1973 (4) TMI 83 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of a registered dealer to sales tax for purchasing goods used to manufacture tax-free goods.
2. Validity of a certificate issued contrary to statutory provisions.
3. Application of the second proviso to section 5(2)(a)(ii) of the Punjab General Sales Tax Act.
4. Determination of taxable turnover and the use of registration certificates for tax-free goods.
5. Role of selling dealers in verifying the entitlement of purchasing dealers.

Detailed Analysis:

1. Liability of a registered dealer to sales tax for purchasing goods used to manufacture tax-free goods:
The primary issue was whether a registered dealer could avoid liability for sales tax on goods purchased for manufacturing tax-free goods. The court examined the case where the petitioner, a manufacturer of khandsari (tax-free goods), purchased gur without paying sales tax based on a registration certificate issued by the assessing authority. The court concluded that the petitioner was not liable to pay tax for the purchase of gur used in manufacturing khandsari, as the petitioner did not use the goods for any purpose other than that specified in the registration certificate.

2. Validity of a certificate issued contrary to statutory provisions:
The court scrutinized whether a certificate issued contrary to statutory provisions could nullify those provisions. The registration certificate allowed the petitioner to purchase goods tax-free, contrary to the amended section 5(2)(a)(ii) of the Act. The court held that the petitioner could not be penalized for acting on the basis of the certificate, as the fault lay with the assessing authority's failure to update the certificate in line with the statutory amendments.

3. Application of the second proviso to section 5(2)(a)(ii) of the Punjab General Sales Tax Act:
The second proviso to section 5(2)(a)(ii) states that if goods are used for purposes other than those specified, the dealer is liable to pay tax. The court found that the petitioner used the gur solely for manufacturing khandsari, which was the specified purpose in the registration certificate. Thus, the proviso did not apply, and the petitioner was not liable for sales tax on the purchase of gur.

4. Determination of taxable turnover and the use of registration certificates for tax-free goods:
The court examined the petitioner's taxable turnover and the use of the registration certificate. The petitioner argued that khandsari was not "sugar" within the meaning of entry 62 in Schedule B and thus not tax-free. However, the court noted that both parties had previously agreed that khandsari was tax-free. The court affirmed that the petitioner could not be taxed on the purchase of gur since it was used for manufacturing khandsari, as specified in the registration certificate.

5. Role of selling dealers in verifying the entitlement of purchasing dealers:
The court emphasized that selling dealers should verify whether the purchasing dealer is entitled to purchase goods tax-free under the amended provisions of section 5(2)(a)(ii). The selling dealer should have refused to sell gur tax-free for manufacturing khandsari if it was not permissible under the amended Act. The court held that the liability to pay tax on the purchase of gur did not fall on the petitioner but on the selling dealer if they failed to comply with the statutory provisions.

Conclusion:
The court answered the first question in the negative, favoring the assessee and ruling against the department. The second question was deemed unnecessary to address. The decision reiterated that the petitioner could not be held liable for sales tax on the purchase of gur used to manufacture khandsari based on the registration certificate, and the selling dealers should have ensured compliance with the amended statutory provisions. The reference was answered accordingly, with each party bearing their own costs.