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2018 (3) TMI 544 - HC - VAT and Sales TaxLiability of purchase tax - cocoon - Whether the Tribunal has erred in holding the revisionist liable to tax under Section 3-AAAA on the purchase of cocoon from Resham Directorate of the Government of U.P. in view of notification dated 14.11.1995 by which silk-yarn has been exempted from tax u/s 4 of the Trade-tax Act 1948? Held that - It is an admitted factual position that the revisionist is not a producer of cocoon therefore not covered by the proviso to Section 2(c) of the Act 1948. In exercise of the powers under clause (a) of Section 4 of the Uttar Pradesh Trade Tax Act 1948 (U.P. Act No.15 of 1948) the Governor is pleased to direct that with effect from February 26 2000 no tax under the said Act shall be payable on the sale of pure silk silk fabric silk mixed cloth and silk yarn. The words used in clause (iii) of the proviso to Section 3-AAAA are in the same form and condition in which he had purchased them thus only in such an eventuality that is if the Revisionist sold the cocoon purchased by it as cocoon it would escape the rigour of the charging provision but this is not the case here. The memo of Second Appeal filed by the revisionist before the Tribunal is not on record so as to enable the Court to ascertain as to whether this plea was raised before it or not. Nevertheless it being an important aspect which is required to be considered therefore it needs to be considered by the Tribunal. The Tribunal shall proceed to decide the Appeals which stand restored - the impugned order is set aside.
Issues Involved:
1. Liability to tax under Section 3-AAAA on the purchase of cocoon. 2. Applicability of Notification dated 14.11.1995 and Notification dated 26.02.2000. 3. Classification of cocoon as "silk yarn" or "pure silk." 4. Interpretation of "same form and condition" under Section 3-AAAA. 5. Applicability of previous judgments and exemptions. Issue-wise Detailed Analysis: 1. Liability to Tax Under Section 3-AAAA on the Purchase of Cocoon: The primary issue was whether the dealer was liable to pay tax under Section 3-AAAA on the purchase of cocoon from the Resham Directorate, an unregistered dealer. The court examined whether cocoon was taxable under the Act, 1948. The revisionist argued that cocoon was raw silk and thus exempt from tax. However, the court held that cocoon and silk yarn are distinct goods for tax purposes. Cocoon, being an unclassified item, was taxable, and the purchase from an unregistered dealer attracted tax under Section 3-AAAA(b). 2. Applicability of Notification Dated 14.11.1995 and Notification Dated 26.02.2000: For the assessment years 1998-99 and 1999-2000, the court considered the Notification dated 14.11.1995, which exempted "silk yarn" from tax. The court concluded that the exemption applied only to silk yarn, not cocoon. For the assessment years 2000-01, the court examined the Notification dated 26.02.2000, which exempted "pure silk, silk fabric, silk mixed cloth, and silk yarn." The court remanded the matter to the Tribunal to determine whether cocoon fell under "pure silk" as per the 2000 notification. 3. Classification of Cocoon as "Silk Yarn" or "Pure Silk": The revisionist contended that cocoon should be classified as silk yarn or pure silk. The court rejected this argument, stating that cocoon and silk yarn are different for tax purposes. Silk yarn is produced through a reeling process from cocoon, and they are not identical in form and condition. The court directed the Tribunal to consider whether cocoon could be classified as "pure silk" under the Notification dated 26.02.2000. 4. Interpretation of "Same Form and Condition" Under Section 3-AAAA: The court emphasized that for the exemption under clause (iii) of the proviso to Section 3-AAAA to apply, the goods must be resold in the same form and condition as purchased. Since the revisionist transformed cocoon into silk yarn, the goods were not sold in the same form and condition. The court referenced previous judgments, including Commissioner of Trade Tax vs. Om Trading and Kumar Motors Bareilly vs. Commissioner of Sales Tax U.P., to support this interpretation. 5. Applicability of Previous Judgments and Exemptions: The court considered various judgments cited by the revisionist, including M/s Jhunjhunwala and others vs. State of U.P., Commissioner Sales-tax U.P. vs. M/s Resham Audhyogik Sakhari Sangh, and others. The court found these judgments inapplicable as they pertained to different factual contexts or legal provisions. The court also noted that cocoon was exempt from tax only in the hands of producers (agriculturists or horticulturists) under the proviso to Section 2(c), not for dealers like the revisionist. Conclusion: The court dismissed Revision Nos. 86 and 87 of 2005, upholding the Tribunal's decision that cocoon was taxable under Section 3-AAAA. However, it remanded Revision Nos. 75, 76, and 77 of 2008 to the Tribunal to reconsider whether cocoon could be classified as "pure silk" under the Notification dated 26.02.2000. The Tribunal was directed to form a Division Bench and decide the appeals within six months, considering the observations made in this judgment.
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