2013 (12) TMI 50 - HC - VAT and Sales Tax

Sale tax liability - Purchase of used/second hand arms from licensees - Whether the assessee can be recognized as a manufacturer in respect of used/second hand arms purchased by him from the licensees - Held that - The assessee is said to have supplied the list of the persons/licensees from whom the old arms were purchased along with their complete details. The supply of said list is not disputed and none of the authorities have found or recorded finding that the assessee had not purchased old arms from the said persons. The said persons are mere licensees of arms and there is no finding that any of them ever indulged in sale and purchase of arms or carried the said business. In absence of any such finding the persons or licensees from whom the assessee purchased old arms cannot be recognized as dealer - The assessee is also not the person or the dealer who made the first sale of goods in the State after their manufacture, inasmuch, he makes the sale after purchase of the old arms from licensees who may be first or second purchasers after the goods were manufactured. The sale to the licensees of U.P. from whom the assessee had purchased old arms would actually be the first sale and not the one made by the assessee - Accordingly, the assessee cannot be treated to be a manufacturer in respect of of the old arms purchased by him from the licensees within the meaning of Section 2(ee) of the Act - Decided in favour of assessee.

Summary

Issues:
Assessment years 1997-98 and 1998-99 - Tax liability on arms and ammunitions - Whether the assessee can be recognized as a manufacturer in respect of used/second hand arms purchased from licensees?

Analysis:
The judgment pertains to two revisions concerning the tax liability of an assessee engaged in the business of buying and selling arms and ammunitions under the U.P. Trade Tax Act. The primary issue revolves around whether the assessee can be deemed a manufacturer in relation to used/second hand arms purchased from licensees. The definition of "manufacturer" under Section 2(ee) of the Act is crucial, requiring the dealer to make the first sale of goods in the State after manufacture or make purchases from another dealer not liable to tax. The assessing authority and tribunal had upheld the tax liability on the assessee for purchasing used arms, treating them as a manufacturer.

The judgment highlights that the purchases of old arms by the assessee were from unregistered persons, not specified as registered or unregistered dealers. The assessee provided a list of licensees from whom the arms were purchased, with no dispute on the authenticity of the list. Notably, the licensees were not engaged in the business of selling arms, and there was no evidence to suggest they were dealers as defined under the Act. As per the Act, a "dealer" is one who carries out specific business activities, which the licensees in this case did not perform.

Furthermore, the judgment emphasizes that the assessee did not make the first sale of goods after manufacture, as the old arms were purchased from licensees who could be considered the initial purchasers post-manufacture. Therefore, the sale to the licensees by the assessee cannot be construed as the first sale in the State. Consequently, the assessee does not meet the criteria to be classified as a manufacturer under Section 2(ee) of the Act.

Given that the tax liability arises at the manufacturing or import stage, and the assessee does not qualify as a manufacturer for the purchased old arms, the assessment orders and tribunal decisions imposing tax liability at 15% on these purchases were deemed erroneous. Consequently, the judgment sets aside the assessment orders and tribunal decisions creating tax liability for the old arms purchased by the assessee, ultimately allowing both revisions in favor of the assessee.