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Sales Tax Practioners' Association of Maharashtra

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Sales Tax Review

July 2003

From the Courts

11.

Whether, as provided under Rule 62, the appellate authority is bound to give hearing to a third party – which is likely to be affected by the outcome of its judgment?

Whether such mistake amounts to apparent mistake from the record and falls within the scope of rectification of mistake u/s 62 and can be applied for rectification by a third party also?

Whether the scope of rectification u/s 62 covers not only of just amending the order but also of recalling the entire order and eliminate the error?

Held: The order of the Tribunal allowing the third party application for rectification of mistake u/s 62 was set aside and the matter was restored to the file of the Commissioner (instead of the Tribunal) for disposal after hearing the main party (the applicant of the DDQ application) as well as the third party (who was aggrieved by the said DDQ).

The moot point raised by the Commissioner of Sales Tax in this petition was whether on a rectification application filed under section 62 of the Bombay Sales Tax Act, 1959 ("BST Act") by a third party who is not directly affected by the adjudication, whether, the Tribunal can recall its order passed under section 55 of the BST Act and rehear the matter on merits?

There were two petitions filed out of common transaction and common proceedings and, therefore, heard and disposed of together by a common judgment.

The facts in Writ Petition No. 2599 of 2002 were that the Bharat Petroleum Corporation Ltd. ("BPCL") – the respondent No. 2 in the said application was engaged in the business of refining Petroleum Products – mainly what is commonly known as kerosene (Linear Alkyl Benezene Feed Stock) and selling the same to various parties. The said kerosene manufactured by the BPCL contained N-Paraffin. The Reliance Industries Ltd. ("RIL"), which has got a Petro Chemical plant at Patalganga wherein Petro Chemical Products are manufactured. RIL requires N-Paraffin for use in its plant.

As per the agreement entered into by and between BPCL and RIL, BPCL was to supply kerosene containing N-Paraffin through a pipeline from BPCL’s refinery at Mahur to the plant of RIL at Patalganga. RIL extracted
N-Paraffin from the said kerosene and returned the balance kerosene to BPCL in the return stream. RIL retained 5% of the kerosene in the form of N-Paraffin and residual kerosene of 95% was returned by the RIL to the BPCL.

The RIL and the BPCL in turn claimed purchase return and sales return u/s. 2(35) and (36) respectively. The issue arose, here, was whether the kerosene returned by RIL after extracting N-Paraffin could be considered as "goods returned" within the meaning of Rule 4 of the BST Rules 1959. According to the BPCL, kerosene with N-Paraffin supplied by it to the RIL as well as kerosene without N-Paraffin returned by RIL to it were falling within the category of ‘kerosene’ under B.I.S. Specification. At the relevant time Kerosene was covered under Schedule Entry C-I-26(i) of the BST Act and it was wholly exempt from the tax under Notification Entry No. 160, issued under section 41 of the BST Act.

According to the BPCL the three transactions, viz., 1) sale of kerosene with N-Paraffin by the BPCL to RIL 2) return of kerosene without N-Parrafin by the RIL to the BPCL and 3) sale of returned kerosene by the BPCL to third parties were exempt from payment of tax in view of the aforesaid Notification.

With a view to obtain determination on the above disputed questions the BPCL on 21-4-1992 made an application before the Commissioner of Sales Tax under section 52 of the BST Act seeking adjudication on the following issues:

  1. Whether the sale of Kerosene by BPCL is liable to tax?

  2. Whether the return of kerosene by RIL to BPCL would be legally allowable as sales return or whether that return will amount to purchase of kerosene by BPCL from RIL?

  3. Whether subsequent sale of kerosene affected by BPCL to third parties is liable to tax?

The Commissioner of Sales Tax, wide his order dtd. 14-3-1996, determined the questions referred to him as under:

  1. Sale of kerosene by BPCL to RIL being covered by Entry No. C-I-26 read with Notification under section 41 of the BST Act, was exempt from tax.

  2. That, return of kerosene after extracting N-Paraffin by RIL to BPCL would not be legally allowable as ‘sales return’ but no tax is payable in view of the aforesaid exemption Notification.

  3. Sale of kerosene (without N-Paraffin) by BPCL to third parties is also not liable to tax as per the aforesaid exemption Notification.

Being aggrieved by the above adjudication order of the Commissioner pertaining to question No. 2, BPCL filed an appeal before the Tribunal under section 55 of the BST Act. It did not file appeal as regard to the question Nos. 1 and 3.

The Tribunal vide its order dtd. 21-4-2001 confirmed the order of the Commissioner.

The BPCL then filed a Reference Application No. 95 of 2001 against the said order of the Tribunal.

In the meantime RIL, the respondent No. 3 in the present Writ Petition No. 2599 of 2002, filed a Rectification Application No. 30 of 2001, seeking rectification of the order of the Tribunal dated 21-4-2001, on the ground that the said order directly affected RIL, who is the opposite party to the transaction between BPCL and RIL. The Tribunal's order was violative of principles of natural justice and the provisions of Rule 62 of the BST Rules, 1959.

The Tribunal by its order dtd. 16-4-2002 allowed the rectification application of RIL and held that the mistake of not hearing RIL before passing the order under section 55 was an error apparent on the face of the record and recalled its order dtd. 21-4-2001 so as to pass fresh order on merits after hearing RIL.

In view of the above the Reference Application No. 95 of 2001 filed by the BPCL was dismissed as infructuous by the Tribunal.

