WP/21875/2011 of M/s.City Tex Pvt.Ltd., A2, Bharati Apartments, PANDT Colony Vs The Commercial Tax officer, Auto Nagar, Vijayawada on 30 December 2011

1. AIR 1955 SC 6612. (2005) 1 SCC 7543. (2005) 2 SCC 6384. AIR 1966 SC 7195. (1996) 6 SCC 1856. (2000) 2 SCC 6997. (2004) 6 SCC 598. AIR 1958 SC 5559. AIR 1997 SC 1006 : (1997) 1 SCC 37310. (2011) 53 APSTJ 111. AIR 2001 SC 88612. AIR 1992 SC 184613. (1997) 1 SCC 373

14. (2007) 2 SCC 23015. AIR 1945 PC 48

THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE SANJAY KUMAR

WRIT PETITION No.21875 of 2011

December 30, 2011

Between:

M/s.City Tex Private Limited, A2, Bharati Apartments,P&T Colony, Vijayawada, Krishna District, represented by itsManaging Director M.Surendra Babu, S/o.Venkaiah

... Petitioner

And

The Commercial Tax Officer, Auto Nagar,Vijayawada, Krishna District and another … Respondents THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR

WRIT PETITION No.21875 of 2011

ORDER:(Per Hon’ble Sri Justice V.V.S. Rao)

The petitioner company is engaged in the business ofmanufacture of cotton terry toweling fabrics. It is registered on therolls of the first respondent under the Andhra Pradesh ValueAdded Tax Act, 2005 (the VAT Act). For the year 2006-2007, thepetitioner filed returns in VAT Form 200 disclosing purchases,sales and input tax credit availed and output tax payable. Thepetitioner claims that he is entitled for tax refund of Rs.4,09,427/-. The returns under Central Sales Tax Act, 1956 (CST Act) werealso filed in CST VI Forms for 2006-07 disclosing export sales ofterry towels, taxable at zero rate. They claimed exemption ofinterstate sales as falling under Entry 45 of I Schedule to the VATAct.

In pursuance of authorization issued by the secondrespondent, the Deputy Commercial Tax Officer (DCTO), BenzCircle, Vijayawada, conducted audit of the accounts of thepetitioner on 20.01.2009 for the periods from 01.04.2006 to30.11.2008. By order dated 27.02.2009, the DCTO disallowed theinput tax credit on the goods for which exemption was claimed and by applying formula AXB/C as per Rule 20 of the Andhra PradeshValue Added Tax Rules, 2005 (the VAT Rules) disallowed the inputtax credit for an amount of Rs.2,73,966/-. Thereafter, in exerciseof powers under Section 32 of the VAT Act, the second respondentissued a show cause notice proposing to revise the order of theDCTO, dated 27.02.2009. He proposed to levy tax on the salesturnover of cotton terry toweling fabrics on the premise that thepetitioner claimed exemption on the sales turnover on the terrytowels in the guise of terry toweling fabrics. The petitionersubmitted objections to the show cause notice on 23.06.2010. While the matter is pending, at that stage, the first respondentissued show cause notice dated 23.11.2009 under CST Act for theyear 2006-07; petitioner filed objections on 16.12.2009 andthereafter first respondent passed the assessment order dated30.03.2011 demanding Rs.1,97,065/- towards CST duly givingcredit to the tax paid. Assailing the same, the dealer has filed theinstant writ petition.

It is contended by the dealer that the impugned order dated30.03.2011 was served on the petitioner on 29.06.2011 and thatthe same is antedated. The impugned order is beyond the periodof limitation prescribed under Section 21(3) of the VAT Act and itwas passed only to deny the refund claim made by the petitioner. It is further contended that the first respondent did not establishthe fact that the petitioner sold the cotton terry towels in the guiseof cotton terry toweling fabrics and the fabrics sold by thepetitioner falls under Entry 45 of I Schedule to the VAT Act andtherefore exempted from VAT. The order was passed withoutverifying the record and without considering the issues raised bythe petitioner. The impugned order is contrary to the circularissued by the Commissioner of Commercial Taxes, whereunder the interstate sales of textiles will be treated as exempted underthe VAT Act even if the buying dealers are not able to produce “C”Forms.

