Madras High Court
M/S.Star Audio vs The Commercial Tax Officer on 7 April, 2022
WA No. 186 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 07.04.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR.JUSTICE J. SATHYA NARAYANA PRASAD
Writ Appeal No. 186 of 2022
and
C.M.P. No. 1310 of 2022
M/s.Star Audio
Represented by its Partner
Mr.B.Poonam Chand
23A, North Boag Road
T.Nagar, Chennai – 600 017. .. Appellant
Versus
1. The Commercial Tax Officer
T.Nagar (East) Assessment Circle
46, Greenways Road, III Floor
Chennai – 600 028.
2. The Special Commissioner and
Commissioner of Commercial Taxes
Ezhilagam, Chepauk
Chennai – 600 005.
3. The State of Tamil Nadu
Represented by the Secretary to Government
Commercial Taxes & Hindu Religious
Endowment, Government of Tamil Nadu
Fort St.George
Chennai – 600 009. ..
Respondents
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WA No. 186 of 2022
Writ Appeal filed under Clause 15 of the Letters Patent to set aside the
order dated 06.09.2021 passed in W.P.No.33462 of 2005.
For Appellant : Mrs. Radhika Chandra Sekhar
for Mr. K. Vaitheeswaran
For Respondents : Mr. Richardson Wilson
Additional Government Pleader (Taxes)
JUDGMENT
(Judgment of the court was delivered by R. MAHADEVAN, J.)
Challenging the order of dismissal dated 06.09.2021 passed by the
learned Judge in W.P.No.33462 of 2005, the appellant / assessee has come up
with this writ appeal.
2.The necessary facts leading to the filing of this writ appeal would run
thus:
2.1. The appellant was engaged in the business of selling/marketing of
pre-recorded audio cassettes and was registered under the provisions of the
Tamil Nadu General Sales Tax Act, 1959 (in short, “the TNGST Act”) and the
Central Sales Tax Act,1956 (in short, “the CST Act”). During the course of
such business, the appellant used to purchase pre-recorded audio cassettes
from the suppliers in Tamil Nadu, who were also registered under the TNGST
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WA No. 186 of 2022
Act and who charged sales tax under the TNGST Act for the sales of
pre-recorded audio cassettes. Further, the appellant used to acquire audio
rights from the artists themselves or from the film producers in Tamil Nadu to
publish, manufacture, sell, distribute and broadcast the devotional songs and
the songs of cine films. After obtaining such rights, they entrust the master
copy received from the producers to the cassette manufacturers and supply pre-
recorded cassettes. The cassette manufacturers purchase blank cassettes from
the registered dealers within the State upon payment of sales tax and record the
devotional songs/film songs etc., in the blank cassettes and thereafter, sell the
pre-recorded cassettes to the appellant by charging the total value of the pre-
recorded cassettes and the sales tax. Thus, the sales made by the appellant are
second sales of pre-recorded audio cassettes, which are exempted from
payment of tax, as pre-recorded audio cassettes are only subject to tax at the
point of first sale.
2.2. The first respondent, upon verifying the invoices relating to the
first sale in respect of pre-recorded audio cassettes, allowed the second sale
exemption in respect of earlier assessment years by clearly recording that all
the goods were purchased from local registered dealer on tax paid sources of
earlier stages in the State and hence, the claim of exemption was allowed.
However, the assessment orders passed by the first respondent were revised
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WA No. 186 of 2022
and exemption allowed, was withdrawn inter alia imposing tax on the ground
that the appellant is the owner of the copyright and provided the master copy
to the supplier and therefore, the sales made by the supplier cannot be regarded
as first sales.
2.3. According to the appellant, Section 16 of the Act can be pressed
into service only if it is established that there is escapement of turnover with a
wilful non-disclosure of assessable turnover, whereas in this case, there is no
reason assigned by the Assessing Officer as to why Section 16 of the Act was
invoked. It is further stated that the appellant has claimed second sale
exemption as the pre-recorded cassettes have already suffered tax at the point
of first sale and the same has also been accepted by the Department, at the
time of passing the assessment orders. While so, invoking Section 16 of the
Act for re-opening the assessment is uncalled for. In support of the same, the
appellant referred to the circular dated 12.04.2001 issued by the second
respondent, wherein it was clarified that sale of pre-recorded cassettes
purchased locally from registered dealers is second sales and is not liable to tax
at the hands of the appellant, if there is proof to show that the earlier purchase
had already suffered tax under the TNGST Act.
