Articles

Sale Tax Officer's Order Quashed by Hon'ble Rajasthan High Court

Assessment by Tax Officer was illegal and quashed by Rajasthan High Court


IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN

JODHPUR

: O R D E R :

PRESENT

HON'BLE MR. JUSTICE ARUN BHANSALI

----

REPORTABLE

By the Court:

These revision petitions are directed against judgment dated 23.11.2011 passed by the Rajasthan Tax Board, Ajmer ('the Board'), whereby, the appeals filed by the petitioner against the orders of Dy. Commissioner (Appeals), Commercial Taxes, Udaipur ['DC (Appeals)'] dated 16.04.2009 upholding the assessment orders passed by the Commercial Taxes Officer, (Special Circle), Bhilwara ('the Assessing Authority') dated 20.05.2008 and 25.08.2008 for various quarters of the year 2006-07, 2007-08 and 2008-09 disallowing the claim of Input Tax Credit ('ITC') and charging interest under Sections 22, 18 and 55(4) of the Rajasthan Value Added Tax, 2003 ('the Act'), were dismissed. The facts in brief may be noticed thus: the petitioner

Company is engaged in the business of manufacturing Asbestos Cement Pressure Pipe and Asbestos Cement Sheets ('A.C. Pressure Pipe and A.C. Sheets'); the petitioner availed ITC on the purchase of raw material used in the manufacture of A.C. Sheets; the Assessing Authority issued notices to the petitioner for disallowing ITC on purchase of raw material used in manufacturing A.C. Sheets for the period under reference; the petitioner filed its detailed reply to the notice; however, not accepting the reply, the Assessing Authority while passing orders under Section 22 of the Act disallowed the ITC and charged interest.

The petitioner filed appeals before the DC (Appeals), however, the appellate authority also rejected the appeals by common judgment dated 16.04.2009. Aggrieved, the petitioner filed second appeals before the Board, however, the Board after hearing the parties, while relying on the judgment of this Court in ACTO v. M/s Suncity Trade Agency : (2006) 147 STC 405, also dismissed the appeals observing and holding thus:-

“This bench confirms the finding of DC (Appeals) that the appellant company, a manufacture of A.C. Sheets, which has not charged VAT on their sales is exempt from tax on sale of its manufacture product, as per notification, meaning thereby that not the unit/institution is exempt from tax but the sales of its goods are exempt from tax, which squarely fall under the definition of exempted goods. Therefore the A.C. Sheets manufactured and sold by the appellate company are exempted goods and thus not eligible for availing ITC. We agree with the view taken by the appellate authority on the issues of the case and find no cause to interfere in his order.” It is contended by learned counsel for the petitioner that the Board fell in error in affirming the judgment passed by the DC (Appeals); the Board failed to take into consideration the real purpose and purport of the provisions of the Act, the notifications issued thereunder as applicable to the petitioner and the basic principles of interpretation of statutes. Learned counsel made submissions on the scheme of Section 8 of the Act, which deals with exemption of tax, the history of exemption notifications issued under the Rajasthan Sales Tax Act, 1994 and various notifications issued under the Act from time to time  dealing with A.C. Sheets; further, principally submitting that in

terms of notification dated 09.03.2007 issued under Sub-section (3A) of Section 8, it is the 'manufacturers of Asbestos Cement Sheets and Bricks' who have been exempted and, therefore, it cannot be said that the 'A.C. Sheets' manufactured by the  petitioner are 'exempted goods', which is a prerequisite for denying ITC under Section 18 of the Act. Reliance was placed on the judgment of this Court in ACTO v. Abhishek Granites Ltd. : 23 Tax-World 285 in support of the contention that exemption to unit is different from exemption to the transaction of sale of the commodity and (1970) 2 SCC 192 : CIT v. Kulu Valley Transport Co. (P) Ltd. to support the contention that if two views are possible, view in favour of assessee should be accepted. 