At the state of admission itself, the first respondent has filedcounter affidavit opposing the writ petition. It is submitted that thepetitioner has effective alternative remedy and the writ petition isfiled without availing the remedy which is not maintainable. Thefirst respondent would further submit that the petitioner claimedexemption for the goods “cotton terry toweling fabrics” fallingunder Entry 45 of the I Schedule to the VAT Act and also on theinput tax credit on the purchase of value of the cone cotton yarn(raw material) purchased within the State from the registereddealers. They also claimed refund of tax in VAT 200 return filedfor the month of March, 2009. During the audit, it was noticed thatthe assessment for the year 2006-2007 under the CST Act was notfinalized. Therefore, a show cause notice was issued on23.06.2010 proposing to levy tax @ 10% on the interstate salesturnover of cotton terry towels treating the goods as falling underEntry 52 of the IV Schedule to the VAT Act. The petitionersubmitted objections. Duly considering all the objections, the firstrespondent passed orders raising demand for CST ofRs.1,97,065/-. The petitioner is neither registered with the CentralExcise and Customs Department nor has paid additional exciseduty to claim exemption under the VAT Act. Entry 52 originallyread as “Readymade Garments”. By G.O.Ms.No.1564, dated17.08.2005, it was amended with effect from 18.08.2005 to read as“Readymade garments, bed sheets, pillow covers, towels,blankets, travelling rugs, curtains, crochet laces, zari, embroideryarticles (and all other made ups)”. The bracketed portion wasomitted with effect from 01.03.2009 and the items “Bed sheets, pillow covers, towels, blankets, travelling rugs, curtains, crochet,zari and embroidery articles” were omitted with effect from01.05.2009 and no tax was levied from that day.

The first respondent would further submit that after audit,the DCTO finalized the assessment on 20.09.2006; the petitionerpaid the tax and penalty determined by the authority and thereforehe cannot raise any objection if assessment under CST Act for2005-2006 is undertaken by the first respondent. The petitioneraccepted the assessment under the VAT Act and therefore hecannot question the assessment under the CST Act. As per Rule14-A(8)(b) of the Central Sales Tax (Andhra Pradesh) Rules, 1957(the State Rules), the assessment can be made within a period offour years from the expiry of the year to which the turnoverrelates, if the whole or any part of the turnover has escaped orunder-assessed in any year. Therefore the plea that theassessment is not barred by limitation cannot be accepted.

The counsel for the petitioner and the Special Counsel forthe Commercial Taxes have reiterated the submissions from theirpleadings which are surmised supra.

The background facts and submissions would give rise totwo issues for consideration, namely, whether the impugnedassessment is barred by limitation and whether the impugnedassessment is in accordance with law.

Question of Limitation

Section 9(2) of the CST Act is to the effect that subject toprovisions of the Act and Rules made thereunder the machineryand method of assessment of CST shall be in accordance with theprovisions of general sales tax law of the State. Further, as perRule 11 of the Central Sales Tax (Registration and Turnover)Rules, 1957 (the Central Rules), the period of turnover in relation to any dealer liable to pay Central Sales Tax shall be the same asthe period in respect of which he is liable to submit returns underthe State law.

Under the Andhra Pradesh General Sales Tax Act, 1957(the APGST Act) every registered dealer is required to submitreturns relating to his turnover to the assessing authority on orbefore 7[th] day of March and 20[th] day of every other month alongwith a receipt from the Government Treasury or crossed demanddraft in favour of the assessing authority for the full amount oftaxes payable for the month to which the returns related undervarious charging Sections. Section 14 empowers the assessingauthority to undertake assessment within a period of three yearsfrom the expiry of the year to which the assessment relates. Section 2(U) defines a year as to mean the 12 months ending 31[st]day of March. Thus, under the sales tax regime though aregistered dealer is required to file monthly returns, the assessingauthority can undertake annual assessment of tax on the basis ofthe return after giving an opportunity to the dealer. Theassessment, however, shall have to be made within a period ofthree years from the expiry of the year to which the assessmentrelates. Section 14(4) of APGST Act, however, enablesreassessment when it is found the dealer was assessed at a ratelower than the applicable rate or the turnover escapedassessment.

