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2007 DIGILAW 4196 (MAD)

STATE OF TAMIL NADU v. LAVANYA ENTERPRISES.

2007-12-13

K.K.SASIDHARAN, P.K.MISRA

body2007
JUDGMENT P. K. MISRA, J. - Heard Mr. Rajasekar, Government Advocate for the appellants and Mr. Natarajan for the respondent. The present appeal is filed by the State of Tamil Nadu and the District Forest Officer against the order dated April 19, 2005 passed by the learned single judge of this court in W.P. No. 10971 of 2000. Such writ petition was filed by the present respondent for issuing writ of certiorarified mandamus for quashing the order dated January 27, 2000 in Proceeding No. Proc. L. 1049/99 and further directing the second respondent, the District Forest Officer to release the sandalwood purchased by the present respondent in the auction dated December 18, 1998 without demanding demurrage and penal interest and without insisting on payment of sales tax. The present appellant No. 2 had issued notification dated October 27, 1998 notifying the auction of various classes of sandalwood. The present respondent who is an exporter of sandalwood products, participated in such auction held on December 18, 1998 and was the successful highest bidder for a total quantity of 7 MTs for a sum of Rs. 34,27,600. A sum of Rs. 1 lakh was deposited as earnest money deposit and a further sum of Rs. 7 lakhs, which was otherwise due from the forest department to the present respondent, was adjusted. The present respondent asserted in the writ petition that he had participated in the auction pursuant to "confirmed export order" placed with him. On February 2, 1999, the present second appellant, while intimating the confirmation of the bid, demanded that the present respondent is required to pay a sum of Rs. 2,74,894 towards the sales tax dues in addition to the amount payable towards the auction. Immediately thereafter, on February 6, 1999, the present respondent intimated to appellant No. 2 that since the transaction was in course of export, the department should not insist on payment of sales tax in view of section 5(3) of the Central Sales Tax Act, 1956. Subsequently the respondent filed W.P. Nos. 4574 and 4575 of 1999 for quashing the order dated February 2, 1999 so far as it related to the payment of sales tax and to direct the department to accept form H after export is over without insisting on payment of sales tax and surcharge thereon. Subsequently the respondent filed W.P. Nos. 4574 and 4575 of 1999 for quashing the order dated February 2, 1999 so far as it related to the payment of sales tax and to direct the department to accept form H after export is over without insisting on payment of sales tax and surcharge thereon. The petition for interim direction numbered as W.P.M.P. No. 6590 of 1999 in W.P. No. 4575 of 1999 having been dismissed on April 28, 1999, the respondent filed W.A. No. 1156 of 1999. Such appeal was disposed of on August 2, 1999 directing the present second appellant to release the sandalwood upon deposit of 25 per cent of the sales tax demand and furnishing bank guarantee for the balance amount. Such order of the Division Bench was communicated by the respondent to the second appellant on August 19, 1999. Thereafter, on August 31, 1999, a communication was received from the second appellant wherein the present respondent was called upon to pay the entire sale amount, demurrage charges, penal interest besides sales tax amount. On September 8, 1999, the writ petition was dismissed by the learned single judge by observing that the department should consider all the materials placed before it and to consider the question of exemption under section 5(3) of the Central Sales Tax Act. After several correspondence, particularly by the respondent indicating the various orders as well as referring to the export orders, the department communicated on November 23, 1999 that the present respondent was required to clear all dues including demurrage and penal interest. It was also indicated by the department that a bank guarantee should be furnished if the sandalwood would be procured for export, otherwise the full sales tax amount should be paid. It was further indicated that if such direction was not complied within 15 days, action would be taken to forfeit the amount and resale the sandalwood. The Department by way of reply to the letter of the respondent dated December 2, 1999, stated that as per the judgment in W.P. No. 11123 of 1999 dated March 2, 1999, sales tax at eight per cent was liable to be paid. Ultimately, on January 29, 2000, an order of forfeiture of the amount deposited by the present respondent was passed. Thereafter, the respondent filed W.P. No. 10971 of 2000. Ultimately, on January 29, 2000, an order of forfeiture of the amount deposited by the present respondent was passed. Thereafter, the respondent filed W.P. No. 10971 of 2000. Such writ petition was allowed by the learned single judge by issuing the following directions : "(i) The direction contained in the impugned order regarding forfeiture of the EMD and deposit is quashed. (ii) The petitioner should keep alive the bank guarantee which was furnished already for a period of six months from today. If there is any difficulty in keeping the earlier bank guarantee as alive, the petitioner shall furnish a fresh bank guarantee for a period of six months from today. (iii) The respondents are directed to release the goods