State, subsequent to their purchase by the dealer if those goods are not available for taxation, owing to the act of the dealer in (a) consuming them in the manufacture of other goods for sale or otherwise, or (b) despatching them in any manner other than by way of sale in the State, or (c) despatching them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce.
Ingredients (4) and (5) are not mutually exclusive and the existence of one does not necessarily negate the other. Both can co-exist and in harmony. Ingredient (4) would be satisfied if it is shown that the particular goods were “taxable goods”, i.e., the goods, the sale or purchase of which is generally taxable under the Act. Notwithstanding the goods being “taxable goods”, there may be circumstances in a given case, by reason of which the particular sale or purchase does not attract tax under section 3, 4 or 5. Section 7-A provides for such a situation and makes the purchase of such goods taxable in the hands of the purchasing dealer on his purchase turnover if any of the conditions (a), (b) and (c) of sub-section (1) of section 7-A is satisfied.”
9.It has been further observed as follows:
“It may be remembered that section 7-A is at once a charging as well as a remedial provisions. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile.”
10.Therefore on a reading of the above said judgment, we are of the considered view that the assessee is liable to pay the purchase tax in accordance with Section 7-A of the Act.
11.Section 17 of the TNGST Act, 1959 provides for the state Government to issue notifications regarding exemptions. An exemption so granted may be partial or total to be applicable for specifying class of goods or persons at all points or specifying points. When such an exemption is given to only a specified class of persons for the sale the same is only partial in nature and in such an eventuality the exemption would not cover the liability under Section 7-A of the Act. In the present case on hand, admittedly the exemptions do not cover the assessee and therefore merely because the sales by the agriculturists are exempted it cannot be contended that the purchase made by the assessee also to be exempted in the teeth of Section 7-A of the Act.
12.The judgment of the Apex Court referred above has been followed subsequently by the Hon’ble Supreme Court in COFFEE BOARD, KARNATAKA v. COMMISSIONER OF COMMERCIAL TAXES AND OTHERS [VOL.70 1988 STC PAGE 162] wherein it has held as follows:
“The coffee growers being agriculturists are not dealers and therefore are not liable to pay any sales tax or purchase tax, it was submitted. The demand for purchase tax is in effect a demand on the growers who were exempt from such levy, as the monies required for paying the tax if the same in lawful has necessarily to come out of the monies otherwise payable to the growers. The object of the pool marketing system is not to deprive the growers of a fair compensation for their produce by making them suffer a tax which they would not otherwise be required to suffer. An analysis of sale to attract exigibility to duty, it was submitted. We are unable to accept these submissions. Section 6 of the Karnatake Sales Tax Act, 1957, meets the situation created by such circumstances. This was examined by this Court in STATE OF TAMIL NADU v. M.K.KANDASWAMI [1975] 36 STC 191; [1976] 1 SCR 38 which examined section 7A of Tamil Nadu General Sales Tax Act, 1959, which was in pari materia with section 6 of the Karnataka Sales Tax Act. In that view of the matter section 6 of the Karnataka Act would be attracted.”
13.The Division Bench of this Court in VISWANATHAN & CO., v. STATE OF TAMIL NADU [VOL.76 1990 STC 221] has held that in a case of purchase from agriculturist Section 7-A of the Act would be very much attracted.
