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1994 Supreme(Mad) 347
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAJU & THE HONOURABLE MR. JUSTICE A.R. LAKSHMANAN
P.S. Apparels - Appellant
Versus
Deputy Commercial Tax Officer, T. Nagar East Assessment Circle, Madras. (And Others Cases) - Respondents
Writ Petitions Nos. 7436, 7903, 9136, 9201 to 9203, 9539, 9551, 9557, 9564, 9847, 9848, 10290, 12086 to 12088 of 1992
Decided On : 04 April 1994
REP licences/exim scrips are "goods" within the meaning of the sales tax laws in force in the State and are subject to levy of sales tax.
Headnote:
SALES TAX - REP LICENCES/EXIM SCRIPS - LEVY OF SALES TAX - VALIDITY - WHETHER REP LICENCES/EXIM SCRIPS ARE "GOODS" - WHETHER THEY FALL WITHIN THE EXCEPTION CREATED BY THE SALES TAX LAWS IN FORCE IN THE STATE - WHETHER THE LICENCES ARE ACTIONABLE CLAIMS, STOCKS AND SHARES AND SECURITIES - WHETHER THE LICENCES ARE ISSUED AS PART OF THE SCHEME AND POLICY UNDERLYING EXPORTS AND IMPORTS - WHETHER THE LICENCES ARE SUBJECT TO ANY LEVY OF SALES TAX BY THE STATE LEGISLATURE - WHETHER THE INCIDENCE OF TAXATION AND THE TAXABLE EVENT IS THE SALE OF THE LICENCES IN QUESTION FOR CONSIDERATION IN RETURN AND NOT EITHER THE EVENT OF IMPORT OR EVEN THE GOODS IMPORTED INTO THIS COUNTRY FROM OUTSIDE THE COUNTRY - WHETHER THE LICENCES UNDER CONSIDERATION HAVE BEEN ISSUED IN ORDER TO COMPENSATE THE LOSS TO THE TRADERS IN THIS COUNTRY COMPETING IN THE WORLD MARKET AND BEING A STATUTORY RIGHT FLOWING FROM A STATUTE, IT CANNOT BE TAXED - WHETHER THE SALE OR PURCHASE OF A LICENCE IS INEXTRICABLY CONNECTED WITH THE IMPORT AND, THEREFORE, COULD NOT BE SUBJECTED TO LEVY - WHETHER THE AUTHORITIES ARE SEEKING TO LEVY SALES TAX ALSO ON THE VALUE OR SUM RECEIVED BY THE PETITIONER THEREIN ON SURRENDERING THE LICENCE IN QUESTION TO THE SPECIFIED OR DESIGNATED BANKS AND THE ACT OF SURRENDER CANNOT BE TREATED AS A TRANSACTION OF SALE ATTRACTING LIABILITY TO SALES TAX - WHETHER THE LEVY OF PENALTY OR THREAT TO LEVY PENALTY UNDER SECTION 12(3) OR SECTION16(2) OF THE TNGST ACT, 1959, WHILE ASSESSING OR PROPOSING TO ASSESS THE TURNOVER IN QUESTION TO TAX IS VALID.
Fact of the Case:
The petitioners challenged the levy of sales tax both under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, on the sale consideration or the premium realised on the sale or transfer of REP licences/exim scrips for the assessment years 1986-87 onwards.
Finding of the Court:
The court held that REP licences/exim scrips are "goods" in etymological sense and in common parlance as also within the meaning of section2(1) of the TNGST Act, 1959 and section2(d) of the CST Act, 1956. The transfer, sale or assignment of those licences for value or consideration shall be liable to levy of sales tax under the sales tax laws in force in the State. The sales to and purchase by designated banks are also subject to levy of tax. The levy of penalty under section12 or 16 of the TNGST Act, 1959, shall be available to the assessing authorities in these categories of cases on and from assessment years 1992-93 onwards, and the authorities shall be at liberty to do so having regard to the facts and circumstances of each case on its own merits.
Issues: 1. Whether REP licences/exim scrips are "goods" within the meaning of the sales tax laws in force in the State? 2. Whether the licences are actionable claims, stocks and shares and securities? 3. Whether the licences are issued as part of the scheme and policy underlying exports and imports? 4. Whether the licences are subject to any levy of sales tax by the State Legislature? 5. Whether the incidence of taxation and the taxable event is the sale of the licences in question for consideration in return and not either the event of import or even the goods imported into this country from outside the country? 6. Whether the licences under consideration have been issued in order to compensate the loss to the traders in this country competing in the world market and being a statutory right flowing from a statute, it cannot be taxed? 7. Whether the sale or purchase of a licence is inextricably connected with the import and, therefore, could not be subjected to levy? 8. Whether the authorities are seeking to levy sales tax also on the value or sum received by the petitioner therein on surrendering the licence in question to the specified or designated banks and the act of surrender cannot be treated as a transaction of sale attracting liability to sales tax? 9. Whether the levy of penalty or threat to levy penalty under section 12(3) or section16(2) of the TNGST Act, 1959, while assessing or proposing to assess the turnover in question to tax is valid?
