IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 22.09.2011 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice M.JAICHANDREN TC(R). No. 34 of 2011 and MP. No. 1 of 2011 India Cements Limited 827, Anna Salai Chennai 600 002 ... Petitioner /Appellant -vs- The State of Tamil Nadu rep. By the Assistant Commissioner (CT) I, Fast Track Assessment Circle – II Chennai 600 006 ... Respondent/Respondent Tax Case Revision filed U/Sec.38 of the TNGST Act 1959 to revise the order of the Sales Tax Appellate Tribunal (Main Bench), Chennai dated 20.10.2005 in T.A.No. 135/2000 against the order of the Deputy Commissioner (CT) Appeals Chennai dated 24.12.99 and made in Appeal No. & Year 26/99. The Asst. Commissioner (CT) (Fast Track Assmt.Circle-II,Chennai- 6 dated 26.2.99 in Asst.No. & Year 072053/86-87. For Petitioner : Mr.N.Sriprakash For respondent : Mr.R.Sivaraman, Special Government Pleader ORDER (Order of the Court was made by CHITRA VENKATARAMAN,J) The Tax Case Revision is filed by the assessee relating to assessment year 1986-87. Under notification G.O. Ps. No. 1215 dated 1st November 1982, issued under Section 17(1) of the Tamil Nadu General Sales Tax Act, the Government exempted tax payable under the said Act on all sales of goods effected by the Tamil Nadu Electricity Board and its branches in the State of Tamil Nadu. https://hcservices.ecourts.gov.in/hcservices/ 2. The assessee herein is a manufacturer of Cement. It purchased fly ash from Tamil Nadu Electricity Board to the turnover of Rs.35,78,954/- and consumed the same in the manufacture of cement. Placing reliance on the notification exempting sales by the Tamil Nadu Electricity Board, the assessee contended that the question of levying any purchase tax did not arise. Thus, on the ground that the exempted turnover would not come into reckoning of the charging provision under Section 7A of the Income Tax Act, the assesee resisted the assessment proposed under Section 7-A of the Act. The Assessing Officer however rejected the said contention by placing reliance on the decision reported in 1992 MTCR 126 (Vol.2) – KHADI AND VILLAGE INDUSTRIES COMMISSION, SATTUR v. STATE OF TAMIL NADU. As against the demand, the assessee went on appeal before the Deputy Commissioner (Appeals), who reaffirmed view of the Officer. The assessee challenged the said order further before the Sales Tax Appellate Tribunal. The view of the Deputy Commissioner was once again confirmed by the Tribunal. Aggrieved by the same, present revision by the assessee. 3. A reading of the order of the Tribunal shows that while rejecting the contention of the assessee, the Tribunal cancelled the levy of penalty, having regard to the limitation on levy of penalty. Aggrieved by the assessment sustained under Section 7A of the Act, the assessee is before us. 4. Before considering the contention of the assessee, the provisions of Section 3 as well as Section 7-A of the Tamil Nadu General Sales Tax Act, as it stood during the material point of time has to be seen, which are as follows:- 3.Levy of taxes on sales or purchases of goods – (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than [one lakh of rupees] and every casual trader or agent of a non resident dealer, whatever be his turnover for the year, shall pay a tax for each year at the rate of [five per cent] of his taxable turnover: Provided that - (i) in the case of rice products (for example, rice flour and rice bran), milk, fresh vegetables (other than those mentioned in the First Schedule), fresh fruits, betel and plantain leaves, flowers, eggs, meat and fish (other than canned meat and fish), the rate shall be one per cent. 7-A. Levy of purchase tax – (1) Every dealer who https://hcservices.ecourts.gov.in/hcservices/ in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3, 4 or 5 as the case may be, and either, (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State ; or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in sections 3, 4 and 5, as the case may be, whatever be the quantum of such turnover in a year. Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under sub section (1) of Section (3)) shall not be liable to pay tax under this sub section if his total turnover for a year is less than one lakh of rupees. 