Karthik Electric Controls vs Commercial Tax Officer

A.P. Shah, C.J.—Admit. The learned Special Government Pleader (Taxes) waives service. By consent, the appeal is taken up for disposal.

The appellant/firm is engaged in the manufacture of control panels and is an assessee on the file of the Commercial Tax Officer, Podanur Circle, Coimbatore. The appellant was assessed by the assessing officer on a total and taxable turnover of Rs. 28,56,370 in proceedings bearing TNGST No. 1800946/1996-97 dated February 27, 1998. At the time of original assessment, the appellant was allowed concessional rate of tax at three per cent on a turnover of Rs. 14,86,537, being the sale of control panels manufactured by them. Subsequently, a pre-revision notice dated March 26, 2002 was issued by the assessing officer on the ground that the control panels manufactured and sold by the appellant, even though are electrical equipments, they come under "plant and machinery" and they are used to operate and control the machines and as such, they are not eligible for concessional rate of tax u/s 3(3) of the Tamil Nadu General Sales Tax Act, 1959 ("the Act", in short). Though the above turnover of Rs. 14,86,537 was assessed by the assessing officer at the time of original assessment at three per cent (against form XVII) u/s 3(3) of the Act, the assessing officer proposed to assess the same at the rate of 12 per cent u/s 16(1)(b) of the Act by disallowing the concessional rate of tax already extended. The appellant filed detailed objections vide its letter dated April 12, 2002. However, by the impugned order dated December 11, 2003, the assessing officer disallowed the concessional rate of tax at three per cent on a turnover of Rs. 14,86,537. The order of the assessing officer has been challenged by the appellant before the learned single judge in the present writ petition, which came to be dismissed holding that the appellant has an alternative remedy of preferring a statutory appeal.

Mrs. Hemalatha, learned Counsel for the appellant submitted that the issue relating to assessment of tax in terms of Section 3(3) of the Act has been considered by this Court in Premier Electro-Mechanical Fabricators, Madras-2 v. State of Madras [1968] 22 STC 269 and the Division Bench went into this issue and held as follows (at page 270):

What Section 3(3) enacts is that, notwithstanding what is contained in Sub-section (2), a dealer is entitled to the concessional rate as a matter of right, provided he satisfies the requisites of that sub-section. The requisites are three-fold : (1) The goods, which are the subject-matter of sale, should be those mentioned in the First Schedule, (2) the sale must be to another dealer and (3) the goods sold should be for the use by the purchaser as component parts of any other goods mentioned in the First Schedule, which he intends to manufacture inside the State for sale. If these requisites are satisfied, the lower rate of tax under Sub-section (3) will apply. So far as the first requisite is concerned, the assessing officer himself has treated the goods sold as falling within the First Schedule. It was only on that basis he charged three per cent. There is no dispute about the second requisite being satisfied ; for the purchaser is undoubtedly a dealer. The misapprehension of the department is particularly in respect of the third requisite. The assessee satisfies the requisite, if he complies with the proviso, and he is not called upon, beyond production of a declaration in form XVII, to show that the declaration has been given effect to. It is true that, in order to satisfy the third requisite, the goods sold should be for use by a purchasing dealer as component parts of some other goods to be manufactured. But the manner in which the seller has to satisfy the requisite is as provided in the proviso to the sub-section, namely, production of the declaration in the prescribed form. Once that is done, there is no further obligation on the part of the selling dealer and he will automatically be entitled to the concessional rate. If the declaration turns out to be false, in the sense that the goods purchased have not been used as declared in the prescribed form, the purchaser is exposed to the penalties provided by Section 23 and Section 45(2)(e). If the purchaser will make a false declaration or a declaration which he does not comply with he would do so under peril of meeting those penalties. But on that account, the selling dealer is not deprived of the concessional rate. The physical changes which the Board mentioned do not appear to us to bring about any substantial change to the fact that the goods sold will fall within the First Schedule and are to be used as component parts by the purchasing dealer in the manufacture of some other goods falling within that Schedule.

Subsequently, the Supreme Court had also an occasion to consider a similar provision relating to the Central Sales Tax Act in Chunni Lal Parshadi Lal v. Commissioner of Sales Tax, U.P., Lucknow [1986] 62 STC 112, and the Supreme Court, while dealing with the purpose behind the rules, held as follows (at page 118):

... The purpose for the making of the rule would, however, be frustrated if after the dealer proves in the manner indicated in Rule 12A he has to prove again how the purchasing dealer has dealt with the goods after he obtains the certificate from a registered dealer. That would make the working of the Act and rule unworkable.

