1982 (4) TMI 270 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of the registration certificate issued in 1965.
2. Applicability of Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948.
3. Conflict between earlier judgments and the current case.
4. Impact of the Supreme Court's decision in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi.
5. Liability of the petitioners to pay sales tax on the purchase of gur.

Detailed Analysis:

1. Validity of the Registration Certificate Issued in 1965:
The registration certificate granted to the petitioners in 1965 allowed them to purchase gur for the manufacture of khandsari without payment of tax. However, the sales tax law had been amended in 1963, which affected the conditions under which such purchases could be made tax-free. The petitioners argued that their certificate still entitled them to purchase gur without paying tax, but the Assessing Authority rejected this claim based on the precedent set in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab [1965] 16 STC 310 (SC).

2. Applicability of Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948:
Section 5(2)(a)(ii) as amended, stated that if a dealer purchased goods tax-free based on their registration certificate and used them to manufacture tax-free goods, they would be liable to pay tax. The petitioners claimed exemption from this provision, but the Assessing Authority and later the Sales Tax Tribunal, Haryana, disagreed, holding that the petitioners were liable to pay sales tax under this section.

3. Conflict Between Earlier Judgments and the Current Case:
The petitioners relied on the Full Bench decision in Punjab Khandsari Udyog v. State [1972] 30 STC 414 (FB), which had ruled in favor of the dealers, stating that the second proviso to Section 5(2)(a)(ii) did not apply if the goods purchased were used for the intended purpose of manufacturing khandsari. This view was later doubted in Sterling Steels & Wires Ltd. v. State of Punjab [1980] 45 STC 438 (FB); ILR [1980] 1 P & H 306 (FB), but not overruled.

4. Impact of the Supreme Court's Decision in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi:
The Full Bench noted that the controversy had been settled by the Supreme Court in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi [1978] 41 STC 409 (SC); AIR 1978 SC 897. The Supreme Court had ruled that the words of a taxing Act must be interpreted strictly, and any ambiguity should be resolved in favor of the taxpayer. This decision was directly applicable to the case at hand, as it dealt with similar provisions under the Bengal Finance (Sales Tax) Act, 1941, applied to the Union Territory of Delhi.

5. Liability of the Petitioners to Pay Sales Tax on the Purchase of Gur:
The Full Bench affirmed the earlier judgment in Punjab Khandsari Udyog's case, stating that the petitioners were not liable to pay tax on the purchase of gur as they had used it for the manufacture of khandsari, which was the intended purpose. The court emphasized that the second proviso to Section 5(2)(a)(ii) did not apply because the petitioners did not use the gur for any purpose other than manufacturing khandsari. The court also noted that any failure by the administration to amend the relevant rules and forms in a timely manner should not penalize the taxpayers.

Conclusion:
The Full Bench affirmed the decision in Punjab Khandsari Udyog v. State, ruling in favor of the petitioners and against the department. The matter was referred back to a Single Bench for adjudication on merits, with the Full Bench concluding that the Supreme Court's decision in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi, was decisive and applicable to the current case.

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