2.4. While the things stood thus, the second respondent issued a
Circular dated 16.05.2003 clarifying that the dealers who undertake the work
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WA No. 186 of 2022
of recording audio, do not have a right to sell the recorded cassettes / CDs to
persons other than the audio right holders and hence, such transaction of
recording audio and supply of recorded cassettes is only works contract in
nature. Further, in the said circular, all the assessing officers were instructed to
verify the assessment files of such dealers/ assessees and assess the transaction
under section 3B in the case of audio / video recording done on cassettes/ CDs
treating them as works contract, and assess the sale of recorded cassettes / CDs
by audio / video right holders as first sales, under section 3(2) of the TNGST
Act, 1959. Aggrieved by the same, the appellant filed WP No. 33462 of 2005,
seeking a writ of declaration to declare the said Circular bearing No. Acts Cell-
I/76324/2002 dated 16.05.2003 issued by the second respondent as ultravires
the provisions of section 3(1) and other relevant sections of the TNGST Act.
2.5. However, the learned Judge dismissed the aforesaid writ petition
on 06.09.2021 upholding the validity of the Circular dated 16.05.2003 by
observing that the transaction between the assessee and the cassette
manufacturer is not a sale, but only a works contract. Therefore, this writ
appeal.
3.The learned counsel appearing for the appellant contended that the
transaction between the cassette manufacturers and the appellant is not
covered under the definition of 'works contract' in terms of Section 2(u) of
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WA No. 186 of 2022
TNGST Act as stated in the circular dated 16.05.2003. The activity of cassette
manufacture is liable to central excise duty and the State has no jurisdiction to
treat the same as 'deemed sale' for the purpose of sales tax. The learned counsel
further contended that the cassette manufacturers purchase the blank cassettes,
after payment of sales tax from the registered dealers under the TNGST Act
and hence, the same is termed as first sale. Subsequently, the cassette
manufacturers pre-record the audio cassettes and sell the same to the appellant,
which is to be construed as second sale, for which, the appellant is entitled to
claim exemption as second sales. In this context, the learned counsel placed
reliance on the decision in V. Subramaniam v. State of Tamilnadu [1990
(78) STC 167 (Mad)] wherein it was held that “once the first sale is
identified, the second sale is to be exempted from the purview of tax”. In this
case, according to the learned counsel, the first sale is not only identified but
also it is a tax-suffered sale and therefore, the claim of the appellant that the
transaction with which they are involved, is a second sale, has to be accepted.
4. The learned counsel for the appellant also submitted that the issue
involved herein has already been considered by the Tamil Nadu Taxation
Special Tribunal in Symphony Recording Company v. State of Tamil Nadu
and another [138 STC 83], wherein, it was held as under:
”...3. On hearing the arguments of both the sides and
perusing the records, I find that the second respondent, on
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WA No. 186 of 2022
verification of records, found that the petitioner is a copyright
owner and has supplied the master copy to their customer, who
in turn, recorded the audio in the blank cassettes of their own
and returned to the petitioner and for this transaction, the
customers have raised sale bills against the petitioner-company
as if pre-recorded audio cassettes were sold and the petitioner,
in turn, has sold the pre-recorded cassettes as second sale and
claimed exemption as second sale of pre-recorded casssettes.
The reason stated by the second respondent for bringing the
relevant turnover to tax is that the person (customer) who has
undertaken the recording work has no right to sell the recorded
cassettes, because he has done the job of recording for labour on
works contract basis, for which, the customers have also received
labour charges and on that basis, the petitioner, who holds right
over the audio cassettes, was treated as the first seller of the pre-
recorded cassettes, liable to tax under Section 3(2) of the Act.
With reference to reliance placed on the orders of the first
appellate authority for the year 1998-99, the second respondent
has stated in the impugned order that the decision taken by the
Appellate Assistant Commissioner was based on the merits and
facts as applicable to the year 1998-99 and the matter pertaining
to the year 1997-98 was not subjected to appeal. This reasoning
is not acceptable, in so far as the second respondent has not
adverted to with the nature of the case dealt with in the year
1998-99. From the typed set of papers, I have also perused the
clarification issued by the Commissioner of Commercial Taxes
on June 20,1985 and April 12, 2001 and few copies of invoice
cum-challan raised by Tvl.Super Recording Co.Ltd., in the name
of the petitioner, wherein sales tax at the rate of eight per cent
has also been charged. Inasmuch as single point tax has already
been charged by the manufacturer of pre-recorded cassettes
(registered dealer) on his sale to the petitioner, as seen in the
invoice copies produced before me and the clarifications dated
June 20,1985 and April 12,2001 are also to the effect that sale of
pre-recorded cassettes purchased locally from registered
dealers is second sales not liable to tax and if blank or
unrecorded cassette tapes have suffered single point tax, they
are not liable to tax again, when sold after recording, I find
reason to set aside the impugned order. Accordingly, the
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WA No. 186 of 2022
impugned order dated February 28,2003 is set aside and the
matter is remitted to the second respondent to redo the
assessment in accordance with law, after verifying the various
purchases made by the petitioner as to the sufferance of sales tax
at the earlier stage, consider the clarification/circulars issued by
the Commissioner of Commercial Taxes as required under
section 28-A(3) of the Act, the relevant appellate order and other
decisions relied on in the present original petition. If the
assessing authority purports to deviate from section 28-A
clarification in force, being a quasi-judicial authority, he has to
state reasons for such deviation."
