2013 (6) TMI 28 - HC - VAT and Sales Tax

Levy of entry tax - Manufacturer of sugar - whether not a dealer within the meaning of Section 2(b) of the Act and not liable to entry tax - The Uttar Pradesh Tax on Entry of Goods into Local Areas Act 2007 - allegation on assessee selling non levy sugar from its Mawana unit to the dealers of the local area and although non levy sugar attracts entry tax @ 2% but the same has not been deducted nor deposited as per the provisions of section 12 therefore the Company should show cause why penalty of twice the amount - Held that - It is noticeable that though section 12 casts an obligation on the manufacturer not to hand over goods to a purchaser unless entry tax has been paid but it depends upon the intention of the person making the purchase. If a dealer registered under the Act within the same local area purchases goods from the local manufacturer with intent to sell goods within the same local area then the purchaser is neither obliged to deposit entry tax with the manufacturer nor the manufacturer is under obligation of law to refuse to sell the goods to him. All that the manufacturer is required to do is to disclose quantum of such sales to the Authorities while submitting return in Form-E. Thus it can safely be concluded that section 12 has no universal application and will not apply to sales made within the same local area where there is no intention on part of the purchaser to take goods to another local area. As there is no infraction of law on part of the Petitioner Company in not making deductions of entry tax at source from persons/dealers for sales made within the same local area i.e. Mawana as provisions of sec.12 will not apply to such sales. A fortiori there is no justification for initiating penalty proceedings against the Petitioner Company. No disputed question of facts are involved and the court has proceeded to decide the controversy assuming the facts mentioned in the impugned notices to be correct. Even then it has been found that the proceeding initiated on the basis of impugned notices are illegal and an exercise in futility and therefore impugned Notice are hereby quashed. The authorities are restrained from proceeding any further in pursuance of such notices. The writ petition succeeds and is allowed.

Issues Involved:
1. Whether entry tax is leviable on goods manufactured and sold within the same local area?
2. What is the nature and scope of Section 12 of the Act?
3. Whether section 12 takes within its ambit all sales made by a manufacturer?
4. Whether the doctrine of 'no-prejudice' can be applied to compel the manufacturer to realize and deposit entry tax on all transactions irrespective of the intendment of the purchaser not to take the goods into another local area?

Issue-wise Detailed Analysis:

1. Whether entry tax is leviable on goods manufactured and sold within the same local area?
The court examined the provisions of the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007. Section 4 of the Act is the charging section, which imposes a tax on the entry of goods into a local area from any place outside that local area. The court noted that the incidence of tax is upon the entry of goods specified in the Schedule into a local area for consumption, use, or sale therein from any place outside that local area. The definition of 'entry of goods' under Section 2(c) and 'local area' under Section 2(d) was scrutinized. The court concluded that no entry tax is leviable if there is no movement of goods into a local area from outside such area. Since the transactions in question involved sales within the same local area of Mawana, they did not attract any entry tax.

2. What is the nature and scope of Section 12 of the Act?
Section 12 of the Act, which starts with a non-obstante clause, was analyzed. It requires a manufacturer to collect entry tax from a purchaser who intends to bring goods into a local area from any manufacturer within the State. The court clarified that Section 12 is a machinery provision to facilitate the collection of entry tax and does not impose entry tax on the manufacturer. The liability to pay entry tax continues to be on the person or dealer who intends to bring goods into a local area for consumption, use, or sale therein. The court emphasized that Section 12 does not have universal application and will only apply to transactions where the purchaser intends to bring goods into a local area.

3. Whether section 12 takes within its ambit all sales made by a manufacturer?
The court reiterated that Section 12 is not all-encompassing and does not apply to all sales transactions. It only applies to those transactions where the purchaser intends to bring goods into a local area. The court pointed out that if the legislature intended to include all sales transactions within Section 12, it would have explicitly stated so. The court concluded that Section 12 does not apply to sales made within the same local area where there is no intention on the part of the purchaser to take goods to another local area.

4. Whether the doctrine of 'no-prejudice' can be applied to compel the manufacturer to realize and deposit entry tax on all transactions irrespective of the intendment of the purchaser not to take the goods into another local area?
The court held that the doctrine of 'no-prejudice' cannot be used to compel a manufacturer to collect entry tax on sales within the same local area. The court referred to other provisions of the Act, such as Section 5, which provide for contingencies where entry tax deposited can be refunded. The court noted that there is no provision for refund of entry tax paid on purchases made from local manufacturers within the same local area, except in cases where goods are lost or destroyed before their entry into a local area. The court cited precedents where the Supreme Court disapproved the practice of compelling a person to pay tax when under law, they are not liable to pay it. The court concluded that the petitioner company could not be compelled to make deductions of entry tax at source for sales made to persons/dealers within the same local area.

Conclusion:
The court quashed the impugned notices dated 4.9.2009 issued to the petitioner company and restrained the authorities from proceeding any further in the matter. The writ petition was allowed, and no order as to cost was made.

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