P. SREEKUMAR v. COMMERCIAL TAX OFFICER THIRD CIRCLE, ERNAKULAM

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **TUESDAY, THE 8TH DAY OF JULY 2014/17TH ASHADHA, 1936** ## **WP(C).No. 31086 of 2012 (I)** **----------------------------** **PETITIONER :** **---------------------** **P. SREEKUMAR, PROPRIETOR, ESKAY ENTERPRISES, F-114 PIONEER TOWERS, NO.1, MARINE DRIVE KOCHI - 682031.** **BY ADVS.SRI.S.ANIL KUMAR (TRIVANDRUM) SRI.K.S.HARIHARAN NAIR SRI.K.UMAMAHESWAR** **RESPONDENT :** **-----------------------** **COMMERCIAL TAX OFFICER THIRD CIRCLE, OLD RAILWAY STATION ROAD ERNAKULAM - 682018.** **BY GOVT. PLEADER SRI. BOBBY JOHN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 08-07-2014, ALONG WITH WP(C) NO. 31552/2012 & CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Mn** **...2/-** **WP(C).No. 31086 of 2012 (I)** ## **APPENDIX** ## **PETITIONERS' EXHIBITS :** **--------------------------------------** **EXT.P1(a) COPY OF AUTHORISATION FORWARDING LETTER FOR DEPB. EXT.P1(b) COPY OF AUTHORISATION FORWARDING LETTER FOR VKUJL (VISHESH KRISHI UPAJ YOJANA LICENSE). EXT.P1(c) COPY OF AUTHORISATION FORWARDING LETTER FOR FPS (FOCUS PRODUCT SCHEME). EXT.P2(a) COPY OF SALE BILL DATED 27.03.2012 FOR LOCAL SALE. EXT.P2(b) COPY OF SALE BILL DATED 16.03.2012 FOR LOCAL SALE. EXT.P3(a) COPY OF REFUND ORDER DATED 09.01.2012 ISSUED BY THE RESPONDENT FOR THE YEAR 2010-11. EXT.P3(b) COPY OF REFUND ORDER DATED 19.11.2012 ISSUED BY THE RESPONDENT FOR THE YEAR 2011-12. EXT.P4(a) COPY OF NOTICE DATED 10.12.2012 ISSUED BY THE RESPONDENT FOR THE YEAR 2010-11. EXT.P4(b) COPY OF NOTICE DATED 10.12.2012 ISSUED BY THE RESPONDENT FOR THE YEAR 2011-12. EXT.P-5 COPY OF THE JUDGMENT DATED 1-3-2011 IN S.T. REV. NO.24 OF 2011.** **RESPONDENTS' EXHIBITS : NIL** **--------------------------------------------------------** **//TRUE COPY//** **P.S. TO JUDGE** **Mn** ## K.Vinod Chandran, J. **---------------------------------------** W.P.(C).Nos.31086 of 2012-I, 31552 of 2012-F, 1158 of 2013-T & 12570 of 2013-U **----------------------------------------** Dated this the 08[th] day of July, 2014 ## **J U D G M E N T** The question raised in all these writ petitions is, the re-opening of the assessments made on the purported declaration made by a Division Bench of this Court in S.T.Rev.No.24 of 2011 dated 01.03.2011. The issue relates to sale of “Duty Entitlement Pass Book [DEPB]”. The petitioner is a trader, who has purchased Import Licences, such as DEPB, Vishesh Krishi Upaj Yojana Licence [VKUJL] and Focus Product Scheme [FPS] and who effected inter-State sales of the same. The learned counsel for the petitioner submits that, as declared in _**Vikas Sales Corporation v. Commissioner of Commercial Taxes**_ **[(1996) 4 SCC 433],** licences, such as the one referred to herein, have their own value and are bought and sold as such. The DEPB, for example, is a duty entitlement conferred on the exporters in lieu of the export of their products to enable duty concessions to that extent on imports made by such exporter. If the exporter, who has obtained DEPB, does not effect any imports, he could also effect sale of the entitlement, to other persons for further WP(C).No.31086 of 2012 & - 2 - connected cases sale or for enjoying the entitlement on import. 2. In the present case, the issue was with respect to inter-State sales of such “entitlements” at concessional rate by virtue of the 'C' Forms issued by the outside purchasing dealer. 'C' Forms, going by the Central Sales Tax Act, 1956 [for brevity “CST Act”], issued by the purchasing dealer; in an inter-State trade, entitles sale of goods at the concessional rate of tax @ 2%, provided the goods are purchased _inter alia_ for manufacture or for processing or for resale, which declaration is made by the purchasing dealer, by way of 'C' Form. 3. The Sales Tax Revision, the order of which is produced in W.P.