2010 (10) TMI 954 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the order of assessment under the Haryana General Sales Tax Act, 1973 regarding the taxability of the turnover of purchase of paddy husk used as fuel in the manufacture of liquor.

Analysis:
The judgment delivered by the High Court addressed the challenge in Civil Writ Petition No. 7720 of 1989 concerning the order of assessment under the Haryana General Sales Tax Act, 1973. The petitioner, engaged in the manufacture of liquor using paddy husk as fuel, contested the taxability of the turnover of purchase of paddy husk under section 9 of the Act. The Assessing Authority deemed the purchase of paddy husk as liable to purchase tax, a decision upheld by the appellate authority and the Tribunal. The petitioner argued that section 9 of the Act applies only when goods are purchased and used in the manufacture of goods or disposed of in the course of inter-State sale or export, contending that goods purchased as fuel cannot be considered used for manufacturing goods. Reference was made to a Supreme Court case to support this argument.

The State, in its reply, stated that the petitioner did not argue before the lower authorities that paddy husk was used as fuel in the manufacture of liquor, hence justifying the imposition of purchase tax under section 9 of the Act. The High Court, after hearing arguments from both parties, deliberated on whether paddy husk used solely as an aid in the manufacturing process falls under section 9 of the Act. The assessment order highlighted the acquisition and use of paddy husk in the manufacture of tax-free country liquor, leading to the imposition of tax by treating it as a supply by contractors to the dealer.

The High Court found merit in the petitioner's contention that paddy husk used as fuel in the liquor manufacturing process cannot be considered a raw material, as its sole purpose was as fuel. Drawing parallels from a Supreme Court judgment involving cashew shells used as fuel, it was reasoned that goods used for ancillary purposes like fuel do not fall under the section pertaining to the levy of tax on raw materials. Therefore, paddy husk used as fuel in liquor manufacturing was not deemed to be used as a raw material, leading to the allowance of the writ petitions and the quashing of the purchase tax levy on the turnover of paddy husk purchase by the petitioner.