Cus - Sale of confiscated goods - Article 285 of Constitution of India does not apply to indirect taxes like Customs duty, Central excise duty & Sales tax - Customs department is a dealer within meaning of Sec 2(e) of Bihar Finance Act, 1981 and, thus, is exigible to sales tax: HC
By TIOL News Service
PATNA, APR 18, 2016: THE petitioner, Customs department, in discharge of its functions, sells confiscated goods that have been imported in contravention of the Custom laws.
Such goods are disposed of by the Customs Department by public auction or through the N.C.C.F/or other co-operative agencies. Usually, the confiscated goods are sold by public auction, giving advertisement in newspapers. Thereafter, the interested persons participate in tender process and highest bidder of confiscated goods are required to deposit the bid money along with sales tax in the treasury and on production of treasury receipt, the goods are released by the Assistant Commissioner Customs (P), Muzaffarpur.
The grievance of the petitioner is that by virtue of an ex-parte order the petitioner was saddled with tax liability. The stand of the petitioner is that it is not liable for payment of sales tax. It is asserted that petitioner is not a dealer in terms of Section 2 (e) of the Bihar Finance Act, 1981 and action of the respondents to saddle the petitioner with liability of tax is illegal.
The stand of the State is that petitioner is a dealer registered under Section 14 of the Bihar Finance Act, 1981 as also under the Central Sales Tax Act, 1956 as it carries out the business of sale of confiscated goods through auction and that as dealer the petitioner is required to furnish return and deposit tax as per Section 16 of the Bihar Finance Act, 1981. The petitioner is also required to produce books of accounts relating to its transactions and get assessed under section 17 of the Act.
Inasmuch as since the petitioner neither filed return nor produced books of accounts as required under section 16(1) and 17(2) of the Bihar Finance Act, 1981, in spite of notice, an ex parte order was passed and, therefore, this action is in accordance with law.
The petitioner vehemently argued that the sold goods are property of the Union of India and, therefore, exempted from State taxes.
Furthermore, Article 285 of the Constitution of India bars the State to levy tax on the property of Union of India, whereas Article 289 of the Constitution of India bars the Union of India to levy tax on the property and income of the State.
The High Court observed that the majority opinion in the Supreme Court in Sea Customs case (AIR 1963 SC 1760) held that the bar of Article 289 of the Constitution of India does not apply to indirect tax like customs duty, Central excise duty, sales tax etc.
So also, in the case of New Delhi Municipal Council ( (1997) 7 SCC 399 ), the Supreme Court held that Article 289 (1) provides for exemption of property and income of the States only from taxes imposed directly upon them; it has no application to indirect taxes like duties of excise and customs; duties of excise and customs are not taxes on property or income; they are taxes on manufacture/production of goods and on import/export of goods, hence, outside the purview of clause (1) of Article 289.
Moreover, in the case of Collector of Customs and another v. State of W.B. and another, (1999) 1 Supreme Court Cases 192, the Supreme Court examined an identical issue as raised in the present case where the Collector of Customs was found to be a "dealer" within the meaning of the Bengal Finance (Sales Tax) Act, 1941 after the Customs sold goods confiscated under the provisions of the Customs Act, 1962 because of non-payment of custom duty thereon.
Noting that the ratio of the aforementioned judgements had been followed in Karya Palak Engineer, CPWD v. Rajasthan Taxation Board, = 2004-TIOL-119-SC-CT-LB and though the judgments were delivered in context of Article 289, they also applied to the exemption in favour of the Union of India under Article 285 in all force.
It was concluded that the petitioner is a dealer within the meaning of Section 2(e) of the Bihar Finance Act, 1981 and, thus, is exigible to sales tax.
As to whether the petitioner is liable to penalty or interest on account of non-filing of return etc., the said question was remitted to the Assessing Authority for re-determination.
The Assessing Authority was advised to keep in view the fact that the petitioner is Custom Department of the Government of India and there could be ambiguity in understanding the provisions of the Bihar Finance Act, 1981.
The Writ Petitions were disposed of.
(See 2016-TIOL-778-HC-PATNA-CUS)
