Local Sales Assessment Does Not Exempt Assessee From Inter-State Sales Tax Claims, Rules Punjab & Haryana High Court

The Bench consists of Justices Sanjeev Prakash Sharma and Sanjay Vashisth observed that “merely because the concerned respective States has assessed the assessee/petitioner for the local sales, it cannot absolve itself from the claim raised by the State of Bihar and the assessee/petitioner was required to pay the same.”

Section 6(1) of the Central Sales Tax Act, 1956 provides that every dealer is liable to pay tax on all inter-State sales of goods (except electrical energy) under this Act, except for goods sold in the course of export outside India as per Section 5(3).

Section 6(1A) of the Central Sales Tax Act, 1956 provides that a dealer is liable to pay tax on inter-State sales under this Act, even if no tax would have been applicable under the sales tax law of the relevant State had the sale occurred within that State.

Facts of the case:

The assessee/petitioner, M/s Modern Food Industries (India) Limited (MFIL), is a public sector enterprise of the Indian government engaged in manufacturing food products. They had a Memorandum of Understanding (MOU) with the Government of Bihar to supply Poshahar (energy food) for distribution under social welfare programs. As part of the agreement, MFIL was to supply this food from their existing plants, including one in Faridabad, Haryana, until they established new facilities in Bihar.

The Excise & Taxation Officer in Faridabad assessed this supply as inter-State trade, taxable under the Central Sales Tax Act, and issued a demand for tax and penalties. The assessee filed an appeal before the Joint Commissioner & Taxation Commissioner (Appeal), Faridabad which upheld the order passed by the Excise & Taxation Officer.

Aggrieved, the assessee filed an appeal before the Sales Tax Tribunal, Haryana which upheld the order passed by the Joint Commissioner & Taxation Commissioner (Appeal). The assessee has filed the writ petition before the Punjab and Haryana High Court challenging the order passed by the Sales Tax Tribunal.

The assessee submitted that the assessee/petitioners has paid sales tax at the level of State of Bihar itself and, therefore, it cannot be said inter-State sales as the sale has to be treated at the level of the concerned State alone. Once the assessee/petitioners have already paid the sales tax @4.43% to the Bihar Government, they cannot be taxed twice and no ulterior motive could have been attributed to them as sales tax in Haryana is only 4%. Once the assessee has already been assessed by the State of Uttar Pradesh and State of Bihar, State of Haryana cannot claim the sales tax.

The Department referred to the case of M/s Bharat Electric Limited v. Union of India [(1996)8 PRT 424 (SC)] where it was held that interstate sales Tax is leviable in the state where goods are manufactured for specific purpose and also from where movement of goods takes place. As movement of goods took place from Faridabad to Patna, Madras and Kanpur branches for specific purpose in pursuance of a prior contract and specific formulation hence it being an inter-State sale, inter-State sales tax is leviable at Faridabad.

Observations of the High Court:

The bench observed that merely because the assessee/petitioner has been assessed by the concerned respective States for the local sales, it cannot absolve itself from the claim raised by the State of Bihar and the assessee/petitioner was required to pay the same.

The bench referred to the case Tata Motors Limited v. Central Sales Tax Appellate Authority and others [2022(9) TMI 1000] and stated that “we leave it open to the assessee/petitioner to claim refund of the amount already paid to the concerned States in terms of the observations made in Tata Motors Limited.”

In view of the above, the bench dismissed the petition.

Counsel for Petitioner/ Assessee: Sandeep Goyal, Advocate, for the petitioner in CWP Nos. 11972, 11988 and 12048 of 2000.

Ms. Shifali Bahia, Advocate for Arjun Pratap Atma Ram, Advocate, for the petitioner

in CWP No. 16829 of 2004.

Counsel for Respondent/ Department: Tanisha Peshawaria, Deputy Advocate General, Haryana.

Virish Dahiya, and R. D. Gupta, Advocate, for the States of UP and Bihar.

Case Title: M/s Modern Food Industries (India) Limited v. State of Haryana and others

Case Number: CWP No. 11972 of 2000 (O&M)

Click Here To Read/Download Order