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2009 DIGILAW 1065 (BOM)

INTER GOLD (INDIA) LTD. v. STATE OF MAHARASHTRA

2009-08-21

D.G.KARNIK, F.I.REBELLO

body2009
JUDGMENT FERDINO I. REBELLO, J. - By the present petition the petitioners seek to challenge the order of assessment whereby the petitioners have been held liable to pay purchase tax on gold purchased from MMTC under a replenishment licence under section 13AA of the Bombay Sales Tax Act, 1959. The petitioners are also aggrieved by the action of the respondents in charging purchase tax on a vehicle purchased for the use of its employees as also consequential charging of interest under section 36(3)(b) and penalty under section 36(2)(c) (Explanation 2) as also penalty under section 36(4A) of the Bombay Sales Tax Act. A show-cause notice was issued to the petitioners. The petitioners filed their reply to the said show-cause notice on October 3, 1997 denying their liability to pay purchase tax on purchase of gold. There was no specific denial in so far as purchase tax on the purchase of vehicle was concerned. The assessing officer was pleased to pass an order of assessment which was served on the petitioner on November 28, 1995. The petitioners being aggrieved by the order preferred an appeal before the appellate authority. In the course of the appeal, the appellate authority was of the opinion that the Sales Tax Officer while assessing the appellant did not levy purchase tax under section 13AA, though the goods fall into Part I of Schedule C attached to the Bombay Sales Tax Act, 1959. A show-cause letter was issued asking the appellants as to why purchase tax under section 13AA should not be levied along with consequential interest under section 36(3)(b). The petitioners filed a reply to the show-cause notice describing the procedure for purchase of gold from Minerals and Metals Trading Corporation of India Limited (MMTC). The petitioners also relied on various documents including customs notification. It was the submission of the petitioners that the purchase tax under section 13AA was not payable and alternatively if the purchase tax is held to be leviable then set-off under section 42(1) be granted to the petitioners. The appellate authority noted that the petitioners had filed an appeal challenging the levy of purchase tax under section 13 on the purchases of capital assets and had sought consequential relief in interest under section 36(3)(b) of the Bombay Sales Tax Act. The appellate authority held that the contention raised by the petitioners that purchase tax was not payable had to be rejected. The appellate authority held that the contention raised by the petitioners that purchase tax was not payable had to be rejected. The appellate authority also held that their case was not covered by amended section 16 of the Maharashtra Act, 19 of 1996 as the petitioners had failed to prove that the purchases were effected from the person who is not a dealer. Consequently as the petitioner had not paid tax with the returns, interest under section 36(3)(b) on the balance due is legally attracted and as such levy of interest was confirmed. Dealing with the provisions of section 13AA the learned Tribunal held that the sales effected by MMTC to the petitioners were against CK forms by paying local taxes. The petitioner had placed purchase orders before the MMTC which speak of outright purchase of gold and in the purchase order the petitioners had agreed to pay local taxes. It may be mentioned that the petitioners have annexed with this petition a certificate dated September 15, 1990 issued by the Sales Tax Officer II on the declaration being filed in form CK setting out that petitioner is authorised to purchase gold from MMTC without paying sales tax in view of the Government notification dated December 28, 1959 issued under section 41 of the Bombay Sales Tax Act on declaration in CK form without paying sales tax. The petitioners by this petition apart from challenging these orders of assessment have, in the alternative, also sought a declaration that section 13AA as was in force between April 1, 1990 and September 13, 1995 of the Bombay Sales Tax Act is unconstitutional. We will first examine the matter on the merits and only in the event that the relief as prayed for by the petitioner cannot be granted, do we propose to consider the challenge to the constitutionality of the provisions though, in our opinion, prima facie such challenge is debatable as the Bombay Sales Tax Act has been enacted pursuant to the power in the State Legislature under entry 54, List II of the Constitution of India. Rule was issued on July 9, 1998. The short question for our consideration is whether the petitioner is liable for payment of purchase tax on purchase of gold/bullion from MMTC. There is no dispute that the petitioner has an industrial unit at SEEPZ in Andheri East for manufacture of gold jewellery products for export. Rule was issued on July 9, 1998. The short question for our consideration is whether the petitioner is liable for payment of purchase tax on purchase of gold/bullion from MMTC. There is no dispute that the petitioner has an industrial unit at SEEPZ in Andheri East for manufacture of gold jewellery products for export. The Government of Maharashtra by notification of June 25, 1990 was pleased to amend, in exercise of its power under section 41(1) of the Bombay Sales Tax Act with effect from April 1, 1989, the Government notification, Finance Department No. STA/1059(iii)G1 dated December 28, 1959 after entry 288 to include the following entry : ----------------------------------------------------------------------------------------------------------------------------- "289 Sales of gold bullion Whole (1) If the gem and jewellery Government covered by entry 1, Part I of of tax unit furnishes to Notification, Schedule C appended to the selling dealer a Finance the Bombay Sales Tax Act, declaration in form CK Department 1959 effected by the declaring, inter