(C).No.31086 of 2012 as Exhibit P5, indicates that therein no 'C' Forms were produced to sustain the claim of concessional rate. The Division Bench dismissed the revision, upholding the fact finding of the Tribunal. However, while dismissing the same, the Division Bench made an observation as to how 'C' Form would be applicable for transfer of credit in the Pass Book issued under DEPB Scheme. Definitely the issue did not arise for consideration before the Division Bench in the said Sales Tax Revision. Therein, no 'C' Forms were produced and the claim could WP(C).No.31086 of 2012 & - 3 - connected cases have been declined on that ground itself and that was done by the Division Bench while affirming the order of the Tribunal. 4. In the instant cases, it has to be noticed that the notices, which have been assailed, does not refer to any specific decision which declared the law. The Assessing Officer laconically states: “The judge declared the law as that “The Form C is not applicable to the transfer of credit in the passbook issued under DEPB Scheme”. Nothing is stated as to where such declaration was made and in what context such declaration was made. It is unfortunate that such statements made with abject levity results in re-opening of settled issues; resulting in unnecessary harassment of dealers. The petitioner would contend that it is only on the basis of the judgment, produced as Exhibit P5, that the re-opening was made. That is also referred to in the order assailed in one of the writ petitions. The learned Government Pleader also does not point out any other judgment, wherein such declaration has been made. Looking at Exhibit P5, no such declaration is discernible and it is only a passing apprehension, expressed by the Court; which does not crystallize into a dictum as such. No reasoning is also seen from Exhibit P5 WP(C).No.31086 of 2012 & - 4 - connected cases judgment, to support such a declaration. 5. Even with respect to the specific apprehension expressed by the Division Bench, the answer lies in _**Yasha Overseas v. CST**_ , reported in **[2008] 8 SCC 681.** A slight overview of the issue has to be taken note of, at this juncture. _**Vikas Sales Corporation v. Commissioner of Commercial Taxes**_ **[(1996) 4 SCC 433]** dealt with the issue whether transfer of Import Licence [Replenishment (REP) Licenses], by its holder, to another person constitutes a sale of goods or not. While rendering the judgment, copious reference was made to the decision in _**H.Anraj v. State of T.N.**_ **[(1986) 1 SCC 414]** . The said decision of the Hon'ble Supreme Court was prospectively overruled in _**Sunrise Associates v. Govt. of NCT of Delhi**_ **[(2006) 5 SCC 603]** . Hence, the sustainability of the dictum in _**Vikas Sales Corporation**_ [ _supra_ ] came up for consideration again before a three Judge Bench in _**Yasha Overseas**_ ( _supra_ ). The Hon'ble Supreme Court found that despite the fact that _**H.Anraj**_ ( _supra_ ) was overruled; in _**Vikas Sales Corporation**_ [ _supra_ ], the learned Judges had come to the conclusion that sale of REP licences had their own value and involves sale of goods; quite WP(C).No.31086 of 2012 & - 5 - connected cases independently. 6. In _**Yasha Overseas**_ ( _supra_ ), there was one another question, as to, whether DEPB would also come within the same footing of REP licence. That question was answered in the affirmative. In fact, the fleeting apprehension raised by the Division Bench is seen to have been squarely answered by the Hon'ble Supreme Court in _**Yasha Overseas**_ ( _supra_ ). The learned Senior Advocate appearing for the appellants therein had raised a contention that what was sought to be taxed was the transfer of credit in DEPB and that credit could never be “goods” under the sales tax laws. The contentions raised and the answer are available in paragraphs 56 to 59 of the decision: “56. Mr.Soli J.Sorabjee, learned Senior Advocate, appearing in Civil appeal