The VAT Act came into force from 01.04.2005. UnderSection 20 thereof read with Rule 23 of the Andhra Pradesh ValueAdded Tax Rules, 2005 (the VAT Rules), every registered VATdeader shall have to submit return along with proof of payment oftax within 20 days after the end of the tax period. Tax period isdefined in Section 2(36) as to mean the calendar month or any other period prescribed. If a return is filed within the prescribedtime, it shall be accepted as his assessment. But under Section21, if the assessing authority is not satisfied, he shall assess theVAT within four years of due date of return or within four years ofthe date of filing of the return whichever is later. As Rule 23 readwith Section 2(36) requires a VAT dealer to file return within 20days after the end of the tax period, the assessing authority canundertake assessment within four years from the date of filing ofthe return or otherwise assessment would be barred subjecthowever to Section 21(7) with which we are not concerned in thiscase.

In exercise of the powers conferred under sub sections (3)(4) and (5) of Section 13 of the CST Act, the Governor of the Statepromulgated the Central Sales Tax (Andhra Pradesh) Rules, 1957(the State Rules). Rule 14-A(1)(a), (5A) and (8) thereof arerelevant and read as under.

Rule (14-A)(1)(a):- Every dealer registered underSection of the Act and every dealer liable to pay tax under theAct shall submit so as to reach the assessing authority on orbefore the 20[th] of every month a return in Form CST VIshowing the total and net turnover of his transactions includingthose in the course of inter-State trade or commerce (the totalvalue of the goods transferred outside the State otherwisethan as a result of sale and in the course of export of thegoods out of the territory of India) during the preceding monthand the amount or amounts collected by way of tax. Thereturn shall be accompanied by a receipt from a Governmenttreasury or (a crossed demand draft) in favour of theassessing authority for the full amount of the tax payable forthe month to which the return relates. (Provided that where adealer intends to pay the tax through a crossed cheque, thecheque should be sent so as to reach the assessing authorityon or before the 15[th] day of the month succeeding the monthto which the tax relates. (Provided further that a dealer who isnot liable to pay tax under the Andhra Pradesh General SalesTax Act, 1957 shall submit return for each quarter as shownbelow instead of each month.

Quarter ending

Due date for submission of the return

30[th] June

30[th] September31[st] December31[st] March On or before the 15[th] July On or before the 15[th] OctoberOn or before the 15[th] JanuaryOn or before the 15[th] April (b) Along with the return mentioned in clause (a) ofsub-rule (1) the dealer shall also, submit to the assessingauthority-

(i) the originals of the declarations in Form C,received by him from the dealers to whom he sold goods;

(ii) the originals of the certificates in Form D, if anyreceived by him in the case of sales to Government of Indiaor to the Government of any State;

(iii) the originals of lthe certificates in Form E-I or E-II, if any, received by him from the dealers from whom hepurchased the goods, and

(iv) the originals of the declarations in Form ‘F’received by him from the transferee of the goods to whom hetransferred goods otherwise than as a result of sale.(v) an extract of columns (5) to (13) of the registerin Form CST IV maintained by him.

(Sub Rules (2) and (3) omitted here as not relevant)

Rule 14A (4) If no return is submitted for any month orquarter, as the case may be, before the due date or if thereturn submitted appears to be incorrect or incomplete, theassessing authority shall after making such enquiry as heconsiders necessary after giving the dealer an opportunity ofproving the turnover to the best of his judgment, andprovisionally assess the tax or taxes payable for the month orquarter, as the case may be and shall serve upon the dealer anotice in Form CST VII and the dealer shall pay the sumdemanded at the time and in the manner specified in thenotice.

