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1991 (2) TMI 348 - SC - VAT and Sales TaxFailure to pay the taxes along with the return as required by section 4-B of Punjab General Sales Tax Act, 1948 - Held that - Appeal allowed. Once it is found that the Revenue was not entitled to levy the tax which it purported to levy as purchase tax on the raw material, there can be no question of imposition of penalty or interest on the unpaid amount of tax. Therefore, the action taken in exercise of power under section 10(6) and section 11-D of the Act cannot be allowed to stand and must be set aside.
Issues Involved
1. Liability to pay purchase tax under Section 4-B of the Punjab General Sales Tax Act, 1948. 2. Imposition of penalty and interest under Sections 10(6) and 11-D of the Act. 3. Interpretation of Section 4-B in light of previous judicial decisions. 4. Competence of the State Legislature to impose tax on consignment of goods. Detailed Analysis 1. Liability to Pay Purchase Tax under Section 4-B of the Punjab General Sales Tax Act, 1948 The primary issue was whether the assessee, M/s. Mukerian Papers Ltd., was liable to pay purchase tax on raw materials used in the manufacture of goods that were sent outside the State of Punjab on a consignment basis. The assessee argued that they were under a bona fide belief, supported by previous High Court decisions (Goodyear India Ltd. and Bata India Ltd.), that no tax was due on such raw materials. However, the Revenue contended that these decisions were subsequent to the date when the tax liability arose, and thus, the assessee could not rely on them. 2. Imposition of Penalty and Interest under Sections 10(6) and 11-D of the Act The assessee disputed the imposition of penalty and interest, arguing that there was no wilful or intentional default in paying the taxes due. They claimed to have acted on legal advice, believing no tax was payable. The Revenue, however, did not accept this argument and proceeded with the imposition of penalty and interest. 3. Interpretation of Section 4-B in Light of Previous Judicial Decisions The Court examined the language of Section 4-B, which levies purchase tax on goods used in manufacturing and subsequently sent outside the State. The Court noted that the tax liability arises only when the manufactured goods are sent outside the State, making it effectively a tax on consignment rather than on the purchase of raw materials. The Court found that the ratio of the decision in Goodyear India Ltd. v. State of Haryana applied, which held that such a tax was beyond the competence of the State Legislature as it was essentially a tax on consignment of goods. 4. Competence of the State Legislature to Impose Tax on Consignment of Goods The Court referred to its previous decision in Goodyear India Ltd., which concluded that the State Legislature lacked the competence to impose a tax on the consignment of goods. This power vested in Parliament under Article 269(1)(h) of the Constitution, read with Entry 92B in List I of the Seventh Schedule. The Court reaffirmed that the levy described as purchase tax was, in substance, a tax on consignment, which the State Legislature could not impose. Conclusion The Court concluded that the Revenue was not entitled to levy the tax described as purchase tax on the raw materials. Consequently, the imposition of penalty and interest under Sections 10(6) and 11-D of the Act was also invalid. The Court allowed the appeals, set aside the decisions of the Sales Tax Tribunal, Punjab, and directed that any recovery made under the impugned orders be refunded within three months. No order as to costs was made. Appeals allowed.
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