APHC010003092021 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction) [3529] MONDAY, THE EIGHTH DAY OF DECEMBER TWO THOUSAND AND TWENTY FIVE PRESENT THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO THE HONOURABLE SRI JUSTICE T.C.D.SEKHAR WRIT PETITION NO: 200/2021 Between: 1. M/S.KOBELCO CONSTRUCTION EQUIPMENT, (INDIA) PVT LTD., SURVEY NO. 1 AND 26, 4111, SPINE DTZ, SRICITY (NEAR TADA), SATHAYVEDU, CHITTOOR DISTRICT, ANDHRA PRADESH REPRESENTED BY ITS MANAGING DIRECTOR, MR. KOJI NAKAGAWA, S/O KATSUMI ISHIMARU, AGED ABOUT 51 YEARS. ...PETITIONER AND 1. STATE OF ANDHRA PRADESH, REP BY ITS PRINCIPAL SECRETARY, REVENUE(CT) DEPARTMENT, VELAGAPUDI, AMARAVATHI, GUNTUR DISTRICT, ANDHRA PRADESH. 2. STATE OF KARNATAKA, REP BY ITS PRINCIPAL SECRETARY, REVENUE(CT) DEPARTMENT, VIDHANA SOUDHA, BENGALURU KARNATAKA STATE. 3. THE COMMERCIAL TAX OFFICER, (AUDIT) KOLAR TALUK, KARNATAKA STATE. 4. THE COMMERCIAL TAX OFFICER, NT O/O. DEPUTY COMMISSIONER OF COMMERCIAL TAXES, CHITTOOR DIVISION, CHITTOOR, CHITTOOR DISTRICT, ANDHRA PRADESH. 5. THE JOINT COMMISSIONER OF ST, FORMERLY DEPUTY COMMISSIONER OF COMMERCIAL TAXES CHITTOOR 11 CIRCLE, CHITTOOR, CHITTOOR DISTRICT, ANDHRA PRADESH. 6. THE COMMERCIAL TAX OFFICER, PUTTUR CIRCLE, PUTTUR, CHITTOOR DISTRICT, ANDHRA PRADESH. ...RESPONDENT(S): Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased topleased to issue an appropriate writ, order or direction particularly in the nature of Writ of Mandamus I) declaring the impugned assessment, levy and demand of tax under the provisions of the APVAT Act 2005 on interstate sales effected from State of Karnataka by the Petitioner company depot at Hoskote during the year 2014-15 converting into intrastate sales without any material, investigation and nexus but on pure suspicions , presumptions and conjectures, without any proof of facts as illegal, arbitrary, without authority of 2 RRR, J & TCDS, J W.P.No.200 of 2021 law and without jurisdiction, violating articles 286 and 265 of the Constitution of India in addition to article 14 and consequently to set aside / quash the impugned order of assessment dated 31-03-2020 in Form VAT 305 vide A.O. No. 206481 by the 4th respondent herein namely Commercial Tax Officer (INT), Chittoor Division , Chittoor issued in breach of the principles of natural justice also ii) Alternatively in the event of upholding the impugned order of assessment made on presumptions as to deeming interstate sales as intrastate sales , the 2nd and 3 rd respondent shall be directed to refund the tax collected from the Petitioner company s depot at Hoskote for being adjusted towards the tax payable in the State of Andhra Pradesh and pass IA NO: 1 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased pleased to stay all further proceedings including recovery of the disputed tax pursuant to the impugned order of assessment dated 31-03-2020 served on 27-11-2020 pending disposal of the writ petition and pass IA NO: 2 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased pleased to take the additional affidavit on record and to read the contents of the additional affidavit as part and parcel of the main affidavit filed by the Petitioner else the Petitioner would be put to severe loss and hardship. IA NO: 3 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased pleased to pass necessary orders in the stay petition in I.A. No. 1/2021 pending disposal of the writ petition or else the Petitioner would suffer irreparable loss and hardship. IA NO: 4 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased pleased to permit the Petitioner to file the annexures as additional material papers in the interest of justice or else the Petitioner would suffer severe loss and hardship Counsel for the Petitioner: 1. M V J K KUMAR Counsel for the Respondent(S): 1. GP FOR COMMERCIAL TAX 3 RRR, J & TCDS, J W.P.No.200 of 2021 The Court made the following order: (per Hon’ble Sri Justice R. Raghunandan Rao) Heard Dr. M.V.K. Moorthy, learned counsel appearing for Sri M.V.J. K. Kumar, learned counsel for the petitioner and the learned Government Pleader for Commercial Tax, appearing for the respondents. 2. The petitioner manufactures earth excavation equipment and other equipment in its unit situated in DTZ, Sri City in Chittoor District situated in the State of Andhra Pradesh. The petitioner also maintains a stock yard in Hoskote in the State of Karnataka. 