1998 JTR(SC) 824
2005 1 JCR(SC) 31 ; 2000 1 SCC 763 ; 2000 118 STC 290 ; 2000 KHC 936
SUPREME COURT OF INDIA
B.N.Kirpal : G.T.Nanavati : S.P.Bharucha
Texmaco Limited
Versus
State Of A.P.
Case No. : 770 of 1989
Date of Decision : 8/18/98
The court held that it is unjust and inequitable for the State to recover sales tax amounts resulting from the quashing of concessional notifications if the taxpayers were legally prohibited from collecting those amounts from their customers.
Act
Referred
:CONSTITUTION OF INDIA
: Art.142, Art.137, Art.32
(A) Central Sales Tax Act, 1956 - State General Sales Tax Act - Sections 30-B and 30-C - Constitution of India - Articles 32 and 142 - Recovery of sales tax after quashing of concessional notifications - Where notifications providing tax concessions to local manufacturers were quashed for impeding free trade between states, and the State sought to recover the concessional amounts - If statutory provisions prevented manufacturers from collecting such amounts from customers, it is unjust and inequitable to permit the State to recover them from the manufacturers. (Para 5)
(B) Review Petition - Scope - Court may treat petitions as review petitions to ensure justice and equity, especially when the original order did not account for the inability of assessees to recover tax from customers. (Para 5)
Facts of the case:
Notifications providing sales tax concessions to local cement manufacturers were quashed by the court on the grounds that they impeded free trade between states. Subsequently, the State initiated proceedings to recover the tax amounts that would have been paid had the notifications not existed. The affected manufacturers contended that under the relevant state sales tax laws, they were prohibited from collecting these amounts from their customers and would have faced penalties for doing so.
Findings of Court:
The court found that the original notifications were intended to protect the local industry. The quashing of such notifications should aim to put local and outside industries on equal footing, rather than placing the local industry at a disadvantage. Since the assessees were not parties to the original proceedings and were legally barred from collecting the tax from customers, it is not just or equitable to allow the State to recover these amounts.
Issues: Whether the State is entitled to recover sales tax amounts that became payable only due to the judicial quashing of concessional notifications, in circumstances where the taxpayers were legally unable to collect such amounts from their customers.
Ratio Decidendi: The court held that equity demands that the State should not collect tax amounts that became payable solely because of a court order quashing concessional notifications, particularly when statutory bars prevented the taxpayers from recovering those amounts from their customers, as this would unfairly disadvantage the local industry.
Result: Order reviewed; the State shall not collect the amounts of sales tax that became payable only by reason of the order quashing the impugned notifications.
(B) Review Petition - Scope - Court may treat petitions as review petitions to ensure justice and equity, especially when the original order did not account for the inability of assessees to recover tax from customers. (Para 5)
Facts of the case:
Notifications providing sales tax concessions to local cement manufacturers were quashed by the court on the grounds that they impeded free trade between states. Subsequently, the State initiated proceedings to recover the tax amounts that would have been paid had the notifications not existed. The affected manufacturers contended that under the relevant state sales tax laws, they were prohibited from collecting these amounts from their customers and would have faced penalties for doing so.
Findings of Court:
The court found that the original notifications were intended to protect the local industry. The quashing of such notifications should aim to put local and outside industries on equal footing, rather than placing the local industry at a disadvantage. Since the assessees were not parties to the original proceedings and were legally barred from collecting the tax from customers, it is not just or equitable to allow the State to recover these amounts.
Issues: Whether the State is entitled to recover sales tax amounts that became payable only due to the judicial quashing of concessional notifications, in circumstances where the taxpayers were legally unable to collect such amounts from their customers.
Ratio Decidendi: The court held that equity demands that the State should not collect tax amounts that became payable solely because of a court order quashing concessional notifications, particularly when statutory bars prevented the taxpayers from recovering those amounts from their customers, as this would unfairly disadvantage the local industry.
Result: Order reviewed; the State shall not collect the amounts of sales tax that became payable only by reason of the order quashing the impugned notifications.
Concessions - The court quashed notifications providing sales tax concessions to cement manufacturers in Andhra Pradesh on the grounds that they impeded the free flow of trade between States.
(1) IN the case of Indian Cement v. State of A.P. concessions were given to manufacturers of cement within the State of Andhra Pradesh. The rate of sales tax in respect of sales made by cement manufacturers in the State to manufacturers of cement products also in the State was reduced. The validity of the notifications concerned was challenged by cement-manufacturing units that were not entitled to the concessions. The notifications issued under the Central Sales Tax Act, 1956 and the Andhra Pradesh General Sales Tax Act, 1957, were quashed on the basis that they impeded the free flow of trade between States. The order that this court passed read: In view of what we have indicated above, the writ petition has to succeed and the two impugned notifications of the Andhra Pradesh Government and the impugned notification of the Karnataka government are quashed. The writ petition is accordingly allowed with costs. Hearing fee is assessed at Rs 5,000.00 and this shall be shared equally by the States of Andhra Pradesh and Karnataka."
(2) PURSUANT to the said order, proceedings were commenced in the State to recover the amounts of the sales tax which would have been paid but for the two notifications (now referred to as "the concessional amounts") and assessment orders were made. Writ petitions under Article 32 were filed by those so affected seeking a declaration that the said order was prospective in nature and directions to quash recovery proceedings.
(3) EMPHASIS was laid by Mr Salve, learned counsel for the petitioners on the fact that the said order, while it was not prospective in operation, also did not give to the State permission to collect the concessional amounts. Attention was drawn by him to the provisions of S. 30-B and 30-C of the Andhra Pradesh General Sales Tax Act, by reason of which the petitioners could not collect the concessional amount from their customers and would have been liable to penalties if they had done so. Mr Salves submission was that it was, therefore, unjust and inequitable that the State should now seek to collect the concessional amounts from the petitioners. The provisions of Articles 32 and 142 enabled this court to do the just thing by the petitioners.
(4) MR Raghuvir, learned counsel for the State responding to the discussion at the Bar, submitted that he would have no answer if these petitions were treated as review petitions.
(5) IT seems to us that the attention of the learned Judges who delivered the judgment and passed the said order was not drawn to the fact that the assessees would have to pay by way of sales tax amounts which they had not, and could not, under the provisions of the Andhra Pradesh General Sales Tax Act, have collected from their customers. The notifications were intended to protect the local cement industry. The quashing of the notifications should have the effect of putting the local cement industry and the cement industry outside the State on a par; it could not place the former in a disadvantageous position qua the latter. The assessees were not parties to the proceedings so that there was no default on their part. They approached this court soon after assessment orders to recover the concessional amounts were passed against them, a year or so after the date of the said order. Having regard to the provisions referred to above, it is, in our view, not just or equitable to permit the State to collect the concessional amounts. Having regard to the fair statement of learned counsel for the State, this result can best be achieved by treating these petitions as review petitions. We direct thereon that the said order shall stand reviewed so that the following sentence is added to it: "In the circumstances, the State of Andhra Pradesh shall not collect the amounts of sales tax that has become payable only by reason of this order quashing its two impugned notifications."
(6) ASSESSMENT orders and proceedings to recover the concessional amounts must be reviewed in the light of this order.
(7) ORDER accordingly. No order as to costs.