2016 (8) TMI 175 - HC - VAT and Sales Tax

Levy of purchase tax - inter state purchase of goods - validity of order - Held that - Significantly, the Tribunal while dealing with this issue records that the purchases effected by the revisionist was liable to be characterized as an inter-State sale. Despite recording the above, it has held the revisionist liable to pay tax under Section 3-AAAA of the Act. As rightly submitted by the learned counsel for the revisionist in terms of the plain and express language of sub clause (iii) to the Proviso to Section 3-AAAA, the purchasing dealer is exempted from payment of tax if he resells such goods within the State or in the course of inter-State trade or commerce or exports them out of the territory of India. Surely therefore even if the finding of the Tribunal of the purchases being inter-State sale is accepted then also the revisionist was not liable to pay tax under Section 3-AAAA. The liability therefore thrust upon the revisionist on this score cannot be sustained. Accordingly this revision shall stand allowed - Decided in favor of assessee.

Issues:
1. Liability of revisionist to pay tax under Section 3-AAAA of the U.P. Trade Act 1948 for the purchase of timber.
2. Interpretation of the definition of "dealer" under the Act.
3. Analysis of the provisions of Section 3-AAAA and its applicability to the case.
4. Rejection of the books of accounts maintained by the revisionist.

Analysis:
1. The primary issue before the Court was the liability of the revisionist to pay tax under Section 3-AAAA of the U.P. Trade Act 1948 for purchasing timber on a commission basis. The Tribunal held the revisionist liable despite the purchases being characterized as inter-State sales. However, the plain language of the Act exempts the purchasing dealer from tax if the goods are resold within the State or in inter-State trade. Therefore, even if the purchases were inter-State sales, the revisionist was not liable to pay tax under Section 3-AAAA. The liability imposed on the revisionist was deemed unsustainable.

2. The interpretation of the term "dealer" under the Act was crucial. The definition includes various categories of persons engaged in buying, selling, or distributing goods. However, the Proviso to the definition specifically excludes a person who sells agricultural or horticultural produce grown by themselves or on land in which they have an interest from being treated as a dealer. This exemption applied to the revisionist as a farmer purchasing timber from other farmers.

3. Section 3-AAAA of the Act outlines the liability to tax on the purchase of goods under certain circumstances. It imposes tax on the purchase price of goods from non-registered dealers unless certain conditions are met, such as resale within the State or in inter-State trade. The Tribunal incorrectly held the revisionist liable under this section despite acknowledging the purchases as inter-State sales. The Tribunal's decision was contrary to the explicit provisions of Section 3-AAAA, leading to the revisionist's exemption from tax liability.

4. The issue of rejection of the revisionist's books of accounts was also addressed. The assessing authority verified the books of accounts and records, confirming the declared sales and purchases. Notably, the penalty imposed in an earlier assessment year was set aside, indicating no adverse consequences for the dealer. Given the proper maintenance and verification of accounts, there was no justification for rejecting the revisionist's books. Consequently, the revision was allowed, and previous orders by the assessing authority, first appellate authority, and Tribunal were set aside.

In conclusion, the Court ruled in favor of the revisionist, emphasizing the correct application of statutory provisions, the exemption of farmers from dealer status, and the importance of maintaining accurate books of accounts in tax assessments. The decision highlighted the need for adherence to legal principles and statutory interpretations in tax matters.

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