2001 (11) TMI 991 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Provisional assessment under section 41B of the Gujarat Sales Tax Act, 1969.
2. Levy of additional purchase tax under section 15B of the Gujarat Sales Tax Act, 1969.
3. Interpretation of "taxable goods" under section 2(33) of the Act.
4. Validity of the belief that the petitioner had evaded tax.

Detailed Analysis:

1. Provisional Assessment under Section 41B:

The petitioner, a public limited company engaged in the manufacture of pesticides, challenged the notices issued by the Sales Tax Officer for making a provisional assessment for the financial years 1997-98 to 2000-01. The petitioner argued that provisional assessment under section 41B could be resorted to only where the Commissioner has reason to believe that the dealer has evaded the tax. The petitioner contended that there was no liability to pay tax under section 15B as they were granted exemption under section 49(2) of the Act. The Court noted that the power under section 41B for provisional assessment can be invoked only if there is reason to believe that a dealer has evaded the tax, and such formation of opinion is also a condition for invoking the power of provisional assessment.

2. Levy of Additional Purchase Tax under Section 15B:

The petitioner argued that since they are manufacturing goods exempted from sales tax pursuant to notifications under section 49(2) of the Act, the levy of additional purchase tax under section 15B does not arise. The revenue contended that the liability to pay additional purchase tax was very much there. The Court analyzed section 15B, which stipulates that purchase tax is levied on the turnover of taxable goods used in the manufacture of taxable goods. The Court held that the levy under section 15B becomes effective on the manufacture of taxable goods, and this activation can only be ascertained by finding out whether the goods have borne tax or not.

3. Interpretation of "Taxable Goods" under Section 2(33):

The definition of "taxable goods" under section 2(33) means goods other than those on the sale or purchase of which no tax is payable under section 5 or section 49 or a notification issued thereunder. The petitioner contended that since the goods they manufacture are exempted from sales tax, they fall outside the definition of "taxable goods." The Court referred to the decision in Madhu Silica Private Limited v. State of Gujarat [1992] 85 STC 258, where it was held that the expression "taxable goods" means "generally taxable goods." The Court concluded that the charge under section 15B gets attracted when raw materials are used in the manufacturing process of generally taxable goods, irrespective of whether the finished goods are ultimately exempted from sales tax.

4. Validity of the Belief that the Petitioner had Evaded Tax:

The petitioner argued that their belief that they were not liable to pay tax under section 15B was bona fide, as the Sales Tax Officer had accepted their case for the financial years 1994-95 and 1995-96. The Court noted that the belief entertained by the petitioner was bona fide and non-payment of tax on that ground cannot amount to evasion of tax. The Court quashed the impugned notices under section 41B for the years 1997-98 to 2000-01, without prejudice to the powers of the respondents to frame regular assessments for the petitioner's liability for purchase tax under section 15B.

Conclusion:

The Court held that the petitioner is liable to pay additional purchase tax under section 15B on the purchase of raw materials used in the manufacture of goods which are generally taxable under the Act, though they may be exempted from sales tax pursuant to notifications under section 49(2). However, the Court quashed the provisional assessment notices under section 41B due to the bona fide belief of the petitioner, allowing the application to that extent with no order as to costs.