Ratio Decidendi: 1. The court held that REP licences/exim scrips are "goods" in etymological sense and in common parlance as also within the meaning of section2(1) of the TNGST Act, 1959 and section2(d) of the CST Act, 1956. 2. The court held that the licences are not actionable claims, stocks and shares and securities. 3. The court held that the licences are issued as part of the scheme and policy underlying exports and imports, but this does not exempt them from sales tax. 4. The court held that the licences are subject to levy of sales tax by the State Legislature. 5. The court held that the incidence of taxation and the taxable event is the sale of the licences in question for consideration in return and not either the event of import or even the goods imported into this country from outside the country. 6. The court held that the licences under consideration have been issued in order to compensate the loss to the traders in this country competing in the world market, but this does not exempt them from sales tax. 7. The court held that the sale or purchase of a licence is not inextricably connected with the import and, therefore, could be subjected to levy. 8. The court held that the authorities are not seeking to levy sales tax also on the value or sum received by the petitioner therein on surrendering the licence in question to the specified or designated banks and the act of surrender cannot be treated as a transaction of sale attracting liability to sales tax. 9. The court held that the levy of penalty or threat to levy penalty under section 12(3) or section16(2) of the TNGST Act, 1959, while assessing or proposing to assess the turnover in question to tax is valid.
Final Decision: The writ petitions were dismissed.
RAJU, J.
These batch of writ petitions relate to a challenge made to the levy of sales tax both under the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, on the sale consideration or the premium as it is called by the petitioners realised on the sale or transfer of what are known as replenishment (REP) licences/exim scrips for the assessment years 1986-87 onwards. The occasion as also the basis of action by the authorities functioning under the above two taxation enactments to spread their net of taxation wide upon the above objects for levy apparently appears to be the decision of the Karnataka High Court since (Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes) rendered mainly applying the ratio of the decision of the Supreme Court in the decision (H. Anraj v. Government of Tamil Nadu).
2. A reference to the nature, purport and the attributes of those category of licences need mention before the highly debated issue as to whether they are "goods" generally and if so whether they answer the description of "goods" within the meaning of section2(j) of the State law and section 2(d) of the Central Act is taken up for consideration. The Imports and Exports (Control) Act, 1947, as amended from time to time, the Imports (Control) Order, 1955 and the periodical policy notified thereunder regulated the imports into and export outside the country and also the channelisation of imports and exports of certain commodities. The policy so declared from time to time also contained incentive schemes and subsidies to build up the foreign exchange resources of the country. As part of such schemes the issue of replenishment licences was introduced to provide to registered exporters by way of import replenishment the essential inputs required in the manufacture of the products exported and also permit flexibility to enable diversification of the export products. Apart from enabling import of relevant items of raw materials, components, consumables and packing materials the same can be availed of for importing permissible non-OGL capital goods and up to a certain extent even at concessional rates of customs duty. As per the procedure envisaged the REP licence will be issued in the name of the registered exporter only and will not be subject to "actual users condition" and a licence-holder was enabled to transfer the licence to another person and the licence-holder or such transferee may import the goods permitted therein. The transfer does not require any endorsement or permission from the licensing authority and it will be governed merely by ordinary law. Consequently, clearance of goods covered by an REP licence has been allowed to be made by the customs authorities on production by the transferee of only the document of transfer of the licence concerned in his name. The transferor is obliged to give a formal letter to the transferee giving full particulars regarding number, date and value of the licence transferred and the name and address of the transferee and complete description of the items of import for which the licence is transferred. This policy was in vogue till July 3, 1991 and from July 4, 1991, the new scheme came to be introduced.
3. Under the new scheme introduced, the licences issued for purposes of imports by way of replenishment was ordered to be called exim scrip and as had been before, the objective of the scheme is to provide to the registered exporters by way of import replenishment the essential inputs required in the manufacture of the products exported and also to allow certain flexibility to enable diversification of the export products. While allowing maximum incentive to exporters, the exim scrip licences also have been rendered transferable. As per the procedure formulated, the exim scrip licence will be issued in the name of the registered exporter only and it will not be subject to "actual users conditions" and the licence-holder may transfer the licence to any other
