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M/s. Composite Boards (P) Ltd., Represented by its Director & Another v/s The State of Tamil Nadu, Represented by its Secretary, Commercial Taxes and Religious Endowments & Others

    WP Nos. 10623 of 2008, 32437, 32441 to 32443, 32445, 32449 of 2018 & MP Nos. 1 of 2008 & WMP Nos. 37635, 37639, 37645, 37646, 37649, 37651, 37657 of 2018

    Decided On, 20 April 2021

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE S.M. SUBRAMANIAM

    For the Petitioners: A.P. Srinivas, Advocate. For the Respondents: M. Hariharan, Additional Government Pleader (Taxes).



Judgment Text

(WP 10623 of 2008 is filed under Article 226 of the Constitution of India, praying for the issuance of a Writ of Certiorari, calling for the records of the second respondent in Lr.No.VAT Cell/28868/2007 (VCC No.853) and quash the clarification passed therein dated 04.07.2007.

WPs 32437, 32441 to 32443, 32445 and 32449/2018 are filed under Article 226 of the Constitution of India, praying for the issuance of Writs of Certiorari, calling for the entire records of the second respondent in CST/616274/2011-12, CST/616274/2010-11, CST/616274/2009-10, CST/616274/2012-13, CST/616274/2013-14 and CST/616274/2014-15 respectively dated 30.05.2017, 30.05.2017, 30.05.2017, 30.05.2017, 17.05.2017 and 30.05.2017 quash the order passed therein.)

Common Order:

1. The clarification letter issued by the second respondent-Commissioner of Commercial Taxes in letter No.VAT Cell/28868/2007 (VCC No.853) dated 04.07.2007 is under challenge in WP No.10623 of 2008.

2. The clarification letter dated 04.07.2007 reveals that €œlocal rate of tax for plywood is 4% when it is sold locally to Railways within the State and if sold to Railways under CST on interstate sales, it is taxable at 12.5%€.

3. Taking an exception, the petitioner-company have stated that two different imposition of tax contemplated by way of clarification is in violation of Section 8(2) of the Central Sales Tax Act, 1956 (hereinafter referred to as the 'Act' in short). Thus, they are constrained to move WP No.10623 of 2008.

4. The petitioner is the supplier of plywoods to the Railways for the usage under Railway Wagons/Coaches.

5. The facts regarding supply of plywoods to the Indian Railways are not disputed by the respondents. The petitioner produced evidence and established that they are the supplier of plywoods to the Indian Railways. Therefore, they are entitled for the concessional rate of Sales Tax as contemplated under Entry 112 of Part-B of the First Schedule, which reads as €œRailway wagons, engines, coaches and parts thereof€.

6. The learned counsel appearing on behalf of the petitioner reiterated that when the respondents have clarified that 4% tax is to be levied in respect of the said plywood supplied with Railways within the State, then 12.5% of tax cannot be imposed in respect of interstate supply as the plywoods are supplied only to Indian Railways at other States and the benefit of same tax is extended under Entry 112 of Part-B of the First Schedule as stated above.

7. It is contended that the clarificatory letter issued by the second respondent impugned is directly in violation of Section 8(2) of the Act.

8. Section 8(2) of the Act denotes that €œthe tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax Law of that State€.

9. The Explanation to Section 8 of the Act, contemplates that €œfor the purpose of this sub-section, a dealer shall be deemed to be a dealer liable to pay tax under the Sales Tax Law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law€.

10. Thus, the provisions of the Act is clear that the rate of tax on sales in the course of interstate trade or commerce is enumerated under Section 8(1) of the Act. Under sub section (2) of Section 8 of the Act, once the concession for rate of tax is extended to the dealer, who supplied the materials to the Indian Railways, then the said benefit extended under Entry 112 of Part-B of the First Schedule is to be extended to another State supply also. In other words, there cannot be two sales tax, one for the supply inside the State and the other for another State supply. Once the concession is extended as far as the supply within the State is concerned, then the same benefit is to be extended in respect of interstate supply. Admittedly, supply of plywoods in WP 10623 of 2008 is supplied to the Indian Railways, more specifically, for construction of Railway coaches.

