1967 (11) TMI 101 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to assessment orders under U.P. Sales Tax Act for various quarters and years based on purchase tax on arhar dal purchases.

Analysis:
The petitioners challenged the assessment orders made by the Sales Tax Officer, arguing that the purchase tax on arhar dal should be a single point tax and not imposed repeatedly. The Sales Tax Officer considered arhar and arhar dal as different commercial commodities due to the manufacturing process involved. The department contended that arhar and arhar dal are distinct commodities, with arhar undergoing various processes before becoming dal. The Sales Tax Officer viewed arhar as a "cereal" transformed into a "pulse" through manufacturing processes. The petitioners cited legal precedents like Tungabhadra Industries case to support their argument that despite processing, the product remains the same for taxation purposes.

The court examined previous judgments where the definition of commodities for sales tax purposes was broadened to include processed forms. Cases like Kayani and Co., Kapildeoram Baijnath Prasad, and others were referenced to illustrate the inclusive interpretation of commodities under sales tax laws. The court also referred to the definition of "cereal" and "pulse" from botanical sources to understand the classification of arhar dal. The court emphasized that the determination of whether the manufacturing processes created a new commercial commodity required further examination by the Sales Tax Officer.

Regarding the liability for purchase tax, the Sales Tax Officer's approach of exempting dal purchases if the cereals were imported without tax payment was deemed incorrect. The court clarified that the tax liability arises from the first purchase of a commodity, regardless of previous tax exemptions. The Sales Tax Officer was directed to ascertain if arhar and arhar dal were the same commercial commodities and determine whether the petitioners' purchases constituted first or second purchases. The court highlighted the need for additional evidence to establish the nature of purchases and the emergence of a new commercial commodity from the manufacturing process.

The validity of section 3-D of the U.P. Sales Tax Act was briefly mentioned, though no arguments were presented on this aspect. Despite the availability of an appeal, the court intervened due to the fundamental right of the petitioners to conduct business without illegal restrictions. The assessment orders were quashed, and the Sales Tax Officer was instructed to reevaluate the evidence and issue fresh assessment orders based on a correct legal perspective. Each party was directed to bear their own costs, and the writ petitions were allowed.