5. Section 7-A of the Act came up for consideration in the decision reported in [1975] 36 STC 191 – STATE OF TAMIL NADU v. KANDASWAMI. The reported decision covered cases in respect of purchase of gingelly seeds from agriculturists, butter from householders, purchase of turmeric and grams from agriculturists and purchase of caster seeds from unregistered dealers. In considering the scope of Section 7-A of the Act, as it originally stood prior to the amendment dated 1.1.1987, the Apex Court held that the scheme of Section 7-A involves three inter- related but distinct concepts described as 'taxable person', 'taxable goods' and 'taxable event'. Referring to the expression of 'goods, the sale or purchase of which is liable to tax under the Act', the Apex Court pointed out that it qualified the term 'goods' and excluded by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under Section 8 or Section 17(1) of the Act. The Apex Court further pointed out that the goods so exempted, not being 'taxable goods', cannot be brought to charge under Section 7-A. When the goods purchased, ordinarily liable to tax, were not taxed at the hands of the sellers, on account of they being agriculturists or house holders, or purchase from unregistered dealers and the purchased goods were subjected to any one of the enumerated circumstance therein, the charge under Section 7-A of the Act stood attracted. The Apex Court pointed out that the main object of Section 7-A is to plug leakage as well as to prevent evasion of tax. https://hcservices.ecourts.gov.in/hcservices/ 6. In the decision reported in [1993] 88 STC 98 – HOTEL BALAJI v. STATE OF A.P., while considering similarly worded provisions of the Andhra Pradesh General Sales Tax Act, the Apex Court once again considered the import of purchase tax levy. In dealing with the provisions of the Andhra Pradesh General Sales Tax Act and the notifications issued, it held that, " It may be noticed that while exempting the sale or purchase of any specified class of goods the Government is empowered to specify whether the exemption operates at all points or any specified point or points in the series of sales or purchases of successive dealers. Several notifications have been issued by the Government from time to time exempting certain dealers or exempting certain goods at the point of sale or purchase, as the case may be. G.O. Ms. No. 1091 is one of them. We have already noticed the rather qualified terms in which the exemption is couched. It is not a general exemption but a qualified one. In the light of the specific scheme of Section 9 and the language of G.O. Ms. No. 1091, the exemption at the point of sale by a particular category of persons cannot be construed as operating to exempt the purchase tax under Section 6-A as well, much less in all cases. " 7. In the decision reported in 1992(1) MTCR 337 – STATE OF TAMIL NADU v. MURUGAPPA & CO., this Court had an occasion to consider the case of conditional exemption on the levy of purchase tax. The facts therein was that the assessee who was a dealer in livestock purchased the same and transported to Kerala for slaughtering and to sell it as a meat. As per the notification in G.O.Ps. 1858 Revenue dated 6.9.1969 sales by any dealer of sheep, goat, cows, bulls, bullucks, pigs and other animals, for slaughter, were exempted from tax. Noting the fact that the exemption was a general one, the assessee was not liable to suffer purchase tax under Section 7-A of the Act. This Court pointed out "the focal point in the expression 'goods the sale or purchase of which is liable to tax under the Act' in Section 7-A of the Act is the guiding factor to determine whether or not the transaction is exigible to tax liability. The goods exempted, being not taxable goods, they could not be brought to charge under Section 7-A of the Act." 8. In contract to the decision cited by the learned counsel for the assessee, there is yet another decision of this Court reported in 1992 (2) MTCR 126 – KHADI VILLAGE INDUSTRIES COMMISSION v. THE STATE OF TAMIL NADU, REP. BY THE DEPUTY COMMERCIAL TAX OFFICER, which https://hcservices.ecourts.gov.in/hcservices/ related to an exemption granted to particular class of dealer. In the context of the terms of notification granting exemption in respect of the tax payable under the said Act on the sale of all products of Village Industries Commission Act, 1956 effected by the institutions and persons certified for the purpose by the Khadi and Village Industries Commission or Madras State Khadi and Village Industries Board, subject to the condition that they shall deal only in products of village industries specified in the schedule to the said Central Act, 61 of 1956, this Court held that the notification of exemption is not a general exemption. When the hand made matches are exempt at a particular stage, if sold by a particular class of persons, the purchase or sale becomes taxable in the hands of the assessee. This Court pointed out that the assessee marketing hand- made matches purchased therein from cottage match