Provided that if for any reason the determination ofprovisional assessment of tax or taxes payable for any monthor quarter is not completed on or before the receipt of thereturn for the succeeding month or quarter, as the case maybe, the assessing authority may in his discretion provisionallyassess in a single order the tax or taxes payable for all suchmonths or quarters as the case may be and serve upon thedealer a notice in Form CST VII and the dealer shall pay thesum demanded within the time and in the manner specified inthe notice.

Rule 14A (4A) Omitted

Rule 14A (5) If the return or returns are filed within the prescribed time by the dealer and such return or returns arefound in order, the return or returns shall be accepted as selfassessment, subject to adjustment of any arithmetical error,apparent on the face of the said return or returns.

Rule 14(5-A): Every dealer shall be deemed tohave been assessed to tax, based on the returns filed byhim, if no assessment is made within a period of fouryears from the date of filing of the return.

(Sub-rules (6) and (7) are omitted as not relevant)

Rule 14(8): If, for any reasons, the whole or any partof the turnover of business of a dealer has escapedassessment to tax or has been under assessed in any years,the assessing authority may after issuing a notice to thedealer and after making such enquiry as he considerednecessary determine to the best of his judgment the correctturnover, and assess the tax payable on such turnover- (a) In cases where an order of assessment or levyhad been passed earlier, within a period of four years from thedate on which such order was served on the dealer; (b) within a period of four years from the expiry of theyear to which the turnover relates in other cases.

Rule 14A (9) If, for any reason, any tax has beenassessed at too low a rate in any year, the assessingauthority may after issuing a notice to the dealer and aftermaking such enquiry as he consider necessary revise theassessment within a period of four years from the date onwhich the order of assessment to be revised was servedupon the dealer.

Rule 14A (10) An assessing authority may, at any timewithin four years from the date of any order passed by himrectify any arithmetical mistake apparent from the record: Provided no such rectification, which has the effect ofenhancing the assessment shall be made unless theassessing authority has given a notice to the dealer of theintention to do so and has allowed him a reasonableopportunity of being heard.

Rule 14A (11) The powers conferred by sub-rules (8),(9) and (10) on the assessing authority may also be excisedby the appellate or revising authority, subject to the samelimitations and conditions as are applicable in the case ofassessing authority.

Unlike Section14(1) of the APGST Act and Section 20 of the VAT Act, the CST Act does not specifically prescribe any period oflimitation for undertaking the assessment of CST payable by aregistered dealer. As already noticed supra, by virtue of Section9(2) of the CST Act all the provisions of the State law, relating tothe sales tax would also apply to assessment of CST. Further theCentral Rules also do not prescribe any period of limitation butRule 11(1) thereof stipulates that the period of turnover in relationto any dealer liable to pay CST shall be the same as the period inrespect of which he is liable to submit returns under the State law. The Central Rules have been made in exercise of the powersunder Section 13(1) of the CST Act. Section 13(3) empowers theState Government to make Rules not inconsistent with theprovisions of the CST Act and the Central Rules. As the CST Actor the Central Rules are silent with regard to the limitation, onehas to look to the State Rules alone and there is no dispute thatRule 14A of the State Rules is comprehensive and deals with theobligation of a dealer to file returns, the assessment of suchreturns and the period during which the competent officer canundertake assessment. We have quoted Rule 14A of the StateRules extensively supra and we shall analyse the samehereinbelow.

Every dealer shall submit the return in Form CST-VI so asto reach the assessing authority on or before 20[th] of every monthalong with a receipt from District Treasury or crossed demanddraft for full payment of tax payable for the month to which thereturn declares. It has also to be accompanied by the originals ofdeclarations in Form-C, the certificates in Form-D, Form-E1 or E2and declarations in Form-F.