5. Adding further, the learned counsel for the appellant submitted
that as early as in the year 2006, the appellant has stopped the business of
selling audio cassettes and CDs and the same may also be directed to be noted
by the Assessing Officer. In this connection, the learned counsel invited the
attention of this Court to the affidavit dated 16.02.2022 filed by the appellant
wherein it was stated as follows:-
"3. I state that the Appellant Firm was in the business
of selling the pre-recorded audio cassettes and CDs. At the
relevant period, the Appellant purchased pre-recorded audio
cassettes and CDs from M/s.Optical Disc, M/s.Star Music and
others. During the said period there were no specific
agreements governing the relationship and there were no
restrictions on the seller to sell only to the Appellant.
4. I state that one of the sellers M/s. Star Music apart
from selling cassettes and CDs to the Appellant have also sold
cassettes and CDs to various buyers such as Meta Audio, Mass
Movie Makers, Best Media Associates (India) Pvt Limited,
Manoj Creations, Music King, Misc World-Great Wholesale
Club Ltd, United India Exporters, Essen Musical and Raj
Video Vision.
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WA No. 186 of 2022
5. I state that the major manufacturers in the trade
used to be M/s. Optical Disc Marketing (India) Pvt Ltd. The
said company has become defunct or not in business, as the
music industry itself is no longer in cassettes and CDs and has
moved to downloads, digital content and streaming.
6. I state that the appellant, a partnership firm is no
longer in the business of selling cassettes/CDs. Due to invent
of technology cassettes were replaced by CDs, thereafter pen
drive and now only through digital media and direct download
from the internet. As early as 2006 the appellant has stopped
the business of selling of cassettes and CDs.”
With these averments, the learned counsel confined the relief sought for in the
writ petition against the assessment and prayed this Court to direct the first
respondent / Assessing Officer to re-do the assessment in accordance with law
after verifying the various purchases made by the appellant, as to whether the
goods included in the invoice have already suffered tax at the earlier stage in
the light of the various clarification/circulars issued by the Commissioner.
6. On the above contentions raised by the learned counsel for the
appellant, we have heard the learned Additional Government Pleader (Taxes)
appearing for the respondents, who fairly submitted that if the appellant
furnishes all the required materials to the Assessing Officer, the same will be
considered and appropriate orders be passed, in the light of the clarification/
circulars issued by the Commissioner, within a time frame to be stipulated by
this court.
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WA No. 186 of 2022
7. Considering the facts and circumstances of the case and having
regard to the submissions made by the learned counsel on either side, without
going into the merits of the case as well as the issue with regard to the validity
of the circular impugned in the writ petition, this court, by setting aside the
assessment alone, directs the appellant to furnish all the required documents in
support of their claim to the first respondent, within a period of four weeks
from the date of receipt of a copy of this order. On such submission, the first
respondent shall consider the same in the light of the circulars issued by the
Commissioner and pass appropriate orders, on merits and in accordance with
law, after affording an opportunity of hearing to the appellant, within a period
of four weeks thereafter.
8. Accordingly, this writ appeal stands disposed of. No costs.
Consequently, connected miscellaneous petition stands closed.
[R.M.D.,J.] [J.S.N.P.,J.]
07.04.2022
dhk/rsh
Index : Yes/No
Internet: Yes/No
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WA No. 186 of 2022
To
1.The Commercial Tax Officer
T.Nagar (East), Assessment Circle
46, Greenways Road, III Floor
Chennai – 600 028
2.The Special Commissioner and
Commissioner of Commercial Taxes
Ezhilagam, Chepauk
Chennai – 600 005
3.The Secretary to Government
The State of Tamil Nadu
Commercial Taxes & Hindu Religious
Endowment, Government of Tamil Nadu
Fort St.George, Chennai – 600 009
https://www.mhc.tn.gov.in/judis
WA No. 186 of 2022
R. MAHADEVAN, J.
and
J. SATHYA NARAYANA PRASAD, J.
dhk/rsh
WA No. 186 of 2022
07.04.2022
https://www.mhc.tn.gov.in/judis
