2021 (3) TMI 1141 - HC - VAT and Sales Tax

Setting aside the tax liability created under Section 12 of the U.P. Tax on Entry of Goods Act - non-realization of tax by the manufacturer from the purchaser - HELD THAT - The effect of Section 12 of the Act is only to provide for a mode of pre-payment of tax liability by the purchasing dealer. It does not in any way shift the impost of tax from purchasing dealer to the manufacturer. Also, the provisions of Section 12(3) of the Act come into play only in the event of the manufacturer having collected from the purchasing dealer, the amount of entry tax due and having still failed to deposit the same for and on behalf of the purchasing dealer. That provision does not create any charge of tax on the manufacturing dealer who may have sold the goods and handed over their delivery to the purchasing dealer on the representation made by the latter that he was not intending to sell the goods outside the local area where the delivery of the goods had been obtained by him or in the course of interstate trade. The fact that the purchasing dealer may have acted contrary to the representation made to the manufacturer may expose such purchasing dealer to further consequences without creating any charge or liability of tax on the manufacturer. There is no error in the order passed by the Tribunal. Accordingly, the question of law as framed above is answered in the affirmative i.e. in favour of the assessee and against the revenue - Petition dismissed.

Summary

Issues:
1. Interpretation of Section 12 of the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007.
2. Liability of entry tax on the manufacturer for goods delivered without recovering the entry tax from the purchaser.

Analysis:
1. The case involves a revision against an order passed by the Commercial Tax Tribunal, Muzaffarnagar Bench, allowing the appeal filed by the assessee and deleting the demand of entry tax on sugar dispatched without prior deposit of entry tax. The revision questions the legal justification of affirming the order setting aside the tax liability under Section 12 of the Act.

2. The assessing authority assessed the sugar dispatch as a local sale, raising the liability of entry tax on the manufacturer. The Tribunal, however, reasoned that if the goods were taken to a different local area by the purchaser, the liability would shift to the purchasing dealer, not the manufacturer. The dispute revolves around Section 12(3) of the Act, which imposes liability on the manufacturer for not depositing the entry tax received from the purchaser.

3. The learned Standing Counsel argued that the manufacturer, by delivering goods without recovering entry tax, becomes liable for the tax under Section 12(3) of the Act. The Counsel also challenged a previous decision, claiming it did not consider the mandatory provisions of the Act.

4. The Court analyzed Section 12 of the Act, emphasizing that it does not create a direct tax liability on the manufacturer but mandates pre-payment of tax by the purchasing dealer. The manufacturer is responsible for ensuring pre-payment before delivering goods. Failure to deposit the tax amount by the manufacturer leads to liability under Section 12(3) of the Act.

5. The Court clarified that the deposit made by the manufacturer is deemed to be on behalf of the purchasing dealer, not the manufacturer. The Act aims to facilitate pre-payment of tax by the purchasing dealer and does not shift the tax burden to the manufacturer. Liability under Section 12(3) arises only if the manufacturer fails to deposit the tax received from the purchasing dealer.

6. Consequently, the Court upheld the Tribunal's decision, ruling in favor of the assessee and against the revenue. The revision was dismissed, affirming that the Act does not impose a direct tax liability on the manufacturer for goods delivered without recovering entry tax from the purchaser.