2006 (3) TMI 723 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of Replenishment Licences (REP licences).
2. Definition and applicability of the term "manufacturer" under the U.P. Trade Tax Act, 1948.
3. Classification of REP licences as goods.
4. Determination of the point of tax liability for REP licences.

Issue-wise Detailed Analysis:

1. Taxability of Replenishment Licences (REP licences):
The primary issue in this revision was the taxability of REP licences. The assessing authority had levied tax on the sale consideration of REP licences, treating them as unclassified items. The dealer contended that REP licences were not goods and the amount received was for the surrender of the licence. The Tribunal allowed the dealer's appeal, deleting the tax levied, and held that REP licences were unclassified goods, liable to tax at the point of the manufacturer or importer. Since the REP licence was issued by the Deputy Chief Controller of Import and Export, Moradabad, the dealer was neither a manufacturer nor an importer.

2. Definition and Applicability of the Term "Manufacturer" under the U.P. Trade Tax Act, 1948:
The learned Standing Counsel argued that the dealer was the manufacturer of the REP licence within the definition of section 2(ee) of the Act. The term "manufacture" is defined under section 2(e1) of the Act, which involves some treatment to tangible goods. The court noted that the definition of "manufacture" applies only to corporeal, tangible, and visible goods. The REP licences being intangible goods are incapable of being manufactured in the sense defined under the Act. Therefore, the dealer could not be considered a manufacturer under section 2(ee) of the Act.

3. Classification of REP Licences as Goods:
The court referred to the Supreme Court's decision in Vikas Sales Corporation v. Commissioner of Commercial Taxes, where it was held that REP licences are goods. The Supreme Court observed that REP licences have their own value, are bought and sold, and are treated as merchandise in the commercial world. Thus, REP licences are considered goods for the purposes of taxation.

4. Determination of the Point of Tax Liability for REP Licences:
Under section 3A of the U.P. Trade Tax Act, goods not included in any notification are liable to tax at eight percent at the point of sale by the manufacturer or importer. Since REP licences were not specified in the Schedule during the year under consideration, sales thereof could be taxable only in the hands of the manufacturer or importer. The court concluded that the dealer was neither a manufacturer nor an importer of REP licences. Therefore, no tax liability could be fastened on the dealer for the sale of REP licences.

Conclusion:
The court dismissed the revision, upholding the Tribunal's decision that REP licences are intangible goods and the dealer was neither a manufacturer nor an importer. Consequently, the dealer was not liable to pay tax on the sale of REP licences. The court also acknowledged the assistance provided by the amicus curiae in the matter.