T.C. Agro Foods Industries vs State of Haryana and Others

Ajay Kumar Mittal, J.—In this petition filed under article 226 of the Constitution of India, the petitioner has prayed for declaring rule 28A(2)(n)(ii), Explanation and rule 28A(4)(a), first proviso of the Haryana General Sales Tax Rules, 1975 (in short, "the Rules") to be ultra vires articles 286 and 269(g) and (h) read with entries 92A, 92B of List I, Schedule VII of the Constitution of India. Further, a writ of certiorari has been sought for quashing the orders dated May 20, 2002 (annexure P1) and December 23, 2002 (annexure P2). The petitioner is engaged in the husking of paddy and sale of rice, etc: It filed its statutory returns for the assessment year 1997-98. The Assessing Officer vide order dated May 20, 2002 (annexure P1) completed the assessment. During the year in question, the petitioner sold rice within the State to the registered dealers as also made inter-State sales. Rice was also supplied to the District Food and Supply Commissioner (DFSC) under Rice Procurement Levy Order and was sent outside the State by way of consignment sales as also exported rice out of India. The petitioner was granted exemption of tax under rule 28A of the Rules. However, the consignment sales made were not allowed because the dealer was not entitled to the benefit of consignment sales during the currency period of exemption of tax as it had been granted exemption from the period October 10, 1995 to October 9, 2004 for an amount of Rs. 23,07,571. The revisional authority vide order dated December 23, 2002 (annexure P2) while revising the assessment order dated May 20, 2002 (annexure P1) created an additional tax liability and increased the quantum of notional tax liability. Hence, the present writ petition. The writ petition was admitted vide order dated January 30, 2003. The, respondents filed a joint written statement controverting the averments made in the written statement.

We have heard learned counsel for the parties.

The following two issues have been raised contending that the same arise for consideration of this court in this writ petition :

"(i) Whether the dealer is liable to pay purchase tax on paddy which is included in the levy price to the DFSC?

(ii) Whether for the purpose of notional'' sales tax liability, the export sales are includible therein or not?"

It was not disputed that issue No. (i) was covered against the assessee in Jay Vee Rice and General Mills Vs. State of Haryana and Others, , wherein it was held as under (page 581 in 35 VST) :

"18. Since they had collected the purchase tax, they were required to deposit the same in the Government exchequer and there could be no justification for them to retain the purchase tax and appropriate the same to their own use. Retention of such purchase tax collected by the appellant amounts to unjust enrichment which is not permissible in view of the law laid down by the Constitution Bench of this court in the case of Mafatlal Industries Ltd. and Others Vs. Union of India (UOI) and Others, ."

The Supreme Court while examining issue No. (ii) in State of Haryana Vs. Liberty Enterprises, had observed as under (pages 8 and 9 in 22 VST):

"14. The Department has placed heavy reliance on the proviso in rule 28A(4)(a), which has been quoted above. The said proviso states that in case of exemption, the benefit shall extend to tax on gross turnover and in case of deferment it shall extend to tax on the taxable turnover of the goods manufactured by the unit. We have quoted the definition of the word ''gross turnover'' which is defined to mean the aggregate of the amount of sales and purchases made by any dealer. The Department placed heavy reliance on this definition of the words ''gross turnover'' to say that it would include export sales, particularly, when rule 28A contains a proviso to the effect that in case of exemption, the benefit shall extend to tax on ''gross turnover''. There is no dispute on this proposition. However, in this case we are concerned with the ''limit'' to be placed on tax exemption/deferment and for calculating that limit/ceiling one has to take into account the notional sales tax liability of the unit:, Therefore, One has to read the proviso in rule 28A(4) with Explanation 1 which states that for the purposes of arriving at the limit of tax exemption/deferment, the notional sales tax liability of the unit shall be taken into consideration''. It is because of the said Explanation that ''notional sales tax liability'' has been defined in rule 28A(2)(n). Therefore, one has to go strictly by the definition of the words ''notional sales tax liability'' in the said rule 28A(2)(n) of the 1975 Rules.

There is one more aspect which needs to be considered. For the purpose of granting exemption from payment of sales tax under section 13B of the 1973 Act, the Legislature incorporated rule 28B on September 16, 1998 providing conditions for availing of exemption from payment of sales tax to eligible units. Under the provisions of rule 28B of the 1975 Rules, benefit of exemption was available for a specified period and up to the specified quantum. However, rule 28B provided that for the purposes of calculating the quantum of exemption availed of by the unit up to the limit of tax exemption allowed, the notional sales tax liability shall be taken into consideration. Accordingly, ''notional sales tax liability'' stood defined even in rule 28B(3)(m). On a bare reading of the definition of ''notional sales tax liability'' under rule 28B(3)(m) it is clear that the definition included within its scope ''sales made in exports outside India'' by deeming it to be a sale in the course of inter-State trade or commerce. Such deeming fiction did not exist in rule 28A(2)(n). Rule 28B(3)(m) is not applicable to the facts of the present case. However, in order to explain the position, we have discussed, by way of analogy, rule 28B(3)(m) of the 1975 Rules.

For the aforestated reasons, we hold that export sales were not includible in the matter of calculation of ''notional tax liability'' during the period in question."

In view of the above, we dispose of the writ petition and remand the matter to the Assessing Officer who shall pass fresh order in the light of the aforesaid observations after affording an opportunity of hearing to the assessee-dealer in accordance with law.