Case: Commercial Taxes Officer Vs. A Infrastructure Ltd

2. The facts giving rise to this batch of appeals are that the assessee-company is engaged in the business of manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets and it had availed ITC on the purchase of raw material used in the manufacture of A.C. Sheets. The assessing authority issued notice to the assessee for the purpose of disallowing ITC on purchase of raw material used in manufacturing A.C. Sheets for the period mentioned hereinabove and pursuant to the show cause notice the assessee filed a detailed reply and eventually the assessing authority passed orders under Section 22 of the Act disallowing the ITC and charged interest. The said orders were assailed before the Appellate Authority which declined to interfere with the orders appealed against, compelling the assessee to file second appeals before the Board which placed reliance on ACTO v. M/s. Suncity Trade Agency (2006) 147 STC 405 )and dismissed the appeals. The Board while dismissing the appeals opined that the assessee-Company, a manufacturing unit, had not been charged on the sales of its product, as per the notification which squarely fall under the definition of exempted goods and hence, the final product was exempted, but it was not entitled to avail ITC as the notification clearly postulated that the units/institution was not exempted from the tax but the sales of its goods were exempted from tax as per the definition of. The grievance of dismissal constrained the assessee to file the revision petitions before the High Court, and seeking interference in the revision petition it was contended that the scheme of Section 8 of the Act which deals with exemption of tax and the notification issued under the Rajasthan Sales Tax Act, 1994 (for short, ‘the 1994and the various notifications issued under the said Act from time to time deal with A.C. Sheets and in view of the postulates laid down in the notification dated 09.03.2007, issued under sub-section (3A) of Section 8 wherein the manufacturer of asbestos cement sheets and bricks have been exempted and, therefore, it could not be said that A.C. Sheets manufactured by the assessee were exempted goods which is the pre-requisite for denying ITC under Section 18 of the Act. Reliance was placed on the judgment of ACTO v. Abishek Granites Ltd. (23 Tax-world 285)to buttress the proposition that exemption to unit is different from the exemption to the transaction of sale of the commodity. It was also highlighted before the High Court that when two views are possible, the view in favour of the assessee should be accepted and for the said purpose reliance was placed on CIT v. Kulu Valley Transport Co. (P) Ltd. (1970) 2 SCC 192 )The background of the issue of notification dated 09.03.2007 and the communication issued by the Commissioner, Commercial Taxes, Rajasthan, Jodhpur were stressed upon to bolster the plea that assessee was exempted from tax and not the A.C. Sheets manufactured by it.4. The stand of the assessee was controverted by the revenue contending, inter alia, that vide notification S.O. 372, manufacturers of A. C. Sheets and Bricks were included at S. No. 20 in Schedule-II, which entitles the units to claim exemption on the sale of manufactured goods on the fulfillment of certain conditions and in view of the specific conditions stipulated in Section 18(1)(A) of the Act, ITC was not allowed. Reliance was placed on notification S.O. 377, dated 09.03.2007 issued under Section 8(3) of the Act to harp that A.C. Sheets clearly fall within the category of exempted goods. Reference was made to the definition of ‘exemptedcontained in Section 2(13) & (15) of the Act. It was further submitted that irrespective of whether the notification was issued under sub-Section (1) or (3) or (3A) or (4), the goods would fall within the definition of exempted goods and consequently the assessee would not be entitled to ITC. For the said purpose, reliance was placed on M/s. Sun City Trade Agency (supra).On the aforesaid basis, the Court proceeded to further observe that by notification dated 16.03.2005 under the 1994 Act and the notifications dated 16.02.2006 and 05.07.2006 read with notification dated 09.03.2007 A.C. Sheets and Bricks were exempted. The goods, that is, A.C. Sheets and Bricks were taken out by S.O. 371 and the manufacturers of A.C. Sheets and Bricks were exempted by inclusion in Schedule-II by S.O. 372 and conditions for availing such exemption by the manufacturers were indicated by S.O. 377. On the basis of the aforesaid analysis, the revisional Court opined that it is significant that while S.O. 371 had been issued under Section 8(2) of the Act, S.O. 372 and 377 had been issued under Section 8(3A) and (3) respectively, which provisions, as noticed hereinbefore, dealt with Schedule-I under Section 8(2) and Schedule-II under Sections 8(3) and (3A), which in turn related to exemption of goods and exemption of persons respectively, therefore, it was apparent from the notifications issued on 09.03.2007 that the intention of the