2% CST on Interstate Electronic Sales With No Surcharge Valid: Allahabad HC Quashes Reassessment Based on Invalid Circular [Read Order]

In a recent ruling, the Allahabad High Court held that interstate sales of electronic goods were taxable at 2% CST without any surcharge, and that reassessment proceedings initiated based on a quashed circular could not be sustained.

Central Electronics Ltd, the revisionist, challenged the reassessment proceedings for the assessment year 1995-96 under the Central Sales Tax Act. The company had sold electronic goods outside Uttar Pradesh and admitted tax liability at 2% as per Notification No. 2473 dated 10 October 1995.

The Assessing Authority originally accepted this position, but later reopened the case on 30 March 2002 and levied tax at 2.5% relying on a circular dated 18 March 2002.

The petitioner’s counsel argued that the reassessment was invalid because it was solely based on the circular of 18 March 2002, which had already been quashed by the High Court in Canon India Pvt. Ltd. v. State of U.P. They further argued that once the circular was set aside, any proceedings founded on it automatically lapsed, and that the Tribunal wrongly ignored binding judgments relied upon by the assessee.

The State’s counsel argued that the assessee had wrongly paid tax at 2% instead of 2.5%, and reassessment was justified.

The single-judge bench comprising Justice Piyush Agrawal observed that the reassessment proceedings were initiated only on the strength of the circular dated 18 March 2002. Since that circular had been quashed in Canon India Pvt. Ltd., the very foundation of the reassessment failed. The court explained that the benefit of the 1995 notification allowing 2% CST on interstate electronic sales could not be denied without cogent or reasoned material.

The court held that the impugned reassessment orders were unsustainable in law. It quashed the orders of the Tribunal and lower authorities, and allowed the revisions filed by the assessee. The questions of law were answered in favour of the assessee and against the revenue.

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