As per sub-rule (5) read with sub-rule (5A) of Rule 14A ofthe State Rules, the return so filed within the prescribed period, if it is in order, shall be accepted as self-assessment and shall bedeemed to have been assessed to tax. But within a period of fouryears from the date of filing of the return, the assessing officer canalways undertake assessment even if it is deemed self-assessment. This is one situation that is contemplated by sub-rules (1), (4), (5) and (5A) of Rule 14A of the State Rules.

The other situation arises when the dealer does not filereturn or files an incorrect return. Sub-rules (6) and (7) of Rule14A deal with such a situation and enable the assessing authorityto determine the turnover to best of judgment and finally assess ina single order the tax or taxes payable under the CST Act followedby the demand in Form CST-VII. Sub-rules (9), (10), (11) and (15)of Rule 14A deal with re-assessment by the same assessingauthority, or ... modification by hierarchical superior authority orthe Court subject to period of limitation as contained in sub-rules(9) and (15) of Rule 14A.

Sub-rule (8) of Rule 14A of the State Rules specificallydeals with the period of limitation for undertaking assessmentwhen the turnover escaped assessment to tax in cases whereassessment had already been made and also in cases where noassessment was made. Rule 14A (8)(a) of the State Rules dealswith cases where assessment order had already been passedunder sub-rule (6) read with sub-rule (7) of Rule 14A. Sub-rule (8)(b) thereof deals with, among others, cases where assessmentorders were not passed earlier which only means those casesfalling under sub-rules (5) and (5A) which speak of self-assessment and deemed assessment.

The Counsel for the petitioner would strongly rely on sub-rule (5A) of Rule 14A in support of the plea that impugnedassessment is barred by limitation. We are afraid we cannot accept the submission. In our opinion it only deals with deemedassessment and lays down that if no assessment is made within aperiod of four years from the date of filing of the return, suchdeemed assessment would be final. The period of limitation isspecifically dealt with by sub-rule (8). If this construction is notadopted it would amount to giving extended meaning to legal fictionin sub-rule (5A) which is not permissible rule of interpretation.

A legal fiction is a legislative device created for a specifiedand definite purpose of clarifying the context or a situation for thepurpose of applicability or inapplicability or some times forenlarging the scope of the provision. It is not necessary to refer tothe case law which is galore. Suffice to extract hereinbelow thepassage from the recent Full Bench Judgment, dated 25.11.2011of this Court to which both of us are members in State of A.P., vSeven Hills Constructions (TRC No.274 of 2001 and batch).

A legal fiction is created only for some definite purpose. The fiction is to be limited to the purpose for which it wascreated, and should not be extended beyond that legitimatefield. A legal fiction presupposes the existence of the state offacts which may not exist, and then works out theconsequences which flow from that state of facts. Suchconsequences have got to be worked out only to their logicalextent having due regard to the purpose for which the legalfiction has been created. Stretching the consequencesbeyond what logically follows amounts to an illegitimateextension of the purpose of the legal fiction. (Bengal Immunity Co. Ltd. v State of Bihar[[1]];K.Prabhakaran v P.

Jayarajan[[2]]). A legal fiction should not be extended beyondthe language by which it is created. A deeming provisioncannot be pushed too far so as to result in an anomalous or absurd position. (Maruti Udyog Ltd. v Ram Lal[[3]]) . Thefiction enacted by the legislature must be restricted by the plain terms of the statute. (CIT v Shakuntala[[4]];Mancheri [5]Puthusseri Ahmed v Kuthiravattam Estate Receiver). The legal fiction is not to be extended beyond the purpose forwhich it is created, or beyond the language of the Section bywhich it is created. (State of Maharashtra v Laljit Rajshi Shah[[6]]; Mancheri Puthusseri Ahmed; State of W.B. v [7]Sadan K. Bormal). A legal fiction cannot be extended bythe court on analogy or by addition or deleting words notcontemplated by the legislature. (Mancheri PuthusseriAhmed).

