1974 (11) TMI 84 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of section 5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948 regarding deductions claimed by a petitioner-company for sales of cement to the Punjab State Electricity Board. Disallowance of deductions by the Deputy Excise and Taxation Commissioner. Requirement for the petitioner to prove actual use of cement in the generation and distribution of electrical energy. Validity of disallowance without evidence. Comparison with a previous legal case involving conditions for tax exemption based on registration certificates.

Analysis:
The judgment addressed a reference under section 22 of the Punjab General Sales Tax Act, 1948, concerning deductions claimed by a petitioner-company for sales of cement to the Punjab State Electricity Board. The company asserted that the cement was sold for use in the generation and distribution of electrical energy based on certificates issued by the Board's Executive Engineers. The Assessing Authority initially allowed the deductions, but the Deputy Excise and Taxation Commissioner disallowed them, citing that a portion of the cement was used for non-qualifying purposes like construction. This led to additional demands being imposed on the petitioner. The Sales Tax Tribunal rejected the company's appeals, prompting the reference to the High Court.

The main legal issue revolved around the interpretation of section 5(2)(a)(iv) of the Act, which outlines conditions for deductions on sales to entities supplying electrical energy. The court analyzed the requirements of the provision, emphasizing that the sales must be to an entity supplying electrical energy, holding a license under the Indian Electricity Act, and the goods must be intended for use in energy generation or distribution. The court noted that the first two conditions were met in this case, leaving the dispute focused on whether the petitioner had to prove the actual use of cement in energy-related activities.

The judgment highlighted that burdening the seller with verifying the end-use of goods sold, especially when certificates from responsible officers of the buyer entity are provided, would be unreasonable. Drawing from a Supreme Court case precedent, the court emphasized that sellers could rely on representations made by purchasing dealers, and were not obligated to ensure the specific application of purchased goods. The court differentiated this case from a previous legal precedent involving conditions for tax exemption based on registration certificates, emphasizing that the petitioner's obligation was limited to ensuring the buyer's intended use aligned with the statutory requirements.

Ultimately, the court answered the first legal question in the negative, indicating that the petitioner was not required to prove the actual use of cement in energy-related activities beyond the representations made by the Punjab State Electricity Board. As a result, the second question remained unanswered. The judgment favored the petitioner, granting costs and concluding the reference accordingly.