 

Reliance was also placed on certain notifications issued

under the Act in relation to Self Help Groups and Institutions,

Cooperative Societies and Individuals registered with the Khadi

and Village Industries Commission or the Rajasthan Khadi and

Village Industries Board, who though have been exempted under

Section 8(3) of the Act, specific condition has been prescribed

that no ITC shall be claimed by such dealers.

Learned counsel for the petitioner also relied on the

background, in which, the notifications dated 09.03.2007 were

issued with reference to the note-sheet of the Finance

Department in respect of the proposed amendments to the

Rajasthan Finance Bill, 2007 and a communication issued by the

Commissioner, Commercial Taxes, Rajasthan, Jaipur to all Dy.

Commissioner (Administration), Commercial Taxes Department,

in substance indicating that though the petitioner is exempt from

tax, A.C. Sheets manufactured by it are not exempted goods.

Per contra learned counsel for the respondent submitted

that vide notification S.O.372, whereby, the manufacturers of

A.C. Sheets and Bricks were included at S.No.20 in Schedule-II,

entitles the units to claim exemption on the sale of manufactured

goods on the fulfillment of certain conditions and in view of

specific provision of Section 18(1)(e) of the Act, ITC cannot be

allowed. 

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Reliance was placed on notification S.O.377 dated

09.03.2007 issued under Section 8(3) of the Act to state that

A.C. Sheets clearly fall within exempted goods. Submissions

were made with reference to definition of 'exempted goods' and

'goods' contained in Sub-sections (13) and (15) of Section 2 of

the Act, respectively that irrespective of whether the notification

is issued under Sub-sections (1) or (3) or (3A) or (4), the goods

would fall within the definition of exempted goods and,

consequently, petitioner would not be entitled for ITC. Reliance

was also placed on the judgment of this Court in ACTO v. Suncity

Trade Agency (supra).

I have considered the rival submissions.

Before considering the contentions raised by learned

counsel for the parties, it would be appropriate to notice the

provisions of the Act, which are relevant for the present

purpose:-

“Section 2(13) “Exempted goods” means any

goods exempted from tax in accordance with the

provisions of this Act;

(15) “goods” means all kinds of movable property,

whether tangible or intangible, other than

newspapers, money, actionable claims, stocks,

shares and securities, and includes materials, articles

and commodities used in any form in the execution of

works contract, livestock and all other things

attached to or forming part of the land which is

agreed to be served before sale or under the contract

of sale;”

“Sec.-8. Exemption of tax.-

(1) The goods specified in the Schedule-I shall be

exempt from tax, subject to such conditions as

may be specified therein.

(2) Subject to such conditions as it may impose,

the State Government may, if it considers

necessary so to do in the public interest, by

notification in the Official Gazette, add to or

omit from, or otherwise amend or modify the

Schedule-I, prospectively or retrospectively,

and thereupon the Schedule shall be deemed

to have been amended accordingly.

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(3) The State Government in the public interest,

by notification in the Official Gazette, may

exempt whether prospectively or

retrospectively from tax the sale or purchase

by any person or class of persons as

mentioned in Schedule-II, without any

condition or with such condition as may be

specified in the notification.

(3A) Subject to such conditions as it may impose,

the State Government may, if it considers

necessary so to do in the public interest, by

notification in the Official Gazette, add to or

omit from, or otherwise amend or modify the

Schedule-II, prospectively or retrospectively,

and thereupon the Schedule shall be deemed

to have been amended accordingly.

(4) The State Government may, if it considers

necessary in the public interest so to do, notify

grant of exemption from payment of whole of

tax payable under this Act in respect of any

class of sales or purchases for the purpose of

promoting the scheme of Special Economic

Zones or promoting exports, subject to such

conditions as may be laid down in the

notification.

(5) Every notification issued under this section

shall be laid, as soon as may be after it is so

issued, before the House of the State

Legislature, while it is in session for a period

of not less than 30 days, which may

comprised in one session or in two successive

sessions and if before the expiry of the

sessions in which it is so laid or of the session

immediately following the House of the State

Legislature makes any modification in such

notification or resolves that any such

notification should not be issued, such

notification thereafter have effect only in such

modified form or be of no effect, as the case

may be, so however, that any such

modification or annulment shall be without

prejudice to the validity of anything previously

done thereunder.”