On the question of the liability of the seller, the Supreme Court, in its judgment at pages 120 and 121, held as follows:

... This Court observed that indisputably the seller could have in these transactions no control over the purchaser. He had to rely upon the representation made to him. He must satisfy himself that the purchaser was a registered dealer, and the goods purchased were specified in his certificates but his duty extended no further. If he was satisfied on these two matters on a representation made to him in the manner prescribed by the Rules and the representation was recorded in the certificate in form C, the selling dealer was under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misapplied the goods he incurred a penalty u/s 10 of that Act. That penalty was incurred by the purchasing dealer and could not be visited upon by the selling dealer. The selling dealer was under the Act authorised to collect from the purchasing dealer the amount payable by him as tax on the transaction, and he could collect that amount only in the light of the declaration mentioned in the certificate in form C. . . . There was nothing in the Act and the Rules that for infraction of the law committed by the purchasing dealer by misapplication of the goods after he purchased them, or for any fraudulent misrepresentation by him, penalty might be visited upon the selling dealer.

This court further observed that if the purchasing dealer held a valid certificate specifying the goods which were to be purchased and furnished the required declaration to the selling dealer, the selling dealer became, on production of the certificate, entitled to the benefit of Section 8(1) of that Act. . . .

. . . We are of the opinion that this submission has to be accepted. After all, the purpose of the rule was to make the object of the provisions of the Act workable, i.e., realisation of tax at one single point, at the point of sale to the consumer. The provisions of the rule should be so read as to facilitate the working out of the object of the rule.

An interpretation which will make the provisions of the Act effective and implement the purpose of the Act should be preferred when possible without doing violence to the language. The genuineness of the certificate and declaration may be examined by the taxing authority but not the correctness or the truthfulness of the statements. The sales tax authorities can examine whether certificate is ''farzi'' or not, or if there was any collusion on the part of selling dealer-but not beyond-i.e., how the purchasing dealer has dealt with the goods ...

In a recent judgment in Sree Murugan Engineering Products v. Commercial Tax Officer [2006] 148 STC 419, the Division Bench, after examining the earlier cases, expressly rejected the argument of the Revenue and held as follows (at page 427):

The provisions of Section 10(3) of the Act relied upon by the learned single judge provide that where any dealer knowingly produces a false bill, vouchers, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him is not liable to be taxed or liable to be taxed at a lower rate, the assessing authority shall, on detecting such production, direct the dealer producing such document to pay as penalty a sum mentioned in that section. It is not the case of the Revenue that the seller has produced a false bill, voucher, declaration, certificate or other document with a view to support or make any claim that the transaction is not liable to be taxed or liable to be taxed at a lower rate. We fail to appreciate as to how Section 10(3) of the Act would be applicable to the facts of the present case. In fact, the assessing officer has referred to Section 12(3)(b) of the Act while imposing penalty and there is no reference to Section 10(3) of the Act. In the circumstances, it is impossible to agree with the view of the learned single judge that the law laid down by this Court in State of Tamil Nadu v. Madras Petro Chem Ltd. [1993] 89 STC 438 and State of Tamil Nadu v. Seema Udyog Writ Petition No. 10610 of 2000, decided on December 4, 2001-Madras High Court) is no longer good law.

The Division Bench also expressly rejected the plea regarding alternative remedy as raised by the Revenue and observed as follows (page 427 of 148 STC):

Lastly, we shall deal with the plea regarding alternative remedy as raised by the Revenue. Except for a period when Article 226 was amended by the Constitution (Forty-second Amendment) Act, 1976, the power relating to alternative remedy has been considered to be a rule of self-imposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. In Harbanslal Sahnia and Another Vs. Indian Oil Corpn. Ltd. and Others, , the Supreme Court held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion and not one of compulsion and the court must consider the pros and cons of the case and then may interfere if it comes to the conclusion that the petitioner seeks enforcement of any of the fundamental rights or where there is failure of principles of natural justice or where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. In a recent judgment in State of H.P. and Others Vs. Gujarat Ambuja Cement Ltd. and Another, , a three-judge Bench of the Supreme Court after an exhaustive consideration of the earlier decisions held as follows : (paras 23 and 24, at p. 20)

... That being the position, we do not consider the High Court''s judgment to be vulnerable on the ground that alternative remedy was not availed. There are two well recognised exceptions to the doctrine of exhaustion of statutory remedies. First is when the proceedings are taken before the forum under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court for quashing the proceedings on the ground that they are incompetent without a party being obliged to wait until those proceedings run their full course. Secondly, the doctrine has no application when the impugned order has been made in violation of the principles of natural justice. We may add that where the proceedings itself are an abuse of process of law the High Court in an appropriate case can entertain a writ petition.

Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess, they can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute.

In the instant case, in our opinion, the issue involved is covered by several decisions of this Court and the Supreme Court and it has been consistently held that for the contravention of conditions of form XVII, tax and penalty can be imposed only against the purchasing dealer and not against the seller as per Section 3(3) of the Act. Therefore, the impugned order passed by the assessing authority is clearly without jurisdiction.

In the result, the writ appeal is allowed. The order of the learned single judge is set aside and the writ petition stands allowed. We make it clear that this judgment shall not preclude the assessing officer in redoing the assessment for the relevant period in accordance with law. No costs. Consequently, M.P. No. 1 of 2007 is closed.