Exemption from Additional Excise duty to fabrics not result into levy of VAT: Orissa HC

Basudev Textiles Vs State of Odisha (Orissa High Court)

1. The challenge in the present petition is to an assessment order dated 18^th July, 2016 passed by the Sales Tax Officer (STO), Mayurbhanj Circle, Baripada raising a demand and consequential penalty under Section 43 of the Odisha Value Added Tax Act (OVAT Act) for the period 26^th September, 2006 to 31^st March, 2008. While directing notice to issue in the present petition on 18^th November, 2016, this Court stayed the impugned assessment order. That interim order has continued since.

2. In the last over six years no counter affidavit has been filed by the Department.

3. The background facts are that the Petitioner-dealer carries on business of Textiles Fabrics on both wholesale and retail basis. The Petitioner effects purchases both from the inside and outside the State of Odisha but sells goods only inside the State of Odisha.

4. The A.G. Audit Team detected short levy of tax for the aforementioned period on the goods sold by the dealer and, accordingly, on that basis the AO finalized the assessment and raised a demand under Section 43 of the OVAT Act.

5. The STO rejected the plea of the Petitioner that in view of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act), textiles would be exempted from sales tax. This was in view of the notification dated 1^st March, 2006, by virtue of which Textiles stood excluded from the purview of the ADE Act. It was accordingly concluded by the STO that they would become amenable to sales tax from that date.

6. However, the fact remains that the Government of India issued a clarificatory circular on 3^rd May, 2006 whereby it was made clear in para 2 that the notification dated 1^st March, 2006 “does not change the earlier position in any manner whatsoever, as far as the issue to levy of VAT/Sales Tax of AED Items by the State is concerned”. In other words, if prior to 1^st March, 2006, no sales tax was leviable on Textiles by virtue of the AED Act that position would continue notwithstanding the exemption from the applicability of the AED Act on the Textiles. The STO does not appear to have taken note of the above clarificatory circular issued by the Government of India.

7. In that view of the matter, the impugned assessment order dated 18^th July, 2016 is hereby quashed.

8. The writ petition is allowed. No order as to costs.