immediately after compliance of clause (ii) above without claiming any demurrage or penalty as the petitioner is not responsible for the delay and they have been agitating their rights with regard to the payment of sales tax. (iv) The petitioner is directed to establish before the concerned authorities that they are entitled to the benefits under section 5(3) of the Central Sales Tax Act, 1956 with respect to the sandalwood purchased by them. (v) If the petitioner is not able to establish within a period of five months as to their entitlement of the benefits as stated in clause (iv) above, the respondents are directed to enforce the bank guarantee and realise the amount. (v) If the petitioner is not able to establish within a period of five months as to their entitlement of the benefits as stated in clause (iv) above, the respondents are directed to enforce the bank guarantee and realise the amount. (vi) If the petitioner is able to establish their case within the said period of five months regarding the benefits under section 5(3) of the said Act, they are entitled to get refund of the amount, if any, paid towards sales tax and also the respondents have to return the bank guarantee furnished by the petitioner." Learned counsel for the appellants has questioned the order of the earned single judge by raising the following contentions : (1) As per the conditions of the auction notice, the purchasers were required to pay sales tax and, therefore, the present respondent need not have unnecessarily dragged on the proceedings raising such controversy; (2) Since the respondent had failed to complete the transaction and take delivery of the sandal wood in question, the department had rightly called upon the respondent to pay demurrage as well as penal interest; and (3) The auction in question had been held long back in 1998 and the present price of the sandal wood having gone up, it would be inequitable to complete the transaction. It is to be noticed that soon after the order was passed by the learned single judge, the present respondent tendered the entire balance amount and also the required bank guarantee. Subsequently, in W.M.P. No. 20366 of 2005, the Division Bench had passed an interim direction relating to release of the materials in question subject to furnishing of bank guarantee. However, the State Government had taken the matter to the Supreme Court in SLP. No. 20650 of 2005, but such application was rejected on May 2, 2006 directing the present appellant to release the goods forthwith. Since there was further delay, contempt proceedings was initiated and the materials were delivered only thereafter on July 21, 2006. Learned single judge has relied upon the earlier Division Bench decision of this court in W.A. Nos. No. 20650 of 2005, but such application was rejected on May 2, 2006 directing the present appellant to release the goods forthwith. Since there was further delay, contempt proceedings was initiated and the materials were delivered only thereafter on July 21, 2006. Learned single judge has relied upon the earlier Division Bench decision of this court in W.A. Nos. 94 to 96 of 2000 (Lavanya Enterprises v. Secretary to Government of Tamil Nadu [2006] 145 STC 442 (Mad)) in coming to the conclusion that there was no justification for the department to insist on payment of sales tax in view of the provisions contained in section 5(3) of the Central Sales Tax Act, 1956. Learned single judge, however, has given a direction to the present respondent to furnish bank guarantee, obviously with a view to ensure that in case it is ultimately found that section 5(3) is not applicable, liability relating to payment of sales tax can be recovered. Learned singe judge had also set aside the order of forfeiture on account of the conclusion that there was no justification for demanding payment of demurrage and penal interest inasmuch as the delay was not on account of the lapse on the part of the present respondent, but was on account of various unsustainable objections raised by the department from time to time. For the aforesaid conclusions, the learned single judge has relied upon the observation made in the aforesaid Division Bench decision. It is relevant to note at this stage that the decision of the Division Bench in W.A. Nos. 94 to 96 of 2000 (Lavanya Enterprises v. Secretary to Government of Tamil Nadu [2006] 145 STC 442 (Mad)), which was practically between the same parties though in respect of some other similar transactions, the State Government had filed appeal before the Supreme Court, which was dismissed by the Supreme Court by giving a reasoned order confirming the decision of the High Court. As a matter of fact, under almost similar circumstances another Division Bench in a very recent decision in W.A. Nos. As a matter of fact, under almost similar circumstances another Division Bench in a very recent decision in W.A. Nos. 405, 412 to 414 of 2003 and 3513 of 2004 (The Principal Chief Conservator of Forests, Chennai v. Gupta Exports) dated October 25, 2007 in respect of similar transactions either between the same parties or between other exporters and the State Government, has taken a similar view and repelled the contention of the State Government relating to sales tax dues, demurrage charges or penal interest. Having regard to all these aspects, we do not find any justification to differ from the ultimate conclusion of the learned single