Sri Nagakrishna Filaments (P) Ltd. vs Government of Andhra Pradesh and Another

Syed Shah Mohammed Quadri, J.—The petitioner is a private limited company registered under the Companies Act. It is a small-scale industrial unit and claims to have been established to take advantage of the incentives offered by the State Government in G.O. Ms. No. 498, Industries and Commerce (IA) Department, dated October 16, 1989. The incentives include investment, subsidies, interest-free sales tax loans, sales tax holiday, power tariff concession, etc., for a period of five years from the date of commencement of the production. The eligibility of the small-scale unit has to be determined by the authority in accordance with the guidelines prescribed. The petitioner applied for eligibility certificate to avail the abovesaid incentives. Initially a temporary eligibility certificate was granted by the General Manager, D.I.C., Ranga Reddy District, Balanagar. In the final eligibility certificate issued to the petitioner, certain conditions were prescribed. Condition No. 1 in column 10 which is assailed in this writ petition, reads as follows :

"The SSI unit is not entitled to collect sales tax from the consumers and further they would be liable to remit the sales tax collected to Government in case they collect sales tax during the availment period of sales tax exemption."

The petitioner prays for a writ of mandamus declaring the action of the Additional Director of Industries, second respondent herein, in imposing the said condition No. 1 in clause 10 of the final eligibility certificate vide letter No. 2572/Desk/10/B4/93 dated April 2, 1994 as illegal, unauthorised and arbitrary.

Sri Krishna Koundinya, learned counsel for the petitioner, has vehemently contended that having regard to the provisions of section 6-A of the A.P. General Sales Tax Act, 1957, the petitioner cannot be retrained from collecting tax and therefore the said condition is illegal and unauthorised. He further contends that the very fact that the Government has exempted the small-scale industries from payment of sales tax is to enable them to collect tax and utilise the same for development of the unit and the condition thus imposed frustrates the very scheme, as such it has to be declared as illegal. We would have considered this contention in depth, had the issue not been res integra. A Division Bench of this Court, to which one of us (Justice Syed Shah Mohammed Quadri) was a Member, considered an identical contention in Sri Parvati Parameswara Cables Vs. Government of Andhra Pradesh and Others, and rejected the same. The Bench held :

"............According to the learned counsel for the petitioners, the real incentive that is intended under the G.Os., is cash subsidy of the sales tax amount which they could collect during the tax-holiday period without any condition for payment, thus placing them in a better position than the large scale and medium scale industries. According to the learned counsel, ''tax-holiday'' should and can mean only that. We are unable to agree with this submission. There is no doubt that if they are allowed to collect sales tax and appropriate the same without paying it to the State, they would be much better off, but we do not understand the G.Os., as giving them that gift. The G.Os., have provided for ''investment subsidy'' separately to small, medium and large scale industries. As regards sales tax, the benefit given to small-scale industries by the said G.Os., is only exemption from that tax up to a certain limit for a specified period : the likely object is to make their products more competitive price-wise. It is common knowledge that the cost of production of small-scale units is higher than that of large scale or medium scale units. The small-scale units would be placed in a disadvantageous position in marketing their high cost products if sales tax is also added to the price of those products. Because of the exemption from sales tax, in a sellers market, i.e., when demand is high, the small-scale units will have the advantage of increasing the price of their products without the burden of sales tax; and in a buyers market they can market their products better by reducing the price to the extent possible below the price of the products of medium and large scale units burdened with sales tax......"

However, Sri Krishna Koundinya relying on section 6-A of the Act submits that the said provision authorises the dealer, who enjoys the exemption to collect the tax. The relevant provision is clause (i) of section 6-A and it reads as follows :

"Every dealer, who in the course of business :

(i) Purchases any goods (the sale or purchase of which is liable to tax under this Act) from a registered dealer in circumstances in which no tax is payable u/s 5 or u/s 6, as the case may be, or

(ii) ...................

shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods u/s 5 or section 5-A or section 6."

In the circumstances enumerated therein, sections 5 and 6, relieve a dealer from payment of tax. According to section 6-A of the A.P. General Sales Tax Act every dealer who purchases any goods from a registered dealer has to pay tax on the turnover relating to purchase of such goods at the same rate at which tax would have been payable but for the existence of the circumstances mentioned in sections 5 and 6. In our view, invoking section 6-A is somewhat misconceived. The person who enjoys exemption u/s 9 of the Act cannot be permitted to maintain that the sale and purchase of those goods are liable to tax and collect tax thereon. When exemption in respect of the tax payable under the Act is given u/s 9, we fail to see how the petitioner can collect the sales tax.

The next contention of the learned counsel is that section 30-B which was initially inserted in the Act by Act 18 of 1985 was omitted by Act 4 of 1989 with effect from March 30, 1989; but it was again re-inserted by Act 22 of 1995 with effect from March 31, 1995 and it was not in force during the relevant period, namely, 1990 to 1994 as such there was no prohibition for a dealer to collect tax during the relevant period so the petitioner was entitled to collect the tax even though the sale or purchase of the goods in question were exempted under the Act. We are afraid we cannot accede to the submissions of the learned counsel. The twin prohibitions contained in section 30-B are : (i) the first is, every dealer is prohibited from collecting any sum by way of tax in respect of sales or purchases of goods which are not liable to tax under the Act or any tax in excess of the amount of tax already paid by him, if any, at the time of purchase by him and or payable by him on the sale by him under the Act; and (ii) the second is directed against persons in general, other than the dealers, who are prohibited from collecting any sum by way of tax from another person. It is difficult for us to accept the contention that in the absence of these prohibitions, a dealer or an individual is entitled to collect sales tax from persons at his choice and will and at the rate he chooses. In our view, even in the absence of section 30-B, no person including a dealer can arrogate to himself the power to collect tax on the sale or purchase of goods which the Government has exempted u/s 9 of the Act from others. In other words, if no tax is payable under the Act, no individual or dealer can collect tax on such goods. On the ground that section 6-A of the Act was not considered in Sri Parvati Parameswara Cables Vs. Government of Andhra Pradesh and Others, , we are not persuaded to take a view different from the one taken in that case. Consequently, we find no merits in the writ petition; it is accordingly dismissed. No costs.

Writ petition dismissed.