The Ford India sales tax exemption dispute ended with the Madras High Court upholding the Tamil Nadu sales tax demand against Ford India. The Court held that the company failed to satisfy the conditions attached to a State Government exemption notification after claiming the benefit through declarations. The dispute relates to the 2001–02 assessment year.
A Division Bench of Justice Dr. G. Jayachandran and Justice N. Mala dismissed Ford India’s revision petition. The Bench affirmed the Tamil Nadu Sales Tax Appellate Tribunal’s order restoring the Assessing Officer’s tax demand. The case involved two substantial questions of law under the Tamil Nadu General Sales Tax Act.
Facts of the Case
G.O. Ms. No. 381 exempted tax on goods purchased for manufacturing, assembling, packing, and labelling passenger cars and components at Ford India’s Maraimalai Nagar plant.
The notification allowed manufacturers to buy inputs without paying tax if they actually used those goods for the specified purpose. Manufacturers also had to submit declarations confirming the intended end use.
During assessment, the tax department found that Ford purchased goods without paying tax after filing these declarations. However, the company failed to produce records linking those purchases with the manufacture of the eligible vehicles.
As a result, the Assessing Officer withdrew the exemption and imposed sales tax.
Appellate Proceedings
The First Appellate Authority accepted Ford’s argument under Section 5(3) of the Central Sales Tax Act. It held that the transactions formed part of export sales and therefore qualified for exemption.
The Tribunal disagreed. It restored the Assessing Officer’s order, holding that Ford had violated the conditions of the State exemption notification.
Ford then challenged the Tribunal’s decision before the Madras High Court.
Ford’s Arguments
Ford argued that the transactions qualified for exemption under Section 5(3) of the Central Sales Tax Act because they formed part of export sales.
The company contended that this statutory protection applied even if it had not fully complied with the State Government notification.
The Department argued that the liability arose because Ford failed to prove the declared end use of the exempted purchases. According to the Department, this obligation existed independently of any export-related exemption.
High Court’s Findings
The Court held that Ford failed to establish that the exempted goods were used for the declared manufacturing purpose.
It ruled that once Ford claimed the exemption, it had to satisfy every condition attached to it. The company could not later rely on Section 5(3) of the CST Act to avoid the resulting tax liability.
The Bench explained that the State exemption and the export exemption operate in different legal fields. A breach of one cannot be cured by invoking the other.
Why the Export Exemption Did Not Apply
The Court observed that Section 5(3) protects sellers supplying goods in the export chain.
In contrast, G.O. Ms. No. 381 granted a conditional benefit to manufacturers based on declared end use.
Since Ford accepted the benefit by filing declarations, it remained bound by those declarations. The Court held that the company could not abandon those obligations after failing to prove compliance.
The Bench also noted that the invoices showed the transactions took place in Tamil Nadu. Therefore, the Tamil Nadu General Sales Tax Act applied to the disputed turnover.
Tribunal Could Restore the Assessment
Ford argued that the Tribunal could not restore the Assessing Officer’s order because the Department had not filed a separate appeal.
The High Court rejected this argument. It held that the Tribunal correctly corrected the First Appellate Authority’s legal error.
The Bench also noted that the Government Order itself required tax recovery if a dealer violated its conditions. Since Ford failed to produce records proving the end use of the exempted goods, the tax demand followed automatically.
Significance of the Judgment
The Ford India sales tax exemption ruling reinforces that businesses claiming conditional tax benefits must strictly comply with every requirement.
The judgment also confirms that taxpayers cannot rely on a different statutory exemption after violating the conditions of a State concession. Manufacturers must maintain clear records linking exempt purchases with the declared manufacturing activity to retain such benefits.