judge. The writ appeal is accordingly dismissed. No costs. APPENDIX I [The decision of the Division Bench of the Supreme Court consisting of ASHOK BHAN and DR. AR. LAKSHMANAN, JJ in State of Tamil Nadu v. Lavanya Enterprises (Civil Appeal Nos. 826-829 of 2001, decided on May 2, 2006) is printed below :] ORDER Forest Department of the State of Tamil Nadu (the appellants herein) invited tenders for sale of sandalwood. Respondent - company (for short, "the respondent" herein) submitted a tender for 20 M.T. of sandalwood, the total value of which was Rs. 76,50,000. The tender submitted by the respondent was accepted on March 11, 1999. Similarly, the respondent had given bid for another 33 M.T. of sandalwood. He was adjudged the highest bidder in that auction as well. Respondent had purchased the sandalwood for export against pre-existing export orders. The appellant demanded sales tax on the value of the sandalwood which was resisted by the respondent on the plea that since the goods were purchased for export against a pre-existing export order no sales tax was leviable in view of the provisions of section 5(3) of the Central Sales Tax Act, 1956 (for short, "the Act"). Appellant refused to release the goods. Aggrieved against which, the respondent filed a writ petition in the High Court. The High Court directed the release of the goods on payment of 50 per cent of the sales tax and for the remaining on furnishing the bank guarantee. The appellant did not release the goods which forced the respondent to file a contempt petition. Ultimately, the goods were released on June 3, 2000 as per orders passed by the High Court. The appellant did not release the goods which forced the respondent to file a contempt petition. Ultimately, the goods were released on June 3, 2000 as per orders passed by the High Court. The Division Bench while disposing of the writ appeal directed the respondent to establish before the concerned authorities that they were entitled to the benefit under section 5(3) of the Act with respect to the sandalwood purchased by them in the auction held on February 25, 1999. State of Tamil Nadu was directed to release the goods without claiming demurrage and penalty. On the previous date of hearing, i.e., on March 21, 2006, counsel appearing for the respondent had brought to our notice that in pursuance to the directions given in the impugned order, the District Forest Officer passed an order on February 22, 2002 directing the release of the bank guarantee furnished by the respondent with regard to the purchase of 33 tonnes of sandalwood. He had also brought to our notice that the Sales Tax Officer had vide his order dated March 10, 2003 accepted the fact that the respondent had exported the goods purchased by it in the auction and accepted their form H for the balance 20 M.T. of sandalwood. Pleading ignorance of the orders dated February 22, 2002 and March 10, 2003 passed by the District Forest Officer and the Commercial Sales Tax Officer, respectively, the counsel appearing for the appellants sought time to get instructions. After getting instructions, learned counsel appearing for the appellants fairly concedes the fact that the orders dated February 22, 2002 and March 10, 2003, as aforesaid, had been passed and the respondent is not liable to pay the sales tax and that the appellants had accepted those orders and the same have become final. He, however, insisted that the respondent was liable to pay demurrage charges for non-removal of the goods within the stipulated time. According to him, the goods kept on lying in the godown of the State between May 25, 1999 and June 3, 2003 occupying the valuable space and they were liable to pay Rs. 600 per day as demurrage charges. He, however, insisted that the respondent was liable to pay demurrage charges for non-removal of the goods within the stipulated time. According to him, the goods kept on lying in the godown of the State between May 25, 1999 and June 3, 2003 occupying the valuable space and they were liable to pay Rs. 600 per day as demurrage charges. The High Court had rejected this plea by observing that no demurrage charges and penalty were leviable as it was the appellant who did not release the goods even on payment of 50 per cent of the sales tax and furnishing of bank guarantee for the balance 50 per cent as per the directions issued in W.M.P. No. 11782 of 1999 in W.P. No. 8343 of 1999. Accordingly, the High Court directed the appellant to release the goods, if not already done so, without payment of any demurrage charges or penalty. The respondent was not responsible for the delay, the delay, if any, was caused due to the unreasonable stand taken by the appellant. We agree with the view taken by the High Court that the respondent could not be fastened with the liability to pay the demurrage charges or penalty, as the respondent was not responsible for the delay. Delay, if any, was caused by the appellant in not releasing the goods in spite of the specific directions issued by the High Court to that effect. Accordingly, the appeals are dismissed with no order as to costs. The appellants are directed to release the bank guarantee forthwith. APPENDIX II [The decision of the Division Bench of the Supreme Court consisting of ASHOK BHAN and DR. AR. LAKSHMANAN in State of Tamil Nadu v. Lavanya Enterprises (Civil Appeal No. 2448 of 2006 arising from SLP (C) No. 20650 of 2005 dated May 2, 2006) is printed