As long as assessment order is not made even in a casefalling under Rule 14A (5) read with sub-rule (5A), an assessmentcan be undertaken by the assessing authority subject to Rule14A(8) of the State Rules. The various sub-rules in Rule 14A haveto be harmoniously read without causing harm to any of the sub-rules. If this is not adopted, it would result in clash between thetwo sub-rules, which the Court ought to avoid. If both of them canbe reconciled, they should be interpreted in such a manner that theeffect should be given to both.

The rule of harmonious construction is well settled. Wherethere are two provisions in an enactment which cannot bereconciled, they should be interpreted in a manner to give effect toboth (Venkata Ramana Dora v State of A.P.,[[8]]andSultana Begum v Prem Chand Jain[[9]]). While doing so, it is trite, all the provisions ofthe Act must be read together. Similarly all the sub-sections orsub-rules should also be read together while harmonizing theeffect of the provision. In Ankamma Trading Company v AppellateDeputy Commissioner[[10]], a Division Bench of this Court to whichone of us is a member (VVSR,J) explained this principle which wemay quote hereunder.

A harmonious construction of a provision, whichsubserves the object and purpose for which the provision isintended to serve, is permissible provided it does not causeviolence to the language of the provision (M/s.OxfordUniversity Press v Commissioner of Income Tax[[11]],Administrator, Municipal Corporation, Bilaspur vDattatraya Dahankar[[12]]) and when a literal meaning may result in absurdity. Courts must, however, keep in mind thatan interpretation which reduces one of the provisions to a“dead letter” or “useless lumber” is not harmoniousconstruction. To harmonise is not to destroy any statutoryprovision or to render it otiose (Sultana Begum v PremChand Jain[[13]]). In construing enacted words Courts are notconcerned with the policy involved or with the results,injurious or otherwise, which may follow from giving effect tothe language used. Even if the literal interpretation results inhardship, or to the language used. Even if the literalinterpretation results in hardship, or inconvenience, it has tobe follows (Raghunath Rai Bareja v Punjab NationalBank[[14]]and King Emperor v Benoari Lal Sarma[[15]]).

Conclusion

Interpreting harmoniously it becomes clear that whether it isa “deemed assessment” under Rule 14(5A) or assessment undersub-rules (6) and (7), if an assessing officer undertakesassessment on the ground that the turnover escaped assessmentto tax, it shall be within the period prescribed under sub-rule (8). Thus the return filed under sub-rule (1) within the time prescribedshall be deemed to have been assessed if no assessment is madewithin a period of the four years from the date of filing the return.But if the assessing authority considers that the turnover escapedassessment to tax, it is competent to determine to the best of hisJudgment the correct turnover in cases where assessment orderis passed earlier, within a period of four years from the date onwhich the order was served on the dealer, which only meansassessment order referred to sub-rule (7). It is also competent toundertake assessment under sub-rule (8)(b) in other casesincluding a case falling under sub-rule (5A). In such a case, suchassessment shall have to be within a period of four years from theexpiry of the year to which the turnover relates.

The phrase, “the whole or any part of the turnover of thebusiness of a dealer ... ... in any year” appearing in Rule 14A(8) andthe phrase “within a period of four years from the expiry of period in which the turnover relates” appearing in clause (b) thereof areindicative enough that the period of four years limitation has to bereckoned from the date of expiry of the year which as per Section2(k) of the CST Act read with Section 2(u) of the APGST Actmeans 31[st] day of March. If the turnover during the period from1[st] April of the preceding year to 31[st] March of the succeedingyear, be it the turnover in relation to a month, a quarter or a year,is found to have escaped assessment or deemed to haveassessed incorrectly, the competent officer can undertakeassessment within four years from 31[st] March of the year relevantduring which the whole or any part of the turnover escapedassessment. The submission of the Counsel that the period offour years as contemplated under Section 14A(8)(b) of the CSTAct shall have to be reckoned from the expiry of each month of theyear cannot be accepted on plain construction of the said Rule.

