M/S.Basudev Textiles vs. State Of Orissa

Facts

The Petitioner, M/s. Basudev Textiles, challenged an assessment order dated July 18, 2016, passed by the Sales Tax Officer (STO), Mayurbhanj Circle, Baripada. The order raised a demand and penalty under Section 43 of the Odisha Value Added Tax (OVAT) Act for the period September 26, 2006, to March 31, 2008. The STO's assessment was based on a detection by the A.G. Audit Team of short levy of tax on goods sold by the dealer. The Petitioner argued that textiles were exempt from sales tax due to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act). The STO rejected this, citing a notification dated March 1, 2006, which excluded textiles from the ADE Act, making them amenable to sales tax. The Petitioner's writ petition was filed on November 18, 2016, and an interim stay was granted, which has continued. The Department has not filed a counter affidavit in over six years.

Held

The Court held that the Sales Tax Officer (STO) failed to consider the clarificatory circular issued by the Government of India on May 3, 2006. This circular clarified that the notification dated March 1, 2006, which excluded textiles from the purview of the ADE Act, did not change the earlier position regarding the levy of VAT/Sales Tax by the State. The implication was that if textiles were not subject to sales tax prior to March 1, 2006, due to the ADE Act, this exemption would continue despite the exclusion from the ADE Act. The STO's assessment order, which was based on the premise that textiles became amenable to sales tax from March 1, 2006, without considering this crucial clarification, was therefore erroneous. Consequently, the impugned assessment order dated July 18, 2016, was quashed. The Court allowed the writ petition, with no order as to costs. The ratio decidendi is that statutory notifications must be interpreted in light of subsequent governmental clarifications, especially when they affect the levy of taxes.

Key Issues

1. Whether the assessment order dated July 18, 2016, passed by the Sales Tax Officer is liable to be quashed in light of the Government of India's clarificatory circular dated May 3, 2006, concerning the levy of VAT/Sales Tax on textiles. Petitioner's Arguments: The Petitioner contended that textiles were exempt from sales tax under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act). They argued that even though a notification dated March 1, 2006, excluded textiles from the ADE Act, a subsequent clarificatory circular from the Government of India dated May 3, 2006, clarified that this exclusion did not alter the prior position regarding the levy of VAT/Sales Tax by the State. Therefore, if no sales tax was leviable on textiles prior to March 1, 2006, that position should continue. Revenue's Arguments: The judgment records no specific arguments made by the Revenue or Opposite Parties.