alia, No. Minerals and Metals Trading that the unit is certified STA1089/73/Taxation-2, Corporation of India for that purpose dated the Limited (MMTC), P.O. Box by the Commissioner June 25, No. 11284, Maker Bhavan of Sales Tax, and that 1990." No. 2, 19 Sir Vithaldas the goods are purchased Thackersey Marg, Bombay for use within 400 020 to gem and jewellery "SEEPZ" in the units of the Santacruz manufacture of gem and Electronics Export jewellery products for Processing Zone (SEEPZ), export outside the Bombay. territory of India. ----------------------------------------------------------------------------------------------------------------------------- (2) If the gem and jewellery unit fails to use the goods in accordance with the terms of declaration furnished by it or contravenes any provision of the Act and Rules made thereunder, the certificate issued by the Commissioner of Sales Tax, shall be liable to be cancelled. ----------------------------------------------------------------------------------------------------------------------------- (3) The dealer shall not be entitled to claim any drawback, set-off or refund under the Bombay Sales Tax Rules, 1959, on the purchases of goods used by him in the manufacture or packing of goods referred to in column (2), the sales of which are exempted from payment of tax. ----------------------------------------------------------------------------------------------------------------------------- (4) The dealer holding recognition under section 25 of the Act, has not purchased on the strength of such recognition the goods used by him in the manufacture or packing of goods referred to in column (2). ----------------------------------------------------------------------------------------------------------------------------- (4) The dealer holding recognition under section 25 of the Act, has not purchased on the strength of such recognition the goods used by him in the manufacture or packing of goods referred to in column (2). ----------------------------------------------------------------------------------------------------------------------------- A perusal, therefore, of the said entry would show that the sales of gold bullion covered by entry 289 is exempted from the whole of the tax. "Tax" has been defined under section 2(32) as under : "'tax' means a sales tax, purchase tax, turnover tax, surcharge or resale tax, as the case may be, payable under this Act." This was before the substitution by Maharashtra Act, 25 of 1999 with effect from March 31, 1999 and the previous amendment by Maharashtra Act, 19 of 1995 with effect from October 1, 1995. It would thus be clear that "tax" included purchase tax and the Government notification exempted the whole of the tax. It is the submission on behalf of the respondents that the petitioners would be liable to pay purchase tax and at the highest they would be entitled to the set-off under rule 51. Section 13AA, before its substitution by Maharashtra Act, 16 of 1995 with effect from January 1, 1995, read as under : "13AA. Purchase tax payable on goods in Schedule C, Part I when unsold. - Where a dealer, who is liable to pay tax under this Act, purchases any goods specified in Part I of Schedule C, directly or through commission agent, (from any person) then, unless the goods so purchased are resold by the dealer, there shall be levied, in addition to the sales tax, paid or payable, if any, or as the case may be, the purchase tax levied or leviable, if any, under the other provisions of this Act in respect of purchases of such goods, a purchase tax at the rate of two paise in the rupee on the turnover of such purchases." It is thus clear that if a dealer who is liable to pay tax under the Act on purchases of specified goods does not resell them, he is also liable to pay purchase tax. Therefore, apart from incidence of sales tax at the point where the sale takes place the incidence of purchase tax will arise in a case of non-sale if such person is a dealer. Therefore, apart from incidence of sales tax at the point where the sale takes place the incidence of purchase tax will arise in a case of non-sale if such person is a dealer. Even if these points are considered to be different in point of time, the fact remains that in the instant case the petitioners have been allowed to purchase gold from MMTC under the replenishment licence for use in the SEEPZ area for the manufacture of articles of gold and jewellery for export. Ordinarily, therefore, under section 13AA the petitioner would be liable to payment of purchase tax as there is no sale. However, considering the Government notification earlier referred to, the petitioner is exempted from payment both of sales tax and purchase tax. It is not possible to accept the contention of the respondents that the tax referred to in the notification is only sales tax and not purchase tax. The second contention on behalf of the petitioner is that the purchase tax was not payable under section 13 on the purchase of a vehicle. It is the submission of the petitioner that the petitioner is not a dealer. Alternatively, it is submitted that to be forming a part of the business, there must be some recurrence or continuity. Apart from that reliance is placed on section 16(4) of the Maharashtra Act, 12 of 1996 to contend that purchase tax was not payable. The appellate authority in its finding which is recorded has clearly held that the petitioner had failed to prove that the purchases were effected from a person who was not a dealer. The learned counsel for the petitioner had sought to rely on two judgments of this court; firstly, in the case of Commissioner of Sales Tax v. Billion Plastics Pvt. Ltd. [1995] 98 STC 184. A learned Bench of this court in that case considering the expression "dealer" in the context of unregistered or not registered was pleased to hold that the section applies to purchasers from dealers who are unregistered or not registered. If the person from whom the purchase is made is a "dealer" in respect