11. The impugned clarification was issued on 04.07.2007. However, the respondents have issued another clarification in A.C.A.A.R 58/2013-14 dated 06.12.2013, wherein the Gaskets (parts and accessories of rail engine under CST Act in other State Railways) are dealt with.

12. The points raised in WP No.10623 of 2008 are dealt with in this clarification with reference to Entry 112 Part-B of the First Schedule and the clarification reads as under:-

€œ5. The dealer had sought clarification on €œGaskets (Parts and accessories of rail engine) under CST Act in other State Railways€.

6. The details furnished by the dealer in the application were examined. In the letter accompanying the application in Form €œV V€, it was stated that gaskets are used in Railways as parts and accessories of rail engine. There is a specific entry for Rail engine parts in Part-B of the First Schedule.

7. Entry 112 of Part-B of the First Schedule reads as below:-

€œRailway wagons, engines, coaches and parts thereof€.

8. Gaskets used as parts in rail engines on which clarification sought therefore fits into the description given under Entry 112 of Part-B of the First Schedule. Therefore, gaskets used as a part in railway engines as specified under Entry 112 of Part-B of the First Schedule are taxable at 5%.

9. The clarification therefore is that €œGaskets€ as parts in rail engines are taxable at 5% under Entry 112 of Part-B of the First Schedule to the TNVAT Act. Gaskets used in Railway engine as specified under Entry 112 of Part-B of the First Schedule, if sold outside the State are taxable at 5% if not covered by 'C' Form. However, gaskets having use other than in railway engines are taxable at 14.5% under the appropriate Entry under Part-C of the First Schedule to the TNVAT Act, 2006.€

13.With reference to the above contentions, the learned counsel for the petitioner relied on the judgment of the High Court of Karnataka in the case of State of Karnataka vs. M/s.Mysore Thermo Electric Pvt Ltd etc. batches [In STRP Nos.128/11, 199/2011, 286/2011, 290/2011 and 439-452/2012 pronounced on 21.03.2014], wherein, in paragraph-10, the following observations are made:-

€œ10. The assessees are the dealers registered under the KVAT and CST Acts, carrying on the business of manufacturing and selling of varieties of batteries including low maintenance lead acid batteries as per the specifications of Ministry of Railways, Government of India supplied to Railways for the use of railway engines and railway coaches. Prior to 31-3-2007, the Railways were authorised to purchase the batteries against D Forms at concessional rate of tax at 4% under the provisions of CST Act. With effect from 1-4-2007, Section 8 of the CST Act was amended withdrawing the facility to the Government Departments and Railways to purchase the goods against D Forms. Consequent upon the withdrawal of D Forms, Railways has to purchase the goods as per the rate of tax prescribed under the KVAT Act and CST Act. Sub-section (1) of Section 3 of the KVAT Act is a charging section prescribing levy of tax on sale of goods. Section 4 read with Schedule appended to the Act prescribes the rate of tax. In respect of goods specified in the Third Schedule, rate of tax prescribed is 4% under Section 4(1)(a). Entry 52 in the Third Schedule specifying railway coaches, engines and wagons were substituted thrice. As per Act No. 7 of 2005, railway coaches, engines and wagons were brought under Entry 76 and included the words "parts thereof". The said entry continued till 31-3-2007. Entry 76 reads as under:

€œ76. Railway coaches, engines, wagons and part thereof.€œ

14. In the case of State of Karnataka vs. Honey Comb International Inc. [(2015) 77 VST 76 (Kar)], the High Court of Karnataka considered the following observations, which is extracted as under:-

