The State of Tamil Nadu vs Tvl. Pari Trading Co.

M.M. Sundresh, J.—The Revision has been filed by the Revenue challenging the order passed by the Sales Tax Appellate Tribunal in

Appeal No. 238 of 1998 dated 04.04.2000 whereby the order of the Appellate Assistant Commissioner dated 07.11.1997 confirming the order

of the assessment officer dated 29.11.1996 for the assessment year 1992-93 has been set aside.

The brief facts of the case in a nutshell are as follows:

2.1. The respondent/assessee is an oil miller being a manufacturer of coconut oil and coconut oil cake. It has purchased coconuts and copra from

both dealers and the agriculturists.

2.2. Based upon the checking of the accounts a best of judgment assessment has been made making the assessee liable for tax on the purchase of

coconuts and copra at 4% u/s 7A of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called as ''Act'') in T.N.G.S.T. 845223/92-93

dated 29.11.1996 for the assessment year 1992-93 by fixing the turnover at Rs. 4,79,650/-. Challenging the said assessment an appeal was filed

by the assessee to the First Appellate Authority contending that inasmuch as the sale of coconuts and copra having been exempted and the

purchases are not being first one purchase tax cannot be levied on the assessee. It was also contended that the assessing authority cannot shift the

point of levy merely because the oil millers are liable to tax. Hence according to the assessee the commodity being not liable to tax at the point of

purchase the question of assessment u/s 7A of the Act does not arise.

2.3. However the First Appellate Authority after holding that coconuts and copra are taxable under entry 6(viii) of the II Schedule to the Act, and

the appellants being the manufactures of coconut oil and coconut oil cake having purchased the same has held that it is liable for purchase tax u/s

7A of the Act at the rate of 4%. It has further held that the exemption is only for the sale and not for the purchase and in any case the exemption

granted in G.O. Ms. No. 976, Revenue, dated 28th March, 1959 in Serial No. 3 to 9 is not applicable to the oil millers, since it is specifically

made applicable to the purchase of coconuts by any dealer other than the oil millers.

2.4. Not satisfied with the same, the assessee filed a further appeal before the Tribunal and the Tribunal has allowed the appeal relying upon the

judgment of the Apex Court rendered in Shanmuga Traders v. State of Tamil Nadu (1999) 114 STC 1 and held that inasmuch as the first sale is

exempted the point of levy cannot be shifted to fix the liability on the oil miller who is a second purchaser of the coconuts. Being aggrieved against

the same, the present revision has been filed by the Revenue.

We have heard Mr. Haja Naziruddin, learned Special Government Pleader (Taxes) appearing for the petitioner as well as Mr. S. Balamurugan,

learned Counsel appearing for the respondent.

The one and only point for consideration is as to whether the purchase made by the assessee being an oil miller is liable for purchase tax or not.

In the present case on hand the facts are not in dispute. The assessee is an oil miller having been purchased the coconuts and copra for the

purpose of manufacturing the coconut oil and coconut oil cake. It is also not in dispute that there is an exemption notification exempting the sale of

coconuts and copra which are specified items taxable under entry 6(viii) of the II Schedule to the Act. It is also further seen that as per the

exemption notification passed in G.O. Ms. No. 976, Revenue, dated 28th March, 1959 exemption is given to the purchase of coconuts by any

dealer other than oil millers. Therefore the question to be decided is as to whether the respondent is liable to be taxed u/s 7A of the Act or not.

The Tribunal has made reliance upon the judgment of the Apex Court rendered in Shanmuga Traders v. State of Tamil Nadu 114 (1999) STC

1 and held that when the first sale is exempted the point of levy cannot be shifted to fix a liability on the assessee. It is further held that point of levy

of tax cannot be shifted on the assessee after the first sale. A reading of the order of the Tribunal would clearly show that the Tribunal has totally

misconceived the facts of the case and applied the judgment rendered in Shanmuga Traders v. State of Tamil Nadu 114 (1999) STC 1 wrongly.

It is an case of wrong application of a judgment to the facts involved in a particular case. Admittedly the assessee is a purchaser and not a seller.

