While quashing the VAT orders demanding tax on textile fabrics, a division bench of the Orissa High Court has held that the exemption from Additional Duties of Excise Act provided to textile fabrics does not result into levy of VAT on the said items.
The petitioner, M/s. Basudev Textiles carries on business of Textiles Fabrics on both wholesale and retail basis. The Petitioner effects purchases both from the inside and outside the State of Odisha but sells goods only inside the State of Odisha.
The VAT department raised a demand and consequential penalty under Section 43 of the Odisha Value Added Tax Act for the period 26th September, 2006 to 31st March, 2008. While directing notice to issue in the present petition on 18th November, 2016, the High Court stayed the impugned assessment order.
The STO rejected the plea of the Petitioner that in view of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (ADE Act), textiles would be exempted from sales tax in view of the notification dated 1st March, 2006, by virtue of which Textiles stood excluded from the purview of the ADE Act. It was accordingly concluded by the STO that they would become amenable to sales tax from that date.
A bench of Chief Justice Justice S Muralidhar and Justice M.S. Raman quashed the impugned demand and held that “However, the fact remains that the Government of India issued a clarificatory circular on 3rd May, 2006 whereby it was made clear in para 2 that the notification dated 1st March, 2006 “does not change the earlier position in any manner whatsoever, as far as the issue to levy of VAT/Sales Tax of AED Items by the State is concerned”. In other words, if prior to 1st March 2006, no sales tax was leviable on Textiles by virtue of the AED Act that position would continue notwithstanding the exemption from the applicability of the AED Act on the Textiles. The STO does not appear to have taken note of the above clarificatory circular issued by the Government of India.”
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