€œFrom the aforesaid judgments it is clear, a particular use to which an article can be applied in the hands of a special consumer is not determinative of the nature of the article. The intention of the legislature seems to levy a particular rate of tax in respect of salestransactions pertaining to a particular good as enumerated in the Schedules of the Act. What falls from that judgment is, if a particular good is enumerated to the Schedule of the Act, then, levy of tax should be according to the said specification. In fact, a Division Bench of this Court in the case of 'STATE OF KARNATAKA vs. M/s. MYSORE THERMO ELECTRIC P. LTD. [(2014) 3 VST-OL 280 (Karn)' dealing with the question of battery being the part of the railway which falls under Sl.No.76 of the Third Schedule, held that if battery sold to the railways under the expression 'part thereof', were manufactured as per the specifications of the railways, the dealers are liable to collect tax at the rate of 4% falling under Entry 76 of the Third Schedule as the battery is an integral part of the rail coaches, engines and wagons and falls under 'part thereof'. On the same analogy, the honeycomb partition frames used for partition of the rail coaches becomes a part thereof of the rail coaches and therefore, the Tribunal was justified in holding that the honeycomb partition frames manufactured and supplied by the assessee to the railways, form part of a rail coach and falls within EntryNo.76 to the Third Schedule of the KVAT Act. We do not see any error committed by the Tribunal. Accordingly, the question of law framed is answered in favour of the assessee and against the revenue.€

15. Relying on the abovesaid judgments, the learned counsel for the petitioner reiterated that Section 8(2) of the Act is unambiguous and once the goods are supplied for the purpose of construction of coaches for Indian Railways, then the tax levied within the State is to be applied for the interstate supply also. Even the subsequent clarification of the year 2013, asserts the said position with reference to the provisions of the Act and therefore, there is no reason to sustain the impugned clarificatory order dated 04.07.2007.

16. Adjudication of other grounds became unnecessary in view of the fact that the subsequent clarification of the first respondent dated 16.12.2013 stands in favour of the writ petitioner in respect of supply of gaskets to the Indian Railways and in WP No.10623 of 2008, the petitioner supplies plywoods for Indian Railways for construction of wagons/coaches.

17. This being the factum, there is no reason to adopt different yardstick as far as the supply of plywoods to the Indian Railways by the petitioner in WP 10623 of 2008 is concerned.

18. Under these circumstances, this Court is of an opinion that the concessional tax granted to the petitioner in WP No.10623 of 2008 with reference to supply of plywoods, within the State is to be extended in respect of supply of plywoods to interstate to the Indian Railways.

19. In this view of the matter, in WP No.10623 of 2008, the impugned clarification letter No.VAT Cell/28868/2007 (VCC No.853) dated 04.07.2007 issued by the

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second respondent is quashed and WP No.10623 of 2008 is allowed. The respondents are directed to reassess the tax to be paid by the writ petitioner and accordingly, pass an appropriate order, if necessary, by affording opportunity to the writ petitioner as expeditiously as possible. 20. In respect of all other writ petitions viz., WP Nos.32437, 32441 to 32443, 32445 and 32449 of 2018 are concerned, since this Court quashed the impugned clarification letter No.VAT Cell/28868/2007 (VCC No.853) dated 04.07.2007 issued by the second respondent in WP No.10623 of 2008, all the consequential assessment orders viz.,CST/616274/2011-12, CST/616274/2010-11, CST/616274/2009-10, CST/616274/2012-13, CST/616274/2013-14 and CST/616274/2014-15 respectively dated 30.05.2017, 30.05.2017, 30.05.2017, 30.05.2017, 17.05.2017 and 30.05.2017 issued by the respondents are also quashed. The respondents are directed to reassess the tax to be paid by the writ petitioners and accordingly, pass appropriate orders, if necessary, by affording opportunity to the writ petitioner as expeditiously as possible. 21. In the result, all the writ petitions stand allowed. However, there shall be no order as to costs. Consequently, connected miscellaneous petitions are closed.
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