1987 (4) TMI 467 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of Orissa Sales Tax Act, 1947 regarding liability to pay purchase tax on mohua flower purchase turnover.
2. Application of rule 90-B for determining tax liability on outstill liquor turnover.
3. Exclusion of mohua flower purchase turnover from tax net based on rule 90-B.
4. Legal correctness of Sales Tax Tribunal's decision regarding purchase tax liability.

Analysis:
The case involved a dealer in outstill liquor who was assessed for tax on the sale turnover of outstill liquor and purchase turnover of mohua flower for the year 1976-77 under rule 90-B of the Orissa Sales Tax Rules. The primary issue was whether the dealer was liable to pay purchase tax on mohua flower purchase turnover in addition to the compounding tax under rule 90-B for the sale of outstill liquor. The first appellate authority held that the purchase turnover of mohua flower was included in the taxable turnover of outstill liquor till April 30, 1976. However, the Tribunal upheld this decision, leading to a reference to the High Court.

The Court noted that mohua flower and outstill liquor are distinct entities, with mohua flower being an ingredient in outstill liquor. While the sale of outstill liquor became taxable from May 1, 1976, it did not automatically exempt the purchase turnover of mohua flower from tax. The Court emphasized that rule 90-B, which pertains to compounding tax on outstill liquor, does not determine the tax liability of mohua flower. The rule simplifies the calculation of outstill liquor turnover but does not affect the taxability of mohua flower.

The Court criticized the reliance on rule 90-B to exclude mohua flower from the tax net, stating that it was an erroneous interpretation. It clarified that even though mohua flower is used in the manufacture of outstill liquor, they are distinct products. Therefore, the dealer was held liable to pay purchase tax on the turnover of mohua flower, irrespective of the taxability of outstill liquor. The Court answered the reference in the negative, indicating that the dealer is indeed liable to pay purchase tax on mohua flower purchase turnover.