of the goods sold by him but not registered as a dealer, then section 13 would be attracted. If the person from whom the purchase is made is a "dealer" in respect of the goods sold by him but not registered as a dealer, then section 13 would be attracted. Purchasers of goods from a person who is not even a dealer within the meaning of section 2(11) of the Act will not fall within the purview of section 13 and no purchase tax would be leviable in respect of such purchases. The court further observed that purchases or sales of any and every goods by a person who is a dealer, cannot be regarded as purchases or sales by a dealer, unless such sales or purchases are in course of his business or incidental or ancillary thereto. This court thereafter in Morarji Brothers (Import & Export) Pvt. Ltd. v. State of Maharashtra [1995] 99 STC 117 was pleased to hold that a person carrying on the business of buying or selling certain goods cannot be regarded as a dealer in any and every goods sold by him without a finding that either he carries on the business of buying or selling such goods or that the sales of such goods are connected with or incidental or ancillary to his "business of buying or selling goods". In our opinion it will not be possible to apply the ratio of the judgments of this court in the absence of the petitioner having produced any material either before us or before the appellate authority. As noted earlier, on the contrary there is a finding against the petitioner that he had not established that the purchase was not from a dealer. The alternative submission in terms of section 12(4) of the Maharashtra Act, 19 of 1996 is that as the petitioner had preferred an appeal the petitioner would not be liable to pay the purchase tax. Section 16(4) reads as under : "16. The alternative submission in terms of section 12(4) of the Maharashtra Act, 19 of 1996 is that as the petitioner had preferred an appeal the petitioner would not be liable to pay the purchase tax. Section 16(4) reads as under : "16. (4) When any dealer has effected any purchases from a person who is not a dealer and has not paid purchase tax under section 13 of the Bombay Sales Tax Act in respect of such purchases only on the ground that such purchase tax is not payable on purchases effected from the persons who are not dealers and that no such tax could have been levied or collected if the persons who are not dealers and that no such tax could have been levied or collected if the amendments made in the Bombay Sales Tax Act, by this amendment Ordinance had not been made, and where such dealer has been assessed in respect of any period and he has objected to such levy in writing on the grounds as aforesaid and has filed an appeal against such order on the ground as aforesaid, then, notwithstanding anything contained in the Bombay Sales Tax Act as amended by this amendment Ordinance, he shall not be liable to such purchase tax in respect of such purchases and before the date of commencement of this amendment Ordinance." A perusal, therefore, would indicate that there are two requirements, firstly, an objection in writing and secondly that said person has preferred an appeal against that order on the ground as aforesaid. In the instant case the petitioner may have taken the ground in appeal, but as adverted to earlier in the reply to the show-cause notice no such objection was taken. The petitioner, therefore, is not entitled to take recourse to section 16(4). That contention must, therefore, be rejected. The orders of the assessing officer and the Appellate Tribunal to that extent are upheld. The assessing officer, and the Appellate Tribunal both had determined interest under section 36(3)(b). Once we hold that purchase tax was not payable the question of the petitioner being liable for interest under section 36(3)(b) in so far as gold is concerned will not arise and neither would interest on purchase tax. To that extent, the interest will have to be set aside. Once we hold that purchase tax was not payable the question of the petitioner being liable for interest under section 36(3)(b) in so far as gold is concerned will not arise and neither would interest on purchase tax. To that extent, the interest will have to be set aside. The matter is remanded back to the Sales Tax Officer for reworking the amount of interest only on the purchase of the vehicles in terms of our finding recorded in this judgment. That leaves penalty under section 36(2)(c) Explanation 1. Explanation 1 to section 36(2)(b) requires that on assessment or reassessment the total amount of tax paid by the dealer with returns for any period is found to be less than eighty per cent of the amount of tax so assessed or reassessed or found due in appeal or revision or rectification, then, for the purpose of clause (c) he shall be deemed to have concealed the particulars of the transactions or knowingly furnished inaccurate particulars of transactions liable to tax. In the instant case considering that we have held that the petitioner is not liable to pay purchase tax for the gold purchased from MMTC Explanation 1 would not be attracted. Even otherwise the petitioner had disclosed all particulars. The penalty on that count has to be set aside. The penalty imposed under section 36(4A) is in a sum of Rs. 200. Though it is true that in so far as gold is concerned we have held that no tax was payable nevertheless considering that we have held that tax was payable on purchase of capital asset, namely, motor vehicle, we find that no interference with the penalty under section 36(4A) is called for. Rule to that extent made absolute in terms aforestated, namely, the order to pay purchase tax is set aside. In so far as interest is concerned, the matter is remanded back to the Sales Tax Officer for re-computing interest only on purchase of vehicle. Penalty under section 36(2)(c) is set aside. However, penalty under section 36(4A) is upheld. In the circumstances of the case there shall be no order as to costs.