1990 (10) TMI 337 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of Section 6 of the Karnataka Sales Tax Act, 1957 regarding tax liability on purchased goods.
- Burden of proof on the department to show goods have not suffered tax at the hands of the seller.

Analysis:

The judgment of the Karnataka High Court dealt with a revision petition under section 23(1) of the Karnataka Sales Tax Act, 1957. The petitioner, a registered dealer, purchased rubber for retreading tires during the assessment year 1979-80. The assessing authority imposed tax at 12% on the purchase price of the rubber, alleging it was used for purposes attracting tax under section 6 of the Act. The petitioner's appeal was dismissed by the Deputy Commissioner of Commercial Taxes (Appeals) and the Karnataka Appellate Tribunal, leading to the revision petition before the High Court.

In the appeal, the petitioner contended that as the rubber purchased had already suffered tax at the hands of the seller, who was an unregistered dealer, they should not be liable to pay tax. However, both appellate authorities rejected this argument due to lack of evidence proving tax payment by the seller. The petitioner raised two main contentions before the High Court: firstly, challenging their classification as a dealer under section 6, and secondly, arguing that the burden of proof regarding tax payment on the purchased goods lay with the department.

The High Court analyzed the definition of a "dealer" under the Act and the application of section 6 in cases where goods are purchased without tax levied and used for specific purposes. The court considered the purpose for which the rubber was purchased, i.e., retreading tires, and held that it fell within the scope of being a dealer under the Act. The court referenced a Supreme Court judgment to support this interpretation, emphasizing the broad definition of a dealer in such scenarios.

Regarding the burden of proof, the petitioner argued that as the seller was obligated to pay tax, the department should prove that the goods purchased had not suffered tax. The court referred to a previous judgment highlighting that the burden of proof to establish tax liability under section 6 rested with the department, not the dealer. The court found that the authorities had erred in placing the burden on the petitioner to prove tax payment by the seller.

Ultimately, the High Court allowed the revision petition, setting aside the assessment orders and remanding the matter to the assessing authority. The court directed a fresh assessment if the department could demonstrate that the goods in question had not been taxed at the seller's end. The judgment underscored the importance of correctly assigning the burden of proof in tax liability cases and ensuring compliance with legal requirements for taxation under the Act.