Steel Authority of India Ltd. vs Additional Commissioner, Commercial Tax, Jabalpur and Others

We heard both sides at length. The petitioner, Steel Authority of India Ltd., sold certain steel to Maihar Cement Unit No. 2. The said unit seems to be a unit of Century Textiles and Industries Limited. Further details in this respect are not required, as it is not material to this case. For the purpose of this case, we will assume Maihar Cement to be a legal entity, which is referred hereafter as the purchasing dealer.

The purchasing dealer issued a declaration in the prescribed form seeking exemption from payment of tax under the Madhya Pradesh Commercial Tax Act, 1994, which is successor Act of the Madhya Pradesh General Sales Tax Act, 1958.

Under the notification dated February 19, 1991 issued u/s 12 of the Madhya Pradesh General Sales Tax Act, 1958 and which continues under the 1994 Act, the State Government was empowered to exempt and actually exempted certain registered dealers from payment of taxes.

It is provided in the said notification that certain dealers registered under the State or Central Act, who fulfil the prescribed conditions would be entitled to exemption from the payment of tax till they reach the limit which is equal to the capital investment in the fixed assets, or for a period of 11 years, whichever is earlier or less.

Normally when dealer sells goods to a purchaser, in addition to the price of the goods the dealer may under the law pass on the burden of sales tax to the purchaser. This obligation of charging sales tax on the goods sold, is removed if purchaser being purchasing dealer submits to the selling dealer the prescribed declaration.

In this case, Maihar Cement furnished the declaration and consequently the petitioner, Steel Authority of India, did not charge tax from the purchasing dealer, i.e., Maihar Cement.

By the impugned order, the liability has been cast upon the petitioner for not charging tax from the purchasing dealer on the ground that Maihar Cement, i.e., the purchasing dealer was not eligible to issue the declaration, or has violated conditions of the declaration.

On practical thinking, unless there is something on the face of it to suggest to the seller that the declaration is not valid or the person submitting the declaration is not entitled to give such declaration, the seller cannot be expected to get the certificate or the eligibility investigated. In fact section 21 of the 1994 Act itself casts liability upon the purchasing dealer.

In these circumstances, the impugned orders were not correct in imposing liability upon the petitioner, who has sold goods without charging tax on the account of the declaration furnished by the Maihar Cement. Accordingly, the writ petition is allowed. The impugned orders are set aside. However, this order will not exempt the purchasing dealer from liability, if same exists in law. It may be considered by the State Government whether, in order to avoid mischief, the purchasing dealers should be required, by an amendment, to obtain endorsement from their assessing officers on declaration forms containing the name, registration number and eligibility number and duration/ exemption limit. The details of goods can be filled at the appropriate time by the purchasing dealers on the forms bearing such endorsement.