Taxation

Nokia India Sales Private Limited V. Deputy Commissioner of Commercial Taxes

The Madras High Court pronounced a landmark judgement in the case titled Nokia India Sales Private Limited v. Deputy Commissioner of Commercial Taxes dated 29^th April 2014, wherein the petitioner had filed the writ petition (WP) challenging the validity of the orders of assessment dated 28.02.2014 for the assessment years 2009-2010, 2010-2011 and 2011-2012 respectively, while another writ had been filed praying for a Writ of Mandamus directing the second respondent for hearing and deciding the appeals filed by the petitioner without insisting on the condition of pre-deposit of any part of the demand as confirmed by the first respondent or furnishing of any security and without in any manner seeking for the enforcement of the notice of demand issued by the first respondent dated 28.02.2014 for the assessment years 2009-2010, 2010-2011 and 2011-2012 respectively. The present article shall discuss the aspects covered in the case to provide a better understanding of the same.

Facts of the Case

• The petitioner company is involved in the manufacture of mobile phones and their accessories being located in a Special Economic Zone, and the products manufactured therein were either exported out of India or sold in the Domestic Tariff area.
• During the course of such business, the petitioner was also exporting goods out of the territory of India along with executing inter-state sales from the SEZ Unit to dealers located outside the State against Form ‘C’. The goods manufactured by the petitioner were also transferred to the branches of the petitioner company situated in other States against form ‘F’.
• On 22^nd January 2012, there was a receipt of the notice by the petitioner from the respondents under Tamil Nadu Value Added Tax (TNVAT Act) for conducting an audit for the assessment years (AY) 2006-2007 to 2011-2012 and the petitioner also produced all the records required for by the audit team. While so on 23^rd December 2013, the petitioner received a notice indicating the rejection of the claim for the exemptions on account of interstate sales, export sales and stock transfer and the proposal for levy tax thereon.
• On 21.02.2014, the petitioner sought an extension of time for filing their reply. On 24.01.2014, the petitioner’s consultant filed original Form ‘F’ amounting to Rs.74,71,31,674/- indicating the details of the outward stock transfers made by the petitioner and also requested time by 1 month for filing the balance forms. In spite of the same, on the very same date, viz., 24.01.2014, a notice was issued to the petitioner proposing the imposition of tax demand under the Central Sales Tax Act ¹ (‘CST Act’) regarding the following 3 subjects viz., (a) interstate sales executed against form ‘C’ (b) stock transfer of products against form ‘F’ and (c) export sales executed by the petitioner.
• Upon receiving the notice, the petitioner’s consultant filed original Form ‘F’ amounting to Rs.1713, 41, 80,856/- and original Form ‘C’ amounting to Rs.753, 92,54,674/- and requested 1 month time for filing the balance forms.
• On 13.02.2014, the petitioner also filed objections against the notice dated 24.01.2014, specifically stating that the documents they sought to produce are voluminous running to several pages and therefore requested the first respondent to provide an opportunity for a personal hearing before passing any adverse order against them. The petitioner also, along with the objections dated 13.02.2014, filed sample documents such as invoice, shipping bill and packing list.
• On 27^th February 2014, it was stated that the petitioner company was called upon by the first respondent for producing a copy of the export register for the AYs 2009-2010, 2010-2011 and 2011-20-12. While so, on 28.02.2014, without taking note of the objections raised by the petitioner or without even giving an opportunity for a personal hearing, the impugned orders were passed by the first respondent in respect of the three assessment years.
• However, the fact that the orders passed by the first respondent dated 28.02.2014 came to be known to the petitioner company only upon the representative of the petitioner company visiting the office of the first respondent for the submission of certain documents. In the order dated 28.02.2014, the first respondent has indicated that already more than two months’ time was provided to the dealer from the date of the original notice, viz., 22.12.2013, and after giving sufficient time, again, there was the issuance of another notice dated 24.01.2014 to the petitioner, but the dealer hasn’t utilised those opportunities. Instead, the dealer requested a personal hearing.
• Submission of documents as proof of exemption alone will be the answer for their claim of exports for allowing exemption, and giving an opportunity for a personal hearing won’t result in any relief to the dealer. It is against this order that for the three AYs noted above, the petitioner company filed WP Nos. 9077 to 9079 of 2014.
• The counsel of the petitioner contended that the said orders were [assed without providing the petitioner with an opportunity of being heard. While the contention of the opposite party was that there was no need of providing such an opportunity to the petitioner

Issue

Whether the first respondent has passed the order under Section 22 (2) or 27 (2) of the TNVAT Act and whether the requirement to provide an opportunity for a personal hearing is different from issuing a show cause notice as contemplated under Section 27 (2) of the said Act and whether issuing a show cause notice would amount to the sufficient opportunity of a hearing.

Observations and Ruling of the Court

The court upheld the contention of the petitioner and observed that when such an opportunity of hearing is particularly sought, it must be extended to the Petitioner, as, according to him, non-consideration of the same vitiates the impugned orders. Therefore the court held that the Sales Tax Department ought to have given an opportunity to Nokia and heard its objections over the rupees 2,400 crore tax dispute.

The court directed Nokia India to make a payment of 10 per cent of the total claim within eight weeks, even as the Company, despite the company contending that it did not have enough cash in its account.

The counsel of the petitioner told the Court about the Company’s lack of liquidity, stating that it paid rupees 780 crores to the income-tax department in 2013-14 as part of an ongoing rupees 21,000-crore tax dispute. Earlier, the Chennai facility was frozen by the income-tax department, which had slapped a rupees 21,000-crore tax notice on Nokia. Till its dues were cleared, the department refused to allow the transfer of the plant.

 The court, while allowing the writ petitions filed by Nokia challenging the state’s Sales Tax Department order, directing it to pay rupees 2,400 crore taxs for the assessment years 2009-10, 2010-11 and 2011-12, ordered the company to pay rupees 240 crores.

While declaring that the demand notices issued by the authorities be still valid, the judge, in his order, stated that the effect of quashing the assessment orders wouldn’t completely take away the right of the authorities to continue further in this matter.

Conclusion

Finally concluding the case, The Madras High Court set aside the order and directed the Finnish handset maker Nokia to deposit 10% of the tax demand amounting to rupees 240 crores imposed upon it by the Tamil Nadu government as a prerequisite to review the assessments.

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1. https://dor.gov.in/tax/introduction-central-sales-taxes