“18. Input Tax Credit:-

(1) Input tax credit shall be allowed, to

registered dealers, other than the dealers

covered by sub-section (2) of section 3 or

section 5, in respect of purchase of any

taxable goods made within the State from a

registered dealer to the extent and in such

manner as may be prescribed, for the

purpose of:-

(a) sale within the State of Rajasthan or;

(b) sale in the course of Inter-state trade

and commerce; or

(c) sale in the course of export outside the

territory of India; or

(d) being used as packing material of

goods, other than exempted goods, for

sale; or

(e) being used as raw material except

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those as may be notified by the State

Government in the manufacture of

goods other than exempted goods, for

sale within the State or in the course of

Inter-state trade or commerce; or

(f) ......

(g) ......”

(emphasis supplied)

The scheme of Section 8 of the Act, which deals with

exemption of tax reveals that while Sub-section (1) exempts the

goods specified in the Schedule-I, Sub-section (2) provides for

addition, omission, amendment, modification in Schedule-I, Subsection

(3) provides for exemption to any person or class of

persons as mentioned in Schedule-II, Sub-section (3A) provides

for addition, omission, amendment and modification in ScheduleII,

Sub-section (4) provides for exemption to any class of sales

or purchases for promoting the scheme of Special Economic

Zones or exports and Sub-section (5) provides for the procedure

for grant of such exemption. The section also empowers the

State Government to impose conditions for grant of exemption of

tax. Section 8 therefore, clearly specifies three types of

exemptions i.e. (i) goods specified in the Schedule-I, (ii) person

or class of persons as specified in Schedule-II and (iii) sales or

purchases for promoting Special Economic Zones or exports.

So far as allowance of ITC is concerned, under Section 18

of the Act the same is allowed in respect of purchase of any

taxable goods made within the State from a registered dealer to

the extent and in the same manner as may be prescribed, inter

alia, for the purpose of being used as raw material except those

as may be notified by the State Government in the manufacture

of goods, for sale within the State or in the course of inter-state

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trade or commerce. However, if the manufactured goods are

exempted, the ITC is not available in terms of sub-clause (e) of

sub-section (1) of Section 18 of the Act.

It is thus apparent that under Section 18(1)(e) of the Act,

it is only the 'exempted goods', which have been taken out of

the purview of ITC and not person or class of persons or sale or

purchases for promoting Special Economic Zones or exports as

envisaged by Section 8(3), (3A) or (4), the use of words 'other

than exempted goods', therefore, necessarily means the goods

specified in the Schedule-I under Section 8(1) of the Act.

It would also be appropriate to notice the notifications

having material bearing:-

Notification dated 16.03.2005 under the

Act of 1994:-

“S.No.1874:F.4(78)FD/Tax/2004-168 Dated :

16.03.2005

In exercise of the powers conferred by section

15 of the Rajasthan Sales Tax Act 1994 (Rajasthan

Act No.22 of 1995) and in supersession of this

Department's Notification No.F.4/(68)FD/Tax-Div/99-

271 (S.No.1147), dated, January 24, 2000 (as

amended from time to time), the State Government

being of the opinion that it is expedient in the public

interest so to do, hereby exempts from tax the sale

of asbestos cement sheets and bricks, manufactured

in the State by an industrial unit having fly ash as its

main raw material on the following conditions,

namely:

1. that such fly ash shall constitute twenty five

percent or more in the contents by weight of

such asbestos cement sheets and bricks; and

2. that such unit commences commercial

production by 31.12.2006.

This notification shall remain in force upto

23.1.2010.”

