2014 (7) TMI 322 - HC - VAT and Sales Tax

Demand of tax - Whether on the facts and in the circumstances of the case, the Trade Tax Tribunal as well as the first appellate authority were legally justified in holding that the chemicals and dyes used in the job work are not liable to tax under the provisions of U.P. Trade Tax Act - Held that - State Government had also decided the representation made by the Northern India Textile Processors Association and had come to the conclusion that dyes and chemical used in the bleaching, colouring and dyeing etc. on gray cloth are consumed in the process and not transferred. In our considered opinion, the said finding is binding upon the assessing authorities as the representation made by the Northern India Textile Processors Association was also decided by the said order. The stand taken by the respondents that the State Government had not decided any other representation except the two preferred by M/s Ganga Processors and M/s Style Dyers is not correct. - respondent no.3 was not justified in imposing tax on the dyes and chemicals used in the process of dyeing, colouring, printing, bleaching, washing etc. of gray cloth by the petitioner and the impugned orders in all the writ petitions are liable to be set aside - following decision of M/s Super Fine Processors Pvt. Ltd. Vs. State of U.P. and others 2013 (6) TMI 482 - ALLAHABAD HIGH COURT - decided against Revenue.

Summary

Issues: Whether chemicals and dyes used in job work are liable to tax under U.P. Trade Tax Act.

Analysis:
The case involves a Dealer engaged in fabric processing, including dyeing and coloring, who was held liable to pay tax on imported dyes and chemicals by the Assessing Authority for the assessment year 2002-03. The Assistant Commissioner determined a tax liability of Rs. 5 lakhs, which was later exempted by the Joint Commissioner (Appeal)-II, Trade Tax, Gorakhpur. The Revenue's appeal was rejected by the Tribunal, leading to the current revision.

A Division Bench of the High Court had previously considered a similar controversy for Assessment Years 2000-01, 2001-02, and 2002-03 in a different case. The Court found that the State Government's decision on 7.10.2005 regarding the tax liability of dyes and chemicals used in fabric processing was binding on the assessing authorities. The State Government had concluded that the dyes and chemicals are consumed in the process and not transferred, leading to the exemption from tax.

Applying the Division Bench's decision to the current case for the assessment year 2002-03, the Court held that the Dealer is not liable to tax on the dyes and chemicals used in the fabric processing. The Court emphasized that the State Government's decision is binding on Revenue, and therefore, the Tribunal's order did not require any interference. Consequently, the revision was dismissed based on the Division Bench's precedent and the State Government's decision, which exempted the Dealer from tax liability for the chemicals and dyes used in the job work.