manufacturing units at Sattur and sold them locally and also through their depots outside the State. The assessee contended that the transaction in question was exempted from payment of tax under Section 17 of the Act by virtue of notification issued thereon. Hence, the charge under Section 7-A was not attracted. This Court pointed out that the exemption granted to some other third parties who sold goods to the petitioner cannot come to the aid of the petitioner so as to avoid tax liability under Section 7A of the Act. Referring to the decision reported in [1975] 36 STC 191 – STATE OF TAMIL NADU v. KANDASWAMI, this Court pointed out that the notification not being a general one, the assessee was not entitled to succeed in its contention as regards chargeability to Section 7-A of the Act. Referring to the decision reported in 1992 I MTCR 337 – STATE OF TAMIL NADU v. MURUGAPPA & CO., this Court distinguished the same, holding that the notification therein enured to the benefit of the assessee therein, which was not so in the case of restrictive exemption. 9. A reading of these decisions of this Court and in the context of the decision reported in [1993] 88 STC 98 – HOTEL BALAJI v. STATE OF A.P., and [1975] 36 STC 191 – STATE OF TAMIL NADU v. KANDASWAMI, it is thus clear that the scheme of purchase tax levy under Section 7-A of the Act does not cover cases of sale or purchase of goods totally exempted from tax at all points under Section 8 or Section 17 (1). However, where the exemption is a qualified one, be it goods related or dealer related, purchase or sale of goods subjected to any of the contingencies enumerated under Section 7-A, would certainly attract the charge under Section 7-A of the Act. Going by these decisions, we have no hesitation in rejecting the plea of the assessee that the notification granting exemption to sale by Tamil Nadu Electricity Board cannot be considered as a circumstance to apply to the assessee to exclude the charge under Section 7-A of the Act. Quite apart from that Section 7-A itself underwent an amendment with effect from 1.1.1987 which reads as follows:- 7-A. Levy of purchase tax – (1) Every dealer who in https://hcservices.ecourts.gov.in/hcservices/ the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3, 4 or 5, as the case may be, (not being a circumstance in which goods liable to tax under sub-section (2) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First or the Second Schedule) and either - (a) consumes or uses such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State ; or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in sections 3, 4 and 5, as the case may be, whatever be the quantum of such turnover in a year. Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under sub section (1) of Section (3)) shall not be liable to pay tax under this sub section if his total turnover for a year is less than one lakh of rupees. 10. The amendment brought to Section 7-A of the Act with effect from 1.1.1987 by notification and the phrase ''not being a circumstance in which goods liable to tax under sub-section (2) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First or the Second Schedule) and either" was considered by this Court in the decision reported in [2008] 12 VST 546 – RUCHI SOYA INDUSTRIES LIMITED v. COMMERCIAL TAX OFFICER, HARBOUR III ASSESSMENT CIRCLE, CHENNAI AND OTHERS, and similar contention now taken was rejected. Thus, this Court applying the decision of the Apex Court, rejected the plea of the assessee and confirmed the assessment made under Section 7-A of the Act. 11. In the light of the provisions under section 3 as well as Section 7-A of the Act, before the amendment in the 1986 i.e. upto 31.12.1986, and thereafterwards from 1.1.1986 onwards, we have no https://hcservices.ecourts.gov.in/hcservices/ hesitation in holding that the assessments were correctly made and the Tribunal's order is in accordance with the principle of law laid down by the Apex Court in the decision reported in [1975] 36 STC 191 – STATE OF TAMIL NADU v. KANDASWAMI and in the decision reported in [1993] 88 STC 98 – HOTEL BALAJI v. STATE OF A.P. 12. In the circumstances, Tax Case Revision is dismissed. No costs. Consequently, connected MP is also dismissed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar bg To 1.The Assistant Commissioner (CT) I, Fast Track Assessment Circle – II, Chennai 600 006 2. The Sales Tax Appellate Tribunal (Main Bench), Chennai 3.The Deputy Commissioner (CT)Appeals, Chennai. +2ccs to Mr.N.Inbarajan, Advocate Sr 59258 +1cc to Spl. Govt. Pleader Sr 59582 GV(CO) km/29.10. TC(R). No. 34 of 2011 https://hcservices.ecourts.gov.in/hcservices/