Case BriefsHigh Courts

Orissa High Court: A Division Bench of S. Muralidhar CJ and B.P. Routray, J. allowed the petition and held that the Tribunal was incorrect in holding that the freight shown in the sale bill separately is part of the sale price. It is held that the Petitioner is entitled to claim a deduction of the freight charges from the taxable sales turnover.

The facts of the case are such that the petitioner is engaged in manufacturing and trading of cast iron goods and is a registered dealer under the Orissa Sales Tax Act, 1947 (OST Act) and the Central Sales Tax Act, 1956. The Department of Telecommunications i.e. DoT floated a tender requiring the bidder to quote a basic unit price and excise duty, sales tax, insurance, freight and other taxes payable item wise which would remain fixed during the entire period of contract. The bid by the petitioner was accepted. The DoT inspected and earmarked the goods at the factory of the petitioners. The petitioner raised invoices separately showing freight, excise duty as per Section (iii) Part-3 of the tender conditions.

On 24th April 1999, an inspection report was submitted and assessment proceedings initiated under Rule 12 (5) of the CST (Orissa) Rules. The explanation given was rejected by the STO and an additional demand was raised. Assailing this, an appeal was filed which came to be dismissed by the Assistant Commissioner of Commercial Taxes. This order was put under challenge before Orissa Sales Tax Tribunal which was dismissed yet again. This order is under challenge in the present petition.

Counsel for the petitioners submitted that the definition of sale price under Section 2 (h) of the CST Act made it clear that the sale price excluded the cost of freight of delivery where such cost was separately charged. He further referred to the clauses in the contract which made it clear that the sale was completed inside the Petitioner’s factory, once it was inspected by the DoT and the goods to be sold were earmarked for purchase. He pointed out that the Petitioner had transported the goods to the site of the DoT at the latter’s behest, after the sale was complete. Accordingly, the freight was charged separately and could not be included in the sale price.

Counsel for the respondents submitted that the sale was complete when the delivery took place at the site of the DoT. He further observed that it was a contract of sale where the cost of freight was a part of the sale prices and the purchaser i.e. the DoT had not undertaken any obligation to pay freight incurred by the selling dealer. Therefore, the selling dealer i.e. the Petitioner would not be entitled to any deduction towards freight despite showing it separately in the sale invoice.

The court observed that from Clauses 9.1 to 9.5 of the bid document, it is plain that the bidder was required to separately indicate the components of excise duty, sales tax, insurance and freight. The rate was to be quoted on FOR Destination in the States of Maharashtra and Goa. It was further observed that as per Clause 21.2 that the ‘unit price’ was the determining factor. It was further observed that Clause 6.1 Section VI of the General (Commercial) conditions of contract read with Clause 4 (a) of the PO indicates the intention of the parties was when they entered into the contract of sale and purchase as to the exact place of delivery of the goods in question. The definition of sale in Section 2(h) of the CST Act had to be understood in the context of the clauses of the contract. Here, once the sale was complete at the site of the inspection of the goods, which is the factory of the Petitioner, then the freight charge for further transportation of the goods to the purchaser’s site would obviously not form part of the sale price. Therefore, it was being separately shown in the invoice.

The court relied on the judgment State of Karnataka v. Bangalore Soft Drinks Pvt. Ltd. (2000) 117 STC 413 (SC) and held “the freight charges are not includable in the sale price, which is amenable and therefore, has to be excluded while calculating the taxable turn over for the purposes of the OST Act”[Utkal Moulders v. State of Orissa, 2021 SCC OnLine Ori 199, decided on 30-03-2021]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Jharkhand High Court: A Division Bench of H.C. Mishra and Deepak Roshan, JJ., allowed the present petition against the respondent authorities charging penalty on non payment of TDS, reiterating, “…only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations.”

Background

Three writ applications bearing common issues were heard together by the present Court, with the facts mentioned as follows;

The petitioner Company was engaged in the production, supply and sale of electricity for which it purchased coal from the Central Coalfields Limited. As provided under Section 45(1) of the Jharkhand Value Added Tax Act, 2005, (hereinafter referred to as the ‘JVAT Act’), the petitioner Company was required to deduct 2% on account of VAT, as tax deducted at source (for short ‘TDS’), from the bills raised by the Central Coalfields Limited and by virtue of Section 45(3) of the JVAT Act, the same was to be deposited to the Government Treasury in the prescribed manner.

By virtue of Section 45(5) of the JVAT Act, if such TDS was not made, the Company was liable to pay by way of penalty a sum not exceeding twice the amount of the tax deductible under sub-Section (1). In all these matters, this obligation of deduction of TDS was not carried out by the petitioner Company, and accordingly, the impugned demand was raised by the Assessing Authority under the JVAT Act, imposing penalty as well as tax upon the petitioner. The assessment orders were passed on 19-03-2015, 05-03-2016 and 21-03-2017. However, by the said orders the liability imposed was not only for the penalty but also for the deductible 2% of the tax amount.