Notification dated 01.06.2006:-

“Notification

Jaipur, Dated : 01.06.2006

In exercise of the powers conferred by subsection

(2) of section 8 of the Rajasthan Value Added

Tax Act, 2003 (Rajasthan Act No.4 of 2003), the

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State Government being of the opinion that it is

expedient in the public interest so to do, hereby

makes the following further amendments is

SCHEDULE-I appended to the said Act; namely:-

AMENDMENTS

4. After the existing S.No.60 and before S.No.61,

the following new S.No. and entries thereto

shall be inserted, namely:-

“60A. Asbestos cement

sheets and bricks

having contents of fly

ash 25% or more by

weight.

Subject to the

condition of entry

in Registration

Certificate of the

selling dealer”

Notification dated 05.07.2006:-

“Notification

Jaipur, Dated : 05.07.2006

In exercise of the powers conferred by subsection

(2) of section 8 of the Rajasthan Value Added

Tax Act, 2003 (Act No.4 of 2003), the State

Government being of the opinion that it is expedient

in the public interest so to do, hereby makes the

following amendments in SCHEDULE-I appended to

the said Act, namely :-

AMENDMENT

In Schedule-I appended to the said Act, the

existing expression appearing in Column No.3 against

S.No.60A, shall be substituted by the following

expression, namely:-

“(1) The goods shall be entered in the

Registration Certificate of the selling

dealer;

(2) The exemption shall be for such goods,

manufactured by the dealer who

commences commercial production in

the State by 31.12.2006.

(3) The exemption shall be available up to

23.01.2010.”

Notification dated 09.03.2007 S.O.371:-

“FINANCE DEPARTMENT

(TAX DIVISION)

NOTIFICATION

Jaipur, March 9, 2007

S.O.371.-In exercise of the powers conferred by

sub-section (2) of section 8 of the Rajasthan Value

Added Tax Act, 2003 (Rajasthan Act No.4 of 2003),

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the State Government being of the opinion that it is

expedient in the public interest so to do, hereby

makes the following amendments is Schedule-I

appended to the said Act; namely :-

AMENDMENTS

In Schedule-I appended to the said Act:-

(1) ......

(2) The existing S.No.60A and entries thereto,

shall be deleted.

(3) .....”

Notification dated 09.03.2007 S.O.372:-

“FINANCE DEPARTMENT

(TAX DIVISION)

NOTIFICATION

Jaipur, March 9, 2007

S.O.372.-In exercise of the powers conferred by

sub-section (3A) of section 8 of the Rajasthan Value

Added Tax Act, 2003 (Rajasthan Act No.4 of 2003),

the State Government being of the opinion that it is

expedient in the public interest so to do, hereby

makes the following amendments is Schedule-II

appended to the said Act, namely :-

AMENDMENTS

In Schedule-II appended to the said Act:-

(1) .......

(2) After the existing S.No.18 and entries

thereto the following new S.Nos. and entries

thereto shall be added; namely:-

19 Self Help Group

20 Manufacturers of asbestos cement

sheets and bricks.

Notification dated 09.03.2007 S.O.377:-

“FINANCE DEPARTMENT

(TAX DIVISION)

NOTIFICATION

Jaipur, March 9, 2007

S.O.377.-In exercise of the powers conferred by

sub-section (3) of section 8 of the Rajasthan Value

Added Tax Act, 2003 (Rajasthan Act No.4 of 2003),

the State Government being of the opinion that it is

expedient in the public interest so to do, hereby

exempts from payment of tax, the sale of asbestos

cement sheets and bricks manufactures in the State

having contents of fly ash twenty five percent or

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more by weight, on the following conditions,

namely:-

(1) that the goods shall be entered in the

registration certificate of the selling dealer;

(2) that the exemption shall be for such goods

manufactured by the dealer who

commenced commercial production in the

State by 31.12.2006; and

(3) that the exemption shall be available up to

23.01.2010.”

A bare scanning of the notifications reproduced

hereinbefore would reveal that under the Act of 1994, the

exemption granted was to the sale of A.C. Sheets and Bricks

subject to the conditions indicated therein. Under the RVAT Act,

2003 vide notification dated 01.06.2006, exercising powers

under Section 8(2) of the Act, Schedule-I was amended and A.C.