below :] ORDER ASHOK BHAN J. - Leave granted. The Division Bench of the High Court of Madras has refused to interfere with the order passed by the single judge of the High Court relying upon the decision rendered by a Division of that High Court in W.A. Nos. 94 to 96 of 2000 [Lavanya Enterprises v. State of Tamil Nadu ([2006] 145 STC 442 (Mad))]. The appellant has been directed to release the goods on furnishing the bank guarantee in the sum of Rs. 94 to 96 of 2000 [Lavanya Enterprises v. State of Tamil Nadu ([2006] 145 STC 442 (Mad))]. The appellant has been directed to release the goods on furnishing the bank guarantee in the sum of Rs. 25,00,000 which, according to the respondent - company, has been duly furnished. The State of Tamil Nadu filed Civil Appeal Nos. 826-829 of 2001 against the order passed in W.A. Nos. 94-96 of 2000 ([2006] 145 STC 442 (Mad)) which, after hearing, have been dismissed today by us. The order passed by the High Court has thus been confirmed. In view of this, we are not inclined to interfere with the interim order passed by the Division Bench. The appeal is dismissed accordingly. No costs. The appellant is directed to release the goods forthwith as the bank guarantee pursuant to the directions issued by the High Court has already been furnished by the respondent. Nothing stated in this order or the interim order passed by the High Court should be taken as an expression of opinion on merits of the dispute and the Division Bench would be at liberty to decide the appeal on its own merits. DR. AR. LAKSHMANAN J. - While disposing of the writ appeal, the Division Bench of the High Court in the impugned order had directed the State of Tamil Nadu (the appellants herein) to release the goods without claiming demurrage and penalty. The High Court also directed the respondent - company (the appellant in the writ appeal) to establish before the concerned authorities that they are entitled to the benefit under section 5(3) of the Central Sales Tax Act, 1956 (for short, "the Act") with respect to the sandalwood purchased by them in the auction held on February 25, 1999. Pursuant to the said direction, the respondent - company pursued the matter with the authorities. The authorities held that the respondent was not liable to pay the sales tax as the goods were purchased in the course of pre-existing export orders, in accordance with section 5(3) of the Act. Pursuant to the said direction, the respondent - company pursued the matter with the authorities. The authorities held that the respondent was not liable to pay the sales tax as the goods were purchased in the course of pre-existing export orders, in accordance with section 5(3) of the Act. On the previous date of hearing on March 21, 2006, counsel appearing for the respondent had brought to our notice that one of the bank guarantees furnished by the respondent with regard to the purchase of 33 tonnes sandalwood has been released by the District Forest Officer vide his order dated February 22, 2002, and also that the Sales Tax Officer's order dated March 10, 2003 wherein the Officer had accepted the fact that respondent had exported the goods purchased by the respondent in the auction and accepted their form H for the balance 20 M.T. sandalwood. Pleading ignorance of the orders dated February 22, 2002 and March 10, 2003 passed by the District Forest Officer and the Sales Tax Officer, respectively, the counsel appearing for the appellants sought time to have instructions to that effect. Counsel appearing for the appellants today fairly concedes the fact that the orders dated February 22, 2002 and March 10, 2003, as aforesaid, had been passed and the appellant has accepted those orders. As per those orders, the respondent is not liable to pay the sales tax, as has been held by the Division Bench. He, however, insisted that the respondent was liable to pay the demurrage charges for non-removal of the goods within the stipulated period and for the same having been kept by the appellant between May 25, 1999 and June 3, 2000. The delivery of the goods was taken only on the June 3, 2000. The High Court rejected the similar prayer and held that no demurrage charges and penalty were leviable as it was the appellant who did not release the goods even on payment of 50 per cent of the sales tax and furnishing of bank guarantee for the balance 50 per cent as per the directions issued in W.M.P. No. 11782 of 1999 in W.P. No. 8343 of 1999. Accordingly the High Court had directed the appellant to release the goods, if not already done so, without payment of any demurrage charges or penalty, as the respondent - company was not responsible for the delay and they were agitating their rights in regard to payment of sales tax. Counsel appearing for the appellants addressed the arguments limited to the issue of demurrage charges and accepted the decision of the Division Bench insofar as it relates to the liability of the sales tax. We agree with the view taken by the High Court that the respondent could not be fastened with the liability to pay the demurrage charges or penalty, as the respondent was not responsible for the delay. Delay, if any, was on the part of the appellant in not releasing the goods in spite of the specific directions issued by the High Court to that effect. Accordingly, the appeals are dismissed with no orders as to costs. The appellants are directed to release the bank guarantee forthwith.