3. The petitioner is a registered dealer under the provisions of the Central Sales Tax Act, 1956 as well as the A.P. Value Added Tax Act, 2005. The assessment of the petitioner, for the year 2014-15, under the CST Act, was completed on 30.03.2019. As far as the assessment under the AP VAT Act is concerned, the 4th respondent had issued a show-cause notice, dated 16.02.2019. Thereafter, a revised show-cause notice, dated 18.06.2019, was served on the petitioner. In this show-cause notice, the 4th respondent stated that the petitioner had transferred the equipment, manufactured in Sri City, to Hoskote in the State of Karnataka, in relation to 203 items of equipment. The 4th respondent, then, took the view that out of these 203 transfers, the transfer of 27 pieces of equipment was not stock transfer, but a device to evade payment of tax under the A.P. VAT act. This view was taken by the 4th 4 RRR, J & TCDS, J W.P.No.200 of 2021 respondent on the ground that the petitioner had sold these 27 pieces of equipment in the State of Andhra Pradesh and paid lower rate of tax under the CST Act, instead of paying higher rates of tax, under the A.P. VAT Act. The petitioner filed his objections on 10.01.2020. The 4th respondent passed an order of assessment on 31.03.2020, which is said to have been served on the petitioner on 27.11.2020. 4. Aggrieved by the said order of assessment, the petitioner has moved this Court, by way of the present Writ Petition. 5. The case of the 4th respondent was that, the petitioner had transferred all the 203 pieces of equipment, including the 27 pieces of equipment, which are the subject matter of the present Writ Petition, from Sri City, in the State of Andhra Pradesh to Hoskote in the State of Karnataka. The 4th respondent also held that out of these 203 pieces of equipment, 27 pieces of equipment were sold in the State of Andhra Pradesh and the same should not be treated as stock transfer from Sri City to Hoskote. The 4th respondent contended that the marketing staff of the petitioner had deliberately taken the orders in the name of the Hoskote Branch, instead of the manufacturing unit in Sri City and the same was a colorable device intended to evade tax. The 4th respondent also relied upon a Judgment of the 5 RRR, J & TCDS, J W.P.No.200 of 2021 Hon’ble Supreme Court in the case of M/s. McDowell and Company Limited vs. Commercial Tax Officer1. 6. Dr. M. V. K. Moorthy, learned counsel appearing for Sri M. V. J. K. Kumar, learned counsel for the petitioner would contend that the order of the 4th respondent itself records the fact that the goods in question had moved to the State of Karnataka, even before any order was placed on the petitioner by its customers. He would submit that, in such a situation, there is no question of such transfer being a colorable device to evade tax. He would also rely upon the Judgment of the Hon’ble Supreme Court in the case of Vodafone International Holdings BV vs. Union of India and Another2. 7. A perusal of the order of the 4th respondent reveals the following facts and the said findings are extracted herein below: “… However, these transactions are dubious in nature. In the above transactions, the excavators are transferred to the Hoskote branch (which is adjacent to Andhra Pradesh border), the excavators were kept at the branch for an average of 44 days ranging from a minimum of 3 days to a maximum of 101 days, only to reach back the destination in Andhra Pradesh. All these transactions are a colorable device only to camouflage local sale in Andhra Pradesh as inter-state sales, Hoskote to Andhra Pradesh and the same are disbelieved in the light of the ratio available in McDowell case (59 STC 227SC) wherein the doctrine 1 (1985) 3 SCC 230: (1985) 59 STC 277 2 (2012) 6 SCC 613 6 RRR, J & TCDS, J W.P.No.200 of 2021 of colorable device is followed and held against the dealer. The colorable device doctrine is also subsequently explained and followed in the case of Vodafone International. …. 