Madras High Court : Exemption on Inter-State Sales of Goods Cannot Be Granted Where Locally Purchased and Inter-State Stocks Are Mingled and Not Properly Segregated
Isabella Mariam
The High Court of Madras Division Bench of Justice S.M. Subramaniam and Justice C. Saravanan has held that when an assessee purchases goods both within the State and from other States, segregation of local and inter-State purchases is essential to claim exemption. Dismissing a writ petition concerning inter-State sales of gingelly seeds, the Court affirmed that inspection had revealed mingling of stocks, thereby defeating the claim. Citing G.O. No. 3602 dated 28 December 1963, the Bench ruled that the assessing authority and the Tribunal were correct in denying exemption, as their decision conformed to the exemption order
The matter arose from a dispute regarding exemption on inter-State sales of gingelly seeds under the Tamil Nadu sales tax framework. The petitioner had purchased gingelly seeds locally within Tamil Nadu, which had already suffered tax at the point of first sale, and later effected inter-State sales. On this basis, exemption was claimed under Government Order No. 3602, Revenue, which provides relief where goods already taxed locally are sold outside the State. To substantiate the claim, the petitioner produced purchase bills and stock books.
The assessing authority, after conducting an inspection, concluded that stocks of locally purchased goods and those from outside the State were mingled and could not be segregated. On that ground, the exemption was rejected. The petitioner appealed to the Appellate Assistant Commissioner (Commercial Tax), who reversed the assessment order and accepted the claim for exemption.
The State then pursued the matter before the Sales Tax Appellate Tribunal. The Tribunal set aside the order of the Appellate Assistant Commissioner and restored the assessment, finding that mere maintenance of separate records was insufficient in the face of physical verification showing mingling of goods.
In the writ proceedings, the petitioner argued that separate accounts had been maintained and that the Tribunal had not properly appreciated this. The State authorities countered that the mingling was established during inspection, making segregation impossible.
The Court stated: “Though the petitioner had maintained separate stocks account for outside State purchase and local purchase, whether it was kept separately or not has not been considered by the Appellate Assistant Commissioner (Commercial Tax) and thus the Appellate Tribunal has taken up that issue and considered elaborately.”
The Bench observed that the Tribunal had correctly noted that “mere maintenance of records would be insufficient as the sales would have been a mingled sales.” The Court recorded that the Appellate Assistant Commissioner had only relied upon stock books but failed to consider the inspection report and the fact of mingling found during verification.
The judgment further recorded: “Once the petitioner has disproved the mingling of stocks found during the course of inspection, the estimation of first sales accepted by the Appellate Assistant Commissioner (Commercial Tax) is found to be perverse.” It was further observed that even in written submissions before the Tribunal, the petitioner did not establish physical segregation of stock during inspection.
The Court held: “The power of the judicial review of the High Court under Article 226 of the Constitution of India is to ensure the process through which the decision has been taken in consonance with the rules and statute in force, but not the decision itself.” The judges stated that when facts were established clearly, particularly regarding mingling of stock, the Court could not re-appreciate or re-adjudicate such findings.
Accordingly, the Bench recorded: “When the facts are established in clear terms that the goods were found mingled during the course of physical verification / inspection, the decision of the assessing Authority and the appellate Tribunal that the petitioner is not entitled for exemption, in the opinion of this Court is correct and in consonance with the provisions of the exemption Order.”
“Thus, the orders passed by the assessing authority and the Tamil Nadu Sales Tax Appellate Tribunal are confirmed. In result, the Writ Petition is dismissed. There shall be no order as to costs.”
Advocates Representing the Parties
For the Petitioner: Mr. C. Subramanian for Mr. K.J. Chandran
For the Respondents: Mr. C. Harsharaj, Special Government Pleader
Case Title: M/s. Sivakumar and Co. v. The Tamil Nadu Sales Tax Appellate Tribunal & Others
Case Number: W.P.No.33265 of 2007
Bench: Justice S.M. Subramaniam and Justice C. Saravanan