The facts involved in the judgment reported in Shanmuga Traders v. State of Tamil Nadu 114 (1999) STC 1 are concerned with the sale and not a

purchase. Therefore the decision of the Tribunal basing reliance upon the said judgment is totally erroneous and liable to be set aside.

Section 7A of the Act is both a remedial and a charging provision. The main object is to plug leakage and prevent evasion of tax. Section 7A

creates a liability against the dealer on his purchase turnover with regard to goods which are otherwise taxable but not taxed due to other factors

such as exemption etc. The Scope of Section 7A has been considered at length by the Hon''ble Apex Court in (1975) 36 STC 191 [State of Tamil

Nadu v. M.K. Kandaswami and Ors.] wherein the Hon''ble Apex Court has observed as follows:

The words ""under the Act"" will evidently include a charge created by Section 7A also. It is to be noted that Section 7A is not subject to Section 3;

it is by itself a charging provision. Section 7A brings to tax goods the sale of which would normally have been taxed at some point in the State,

subsequent to their purchase by the dealer if those goods are not available for taxation, owing to the act of the dealer in (a) consuming them in the

manufacture of other goods for sale or otherwise, or (b) despatching them in any manner other than by way of sale in the State, or (c) despatching

them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce.

Ingredients (4) and (5) are not mutually exclusive and the existence of one does not necessarily negate the other. Both can co-exist and in

harmony. Ingredient (4) would be satisfied if it is shown that the particular goods were ""taxable goods"", i.e., the goods, the sale or purchase of

which is generally taxable under the Act. Notwithstanding the goods being ""taxable goods"", there may be circumstances in a given case, by reason

of which the particular sale or purchase does not attract tax u/s 3, 4 or 5. Section 7A provides for such a situation and makes the purchase of such

goods taxable in the hands of the purchasing dealer on his purchase turnover if any of the conditions (a), (b) and (c) of sub-section (1) of Section

7A is satisfied.

It has been further observed as follows:

It may be remembered that Section 7A is at once a charging as well as a remedial provisions. Its main object is to plug leakage and prevent

evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book,

should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which

would render it otiose or sterile.

Therefore on a reading of the above said judgment, we are of the considered view that the assessee is liable to pay the purchase tax in

accordance with Section 7A of the Act.

Section 17 of the TNGST Act, 1959 provides for the state Government to issue notifications regarding exemptions. An exemption so granted

may be partial or total to be applicable for specifying class of goods or persons at all points or specifying points. When such an exemption is given

to only a specified class of persons for the sale the same is only partial in nature and in such an eventuality the exemption would not cover the

liability u/s 7A of the Act. In the present case on hand, admittedly the exemptions do not cover the assessee and therefore merely because the

sales by the agriculturists are exempted it cannot be contended that the purchase made by the assessee also to be exempted in the teeth of Section

7A of the Act.

The judgment of the Apex Court referred above has been followed subsequently by the Hon''ble Supreme Court in Coffee Board, Karnataka

v. Commissioner of Commercial Taxes and Ors. (1988) 70 STC 162] wherein it has held as follows:

The coffee growers being agriculturists are not dealers and therefore are not liable to pay any sales tax or purchase tax, it was submitted. The

demand for purchase tax is in effect a demand on the growers who were exempt from such levy, as the monies required for paying the tax if the

same in lawful has necessarily to come out of the monies otherwise payable to the growers. The object of the pool marketing system is not to

deprive the growers of a fair compensation for their produce by making them suffer a tax which they would not otherwise be required to suffer. An

analysis of sale to attract exigibility to duty, it was submitted. We are unable to accept these submissions. Section 6 of the Karnatake Sales Tax

Act, 1957, meets the situation created by such circumstances. This was examined by this Court in The State of Tamil Nadu Vs. M.K.

Kandaswami and Others, which examined Section 7A of Tamil Nadu General Sales Tax Act, 1959, which was in pari materia with Section 6 of

the Karnataka Sales Tax Act. In that view of the matter Section 6 of the Karnataka Act would be attracted.

The Division Bench of this Court in Viswanathan & Co. v. State of Tamil Nadu 76 (1990) STC 221 has held that in a case of purchase from

agriculturist Section 7A of the Act would be very much attracted.