 Contentions

Counsel for the petitioner, submitted that the impugned assessment orders as also the consequent garnishee orders cannot be sustained in the eyes of law, in as much as, the VAT payable on the coal purchased has already been deposited by the petitioner Company to the CCL and the CCL, in turn, has deposited the tax in the State-exchequer. This is an admitted position and there is no revenue loss to the State-exchequer due to the non deduction of TDS by the petitioner at 2%. Further, it was submitted that since there was no revenue loss to the State Government, the petitioner Company was also not liable to any penalty. Reliance was placed on;

Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, wherein it was held by the Supreme Court, “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so.

Employees’ State Insurance Corporation v. HMT Ltd., (2008) 3 SCC 35, re-emphasized the need and objective of imposing a penal liability, in the words, “Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations.”

Nirlon Ltd. v. Commissioner of Central Excise, (2015) 14 SCC 798, where it was found that the entire exercise was revenue neutral and there was no mala fide intention on the part of the assessee, the penalty imposed was set aside.

Counsel for the State opposed the prayer and submitted that a plain reading of Section 45(5) of the JVAT Act would show that the provision is mandatory in nature and the Revenue Authorities had no way out, but to impose the penalty, once it was found that the TDS was not deducted by the petitioner Company. It was further submitted that Revenue Authorities had only limited discretion in deciding the quantum of penalty but so far as the imposition of penalty is concerned, the provision of the Act is mandatory. Reliance was placed on the following judgments, namely;

Guljag Industries v. Commercial Tax Officer, (2007) 7 SCC 269, wherein it was said, “…The penalty is for statutory offence. Therefore, there is no question of proving of intention or of mens rea as the same is excluded from the category of essential element for imposing penalty”

State of West Bengal v. Kesoram Industries Ltd., (2004) 10 SCC 201, “In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency”

 Observations

Quashing the impugned orders, the Court observed, “…a plain reading of the impugned assessment orders clearly show that the mandate of Proviso to Section 45(5) of the JVAT Act, has not been followed by the Assessing Authority. There is no discussion at all about the defence of the Company and without stating anything about the reasons that might have been shown before the Assessing Authority by the counsel for the Company, the assessment orders/demand notices have been passed…”

With regards to the precedents referred to by the Counsel for the petitioner, the Court said, “…The Assessing Authority shall pass the necessary orders in accordance with law, keeping in view the ratio of the decision in Hindustan Steel Ltd. case, that penalty is not ordinarily to be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation, and that the penalty is not to be imposed merely because it is lawful to do so. The Assessing Authority shall also take into consideration the ratio of the decision in Employees’ State Insurance Corporation case, that only because a provision has been made for levy of penalty the same by itself would not lead to the conclusion that penalty must be levied in all situations. The Assessing Authority shall also exercise its discretion, in accordance with law, as regards the quantum of penalty, if the penalty is found leviable, and shall not go for the highest amount of penalty in a mechanical manner.”

 Decision

Allowing the present three writ applications, the Court reiterated the settled legal precedents and further directed, “…in case the Assessing Authority comes to the finding that the penalty was not leviable, the amount already deposited by the petitioner Company pursuant to the garnishee orders shall be refunded back with the statutory interest.”[Tenughat Vidyut Nigam Ltd. v. State of Jharkhand,  2019 SCC OnLine Jhar 2908, decided on 05-12-2019]


Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsSupreme Court

Supreme Court: When the bench of AM Khanwilkar and Ajay Rastogi, JJ was called upon to decide whether the condition of ‘use in the same form in which such goods are purchased’ under Rule 6(4)(m)(i) of the KST Rules expands the scope of charging section i.e. Section 5B under KST Act, 1957, it held,

“there is no variance between Rules 6(4)(m)(i) read with Explanation III and Section 5B of the KST Act, 1957.”

The Court said,

“We are clear, in our view, that Section 5B of the KST Act and Rule 6(4)(m)(i) of the KST Rules operate in different spheres. Section 5B is a charging provision for levy of sales tax whereas Rule 6(4)(m)(i) is a provision for deduction from tax. Under Section 5B, tax can be levied on transfer of property in the goods whether as goods or in some other form whereas Rule 6(4)(m)(i) provides for  a deduction in respect of the goods which have already suffered tax and which are used in the same form.”

It was explained that Section 5B of the KST Act is a charging provision which empowers the State to levy tax on the transfer of property in goods involved in works contract. At the same time Rule 6(4)(m)(i) read with Explanation III to Rule 6(4) of the KST Rules clarifies that the same goods can be taxed only once and cannot be made subject matter of multiple incidence of tax and the goods which have suffered   taxation undergoes transformation into a different commodity altogether and is then used in the execution of a works contract, the same being a different commercial commodity is liable to be taxed.

The Court explained that Rule 6(4)(m)(i) purports to grant benefit to the assessee by allowing deductions for the value of goods which have already suffered taxation and which goods substantially retain their original identity while being used in the execution of a works contract.  Explanation III to Rule 6(4) clarifies it further by categorically providing that in case the goods are transformed into a different commodity which then is used in the execution of works contract, then the benefit of deduction cannot be availed.