3) However, on verification of some of the purchase orders, said to have issued by customers of A.P., it is clearly noticed that, the Marketing Assistant in A.P., obtained Uniform orders in the name of Hoskote Branch, located in Karnataka. It is therefore, proved that the customers have not stated orders, for supply of excavators, according to their will, to the Hoskote Branch, The Marketing Officials of the Company in A.P. only obtained such orders, in favour of Hoskote Branch instead of the manufacturing unit located in Srictiy of A.P. So, the orders obtained by the Marketing Officials of A.P. in favour of Hoskote Branch itself is clear proof that the Assessee has malafide intention to avoid local tax @ 14.5%, by effecting sale to the customers of A.P. through the Hoskote Branch, located in Karnataka state. So, the transaction is clearly a colourable transaction. 4) There is no dispute that, the goods were transported to their branch located in Hoskote of Karnataka and received F- forms from the branch. The dispute is, the customers have not directly placed any order according to their will to Hoskote Branch, but the Marketing officials of A.P. obtained unit form purchase orders from the customers of A.P., for supply from Hoskote Branch instead of the Manufacturing Unit located in A.P. Transport of goods to the branch unit located in Hoskote of Karnataka and receiving the F-forms , will not change the colourable devices. … 7 RRR, J & TCDS, J W.P.No.200 of 2021 6) The Supreme Court judgment in the case of Mc Dowell & Co. Ltd. Vs. CTO (1985) 154 ITR 148 (SC) had marked dividing line between the tax evasion and avoidance of tax through tax- planning. In this case, Hon’ble Supreme Court held that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuge. In the present case, the assesses intentionally obtained orders through the Marketing Officials of A.P., from customers of A.P., for supply of Excavators through Hoskote Branch located in Karnataka stated instead of manufacturing unit located in A.P., and supplied the goods through Hoskote branch. So, the transactions are clearly colourable devices to evade payment of higher tax under the APVAT Act, and so the ratio of the Mc Dowells case will equally be applicable to the assesses case.” 8. The learned Government Pleader for Commercial Tax would support the impugned order on the ground that the exercise of moving equipment across State borders, from Andhra Pradesh to Karnataka, was a colourable device carried out by the petitioner solely for the purposes of evading payment of tax under the A.P. VAT Act. The learned Government Pleader has also taken us through certain passages of the 8 RRR, J & TCDS, J W.P.No.200 of 2021 Judgment of the Hon’ble Supreme Court in the case of M/s. McDowell (supra). 9. The undisputed fact, as can be seen from the order of the 4th respondent, is that the equipment, manufactured by the petitioner, moved from Sri City to Hoskote, even before any order had emanated from any of the customers from the State of Andhra Pradesh. The said orders were placed only after the goods had moved to Hoskote. The 4th respondent states that such orders were placed with a minimum gap of 3 days to a maximum gap of 101 days averaging out to about 41 days. Thus, there is no dispute that the orders of the customers were placed only after the equipment had reached Hoskote and the movement of goods from the State of Andhra Pradesh to Hoskote did not have any connection to the subsequent orders placed by the customers in the State of Andhra Pradesh. 10. Justice O. Chinnappa Reddy (as he then was) had held that the view in IRC vs. Duke of Westminster3: “Every man in entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result then however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. 3 1936 AC 1 : 1935 All ER Rep 259 9 RRR, J & TCDS, J W.P.No.200 of 2021 was not the current understanding and that it was time to depart from the said principle, on the basis of the developments in law, both in England and in India. The question of whether the development of law had moved from the principle enunciated in IRC vs. Duke of Westminster (supra) came up before the Hon’ble Supreme Court in the subsequent Judgments, in Union of India vs. Azadi Bachao Andaloan and Ors4, Mathuram Agrawal vs. State of Madhya Pradesh5, as well as Vodafone International Holdings (supra). The Hon’ble Supreme Court in Vodafone International Holdings, after reviewing these Judgments, had held as follows: “332. Reddy, J. has endorsed the view of Lord Roskill in Dawson case (Furniss v. Dawson, 1984 AC 474: (1984) 2 WLR 226: (1984) 1 All ER 530 (HL)) that the ghost of Westminster (IRC. Duke of Westminster, 1936 AC1: 1935 All R Rep 258 (HL)) had been exorcised in England and that one should not allow its