M/S.J.K.Traders vs. The Principal Secretary /

Held

The Court held that the exemption granted under Entry 68 of Part B to the Fourth Schedule of the TNVAT Act is conditional. When goods purchased under this exemption are despatched to places outside the State otherwise than by way of sale, it attracts the levy of purchase tax under Section 12(1)(c) of the TNVAT Act. The Court reasoned that the exemption was tied to the sale within the State, and the subsequent movement of goods outside the State without a sale constituted a taxable event under Section 12(1)(c). The Court also found that input tax credit for such purchase tax would be subject to the limitations contained in Section 19 of the TNVAT Act. Regarding penalties, the Court held that the levy of penalty without a proposal in the show cause notice violates natural justice. Therefore, the impugned orders imposing penalty in specific cases where no show cause notice for penalty was issued were set aside. The challenge to the levy of purchase tax was rejected, but the penalty was quashed in the specified cases.

Facts

A batch of writ petitions was filed challenging assessment orders passed by the Assistant Commissioner (ST) and other authorities under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006. The petitioners, dealers in pulses and grams, purchased these goods from registered dealers whose turnover was less than Rs. 500 Crores, entitling them to exemption under Entry 68 of Part B to the Fourth Schedule of the TNVAT Act. The petitioners then despatched these goods outside the State otherwise than by way of sale. The revenue authorities levied purchase tax under Section 12(1)(c) of the TNVAT Act, contending that the purchases were made in circumstances where no tax was payable by the selling dealer, and the goods were despatched outside the State otherwise than in the course of trade or commerce. The assessment years under challenge varied across the petitions, ranging from 2010-11 to 2017-18. Some petitioners also challenged the levy of penalty.

Key Issues

1. Whether the exemption granted under Entry 68 of Part B to the Fourth Schedule of the TNVAT Act is conditional, and if so, whether it attracts the levy of purchase tax under Section 12 of the TNVAT Act when the goods are despatched outside the State otherwise than by way of sale? Petitioner's contention: The exemption under Entry 68 is absolute for dealers with turnover below Rs. 500 Crores, and the subsequent despatch outside the State does not negate this exemption or trigger purchase tax. They argued that the selling dealer had complied with the conditions for exemption. Revenue's contention: The exemption is conditional. When goods purchased under an exemption are despatched outside the State otherwise than by way of sale, it falls under Section 12(1)(c) of the TNVAT Act, attracting purchase tax. They relied on the interpretation of Section 12(1)(c) and the nature of the exemption. 2. Whether the levy of penalty is sustainable in cases where no specific proposal for penalty was made in the show cause notice? Petitioner's contention: The levy of penalty without a prior proposal in the show cause notice violates principles of natural justice. Revenue's contention: (Not explicitly recorded, but implied by the court's finding on this issue).