The patent difference in the language used in the phrase “ifno assessment is made within a period of four years from the dateof filing of the return” used in sub-rule (5A) and the phrase “withina period of four years from the expiry of the year to which theturnover relates” appearing in sub-rule 8(b) make it very clear thatan assessment undertaken under Rule 14A(8)(b) should be withinfour years from the expiry of the year to which the turnoverrelates. In that view of the matter, the submission made by thepetitioner that except in regard to the returns filed for the monthsof March, 2007, the assessment in respect of returns for themonths of April 2006 – March 2007 is barred by limitation cannotbe accepted. The returns for the months of April, 2006 to March,2007 or the returns relate to the turnover of the financial year2006-2007, and therefore, the assessment order passed on 30[th] March, 2007, is well within the limitation. It is not barred by

limitation. The feeble submission that the impugned assessmentorder was antedated has not been substantiated and therefore, wereject the same. We accordingly hold that the impugnedassessment order dated 30.03.2011 is not barred by limitation asper Rule 14A(8) of the State Rules.

Question of validity assessment

For 2006-07, the petitioner reported a total turnover ofRs.1,07,95,742/- and ‘nil’ net turnover while claiming the entireturnover as exempt from CST. The turnover was reported foreach quarter of the financial year. On verifying the assessmentfile the first respondent noticed that the petitioner did not furnishthe details about the turnover except claiming them as exemptsales. The turnover was not supported by declaration forms. The“cotton terry toweling fabrics” are taxable under Entry 52 of the IVSchedule to VAT Act. Therefore the CTO proposed to subject theturnover to tax at 12.5% treating the entire turnover as not coveredby C-Forms. A show cause notice dated 23.11.2009 was issued. In reply thereto the petitioner filed objections on 16.12.2009reporting a total turnover of Rs.1,73,13,407/-. Out of this, turnoverof Rs.1,52,45,806/- was shown towards export sales of cottonterry towels as well as export through third party supported by H-Form declarations and invoices. This turnover was treated asexempt from tax. On the interstate sales of cotton terry towelsamounting to Rs.4,92,406/-, the dealer paid the tax of Rs.19,695/-. As the said sales are not supported by C-Form declarations, theCTO confirmed exigibility of the said turnover at 10%. The otheritem was an amount of Rs.16,75,195/-. The dealer claimed that itis exempt under Entry 45 of the I Schedule to VAT Act being sale of “cotton fabric” only. After considering the claim, the CTOproposed to tax the turnover towards interstate sales of “cottonterry towels” at 10% under Entry 52 of IV Schedule to VAT Act, asthe petitioner took input tax credit under the VAT Act on the entirepurchase value of the cotton procured from within the State. Be itnoted that if the cotton fabric is exempt from VAT, the petitionershould have restricted the input tax credit on the purchase value ofthe cotton applying the formula A X B/C but they did not do soleading to inference that they sold “cotton terry towels” fallingunder Entry 52 of IV Schedule. Further most of the sales weremade to hotels and traders and, therefore, the items sold is cottonterry towels and not fabric. The CTO, Autonagar Circle,Vijayawada verified machinery of the dealers and noticed that thepetitioner was producing cotton terry towels in different lengths. The CTO also relied on the fact that the entire export salesdisclosed by the dealers were in respect of cotton terry towelsonly. Accordingly while treating the export sales as exempt fromtax, the CTO levied tax at 10% on interstate sales not covered byC-Forms as well as other sales and raised demand forRs.1,97,065/-.

The Counsel for the petitioner would contend that thepetitioner is a dealer manufacturing and marketing terry towelingfabrics and, therefore, the same is exempt under Entry 45 of ISchedule to VAT Act; the cotton terry toweling fabric is liable tobasic excise duty as mentioned in Chapter heading 58 of theCentral Excise Tariff and also liable to additional excise duty and,therefore, the goods manufactured by the petitioner are exemptunder Entry 45 of I Schedule to VAT Act read with Explanationappended to the said Schedule; even though cotton towels areincluded in Entry 52 of IV Schedule to VAT Act. The power loom

machines available in the petitioner’s factory produced not onlytowels but also fabric manufactured in grey (kora) stage in lengths(thaans) and processed to bleaching/dyeing and then sales areeffected in lengths and bundles. The petitioner sold the fabric inlength and has not collected the tax from the customers on 100%interstate sales as they are exempt under the VAT. He nextlycontended that as per the circular dated 23.7.2011 issued by theCommissioner of Commercial Taxes even if the petitioner cannotobtain Form-C declarations, the interstate sales of textiles areexempted from tax.