Recently another Division Bench of this Hon''ble Court in 12 Vat and STC 546 Ruchi Soya Industries Limited v. Commercial Tax Officer,

Harbour III Assessment Circle, Chennai and Ors. has held as follows:

We do not find any reason to accept this line of thought. Section 7A does not give any room for such course of interpretation. Sections 3, 4 and

7A are independent charging sections. As already noted, Section 7A comes into play where the purchase of goods liable to tax does not suffer tax

in the circumstances, but are dealt with in the manner stated therein. It is no doubt true that a second sale of tax suffered goods enjoys the second

sale exemption. He may sell the goods inside the State again or sell the same as inter-State sale or despatch them to outside the State as

consignment or branch transfer. Any manner of dealing with tax suffered sales as prescribed u/s 7A like disposal of the goods otherwise than by

way of sale or using them in the manufacture, or despatch does not attract the provisions of the Act. The reason being that goods which normally

have been taxed at some point do not get taxed again. The policy of law is to tax every transaction of sale either at the point of sale or at the point

of purchase. Exemption is granted either partially or in absolute. Where the seller is not taxed, the purchaser is taxed. By the same reasoning, when

the seller is taxed, the purchaser is not taxed. As already seen there may be several contingencies wherein no such first sale liable to tax is assessed

and that goods are no longer available either because they cease to exist or be available for further consideration attracting tax. In such

contingencies, if the selling dealer cannot be taxed, the purchasing dealer is taxed by levy of purchase tax. The Supreme Court in the decision

reported in Hotel Balaji and others, Vs. State of Andhra Pradesh and others, etc. etc., , held that the postponement does not convert what is

avowedly a purchase tax to a consignment tax or tax on consumption. In so taxing, the question of shifting the point of taxation also does not take

place. It is relevant to note that even in the case of local sales, where the first sale has not suffered tax, the same are brought under the net of

taxation by reason of the second proviso to Section 3(2).

The Division Bench was pleased to observe that in a case where the seller is not or cannot be taxed then the purchasing dealer of such goods

is liable to be taxed. In so far as the scope of Section 7A of the Act is concerned, the Division Bench before whom the said provision has been

challenged has observed as follows:

We have already seen that the apex court held ""that Section 7A is at once a charging as well as a remedial provision. Its main object is to plug

leakage and prevent evasion of tax"". The Supreme Court pointed out in the decision reported in [1975] 36 STC 191 (State of Tamil Nadu v.

M.K. Kandaswami) that the principle behind the levy under purchase tax is that if the goods purchased are not available for taxation inside the

State and that by reason of one of the contingencies, the State is likely to lose its revenue, the interest of the State needs to be secured. The levy

created by the provision is one on purchase of materials within the State, which is dealt with in any one of the manners specified therein.

The apex court held that ""the policy of the Legislature is not to tax the same goods twice over. The fact in a given case, the purchased goods are

consigned by the purchaser to his own depots or agents outside the State makes no difference to the nature and character of the tax. By doing so,

he cannot escape even the one-time tax upon the goods purchased, which is the policy of the Legislature. The tax was directed towards ensuring

levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products

manufactured out of them"". The charge u/s 7A need not be necessary to check exemption but certainly it is pointing at the loophole caused by the

circumstances stated u/s 7A. If the goods are not available in the State for subsequent taxation by reason of the circumstances mentioned in

Section 7(A)(1)(a), (b), (c), then the purchaser is made liable u/s 7A.

Therefore on a consideration of the above said legal principle and consideration of the facts available on record, we are of the considered view

that the Tribunal has made a total error in setting aside the assessment order as confirmed by the First Appellate Authority by relying upon the

judgment of the Apex Court in Shanmuga Traders v. State of Tamil Nadu 114 (1999) STC 1 without appreciating the scope of Section 7A of the

Act as well as the entry 6(viii) of the II Schedule to the Act and the notification passed in G.O. Ms. No. 976, Revenue, dated 28th March, 1959.

Hence under those circumstances, we are of the considered opinion that the order passed by the Tribunal is liable to be set aside and

accordingly the same is set aside and consequently the order passed by the assessing officer which was confirmed by the First Appellate Authority

is hereby restored.

In the result, this revision is allowed. No costs.