Challenging the said order of the Tribunal dtd. 16-4-2002 wherein the Rectification Application of RIL was allowed, the Commissioner of Sales Tax then filed the aforesaid Writ Petition No. 2599 of 2002. Whereas the BPCL also filed Writ Petition No. 3198 of 2002, challenging the said order of the Tribunal wherein the Reference Application No. 95 of 2001, filed by it had been dismissed as infructuous.

The learned counsel for the Commissioner argued that if the provision of section 62 is construed widely, so as to permit the Tribunal to recall its own order and pass fresh order on merit after hearing the parties, then it will open the flood gate and large number of applications would be filed by third parties and would frustrate the very object and purpose of section 62. He stated that the scope of section is limited to correction of an error apparent on the face of the record. The Tribunal has got no power to withdraw the order in original.

The High Court the referred to various provisions of the BST Act and Rules and particularly the provisions of sections 55 and 62 and Rule 62.

The High Court ruled that it was obligatory on the part of the Tribunal under Rule 62 to give hearing to a person who is likely to be affected adversely by its decision to be given u/s 55. The word ‘any person’ in Rule 62 is restricted to the person with whom the appellant before the Tribunal has entered into a transaction.

The High Court also ruled that by not affording the hearing to the affecting party as provided under Rule 62 it is a mistake, which is apparent from the record and falls within the scope of rectification u/s 62.

Relying on the judgment in the case of Blue Star Engineering Co. (Bombay) Pvt. Ltd. (73 ITR 283) it was held that rectification does not mean only amending the order but it may go right up to eliminating the error and might go to the root of the order and its elimination may result in the whole order falling to the ground.

The High Court also observed that the wording ‘amend any order’ which was there in section 154 of the I.T. Act is not there in section 62 of the BST Act. This broadens the scope of rectification under the BST Act.

The High Court also distinguished judgment of Madras High Court, on the facts, in the case of India Tyre & Rubber Co. (India) Pvt. Ltd. There was provision similar to the provision of Rule 62 of the BST Act in the Tamilnadu General Sales Tax Act, 1959.

However, the High court, accepting the argument of the Commissioner, held that when the question is to be decided by permitting the parties to lead evidence, then, it could be well led before the first authority; i.e., the Commissioner of Sales Tax.

In view of the above the High Court without deciding on the issues as to whether the RIL was a directly affected party or not and whether there was an error apparent on the face of the record or not, accepted the alternate argument of the Commissioner and allowed the Commissioner, instead of the Tribunal, to decide the question No. 2 afresh after hearing both the parties; i.e., BPCL and RIL.

In the end the High Court set aside both the orders of the Tribunal dtd. 21-4-2001 as well as the order dtd. 16-4-2002 and restored the matter to file of the Commissioner qua the disputed question.

[Commissioner of Sales Tax vs. Maharashtra Sales Tax TrIbunal, Writ Petition No. 2599 of 2002 and BPCL Ltd. vs. State of Maharashtra Writ Petition No. 3198 of 2002. Both are unreported judgments on the date of publication of this column]


12.

Whether, when rice is already subjected to a levy under the Control Order the same can be subjected to Market Fee under the Marketing Act?

Held ... Yes

Whether the provisions of Control Order and Marketing Acts are repugnants to each other?

Held ... No

Rice Millers and Commission Agents in the state of Karnataka having licences under the provisions of the Rice Milling Industries (Regulation) Act, 1958 filed writ petitions challenging the validity of levy of market fees on rice by the Marketing Committees constituted under the provisions of the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966 (for short "the Marketing Act")

Writ Petitions were filed on the grounds as to whether the sale of rice by the rice millers to the State Government or its agents by virtue of the Karnataka Rice Procurement (Levy) Order, 1984 (for short the "the Control Order") is a sale for the purpose of section 65 of the Marketing Act; when once paddy is subjected to levy of market fee, whether on sale of rice market fees could be levied; whether the rice which is a processing commodity from paddy could be subjected to market fee; and as to whether the provisions of the Marketing Act were repugnant to the Control Order framed under the Essential Commodities Act, 1956.

The single judge allowed the writ petition, aggrieved against which the State of Karnataka filed writ appeals. A few writ petitions, which were filed after the admission of the writ appeals were ordered to be clubbed with the writ appeals.

The division Bench accepted the appeals and dismissed the writ petitions. All the points raised in the appeals were decided against the rice millers and the commission agents.

It was held that sale of rice millers to the State Government or its agent by virtue of Procurement Order is a sale. On the second point it was held that paddy and rice being two different commodities the market fees could be levied on both of them. On the similar ground question number three was decided against the dealer. On the question number four the High Court opined that the provisions of the Marketing Act were not repugnant to the Control Order.

Aggrieved by the judgment of the division Bench the appeals were filed before the Supreme Court. Thereafter certain Writ Petitions were filed which were clubbed with the appeals.

At the time of hearing the counsel for the appellant argued on the point number four only and other points were given up.

The appellant cited the judgment of the Supreme Court in the case of Belsund Sugar Co. Ltd. vs. State of Bihar (1999) 9 SCC 620 and contended that since under the Control Order the entire field of marketing of rice was covered, therefore, Marketing Act could not be made applicable to the sale of rice.

However, the Supreme Court distinguished the provisions of the Bihar Control Order and Karnataka Control Order. Bihar Control Order was comprehensive one covering the entire process right from procuring sugarcane, manufacturing and marketing. While Karnataka Control Order was just to see that rice is made available for public distribution and no artificial scarcity is created. This order does not deal with entire field regulating the marketing, sale and purchase of rice.

In view of the above the appeals and writ petitions were dismissed i.e. against the dealers and in favour of the Karnataka Government.

[H.S. Jayanna & Bros. and Others vs. State of Karnataka and Others (2002) 128 STC 226 (S.C.)]


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