2012 (5) TMI 558 - HC - VAT and Sales Tax

Whether the Tribunal was correct in law in holding that purchase tax was leviable under section 4B of the Punjab General Sales Tax Act 1948 on the consumables purchased on the strength of registration certificate and used in manufacturing of taxable and tax-free goods? Whether the Tribunal was correct in law in holding that purchase tax was leviable on sugarcane under section 4(1) of the Punjab General Sales Tax Act 1948 ? Held that - In the present case the issue is relating to exigibility to purchase tax regarding consumables which were used in the manufacture of taxable and tax-free goods. Following the principles as enunciated by in Thomas Stephen & Co. Ltd. s case 1988 (3) TMI 59 - SUPREME COURT OF INDIA the goods would be exigible to purchase tax. Thus the Tribunal had correctly adjudicated the issue in favour of the State. Referring to question No. 2 the matter is no longer res integra. It stands decided against the petitioner in view of the following observations recorded by the honourable Supreme Court in Jagatjit Sugar Mills case 1994 (10) TMI 259 - SUPREME COURT OF INDIA stating that the purchase tax on sugarcane is levied by section 4(1) since it being an agricultural produce and said to be sold by growers themselves is exempt from tax on its sale under section 6.

Summary

Issues Involved:

1. Levy of purchase tax under section 4B of the Punjab General Sales Tax Act, 1948 on consumables used in manufacturing taxable and tax-free goods.
2. Levy of purchase tax on sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948.

Detailed Analysis:

Issue 1: Levy of Purchase Tax on Consumables (Section 4B)

The court examined whether the Tribunal was correct in law in holding that purchase tax was leviable under section 4B of the Punjab General Sales Tax Act, 1948 on consumables purchased on the strength of the registration certificate and used in manufacturing taxable and tax-free goods. The petitioner, a registered dealer engaged in manufacturing and sale of sugar, argued against the Tribunal's decision, citing the apex court's judgment in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC).

Section 4B of the Act states that purchase tax is levied on goods used in the manufacture of other goods within the state, especially if those manufactured goods are not sold within the state or in the course of inter-State trade or commerce. The Supreme Court in Jagatjit Sugar Mills v. State of Punjab [1995] 96 STC 344 (SC) elucidated that purchase tax is applicable on raw materials used in manufacturing goods specified in Schedule B, which are not taxable at the sale point.

The court further referred to the apex court's decision in Thomas Stephen & Co. Ltd.'s case, which clarified that consumables used as fuel and not transformed into the end-product are not subject to purchase tax. However, consumables used directly in manufacturing taxable and tax-free goods are subject to purchase tax. Therefore, the Tribunal's decision to levy purchase tax on consumables was upheld.

Issue 2: Levy of Purchase Tax on Sugarcane (Section 4(1))

The second issue was whether purchase tax was leviable on sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948. The petitioner contended that no purchase tax was applicable on sugarcane under this section. However, the court noted that this matter was already settled by the Supreme Court in Jagatjit Sugar Mills' case, which held that section 4(1) levies tax on all sales and purchases, and specifically on the purchase of agricultural produce like sugarcane, which is exempt from tax on its sale under section 6 read with Schedule B.

The Supreme Court's judgment indicated that where the sale of goods is exempt from tax, their purchase is taxed, and conversely, where the purchase is taxed, their sale is not. This principle was reiterated by a Division Bench of the court in Indian Sucrose Ltd. v. State of Punjab [2011] 37 VST 85 (P&H), affirming that purchase tax on sugarcane is levied under section 4(1) of the Act.

Conclusion:

The court concluded that the Tribunal had correctly adjudicated both issues in favor of the State. The purchase tax on consumables used in manufacturing taxable and tax-free goods under section 4B and on sugarcane under section 4(1) of the Punjab General Sales Tax Act, 1948, was upheld. The questions referred were answered against the petitioner and in favor of the Revenue, and the reference was disposed of accordingly.