Sheets and Bricks having contents of fly ash 25% more by

weight was inserted as entry 60A, whereafter on 05.07.2006 by

another notification issued under Section 8(2) of the Act, the

Schedule-I was amended and entry 60A was substituted.

Thereafter on 09.03.2007 three notifications were issued

dealing with A.C. Sheets, whereby, by S.O.371 issued under

Section 8(2) of the Act, the existing entry 60A was deleted from

Schedule-I, by S.O.372 issued under Section 8(3A) of the Act

'manufacturers of Asbestos Cement Sheets and Bricks' were

added in Schedule-II and by S.O.377 issued under Section 8(3)

of the Act conditions for availing exemption for sale of A.C.

Sheets and Bricks manufactured in the State were indicated.

From the above, it is clear that while by the notifications

dated 16.03.2005 issued under the Act of 1994, 16.02.2006 and

05.07.2006 issued under the Act, 'A.C. Sheets and Bricks' were

exempted, by notifications dated 09.03.2007, the goods A.C.

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Sheets and Bricks were taken out by S.O.371 (supra) and the

manufacturers of A.C. Sheets and Bricks were exempted by

inclusion in Schedule-II by S.O.372 (supra) and conditions for

availing such exemption by the manufacturers were indicated by

S.O.377.

It is significant that while S.O.371 has been issued under

Section 8(2) of the Act, S.O.372 and 377 have been issued

under Section 8(3A) and (3) respectively, which provisions, as

noticed hereinbefore, deals with Schedule-I under Section 8(2)

and Schedule-II under Sections 8(3) and (3A), which in turn

relates to exemption of goods and exemption of persons

respectively, therefore, it is apparent from the notifications

issued on 09.03.2007 that the intention of the State was to

exempt the manufacturers of A.C. Sheets and Bricks subject to

fulfillment of conditions as indicated in S.O.377 and to take away

exemption available to A.C. Sheets and Bricks as goods, as was

available before the said date on account of its inclusion in

Schedule-I.

The submissions of learned counsel for the respondent that

the language and purport of S.O.377 clearly indicates that A.C.

Sheets and Bricks manufactured in the State having contents of

fly ash 25% or more have been exempted and it is the goods as

envisaged by Section 18(1)(e) which is exempted and, therefore,

the Tax Board was justified in dismissing the appeals filed by the

petitioner cannot be accepted for more than one reason; firstly,

the notification S.O.377 has been issued under Section 8(3) of

the Act, which does not amend Schedule-I to include the said

goods under exempted category; secondly, S.O.371, which is

13

very specific in terms and issued under Section 8(2), takes out

the goods A.C. Sheets and Bricks from Schedule-I cannot be

ignored so as to treat S.O.377 having the effect of exempting

the goods and not prescribing the conditions for exemption of

manufacturers of A.C Sheets, which have been included in

Schedule-II on the same date by S.O.372; thirdly, the

notification S.O.377 cannot be read in isolation to the exclusion

of the other notifications issued on the same day and on a

harmonized construction of the three notifications leads to the

irresistible conclusion noted above.

The note-sheets produced by the petitioner relating to

Finance Bill, 2007, obtained by it under Right to Information Act,

fortifies the contention raised by the petitioner, wherein, while

proposing to take the A.C. Sheets out from the Schedule-I and

include the manufacturers in Schedule-II, it has been observed

as under:-

“Asbestos cement sheets and bricks Units which

started manufacturing on or before 31.12.2006 were

exempted from paying tax till 23.01.2010 by

including them in Schedule I. Such exemption should

have been provided by including such Units in

Schedule-II, which is now being proposed. (C/46,

61).”

