2012 (1) TMI 146 - HC - VAT and Sales Tax

Exemption from Purchase Tax - Madhya Pradesh Commercial Tax Act, 1994 - Held that - Unless there is something on the face of it to suggest to the seller that the declaration is not valid or the person submitting the declaration is not entitled to give such declaration, the seller cannot be expected to get the certificate or the eligibility investigated. In fact section 21 of the 1994 Act itself casts liability upon the purchasing dealer. The impugned orders were not correct in imposing liability upon the petitioner, who has sold goods without charging tax on the account of the declaration furnished by the Maihar Cement - petition allowed.

Summary

Issues: Liability of petitioner for not charging tax from purchasing dealer based on declaration.

Analysis:
The case involves the petitioner, Steel Authority of India Ltd., selling steel to a purchasing dealer, Maihar Cement, who issued a declaration seeking exemption from tax under the Madhya Pradesh Commercial Tax Act, 1994. The State Government had the power to exempt certain registered dealers from tax payment under a notification dated February 19, 1991. The notification specified conditions for exemption based on capital investment or a time limit. The petitioner did not charge tax from Maihar Cement based on the declaration provided. However, the petitioner was held liable for not charging tax from the purchasing dealer due to alleged ineligibility or violation of declaration conditions by the purchasing dealer.

The court observed that unless there are clear indications that the declaration is invalid or the person issuing it is not entitled to do so, the seller cannot be expected to investigate the eligibility of the declaration. Section 21 of the 1994 Act places the liability on the purchasing dealer. The court held that the orders imposing liability on the petitioner were incorrect as the petitioner sold goods without charging tax based on the declaration from Maihar Cement. The court allowed the writ petition, setting aside the impugned orders. However, the court clarified that this decision does not absolve the purchasing dealer from any existing legal liability.

The court suggested that the State Government may consider amending the process to require purchasing dealers to obtain endorsements from their assessing officers on declaration forms, specifying details like name, registration number, eligibility number, and exemption limit. This endorsement could help prevent potential misuse, with purchasing dealers filling in goods details at the appropriate time on forms with such endorsements.