Public notice of Punjab Govt dt 30/09/2010 to some extent is ultra vires- P&H HC

As we know State Governments cannot levy any tax on the sale or purchased of  goods exported outside India and the sale or purchase in the cource of export i.e Penultimate export as per section 5(3) of CST Act 1956 and Article 286 of the Constitution of India. For a sale to qualify as penultimate sale one of the conditions u/s 5(3) of CST Act is that the goods sold to the exporter must be the same goods as are being exported in pursuance of the export order in the hands of the exporter.

But section 15(ca) provides an exception to this condition in respect of  Paddy and rice procured out of it. Paddy and rice  are considered as one and the same thing as per section 15(ca) for the purpose of exemption u/s 5(3) of CST Act 1956. Thus if an exporter purchases paddy  and after procuring rice from it exports such rice outside India then the purchase of paddy  by exporter will also be covered under the penultimate sale hence no tax will be payable either by the exporter on the purchase of paddy nor by the seller of such paddy.

But the Punjab Govt issued a public notice dated 30/09/2010 asking all exporters of rice to pay purchase tax on Paddy irrespective of the fact whether such purchase of paddy is covered under penultimate export.

 The said public notice is produced herebelow:

Government of Punjab
Excise and Taxation Department
Public Notice
Attention : Exporters of Rice

              As per section 19 of Punjab VAT Act,2005, paddy is specified as schedule "H" item. Therefore, when any taxable person purchases paddy with in the state, he becomes liable to pay purchase tax immediately [section 6(3)(a)(iii)].

                        It has come to the notice of the Department that some of the dealers who are exporting rice, out of India, are not paying purchase tax on paddy on the pretext of exporting rice. Such dealers are advised to deposit the tax at the time of purchase of paddy. They can claim refund as per rule 52 of the Punjab VAT Rules, after they export rice procured out of this paddy.

                        It is also noticed that some Rice Sheller owners purchase paddy from with in the State, transfer the paddy to other State & after milling export rice. The sales made by such dealers do not qualify to be penultimate sales.

                        Any contravention of this advisory will make the millers liable for penalty under section 52 of the Punjab VAT Act, 2005, in addition to interest. For further detail and clarifications, please contact the office of the concerned Asstt. Excise & Taxation Commissioner (In-charge of the Distt.). For more information, please visit us at

                                                                             A.Venu Prasad,IAS
                                                                   Excise & Taxation Commissioner,

Punjab & Haryana High Court has now declared the above said  Public notice as ultra vires of Article 286 of the constitution read with sections 5(3) and 15(ca) of CST act 1956, to the extent it advised and asked the exporters of rice to pay Purchase Tax on the Purchase of Paddy related to export as ultra vires in case of M/S KRBL Limited v State of Punjab (2011) 39 PHT 56 (P&H). High court observed as under:

“Learned councel for the State is unable to distinguish the applicability of judgments relied upon. It cannot be held that irrespective of legislative competence of the Lagislature, tax could be recovered leaving the remedy of refund being sought. Tax can be levied only by an authority of law and the State legislature can recover tax only if it is within its legislative competence. In case tax is evaded in any manner, the authorities can act according to the statutory provisions dealing with evasion of tax.

In the present case, the impugned notice being omnibus, even to cover cases where production of paddy may be relatable to transaction in the cource of export not attracting any State tax on sale or purchase under Entry 54 of List-II, the said notice cannot, thus be sustained. Accordingly, we allow this petition and quash the impugned notice, to the extent it relates to purchase of paddy related to export of rice without prejudice to the rights of the State to act in accordance with the law.”

Thus there is no need to pay purchase tax on Purchase of Paddy if it relates to the export of rice and the said public notice has been declared ultra vires to this extent.

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