The State of Tamil Nadu vs Lavanya Enterprises

P.K. Misra, J.—Heard Mr. Rajasekar, Government Advocate for the appellants and Mr. Natarajan for the Respondent.

The present appeal is filed by the State of Tamil Nadu and the District Forest Officer against the order dated 19.4.2005 passed by the learned

single Judge of this Court in W.P. No. 10971 of 2000. Such writ petition was filed by the present Respondent for issuing writ of Certiorarified

Mandamus for quashing the order dated 27.1.2000 in Proceeding No. Proc.L.1049/99 and further directing the second respondent, the District

Forest Officer to release the sandalwood purchased by the present respondent in the auction dated 18.12.1998 without demanding demurrage and

penal interest and without insisting on payment on sales tax.

The present Appellant No. 2 had issued notification dated 27.10.1998 notifying about the auction of various classes of sandalwood. The

present Respondent who is an exporter of sandalwood products, participated in such auction held on 18.12.1998 and was the successful highest

bidder for a total quantity of 7 MTs for a sum of Rs. 34,27,600/-. A sum of Rs. 1 lakh was deposited as Earnest Money Deposit and a further

sum of Rs. 7 lakhs, which was otherwise due from the Forest Department to the present respondent, was adjusted. The present respondent

asserted in the writ petition that he had participated in the auction pursuant to ''confirmed export order'' placed with him. On 2.2.1999, the present

second appellant, while intimating about the confirmation of the bid, demanded that the present respondent is required to pay a sum of Rs.

2,74,894/- towards the sales tax dues in addition to the amount payable towards the auction. Immediately thereafter, on 6.2.1999, the present

respondent intimated to the Appellant No. 2 that since the transaction was in course of export, the Department should not insist on payment of

sales tax in view of Section 5(3) of the Central Sales Tax Act. Subsequently the respondent filed W.P.Nos.4574 & 4575 of 1999 for quashing the

order dated 2.2.1999 so far as it related to the payment of sales tax and to direct the Department to accept Form-H after export is over without

insisting on payment of sales tax and surcharge thereon. The petition for interim direction numbered as WPMP. No. 6590 of 1999 in W.P. No.

4575 of 1999 having been dismissed on 28.4.1999, the respondent filed W.A. No. 1156 of 1999. Such appeal was disposed of on 2.8.1999

directing the present second appellant to release the sandalwood upon deposit of 25% of the sales tax demand and furnishing bank guarantee for

the balance amount. Such order of the Division Bench was communicated by the respondent to the second appellant on 19.8.1999. Thereafter, on

31.8.1999, a communication was received from the second appellant wherein the present respondent was called upon to pay the entire sale

amount, demurrage charges, penal interest besides sales tax amount. On 8.9.1999, the writ petition was dismissed by the learned single Judge by

observing that the Department should consider all the materials placed before it and to consider the question of exemption u/s 5(3) of the Central

Sales Tax Act. After several correspondence, particularly by the respondent indicating about the various orders as well as referring to the export

orders, the Department communicated on 23.11.1999 that the present respondent was required to clear all dues including demurrage and penal

interest. It was also indicated by the Department that a bank guarantee should be furnished if the sandalwood would be procured for export

otherwise the full sales tax amount should be paid It was further indicated that if such direction was not complied within 15 days, action would be

taken to forfeit the amount and resale the sandalwood. The Department by way of reply to the letter of the respondent dated 2.12.1999, stated

that as per the judgment in W.P. No. 11123 of 12999 dated 2.3.1999, sales tax at 8% was liable to be paid. Ultimately, on 29.1.2000, an order

of forfeiture of the amount deposited by the present respondent was passed.

Thereafter, the respondent filed W.P. No. 10971 of 2000. Such writ petition was allowed by the learned single Judge by issuing the following

directions:

(i) The direction contained in the impugned order regarding forfeiture of the EMD and deposit is quashed.