The Court also referred to a recent verdict in Achal Industries v. State of Karnataka, 2019 SCC OnLine SC 428 and said that it is trite law that tax provisions granting exemptions/concessions are required to be strictly construed.

[Craft Interiors v. Joint Commissioner of Commercial Taxes (Intelligence), 2019 SCC OnLine SC 815, decided on 02.07.2019]


Also read:

SC explains meaning of “total turnover” under the Karnataka Sales Tax Act

Case BriefsSupreme Court

Supreme Court: While examining the applicability of the turnover tax as defined under Section 6 B(1) of the Karnataka Sales Tax Act, 1957, the bench of AM Khanwilkar and Ajay Rastogi, JJ held:

“the expression ‘total turnover’ which has been incorporated as referred to under Section 6­B(1) is for the purpose of identification of the dealers and for prescribing different rates/slabs. The first proviso to Section 6­B(1) provides an exhaustive list of deductions which are to be made in computation of such turnover with a further stipulation as referred to in second proviso that except for the manner provided for in Section 6­B(1), no other deduction shall be made from the total turnover of a dealer.”

The Court said that the expression “total turnover” and “turnover” which has been used under Section 6­B has the same meaning as defined under Section 2(1)(u­2) and 2(v) of the Act. Under Section 6­B, reference is made on ‘total turnover’ and not the ‘turnover’ as defined under Section 2(v) of the KST Act and taking note of the exemption provided under first proviso clause(iii), exclusion has been made in reference to use of sale or purchase of goods in the course of inter­state trade or commerce.

It was contended before the Court that the ‘total turnover’ in Section 6­B(1) is to be read as ‘taxable turnover’ and the determination of the rate of the turnover tax is to be ascertained on the ‘taxable turnover’. The Court held that this submission was unsustainable and deserved outright rejection.

It said:

“the expression ‘total turnover’ has been referred to for the purpose of identification/classification of dealers for prescribing various rates/slabs of tax leviable to the dealer and read with first and second proviso to Section 6­B(1), this makes the intention of the legislature clear and unambiguous   that except the deductions provided under the first proviso to Section 6­B(1) nothing else can be deducted from the total turnover as defined under Section 2(u­2) for the purpose of levy of turnover tax under Section 6­B of the Act.”

[Achal Industries v. State of Karnataka, 2019 SCC OnLine SC 428, decided on 28.03.2019]

Case BriefsHigh Courts

High Court of Bombay: In a case where the petitioners were charged against unanticipated dues on a property by the Sales Tax authorities long after they had purchased the property, the division bench of B. P. Colabawalla and S.C. Dharmadhikari, JJ., held that even though the property was bought on an “as is where is basis” by the petitioners, they, having no knowledge (either actual or constructive) of the dues of the sales tax authorities before they purchased the said property, the sale tax authorities cannot recover their dues from the petitioners by enforcing their charge against the said property.

The petitioners purchased the said property pursuant to a sale conducted by the Nationalized Banks under the provisions of the SARFAESI Act, 2002. Petitioners contented that the Sales Tax Authorities cannot enforce their alleged charge on the said property purchased by the Petitioners as the alleged Sales Tax dues of the Defaulter Company were never disclosed to the Petitioners, and if at all the Sales Tax have any charge, it would have to be recovered from the sale proceeds which lie in the hands of the secured creditors i.e. the banks who had sold the mortgaged property. The Respondents submitted that once the sales tax dues were in arrears and they were always payable, then it is a charge on the properties of the dealer or any other person within the meaning of Section 38C of Bombay Sales Tax Act, 1969. This would enable the Sales Tax Department to go after the properties of the Defaulter Company and recover the sales tax dues. It was submitted that the sale being on ‘as is where is basis’ position, the Petitioners ought to have made their own inquiry to ascertain whether there were any encumbrances on the said property. Not having done so, the petitioners cannot contend that the claim of the Sales Tax Authorities cannot be enforced against the said property. Relying upon the Section 100 of the Transfer of Property Act,1882, which states that a ‘charge’ may not be enforced against a transferee if she/he has had no notice of the same, unless by law, the requirement of such notice has been waived, the Court rejected the aforesaid contention of the Respondents.

The Court noticed that the petitioner had merely purchased the said property which originally belonging to the Defaulter Company and which was mortgaged with the Respondents. Since, the Defaulter Company did not pay its dues to the Respondents, they, exercising their rights under the provisions of the SARFAESI Act, sought to enforce their security interest and sell the secured asset (the said property) to the Petitioners. Hence, the Court observed that the Petitioners can by no stretch of the imagination be termed as a successor of the business of the Defaulter Company to enable the Sales Tax Authorities to recover their dues from the Petitioners by enforcing their alleged charge against the said property purchased by the Petitioners under the provisions of the SARFAESI Act. However, it was clarified that its order and direction does not mean that the Sales Tax Authorities cannot proceed against the Defaulter Company.  [Sonoma Management Partners Pvt. Ltd. v. Bank of Maharashtra, 2016 SCC OnLine Bom 9649, decided on 22.11.2016 ]