Supreme Court Refuses To Interfere With Delhi HC Ruling On CST Exemption For Inter-State Sales In Mitsubishi Case

The Supreme Court of India has refused to interfere with a Delhi High Court ruling that allowed a tax exemption claimed by Mitsubishi Corporation India for inter-state sales, rejecting the tax department's argument that the benefit was unavailable because an earlier sale of the goods was already exempt from tax.

A bench of Justices J.B. Pardiwala and R. Mahadevan said the case did not warrant interference. “We see no good reason to interfere in the impugned judgment and order passed by the High Court,” the Court said while disposing of the appeal.

The dispute involved a chain of inter-state sales. Mitsubishi purchased goods from a supplier in West Bengal. It then sold the same goods to buyers in Andhra Pradesh, Haryana, and Maharashtra while the goods were still moving from one state to another.

The tax authorities treated these transactions as inter-State sales but denied Mitsubishi the benefit of a Central Sales Tax exemption. The exemption was rejected only because the first sale, between the West Bengal supplier and Mitsubishi, was itself exempt from tax.

The department argued that Section 6(2) of the Central Sales Tax Act allows a tax break on a later inter-State sale only to prevent the same goods from being taxed more than once. According to it, where the first sale had already enjoyed exemption, the subsequent sale could not be exempted even if other statutory requirements were fulfilled. Mitsubishi disagreed and said the law does not impose any such restriction.

The Delhi High Court accepted the company's case. It held that the tax authorities had denied the exemption without examining whether the statutory conditions were satisfied. The court made it clear that the law does not distinguish between a first sale that is taxed and a first sale that is exempt.

“We are of the view that when the conditions specified in Section 6(2), whether in the main provision or in the provisos, are all satisfied, the dealer would be entitled to exemption. No provision has been brought to our notice which indicates or suggests that the exemption under Section 6(2) in respect of a subsequent sale cannot be granted where the first sale has had the benefit of an exemption.” the High Court held.

The High Court set aside the assessment and penalty orders and sent the matter back to the assessing officer to examine whether the statutory conditions for the exemption were met. By declining to interfere with that decision, the Supreme Court has brought the tax department's challenge to an end.

For Petitioner: Additional Solicitor General N. Venkataraman; Advocate V. Chandrashekara Bharathi; Advocate-on-Record Mukesh Kumar Maroria.

For Respondent: Senior Advocate Kavin Gulati; Advocate-on-Record Shankey Agrawal; Advocate Harsh Shukla; Advocate Siddharth Agrawal; Advocate Nitin Dhatarwal.