14.Recently another Division Bench of this Hon’ble Court in VOL.12 VAT AND STC 546 [RUCHI SOYA INDUSTRIES LIMITED v. COMMERCIAL TAX OFFICER, HARBOUR III ASSESSMENT CIRCLE, CHENNAI AND OTHERS] has held as follows:
“We do not find any reason to accept this line of thought. Section 7A does not give any room for such course of interpretation. Sections 3, 4 and 7A are independent charging sections. As already noted, section 7A comes into play where the purchase of goods liable to tax does not suffer tax in the circumstances, but are dealt with in the manner stated therein. It is no doubt true that a second sale of tax suffered goods enjoys the second sale exemption. He may sell the goods inside the State again or sell the same as inter-State sale or despatch them to outside the State as consignment or branch transfer. Any manner of dealing with tax suffered sales as prescribed under section 7A like disposal of the goods otherwise than by way of sale or using them in the manufacture, or despatch does not attract the provisions of the Act. The reason being that goods which normally have been taxed at some point do not get taxed again. The policy of law is to tax every transaction of sale either at the point of sale or at the point of purchase. Exemption is granted either partially or in absolute. Where the seller is not taxed, the purchaser is taxed. By the same reasoning, when the seller is taxed, the purchaser is not taxed. As already seen there may be several contingencies wherein no such first sale liable to tax is assessed and that goods are no longer available either because they cease to exist or be available for further consideration attracting tax. In such contingencies, if the selling dealer cannot be taxed, the purchasing dealer is taxed by levy of purchase tax. The Supreme Court in the decision reported in [1993] 88 STC 98 (SC) (HOTEL BALAJI v. STATE OF ANDHRA PRADESH), held that the postponement does not convert what is avowedly a purchase tax to a consignment tax or tax on consumption. In so taxing, the question of shifting the point of taxation also does not take place. It is relevant to note that even in the case of local sales, where the first sale has not suffered tax, the same are brought under the net of taxation by reason of the second proviso to section 3(2).”
15.The Division Bench was pleased to observe that in a case where the seller is not or cannot be taxed then the purchasing dealer of such goods is liable to be taxed. In so far as the scope of Section 7-A of the Act is concerned, the Division Bench before whom the said provision has been challenged has observed as follows:
“We have already seen that the apex court held “that section 7A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax”. The Supreme Court pointed out in the decision reported in [1975] 36 STC 191 (STATE OF TAMIL NADU v. M.K.KANDASWAMI) that the principle behind the levy under purchase tax is that if the goods purchased are not available for taxation inside the State and that by reason of one of the contingencies, the State is likely to lose its revenue, the interest of the State needs to be secured. The levy created by the provision is one on purchase of materials within the State, which is dealt with in any one of the manners specified therein.
The apex court held that “the policy of the Legislature is not to tax the same goods twice over. The fact in a given case, the purchased goods are consigned by the purchaser to his own depots or agents outside the State makes no difference to the nature and character of the tax. By doing so, he cannot escape even the one-time tax upon the goods purchased, which is the policy of the Legislature. The tax was directed towards ensuring levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products manufactured out of them”. The charge under section 7A need not be necessary to check exemption but certainly it is pointing at the loophole caused by the circumstances stated under section 7A. If the goods are not available in the State for subsequent taxation by reason of the circumstances mentioned in section 7(A)(1)(a),(b),(c), then the purchaser is made liable under section 7A.”
16.Therefore on a consideration of the above said legal principle and consideration of the facts available on record, we are of the considered view that the Tribunal has made a total error in setting aside the assessment order as confirmed by the First Appellate Authority by relying upon the judgment of the Apex Court in SHANMUGA TRADERS v. STATE OF TAMIL NADU [VOL.114 1999 STC PAGE 1] without appreciating the scope of Section 7-A of the Act as well as the entry 6(viii) of the II Schedule to the Act and the notification passed in G.O.Ms.No.976, Revenue, dated 28th March, 1959.
17.Hence under those circumstances, we are of the considered opinion that the order passed by the Tribunal is liable to be set aside and accordingly the same is set aside and consequently the order passed by the assessing officer which was confirmed by the First Appellate Authority is hereby restored.
18.In the result, this revision is allowed. No costs.
(F.M.I.K.,J.) (M.M.S.,J.) 12.07.2010 Index : Yes Internet : Yes sri To 1.Sales Tax Appellate Tribunal Additional Bench Madurai. 2.The Appellate Assistant Commissioner (CT) Madurai (North). 3.The Deputy Commissioner (CT) Tirunelveli Division Tirunelveli 627 002. F.M.IBRAHIM KALIFULLA, J. AND M.M.SUNDRESH, J. sri PRE-DELIVERY ORDER IN TAX CASE (REVISION) NO.2286 OF 2008 12.07.2010