head to rear over India. If one scans through the various judgments of the House of Lords in England, which we have already done, one thing is clear that it has been a cornerstone of law, that a taxpayer is enabled to arrange his affairs so as to reduce the liability of tax and the fact that the motive for a transaction is to avoid tax does not invalidate it unless a particular enactment so provides (Westminster principle). Needless to say if the arrangement is to 4 (2004) 10 SCC 1 5 (1999) 8 SCC 667 10 RRR, J & TCDS, J W.P.No.200 of 2021 be effective, it is essential that the transaction has some economic or commercial substance. Lord Roskill’s view is not seen as the correct view so also Reddy, J.’s, for the reasons we have already explained in earlier part of this judgment. 333. A five-Judge Bench judgment of this Court in Mathuram Agrawal v. State of M.P.((1999) 8 SCC 667), after referring to the judgment in B.M. Kharwar (CIT v. B.M. Kharwar, AIR 1969 SC 812: (1969) 1 SCR 651) as well as the opinion expressed by Lord Roskill in Dawson case on Duke of Westminster stated that the subject is not be taxed by inference or analogy, but only by the plain words of a statute applicable to the facts and circumstances of each case. 334. The Revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every taxpayer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury. The Revenue’s stand that the ratio laid down in McDowell is contrary to what has been laid down in Azadi Bachao Andolan, in our view, is unsustainable and, therefore, calls for no reconsideration by a larger Bench.” 11 RRR, J & TCDS, J W.P.No.200 of 2021 11. In view of the observations of the Hon’ble Supreme Court in Vodafone International Holdings (supra), it can be safely said that all cases of tax planning and arranging one’s affairs cannot be considered as tax evasion. It would be appropriate for a Court to disregard colourable devices as well as sham schemes of arrangement made solely for the purpose of evading tax, under the guise of tax planning. However, such a conclusion can be drawn by the Court only when it is made clear, beyond any reasonable doubt, that the planning of the tax payer has been one of tax evasion rather than tax planning. 12. In the present case, the findings of the 4th respondent itself show that the petitioner had set up a system of selling its equipment from the Branch of Hoskote, not only to the customers in the State of Andhra Pradesh, but also to various customers in other states. It is also the finding of the 4th respondent that the sales made from Hoskote to the customers in the State of Andhra Pradesh were clearly after the equipment had moved from Andhra Pradesh to Hoskote. The 4th respondent has also held that there was a time gap between the dates of different orders that were placed by the customers in Andhra Pradesh, on the petitioner for supply of equipment. The contention of the 4th respondent that such orders should have been placed, by customers in Andhra Pradesh, only on the manufacturing unit of the petitioner in Andhra Pradesh and that such orders should not have been taken by the marketing staff of the petitioner in the name of the branch in Hoskote, would effectively result in the tax authorities deciding how the tax payer should arrange his affairs. Such a course of action would not be available to the tax authorities. 12 RRR, J & TCDS, J W.P.No.200 of 2021 13. In the circumstances, we do not find any reason to disbelieve the arrangement of affairs of the petitioner and must hold that the view of the 4th respondent, that it is a colourable device to evade tax, is incorrect on the facts of the case. 14. In the circumstances, this Writ Petition is allowed, setting aside the order of assessment, dated 31.03.2020, passed by the 4th respondent to the extent of levy of tax in relation to the sale of the 27 pieces of equipment, made by the petitioner from Hoskote to the customers in the State of Andhra Pradesh. There shall be no order as to costs. As a sequel, pending miscellaneous applications, if any, shall stand closed. ________________________ R. RAGHUNANDAN RAO, J ________________ T.C.D. SEKHAR, J Date: 08.12.2025 MJA 13 RRR, J & TCDS, J W.P.No.200 of 2021 194 THE HON’BLE SRI JUSTICE R RAGHUNANDAN RAO AND THE HON’BLE SRI JUSTICE T.C.D. SEKHAR WRIT PETITION NO: 200/2021 (per Hon’ble Sri Justice R. Raghunandan Rao) 08.12.2025 MJA