The Special Counsel for Commercial Taxes would submitthat the plea of the petitioner that they are exempt from payment oftax in view of Entry 45 of I Schedule to VAT Act as “cotton terrytoweling fabric” is covered by Central Excise Tariff heading cannotbe accepted because as per the letter of the AssistantCommissioner of excise dated 08.6.2010 the petitionersurrendered registration certificate and had not paid central exciseduty from April, 2005. He nextly contended that in view ofamendment of Entry 52 of IV Schedule terry towels are taxable to4% and that the petitioner sold terry towels after stitching theedges and sometimes towels were sold in the same condition. The claim of exemption treating the goods manufactured by thepetitioner as cotton fabric is untenable and, therefore, the claimwas rejected. He further contended that during the VATassessment for 2005-06 the department levied 4% VAT underEntry 52 of IV Schedule which the petitioner accepted and paid taxon as well as penalty and, therefore, he cannot be permitted toquestion levy under the CST Act.

The petitioner has not filed reply affidavit. Therefore itremains uncontroverted that the Central Excise registration stood cancelled with effect from April, 2005. His plea, therefore, that thegoods manufactured by it are exempted as they are covered bythe relevant chapter heading in Central Excise Tariff cannot beaccepted. There is no denial of the fact that by G.O.Ms.No.1564,dated 17.8.2005, Entry 52 of IV Schedule to VAT Act wasamended with effect from 17.7.2005 bringing the towels underEntry 52 of Schedule IV.

We quote hereunder Entry 45 of I Schedule and Entry 52 of IV Schedule as they appeared at the relevant time.

Section 7 of VAT Act exempts goods listed in I Schedulefrom VAT. As per Entry 45 it is cotton fabrics which are exemptedand not towels. Towels fall under Entry 52 of IV Schedule. Therefore whenever a dealer seeks exemption for cotton fabricsas falling under Entry 45 of IV Schedule it is for the assessmentofficer to enquire into the same. In this case, it is neither disputednor denied by the petitioner that the CTO, Autonagar Circle,Vijayawada inspected the petitioner’s machinery and found thatthey were producing terry towels. Secondly in their objectionsfiled after receiving show cause notice the petitioner admitted ofeffecting sales of cotton terry towels. Further it was found thatmost of the sales were made to hotels and proposed that thepetitioner was converting the fabric into towels and selling them. Itis a question of fact and ordinarily in writ jurisdiction, it cannot beinterfered with. Further the petitioner had an effective alternativeremedy of filing appeal before the Appellate DeputyCommissioner. They waited for four months and chose to file writpetition challenging the impugned order. In this background, we

are afraid we do not find any remedy in the impugned assessmentorder.

The writ petition, for the above reasons, is dismissed. Nocosts.

________________(V.V.S. RAO, J)

December , 2011NOTE:L.R. Copy be marked.(By order)YS

_____________________(SANJAY KUMAR, J)

[1]AIR 1955 SC 661[2](2005) 1 SCC 754[3](2005) 2 SCC 638[4]AIR 1966 SC 719[5](1996) 6 SCC 185[6](2000) 2 SCC 699[7](2004) 6 SCC 59[8]AIR 1958 SC 555[9]AIR 1997 SC 1006 : (1997) 1 SCC 373[10](2011) 53 APSTJ 1[11]AIR 2001 SC 886[12]AIR 1992 SC 1846[13](1997) 1 SCC 373[14](2007) 2 SCC 230[15]AIR 1945 PC 48