State was to exempt the manufacturers of A.C. Sheets and Bricks subject to fulfillment of conditions as indicated in S.O. 377 and to take away exemption available to A.C. Sheets and Bricks as goods, as was available before the said date on account of its inclusion in Schedule-I.7. As the impugned order would show, the High Court distinguished the judgment rendered in Sun City Trade Agency (supra), on the ground that the said decision dealt with a situation wherein the exemption notification pertaining to stainless steel flats, ingots and billets were exempted from tax on the conditions indicated in the notification and it had been held therein that merely because the exemption is conditional or given subject to fulfillment of certain conditions it does not mean that such goods would fall outside the definition of exempted goods.As has been stated earlier, the High Court has referred to various notifications. The notification dated 16th March, 2005 was issued under Section 15 of the Rajasthan Sales Tax Act, 1994.The said notification as mentioned therein was to remain in force upto 23.1.2010. When the said notification was in vogue another notification dated 1.6.2006 was issued under Section 8 of the 2003 Act.On 05.07.2006 another notification was issued in exercise of the powers conferred by sub-section (2) of Section 8 of the 2003 Act. On 09.03.2007, S.O. 371 was issued by the Finance Department (Tax Division) vide which S. No. 68A from Schedule-I appended to the Act (2) deleted. May it be noted that S. No. 60A was substituted by notification dated 05.07.2006 which has been referred to hereinbefore.18. The notification dated 09.03.2007, S.O. 372 was issued by the Finance Department (Tax Division) and the said department also issued another notification on the same day which is

Court's reasoning:
20. On an analysis of the scheme of the Act, it is manifest that there is difference between exempted goods, i.e., goods on which no Value Added Tax is payable and are, therefore, not taxable and other cases where a particular transaction when it satisfies specific condition is not taxable. In this regard reference to the authority in State of Tamil Nadu v. M.K. Kandaswami & others (1975) 4 SCC 745 ), would be seemly, for this Court had adverted to three distinct concepts; taxable persons, taxable goods and taxable events and how they were distinguished. It was observed in the said case that if the said distinction is overlooked, it may lead to serious error in construction and application of a taxing provision or enactment. In the case of taxable or non-taxable/exempted goods, the focal point and the focus is on the character and class of goods in relation to their exigibility. Referring to the provisions of Section 7-A of the Madras General Sales Tax, 1959, the expression in the Act, it was opined as regards the goods mentioned in the First Schedule of the Act that the sale and purchase was liable to tax at the rate and at the point specified therein. It was further held that the goods which were exempt were not taxable goods and, therefore, could not be brought to charge and taxed. However, notwithstanding the goods being taxable goods, there could be circumstances in a given case by reason of which a particular sale or purchase would not attract sales tax.As a sequitur, we are obliged to observe that if the contention of the appellant is to be accepted, the respondent though covered by exemption notification under Section 8(3) of the Act could be at a disadvantage because finally when the subsequent sale is made by a non-exempted dealer or tax stands paid on the non-exempted transfer, the goods, i.e., asbestos cement sheet, would suffer the tax on the entire sale consideration. This would place an exempted manufacturer-dealer at a disadvantageous position and make his products uncompetitive inspite of the exemption notifications under Section 8(3) of the Act.28. In the context of the issue in question, the respondents have rightly highlighted that where the appellant wanted to restrict the benefit of ITC when a particular dealer or transaction was exempted, it was so stipulated in the exemption notification issued under Sections 8(3) and 8(4) of the Act. Such notifications admittedly do exist and were issued by the appellant. They are also right in drawing support from the note sheets relating to Finance Bill 2007 as also the communications issued by Commissioner of Commercial Taxes. The note sheets and the communication of the Commissioner draw a clear distinction between exemptions when the goods were not taxable as they do fall under the First Schedule and when an exemption was granted under the Second Schedule, which relates to specified transaction of sale or exempted dealers even when the goods were taxable goods. In latter cases, subsequent dealers undertaking sale of goods would be liable to pay tax on sale of such products. There can be no shadow of doubt that subsequent dealers undertaking sale of goods manufactured and sold by the respondent company would be liable to pay tax on such products.