(ii) The petitioner should keep alive the bank guarantee which was furnished already for a period of six months from today. If there is any difficulty

in keeping the earlier bank guarantee as alive, the petitioner shall furnish a fresh bank guarantee for a period of six months from today.

(iii) The respondents are directed to release the goods immediately after compliance of Clause (ii) above without claiming any demurrage or

penalty as the petitioner is not responsible for the delay and they have been agitating their rights with regard to the payment of sales tax.

(iv) The petitioner is directed to establish before the concerned authorities that they are entitled to the benefits u/s 5(3) of the Central Sales Tax

Act, 1956 with respect to the sandalwood purchased by them.

(v) If the petitioner is not able to establish within a period of five months as to their entitlement of the benefits as stated in Clause (iv) above, the

respondents are directed to enforce the bank guarantee and realise the amount.

(vi) If the petitioner is able to establish their case within the said period of five months regarding the benefits u/s 5(3) of the said Act, they are

entitled to get refund of the amount, if any, paid towards sales tax and also the respondents have to return the bank guarantee furnished by the

petitioner.

Learned Counsel for the appellants has questioned the order of the learned single Judge by raising the following contentions:

(1) As per the conditions of the auction notice, the purchasers were required to pay sales tax and, therefore, the present respondent need not have

unnecessarily dragged on the proceedings raising such controversy;

(2) Since the respondent had failed to complete the transaction and take delivery of the sandalwood in question, the Department had rightly called

upon the respondent to pay demurrage as well as penal interest; and

(3) The auction in question had been held long back in 1998 and the present price of the sandalwood having gone up, it would be inequitable to

complete the transaction.

It is to be noticed that soon after the order was passed by the learned single Judge, the present respondent tendered the entire balance amount

and also the required bank guarantee. Subsequently, in W.M.P. No. 20366 of 2005, the Division Bench had passed an interim direction relating to

release of the materials in question subject to furnishing of bank guarantee. However, the State Government had taken the matter to the Supreme

Court in SLP. No. 20650 of 2005, but such Application was rejected on 2.5.2006 directing the present appellant to release the goods forthwith.

Since there was further delay, contempt proceedings was initiated and the materials were delivered only thereafter on 21.7.2006.

Learned single Judge has relied upon the earlier Division Bench decision of this Court in W.A.Nos.94 to 96 of 2000 in coming to the conclusion

that there was no justification for the Department to insist on payment of sales tax in view of the provisions contained in Section 5(3) of the Central

Sales Tax Act. Learned single Judge, however, has given a direction to the present respondent to furnish bank guarantee, obviously with a view to

ensure that in case it is ultimately found that Section 5(3) is not applicable, liability relating to payment of sales tax can be recovered. Learned singe

Judge had also set aside the order of forfeiture on account of the conclusion that there was no justification for demanding payment of demurrage

and penal interest inasmuch as the delay was not on account of the lapse on the part of the present respondent, but was on account of various

unsustainable objections raised by the Department from time to time. For the aforesaid conclusions, the learned single Judge has relied upon the

observation made in the aforesaid Division Bench decision. It is relevant to note at this stage that the decision of the Division Bench in

W.A.Nos.94 to 96 of 2000, which was practically between the same parties though in respect of some other similar transactions, the State

Government had filed appeal before the Supreme Court, which was dismissed by the Supreme Court by giving a reasoned order confirming the

decision of the High Court.

As a matter of fact, almost under similar circumstances another Division Bench in a very recent decision in W.A. Nos. 405, 412 to 414 of 2003

and 3513 of 2004 (The Principal Chief Conservator of Forests, Chennai and Ors. v. Gupta Exports and Ors.) dated 25.10.2007 in respect of

similar transactions either between the same parties or between other exporters and the State Government, has taken a similar view and repelled

the contention of the State Government relating to sales tax dues, demurrage charges or penal interest.

Having regard to all these aspects, we do not find any justification to differ from the ultimate conclusion of the learned single Judge. The writ

appeal is accordingly dismissed. No costs.