No.6893 of 2003 led the arguments on behalf of the appellants. Mr. Sorabjee referred to Entry 26(6) in Schedule C of the Bombay Sales Tax Act and submitted that what was sought to be taxed was the transfer of “credit” in duty entitlement passbook. Learned counsel submitted that “credit” could never mean “goods” under the sales tax laws. Elaborating the point he submitted that credit was earned on the basis of export(s) made by the assessee and the credit lying with the Government in favour of the assessee was in the nature of WP(C).No.31086 of 2012 & - 6 - connected cases debt. The credit represented an ascertained sum of money and it was clearly a debt even though it was not refundable or payable in cash. A debt that could be discharged by way of a set-off is nonetheless a debt. In this case the credit represented a conditional debt that could be discharged by way of a set-off against the duty payable on a future import. Being in the nature of debt, the DEPB credit plainly fell within the first part of the definition of actionable claim. 57. Learned counsel alternatively submitted that even if the credit is seen not as a debt but as movable property, the sale of DEPB only involved the transfer of the right to claim credit. The credit not being in possession of the claimant, the right to utilise it against duty payable on a future import was certainly a beneficial interest in that movable property. Seen thus, the credit would still fall within the second part of the definition of actionable claim. 58. In support of the submission, Mr.Sorabjee sought to derive support from the Constitution Bench decision in _Sunrise_ [supra] which, according to him, laid down that in the sale of a lottery ticket what is transferred is the conditional right to claim a beneficial interest in the prize money which was movable property, not in possession of the purchaser. He also submitted that the saleability of DEPB would not make any difference because many other actionable claims were equally saleable. 59. We are afraid, we find the submission unacceptable. We are unable to see DEPB either as a debt or as a beneficial interest in movable property not in WP(C).No.31086 of 2012 & - 7 - connected cases possession of the claimant. To us it is plain that DEPB like REP licence has its own intrinsic value and the purchaser, on payment of consideration, buys something for its value. DEPB credit is thus clearly “goods” within the meaning of sales tax laws and its sale is clearly exigible to tax”. 7. In such circumstance, the re-opening effected under the various notices and also the order passed in one of the cases are to be set aside for reason of the same being illegal and directly conflicting with the decision of the Hon'ble Supreme Court. If DEPB involves sale of goods, necessarily inter-State sale could be effected on the strength of 'C' Forms, if the purchasing dealer intends it _inter alia_ for sale or for purposes of manufacture. Even if resale of DEPB entitlements are not effected and the purchasing dealer imports goods for purposes of manufacture, then again the very same principle would apply. In any event, any defalcation or violation of the declaration, at the hands of the purchasing dealer, who issued the 'C' Form; would be liable to be proceeded against only against that purchasing dealer and not against the selling dealer; in the absence of any collusion being found against the selling dealer within the State. WP(C).No.31086 of 2012 & - 8 - connected cases In the light of the above, the notices issued in W.P.(C). Nos.31086 of 2012 [Exhibit P4 series], 31552 of 2012 [Exhibit P3] and 1158 of 2013 [Exhibit P4] are declared as issued without sanction of law. Exhibits P7(a) to P7(b) orders produced in W.P.(C). No.12570 of 2013 would stand set aside as illegal. Writ Petitions are allowed. Parties are left to suffer their respective costs. Sd/K.Vinod Chandran, Judge vku. ( true copy )