Supreme Court Directs Transfer of Central Sales Tax in Inter-State Sale: Tata Motors vs. Central Sales Tax Appellate Authority (21 September 2022)

Date of the Judgment: 21 September 2022

Citation: Civil Appeal No. 6450 of 2012

Judges: M.R. Shah, J. and Krishna Murari, J.

Can a State retain tax collected on an inter-state sale when it is not the state to which the tax is due? The Supreme Court of India addressed this question in a case involving Tata Motors Limited and the Central Sales Tax Appellate Authority. The core issue revolved around the misdirection of Central Sales Tax (CST) paid to Andhra Pradesh instead of Jharkhand for an inter-state sale. This judgment clarifies the procedure for transferring taxes collected by the wrong state to the state that has the right to collect it.

The bench was composed of Justice M.R. Shah and Justice Krishna Murari, with the judgment authored by Justice M.R. Shah.

Case Background

Tata Motors Limited (the appellant) sold buses to the Andhra Pradesh State Road Transport Corporation (APSRTC). These sales were conducted through Tata Motors’ Regional Sales Office (RSO) in Vijayawada. Initially, Tata Motors treated these sales as stock transfers and paid Central Sales Tax (CST) to the State of Andhra Pradesh. However, the sales were later determined to be inter-state sales, making the State of Jharkhand the appropriate recipient of the CST.

Timeline

Course of Proceedings

The Central Sales Tax Appellate Authority, New Delhi, in its order dated 29.06.2009, acknowledged that the sales by Tata Motors to APSRTC were inter-state sales. However, the Appellate Authority did not issue any directions to adjust the tax paid to Andhra Pradesh against the tax owed to Jharkhand. This was because, at the time, there was no provision in the Central Sales Tax Act, 1956, allowing the Appellate Authority to direct such a transfer. The insertion of Section 22(1B) in 2010 provided this power, but it was not applicable to the present case as the order was passed prior to the amendment.

Legal Framework

The core legal issue revolves around the Central Sales Tax Act, 1956, specifically the newly inserted Section 22(1B).

Section 22(1B) of the Central Sales Tax Act, 1956 states:

“Section 22(1B) – The Authority may issue direction for refund of tax collected by a State which has been held by the Authority to be not due to that State, or alternatively, direct that State to transfer the refundable amount to the State to which central sales tax is due on the same transaction.
Provided that the amount of tax directed to be refunded by a State shall not exceed the amount of central sales tax payable by the appellant on the same transaction.”

This section empowers the Appellate Authority to order the refund of taxes collected by a state that was not entitled to it. It also allows the authority to direct the transfer of the tax amount to the state that is rightfully owed the tax. The proviso clarifies that the amount to be refunded or transferred cannot exceed the amount of central sales tax payable on the transaction.

Arguments

The primary argument centered on the misdirection of tax payment and the need for its correction.

Appellant (Tata Motors Limited) Arguments:

• The appellant argued that the sales were inter-state sales, and therefore, the central sales tax should have been paid to the State of Jharkhand, not Andhra Pradesh.
• They contended that the tax paid to Andhra Pradesh was a mistake and should be transferred to Jharkhand.

Respondent (State of Andhra Pradesh) Arguments:

• The State of Andhra Pradesh did not make any specific arguments in the judgment.

Respondent (State of Jharkhand) Arguments:

• The State of Jharkhand argued that it was the rightful recipient of the central sales tax from the inter-state sales made by the appellant.
• They contended that the tax paid to Andhra Pradesh should be transferred to them.

Respondent (Union of India) Arguments:

• The Union of India did not make any specific arguments in the judgment.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was:

1. Whether the State of Andhra Pradesh can retain the central sales tax collected on an inter-state sale when it is not the state to which the tax is due.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Court did not cite any specific case laws or books. The primary authority relied upon was Section 22(1B) of the Central Sales Tax Act, 1956.

Judgment

The Supreme Court ruled in favor of Tata Motors, directing the State of Andhra Pradesh to transfer the central sales tax collected on the inter-state sales to the State of Jharkhand.

How each authority was viewed by the Court?

• Section 22(1B) of the Central Sales Tax Act, 1956: The Court used this provision as a guiding principle, even though it was not directly applicable to the case, to direct the transfer of tax from Andhra Pradesh to Jharkhand.

What weighed in the mind of the Court?

The Court’s decision was primarily driven by the principle that tax should be paid to the correct state, especially in the context of inter-state sales. The Court recognized that while Section 22(1B) of the Central Sales Tax Act, 1956 was not directly applicable to the case, it provided a clear guideline for how such situations should be handled. The Court emphasized the need for the State of Andhra Pradesh to not retain tax that it was not entitled to, and to ensure that the tax was transferred to the State of Jharkhand, which was the rightful recipient.

The court’s reasoning was based on the following logical steps:

The Court did not discuss any alternative interpretations or reject any specific arguments. The decision was straightforward, based on the principle of ensuring that tax is paid to the correct state.

The court’s decision was clear:
“the State of Andhra Pradesh is directed to transfer to the State of Jharkhand the amount of central sales tax deposited by the appellant with the State of Andhra Pradesh with respect to transaction in question”

The Court also directed:
“the State of Jharkhand is directed to adjust the same towards the central sales tax liability of the appellant on such transaction”

The Court also specified that:
“The aforesaid exercise shall be completed within a period of three months from today.”

There were no dissenting opinions in this case. The bench was unanimous in its decision.

Key Takeaways

• States cannot retain central sales tax collected on inter-state sales if they are not the state to which the tax is due.
• Even if a specific provision like Section 22(1B) of the Central Sales Tax Act, 1956 is not directly applicable, it can be used as a guiding principle for similar cases.
• Tax authorities must ensure that tax is paid to the correct state to avoid unjust enrichment.
• The judgment reinforces the importance of proper tax administration and adherence to the principles of inter-state tax laws.

Directions

The Supreme Court directed the following:

• The State of Andhra Pradesh was directed to transfer the amount of central sales tax collected from Tata Motors to the State of Jharkhand.
• The State of Jharkhand was directed to adjust the transferred amount against the central sales tax liability of Tata Motors for the inter-state sales.
• The entire exercise was to be completed within three months from the date of the judgment.

Development of Law

The ratio decidendi of this case is that a state cannot retain central sales tax collected on an inter-state sale if it is not the state to which the tax is due. This judgment reinforces the principle that tax must be paid to the correct state and provides a clear direction for the transfer of wrongly collected taxes. While this judgment does not introduce a new legal principle, it clarifies the application of existing principles in the context of inter-state sales and tax administration.

Conclusion

In the case of Tata Motors Limited vs. Central Sales Tax Appellate Authority & Others, the Supreme Court ruled that the State of Andhra Pradesh could not retain central sales tax collected on inter-state sales. The Court directed the transfer of the tax amount to the State of Jharkhand, which was the rightful recipient. This judgment underscores the importance of ensuring that taxes are paid to the correct state and provides a clear framework for rectifying errors in tax collection.