2013 (5) TMI 341 - HC - VAT and Sales Tax

Exemption notification for the benefit of new industrial units and the product manufactured by the appellant are exempted from payment of sales tax in terms of the notification. - The authorities have decided against the appellant only in view of the fact that the appellant had manufactured exempted goods and had utilized Form 19, which could be availed only for purchase of raw material for manufacture of taxable textile goods. Held that - the object of the exemption notification is to forego the purchase tax to give certain benefits to the manufacturer so that the new industry may survive. Since the product manufactured by appellant are chargeable to purchase tax, there is no violation of Form 19 of the Act or the Gujarat Sales Tax Rules, 1970. The appellant was exempted from payment of purchase tax for a period of six years. The assessment year 1995-96 and 1996-97 fall within the exempted period, therefore, the appellant is not liable to pay any purchase tax. The appeal is allowed. The orders passed by the Tribunal, Commissioner of Sales Tax and the Assessing Officer are set aside.

Summary

Issues:
Challenge to order by Gujarat Value Added Tax Tribunal and other authorities for assessment years 1995-96 and 1996-97 regarding purchase tax liability on manufacturing of sprinkler sets exempted under Entry No.41 of Notification under Section 49(2) of the Act.

Analysis:
The appellant challenged orders passed by various tax authorities regarding the liability to pay purchase tax on manufacturing sprinkler sets exempted under Entry No.41 of the notification. The first issue revolved around whether the appellant was liable to pay purchase tax on manufacturing sprinkler sets exempted from tax under Entry No.41 of the notification. The Sales Tax Officer and lower authorities held the appellant liable for purchase tax as the sprinkler sets were exempted goods, and there was a violation of conditions of Form No.19. The Tribunal upheld this view. The appellant contended that the exemption notification aimed to forego purchase tax to support new industries, and as the sprinklers were chargeable to purchase tax, there was no violation of Form No.19. The High Court agreed with the appellant's argument and held that the appellant was not liable to pay any purchase tax for the assessment years within the exempted period.

The second issue, which the appellant did not press, concerned the deletion of the levy of turnover tax on the manufacturing of sprinkler sets. The appellant had already paid the turnover tax, rendering this question moot. The High Court did not delve into this issue further.

The legal analysis focused on the interpretation of Section 49(2) of the Gujarat Sales Tax Act, 1969, which allowed the State Government to exempt specified sales or purchasers from payment of tax. The Court emphasized that while the manufacturer remained liable to pay tax, the exemption notification exempted them from the actual payment for a fixed period. The Court clarified that the objective of the exemption notification was to support new industries by forgoing purchase tax. Therefore, the appellant, manufacturing sprinkler sets within the exempted period, was not required to pay any purchase tax. The Court upheld the orders of the lower authorities, ruling in favor of the appellant and against the Sales Tax Department.

In conclusion, the High Court answered the first question in the negative, favoring the appellant, and allowed the appeal while setting aside the orders passed by the Tribunal, Commissioner of Sales Tax, and the Assessing Officer. Each issue was meticulously analyzed, emphasizing the statutory provisions and the purpose behind the exemption notification to determine the appellant's liability for purchase tax on manufacturing of sprinkler sets.