Case Law Details
Kosei Minda Aluminum Company Private Limited Vs Principal Commissioner of Commercial Taxes (Madras High Court)
The Madras High Court dismissed a writ petition challenging an assessment order dated 29.03.2023, which imposed VAT at 14.5% on inter-State sales effected without furnishing C-Forms. The petitioner contended that the assessing authority had wrongly relied on an advance ruling and argued that, following the amendment to Section 8 of the Central Sales Tax Act, 1956, the applicable rate should be the rate prescribed for capital goods under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act), namely 5%. It was submitted that the goods sold, namely moulds and dies, qualified as capital goods under Entry 5 of Part-B of the First Schedule to the TNVAT Act.
The State relied on the Division Bench judgment in Schwing Stetter (India) Pvt. Ltd., contending that goods qualify as capital goods under Section 2(11) of the TNVAT Act only if two conditions are fulfilled: first, the goods must fall within clauses (a) to (g) of the definition of capital goods, and second, they must be used within the State for manufacture, processing or other specified purposes. The State pointed out that the petitioner admitted that the moulds and dies were not used within the State and therefore did not satisfy the statutory definition of capital goods.
The Court observed that Section 8(2) of the Central Sales Tax Act applies because the parties agreed that C-Forms had not been furnished. Under that provision, the applicable tax rate is the rate applicable to the sale or purchase of the goods within the appropriate State. Examining Section 2(11) of the TNVAT Act, the Court noted that the phrase “used in the State for the purpose of manufacture, processing” forms an essential part of the definition of capital goods. Referring to the Division Bench decision in Schwing Stetter, the Court held that both conditions in Section 2(11) must be satisfied before the concessional rate applicable to capital goods can be claimed.
Since the petitioner admitted that the moulds and dies were not used within the State for manufacture, one of the mandatory conditions was not fulfilled. The petitioner was also unable to identify any other applicable entry in the TNVAT Schedule. Consequently, the Court held that the Tax Department was justified in classifying the goods under the residuary Entry 69 of Part-C of the First Schedule and levying VAT at 14.5%. Finding no infirmity in the assessment order, the Court dismissed the writ petition without costs and closed the connected miscellaneous petition.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An order dated 29.03.2023 is assailed in this writ petition. By such order tax was imposed at 14.5% on interstate sales effected by the petitioner without C-Forms.
2. Learned counsel for the petitioner contends that the State Tax Officer erred in relying on advance ruling bearing AC AAR No.080/2013-14 dated 22.07.2014. Relying on the judgment of this Court in M/s.Veesons Energy Systems(P) Limited v. The Commissioner of Commercial Taxes and another dated 27.03.2014 in W.P(MD) No.5866 of 2010, he contends that circulars and clarifications cannot be issued with regard to interpretation of statutory provisions and that the levy of tax must be within the four corners of law.
3. Referring to notification dated 29.03.2007, he submits that Section 8 of the Central Sales Tax Act, 1956 (the Central Sales Tax Act) was amended so as to provide for payment of tax on the sale of goods in the course of interstate trade or commerce at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State. Because the petitioner was dealing in capital goods, he contends that the applicable rate of tax is 5% as per entry 5 in part-B of the First Schedule to the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). In view of the imposition of tax at 14.5%, learned counsel contends that the impugned order is liable to be set aside.
4. Responding to these contentions, Ms.Amirta Poonkodi Dinakaran, learned Government Counsel (Tax) relies on the Division Bench Judgment of this Court in M/s.Schwing Stetter (India) Pvt. Ltd. v. The Commissioner of Commercial Taxes and another (Schwing Stetter), in W.P.No.37604 of 2007 & batch Judgment dated 05.04.2016 to contend that the issue raised by the petitioner herein was addressed in said judgment by concluding that two conditions are required to be fulfilled for goods to be treated as capital goods under the TNVAT Act. The first condition being that said goods should fall within clauses (a) to (g) of the definition of capital goods in Section 2(11). The second condition being that the goods should be used in the State for the purpose of manufacture, processing, etc. In the case at hand, she submits that, admittedly, the goods concerned were not used within the State.
5. Because the goods don’t fit within any of the specific entries in the schedule to the TNVAT Act, she submits that the residuary entry (entry 69) in part-C of the First schedule to the TNVAT Act is applicable.
6. Section 8(2) of the Central Sales Tax Act reads as under:
“(2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State.
Explanation:- For the purposes of this sub-section, a dealer shall be deemed to be a dealer liable to pay tax under the sales tax of the appropriate State, not withstanding that he, in fact, may not be so liable under that law.”
7. It is common ground between the parties that C-Forms were not provided and, therefore, sub-section (2) is applicable. Sub-section (2) prescribes that the rate applicable to the sale or purchase of the relevant goods inside the appropriate State shall be adopted in cases falling within its scope. The petitioner contends that he dealt with moulds and dies, which fall within the definition of capital goods in Section 2(11) of the TNVAT Act. Section 2(11) reads as under:
“(11) “capital goods” means, —
(a) plant, machinery, equipment, apparatus, tools, appliances or electrical installation for producing, making, extracting or
processing of any goods or for extracting or for bringing about any change in any substance for the manufacture of final products;
(b) pollution control, quality control, laboratory and cold storage equipments;
(c) components, spare parts and accessories of the goods specified in (a) and (b) above;
(d) moulds, dies, jigs and fixtures;
(e) refractors and refractory materials;
(f) storage tanks; and
(g) tubes, pipes and fittings thereof;
used in the State for the purpose of manufacture, processing, packing or storing of goods in the course of business excluding civil structures and such goods as may be notified by the Government.”
8. Apart from listing different kinds of goods in clauses (a) to (g), the phrase “used in the State for the purpose of manufacture, processing” is used therein. This condition was examined in Schwing Stetter by a Division Bench of this Court and the Court categorically held that both these conditions should be fulfilled for the goods to be treated as capital goods for purposes of applying the rate of tax prescribed for such goods in the TNVAT Act. The admitted position is that the moulds and dies of the petitioner were not used in the State for the purpose of manufacture. Hence, one of the conditions in Section 2(11) is not satisfied. Learned counsel for the petitioner has been unable to point to any other entry in the schedule to the TNVAT Act as being applicable. In those circumstances, there is no infirmity in the Tax Department resorting to the residuary entry, namely, entry 69 of part-C of the first schedule.
For reasons aforesaid, I find no reasons to interfere with the impugned order. Therefore this writ petition is dismissed without any order as to costs. Consequently, connected writ miscellaneous petition is closed.
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