The Punjab and Haryana High Court ruled that the local sales tax assessment of an assessee does not exempt them from inter-State sales tax claims under the Central Sales Tax Act, 1956. The case involved M/s Modern Food Industries (India) Limited (MFIL), a government enterprise, which entered into a Memorandum of Understanding (MoU) with the Bihar government to supply energy food (Poshahar) for social welfare schemes. Under the agreement, the food was to be supplied from their existing facilities, including one in Faridabad, Haryana, until new production units were set up in Bihar. The key issue revolved around whether MFIL was liable for inter-State sales tax on goods supplied from Haryana to Bihar under this agreement.
The Court's Examination of the Facts
The tax department in Haryana classified the transaction as an inter-State sale and levied taxes accordingly. MFIL contested this, arguing that the goods were assessed under Bihar's local sales tax regime, having already paid sales tax to Bihar, and thus should not be liable for inter-State sales tax in Haryana. They asserted that a second tax imposition was unwarranted since the transaction had already been taxed as a local sale within Bihar.
The Haryana Excise and Taxation Department, however, contended that since the goods moved from Haryana to Bihar, they fell under the scope of inter-State sales as per Section 6 of the Central Sales Tax Act. Thus, they maintained that MFIL owed taxes to the Haryana government, as the state of origin for the transaction.
Legal Precedents and Interpretations
The bench, comprising Justices Sanjeev Prakash Sharma and Sanjay Vashisth, referred to the legal provisions under Sections 6(1) and 6(1A) of the Central Sales Tax Act, 1956. These sections make it clear that sales tax is payable on inter-State transactions even if local tax has already been paid in another state, provided the goods are deemed to have moved across state boundaries. The court emphasized that the core criterion for the imposition of inter-State sales tax is the movement of goods between states, regardless of local tax assessments by the receiving state.
Additionally, the court cited the Supreme Court's ruling in M/s Bharat Electric Limited v. Union of India, which upheld that inter-State sales tax is applicable when goods are moved across state borders for a specific purpose under a prior contract, as was the case with MFIL's supplies to Bihar.
Court's Key Observations and Dismissal of Petition
The court concluded that the assessment of sales tax by Bihar on MFIL’s transactions did not absolve the company from its inter-State sales tax obligations to Haryana. It ruled that the movement of goods from Haryana to Bihar for distribution under a welfare scheme constituted an inter-State sale under the Central Sales Tax Act. The bench made it clear that the mere fact of local assessment by one state does not nullify the tax liabilities in the originating state for inter-State sales.
The court dismissed MFIL's argument that paying tax in Bihar should exempt them from further taxation, noting that inter-State tax is a separate liability. The bench also referred to Tata Motors Limited v. Central Sales Tax Appellate Authority and others, stating that MFIL could potentially seek a refund from the concerned state (Bihar) for any excess tax paid under local laws, but this would not relieve them from inter-State tax duties owed to Haryana.
Implications of the Judgment
This judgment reinforces the principle that inter-State sales tax claims under the Central Sales Tax Act must be adhered to, regardless of local sales tax assessments by the receiving state. It sets a precedent that businesses involved in inter-State trade must account for both local and central sales tax regulations, particularly when goods are moved across state borders for specific purposes.
The ruling underscores that businesses cannot escape their inter-State tax obligations merely by fulfilling local tax requirements. It highlights the importance of compliance with the Central Sales Tax Act’s provisions, which are designed to ensure tax uniformity in inter-State transactions.
Conclusion
The Punjab and Haryana High Court's dismissal of MFIL’s petition affirms that local sales assessments do not exempt assessees from inter-State sales tax liabilities. The court’s reliance on the Central Sales Tax Act and pertinent case law clarifies the tax obligations for companies engaging in inter-state commerce. The judgment reinforces the need for businesses to navigate both state and central tax regimes carefully to avoid multiple liabilities or penalties.
0 Comments
Thank you for your response. It will help us to improve in the future.