The communication dated 26.04.2008 issued by

Commissioner, Commercial Taxes, Rajasthan, Jaipur to all the

Dy. Commissioner (Administration), Commercial Taxes

Department clearly indicates that by notification dated

09.03.2007, the manufacturers of A.C. Sheets have been

included in Schedule-II and, therefore, the goods sold by

dealers, who have purchased goods from manufacturers like the

petitioner is liable to pay tax on sale of A.C. Sheets and such

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subsequent sale is liable to tax, also indicates that even as per

the interpretation put by the department on the three

notifications dated 09.03.2007, it is the manufacturers and not

the goods, who are exempt from tax.

The communication dated 26.04.2008 construing the

notifications dated 09.03.2007 can be used as contemporanea

expositio. Hon'ble Supreme Court in Collector of Central Excise,

Guntur v. Andhra Sugar Ltd., : AIR 1989 SC 625 while dealing

with an exemption notification under the Central Excise and Salt

Act, 1944 observed and held as under:-

“5. It is well settled that the meaning ascribed by

the authority issuing the Notification is a good guide

of a contemporaneous exposition of the position of

law. Reference may be made to the observations of

this Court in K.P. Varghese v. Income-tax Officer,

Ernakulam, (1982) 1 SCR 629 : (AIR 1981 SC 1922).

It is a well settled principle of interpretation that

Courts in construing a Statute will give much weight

to the interpretation put upon it at the time of its

enactment and since, by those whose duty has been

to construe, execute and apply the same

enactment.”

So far as the judgment of this Court in the case of Suncity

Trade Agency (supra) is concerned, the said judgment dealt with

a situation wherein by exemption notification stainless steel flats,

ingots and billets were exempted from tax on the conditions

indicated in the notification and this Court came to the

conclusion that merely because the exemption is conditional or is

given subject to fulfillment of certain conditions, it does not

mean that such goods will fall outside the definition of exempted

goods. The said judgment apparently has no application to the

facts of the case. The term defined under Section 2(13) of the

Act also deals with exempted goods and not with exemption of

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person or class of persons as indicated in Section 8(3) of the Act.

The intention of the legislature in incorporating Section 18

(1)(e) of the Act is also apparently clear, which takes away the

exempted goods from the purview of ITC and not the person or

class of persons exempt under Section 8(3) as nothing

prevented the legislature from including besides exempted

goods, exempted persons also under Section 18(1)(e) of the Act.

The fact that goods and dealers are treated separately is also

evident from provisions of Section 5 of the Act.

The aspect that those included in Schedule-II are entitled

for ITC is also fortified from the fact that in the conditions

indicated for exemption of Self Help Groups and those, who have

been registered with the Khadi and Village Industries

Commission or Rajasthan Khadi and Village Industries Board by

the notifications S.O.376 and S.O.378 issued on the same date

i.e. 09.03.2007 a specific stipulation has been made in the

notifications issued under Section 8(3) of the Act as under:-

“No input tax credit shall be claimed by such dealers

in respect of purchase of raw materials used for

manufacture of aforesaid goods.”

If the persons included in Schedule-II were not entitled to

claim ITC, there was no reason to include the said conditions for

the above noted persons. Apparently, it is the sale of goods

made by person or persons included in Schedule-II, which is

exempt and not the goods manufactured by them, whereas, for

denying ITC, the requirement is that of 'exempted goods'.

In view of what has been considered above, it is apparent

that in the present case in view of express language of Section

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18(1)(e) of the Act, notifications S.O.371 and S.O.372 read with

S.O.377, the petitioner who is manufacturer of A.C. Sheets is

entitled to avail ITC and the authorities below were not justified

in denying Input Tax Credit to the petitioner based on

interpretation put by them to inclusion of the petitioner in

Schedule-II under Section 8(3A) and notification S.O.377 dated

09.03.2007 issued under Section 8(3) of the Act.

Consequently, the revision petitions are allowed. The

impugned judgment dated 23.11.2011 passed by the Board, the

order dated 16.04.2009 passed by the DC (Appeals) and the

assessment orders dated 20.05.2008 and 25.08.2008 passed by

the Assessing Authority are quashed and set aside. No costs.

(ARUN BHANSALI), J.