1990 (11) TMI 398 - HC - VAT and Sales Tax

Summary

Issues:
Challenge of sales tax demand on timber sold to S.S.I. unit; Claim for exemption under Sales Tax Act; Interpretation of section 6(3) of Sales Tax Act; Promissory estoppel argument based on government notifications.

Analysis:
The petitioners, a private limited company and its managing director, established a small-scale industrial unit in Himachal Pradesh for manufacturing match splints and allied products. The unit was set up based on incentives offered by the State Government. An agreement was signed with the State Government for the supply of timber for manufacturing purposes. The unit was duly registered as a small-scale industrial unit and as a dealer under the Sales Tax Act. The issue arose when different Forest Officers demanded sales tax on the timber supplied to the unit, contrary to the exemption claimed by the petitioners under clause 7 of the agreement and section 6(3) of the Sales Tax Act.

The Sales Tax Act imposes tax on dealers based on their gross turnover, with specific rates for different items. Timber falls under item 34 of Schedule A, attracting a tax rate of 25 paise in a rupee. However, section 6(3) of the Act exempts turnover from sales to registered dealers for manufacturing goods within the state for sale within the state. The petitioners argued that the timber supplied to their unit falls under this exemption as it is used for manufacturing goods intended for sale within Himachal Pradesh.

The Advocate-General contended that tax on timber is levied at the first sale point, and the liability rests with the selling dealer, not the purchasing dealer. The Forest Department, as the selling dealer, should bear the tax burden, and the petitioners are not entitled to claim exemption under section 6(3) of the Act. However, the Court disagreed, stating that the legislative intent behind the exemption was to prevent double taxation on manufactured goods. The Court found that the timber supplied to the S.S.I. unit for manufacturing and sale within the state is not subject to sales tax under the Sales Tax Act.

The Court ruled in favor of the petitioners, holding that the timber sold to the S.S.I. unit for manufacturing and sale within Himachal Pradesh is not taxable under the Sales Tax Act. A writ of mandamus was issued to prevent the respondents from levying or collecting sales/purchase tax from the S.S.I. unit on the timber supplied. The Court did not delve into the promissory estoppel argument based on government notifications, as the interpretation of section 6(3) sufficed to grant relief to the petitioners.

In conclusion, the writ petition was allowed, and each party was directed to bear its own costs.