1985 (9) TMI 324 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to imposition of entry tax on purchase of iron and steel for construction of buildings prior to commencement of cement manufacturing business.

Analysis:
The petitioner challenged the imposition of entry tax under the Entry Tax Act for the years 1977 and 1978 on the purchase of iron and steel for construction of its buildings before the commencement of its cement manufacturing business. The key question was whether the purchase of iron and steel for construction purposes could be considered part of the business of manufacturing cement, which started in November 1980. The Assistant Commissioner of Sales Tax had imposed entry tax on the material purchased by the petitioner, leading to this petition seeking to quash those assessment orders.

The petitioner's business was cement manufacturing, which began in November 1980, and the iron and steel purchased during 1977 and 1978 were for constructing buildings before the commencement of cement production. The central issue was whether entry tax could be levied on materials used for construction before the actual start of the manufacturing business. The petitioner relied on previous Division Bench decisions that held no entry tax could be imposed on building materials purchased before the commencement of the business.

The statutory provisions under the Entry Tax Act and the Sales Tax Act were crucial in determining the liability for entry tax. Section 3 of the Entry Tax Act defined the incidence of taxation, specifying that entry tax is levied on goods entering a local area in the course of a dealer's business. The definition of "business" in the Sales Tax Act was referenced to interpret the term in the context of the Entry Tax Act. The definition of "business" included various activities related to trade, commerce, manufacture, or any transaction of sale or purchase of goods incidental to the main business.

The Division Bench decisions emphasized that purchasing building materials for construction before starting the business did not constitute a transaction incidental to the business. The court held that activities like construction undertaken before the commencement of the business could not be considered part of the business itself. The court rejected attempts to distinguish the previous decisions based on specific clauses in the definition of "business," as those clauses were not applicable to the facts of the case.

In conclusion, the court held that the petitioner was not liable to pay entry tax on the purchase of iron and steel for construction before starting the cement manufacturing business. The assessment orders imposing entry tax were quashed, and no penalty could be imposed. The petition was allowed, and the assessment orders were set aside, with no costs awarded to either party.