1988 (12) TMI 314 - SC - VAT and Sales Tax

Whether the dealer being the respondent herein was liable to pay sales tax at the rate of 7 per cent in view of the amended provisions of section 3-A as well as the definition of manufacture in section 2(e-1) of the U.P. Sales Tax Act, 1948 as it stood during the relevant year 1974-75 in view of the fact that the amendment to section 2(c) was retrospective? Held that - Appeal allowed by way of remand. As this aspect of the amendment had not been considered by the High Court in the judgment under appeal. The amendment gives an artificial definition of manufacture . This has to be considered. This question also requires consideration as to whether there is any possibility of conflict with sections 14 and 15 of the Central Sales Tax Act, 1956.

Summary

Issues:
1. Interpretation of tax liability on the sale of iron shafts by a dealer in iron and steel.
2. Applicability of the definition of "manufacture" under the U.P. Sales Tax Act, 1948.
3. Consideration of conflict with sections 14 and 15 of the Central Sales Tax Act, 1956.

Analysis:
The case involved a dispute regarding the tax liability on the sale of iron shafts by a dealer in iron and steel during the assessment year 1974-75. The dealer had treated the iron shafts as machinery parts and deposited tax at a rate of 4 per cent. However, during the assessment proceedings, the dealer contended that the shafts were merely iron bars and had already been taxed, hence no additional tax liability should be imposed. The first appellate authority accepted this plea, leading to an appeal by the Revenue before the Sales Tax Tribunal, which was dismissed. The Revenue then filed a revision challenging the decision.

The Revenue argued that the dealer engaged in the manufacture of iron shafts from iron bars, making the shafts taxable. It was contended that the process of purchasing iron rods, cutting them into small pieces, and polishing the ends constituted a manufacturing process, thereby making the turnover of shafts taxable. Reference was made to a previous case where it was held that cutting iron bars into small pieces does not change their nature, and iron shafts fall within the category of iron and steel as per the Central Sales Tax Act.

After hearing the arguments, the judge found no reason to deviate from the previous decision and rejected the revision, stating that no new evidence was presented to warrant a different view. Subsequently, the Revenue appealed to the Supreme Court, challenging the decision of the High Court of Allahabad.

The Supreme Court, in its decision, noted that the High Court had not considered the impact of the retrospective amendment to the definition of "manufacture" under the U.P. Sales Tax Act, 1948. The Court highlighted the artificial definition of "manufacture" introduced by the amendment and the potential conflict with sections 14 and 15 of the Central Sales Tax Act, 1956. Consequently, the Supreme Court set aside the High Court's judgment and remanded the matter for fresh consideration in line with the relevant legal provisions, including the amended definitions.

In conclusion, the Supreme Court disposed of the appeal by remanding the case to the High Court for reconsideration, emphasizing the need to address the amended provisions and potential conflicts with the Central Sales Tax Act.