Madras High Court confirms 14.5% VAT on capital goods sold outside State without C-Forms

The Madras High Court in Kosei Minda Aluminum Company Private Limited Vs Principal Commissioner of Commercial Taxes has reaffirmed that inter-State sales of moulds and dies, when not supported by C-Forms, attract VAT at 14.5% under the residuary entry of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). The assessee’s contention that such goods should be treated as “capital goods” taxable at 5% was rejected on the ground that they did not meet the statutory requirement of being used within the State.

This decision aligns with the earlier Division Bench ruling in M/s.Schwing Stetter (India) Pvt. Ltd. v. The Commissioner of Commercial Taxes and another, and clarifies how Section 8(2) of the Central Sales Tax Act, 1956 (Central Sales Tax Act) interacts with the definition of “capital goods” under Section 2(11) of the TNVAT Act when C-Forms are absent.

Background of the dispute

The impugned assessment order dated 29.03.2023 levied VAT at 14.5% on certain inter-State transactions undertaken by Kosei Minda Aluminum Company Private Limited. These transactions involved the sale of moulds and dies to purchasers outside Tamil Nadu, and crucially, the assessee did not produce C-Forms in respect of these sales.

Essence of the assessee’s challenge

The assessee approached the High Court under writ jurisdiction challenging the assessment order on the following broad grounds:

• The State Tax Officer had, according to the assessee, wrongly placed reliance on an advance ruling in AC AAR No.080/2013-14 dated 22.07.2014.
• Relying on the judgment in M/s.Veesons Energy Systems(P) Limited v. The Commissioner of Commercial Taxes and another, the assessee argued that circulars, clarifications or advance rulings cannot override or control statutory interpretation, and that the assessment must strictly conform to the statutory framework.
• The assessee further argued that a Central Government notification dated 29.03.2007 had amended Section 8 of the Central Sales Tax Act to peg the inter-State tax rate to the rate applicable within the “appropriate State” under its own sales tax law.
• On this basis, it was contended that moulds and dies fall within “capital goods” as defined in Section 2(11) and covered by Entry 5 of Part-B of the First Schedule to the TNVAT Act, attracting a concessional rate of 5%, rather than 14.5%.

The core relief sought was annulment of the assessment order and recognition of the 5% rate as applicable to the transactions in dispute.

Stand of the State tax authorities

The State, represented by the learned Government Counsel (Tax), resisted the writ petition and justified the levy at 14.5% on the following key planks:

1. Binding nature of Schwing Stetter ruling
   The State stressed that the Division Bench decision in M/s.Schwing Stetter (India) Pvt. Ltd. v. The Commissioner of Commercial Taxes and another directly dealt with the scope of “capital goods” under Section 2(11) of the TNVAT Act. As per that precedent, two cumulative conditions must be satisfied for any item to be considered capital goods:

   • The item must fall under clauses (a) to (g) of the Section 2(11) definition; and
   • It must be used in the State for manufacture, processing, packing, storing or other specified business purposes.

2. Non-fulfilment of “used in the State” requirement
   On the facts, it was not in dispute that the moulds and dies sold by the assessee were not used within Tamil Nadu. Therefore, even if moulds and dies are expressly mentioned in clause (d) of Section 2(11), the second essential requirement, i.e., user “in the State”, was completely absent.