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Case Number

civil writ no .532 of 197

Attorney(S)

L.K.Sood
H.L.Sibal
S.C.Sibal
Mehr Chand Sud

Judges

Mr. Justice D.K. Mahajan
Mr. Justice Gopal Singh

Acts

PUNJAB GENERAL SALES TAX ACT 1948
Clause (ff) of Section 2. Clauses (iv) to (vii) of Sub-section (2)(a)
ARTICLE 226 CONSTITUTION OF INDIA
Clause (b) of Sub-section (2) of Section
provisions of Section 5(2)(a)(ii)
Clause (b) of Section 7(2)
Indian Partnership Act
Section 6; (ii) sales
Section 5(2)(a)(ii)

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The petition was brought under Article 226 of the Constitution of India challenging an order of the assessing authority passed under Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 ("the Act"). The petitioner is Messrs Fancy Nets and Fabrics, Batala Road, Amritsar, a partnership concern carrying on the manufacture of cloth and registered as a dealer under the Act (registration certificate No. AMR-III-15152).

During the year 1969-70 the petitioner purchased yarn, dyes, chemicals, accessories and packing material. In returns filed with the Assessing Authority the petitioner indicated that some purchased goods were resold while other purchases were used in the manufacture of cloth, which the petitioner treated as a tax-free item under the Act. The Assessing Authority assessed tax on goods used in manufacture under Section 5(2)(a)(ii), and the petitioner challenged that assessment by filing the present petition. The State filed a return contesting the petitioner's stand.

The petition progressed through the usual interlocutory steps; the court considered the parties' contentions and the legal scheme of the Act before delivering its decision. The judgment also includes an appendix reproducing the judgment of Bal Raj Tuli, J., in Karnal Gur and Khandsari Industries v. The State of Haryana, which was relied upon at the Bar.

Legal Issues Presented

Whether materials purchased and used by a registered dealer in the manufacture of a tax-free commodity can be brought to tax under the second proviso to Section 5(2)(a)(ii) of the Act.
Whether the Assessing Authority lacked jurisdiction because the petitioner filed its return in form S.T. VIII and, relatedly, whether the levy constituted a purchase tax rather than a recovery of sales tax.
Whether there is appropriate statutory machinery (forms and procedures) to recover tax under Section 5(2)(a)(ii), and whether any defects in prescribed forms invalidate the charging provision or its operation.

Arguments of the Parties

Petitioner's Arguments

The materials used in manufacture of cloth (a tax-free item) could not be made subject to tax under the proviso to Section 5(2)(a)(ii); in substance, the petitioner contended that using inputs to produce a tax-free output should exempt those inputs from being taxed in the purchaser's hands under that proviso.
The return had been filed in form S.T. VIII (a return used by dealers engaged in selling goods), and on that basis the Assessing Authority had no jurisdiction to levy a purchase tax; the petitioner characterised the recovery as purchase tax and argued that the Assessing Authority therefore lacked competence.
No adequate statutory machinery existed to recover tax under Section 5(2)(a)(ii) because the consequential or prescribed forms had not been properly provided or conformed to the substantive provisions of the Act.

State / Respondent's Position (as presented in the opinion)

The assessment under the second proviso to Section 5(2)(a)(ii) was proper: the proviso is remedial and aimed at preventing evasion by making recoverable, in the purchaser's hands, tax which should have been collected at the first sale when a dealer's declaration was contravened.
The levy is not a purchase tax in the technical sense (purchase tax under the Act is limited to Schedule C goods); rather, it is a mechanism to recover sales tax that ought to have been charged at the earlier stage but was not realized due to reliance on a declaration which was subsequently contravened.
Any defects or mismatch in the prescribed forms do not render the statutory charging provisions ineffective; the Act already provides the machinery for recovery and precedent (the Supreme Court in Modi Spinning) supports the view that omission or nonconformity of forms does not invalidate the substantive taxing provisions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jamuna Flour and Oil Mills (Private) Ltd. v. The State of Bihar [1968] 22 S.T.C. 1 (Patna High Court)	Explains that the second proviso is a provision to prevent evasion: if goods purchased free of sales tax are used for purposes other than those declared, the sale price of those goods may be included in the taxable turnover of the purchaser.	The court respectfully agreed with the Patna High Court's analysis and applied the reasoning to hold that the second proviso operates to bring to tax goods used contrary to the declared purpose, thereby supporting the assessment under Section 5(2)(a)(ii).
Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab and Anr. [1965] 16 S.T.C. 310 (Supreme Court)	Holds that omission to prescribe or issue a new form does not render the charging section or rules ineffective; the registration certificate is evidence and the section and rules do not depend on issuance of a new form.	The court relied on this Supreme Court authority to reject the contention that lack of precisely conforming forms or procedural omissions deprived the Assessing Authority of the power to recover tax under Section 5(2)(a)(ii).
Karnal Gur and Khandsari Industries v. The State of Haryana (Bal Raj Tuli, J.) — Civil Writ No. 1287 of 1968 (judgment dated 10 Feb 1970)	Where the purchaser's registration certificate or declaration expressly showed that the goods were bought for the manufacture of a tax-free item, the second proviso did not apply and the purchaser was not liable to have tax recovered from him under that proviso; the liability would rest on the selling dealer.	The court considered this decision relied on by the petitioner and explained that it was based on an admitted factual assumption: the declaration explicitly stated the goods were for manufacture of a tax-free item. Because that factual basis did not obtain (or was not relied upon) in the present case, the decision was not applicable and offered no assistance to the petitioner.

Court's Reasoning and Analysis

The court structured its analysis by first examining the statutory scheme relevant to the dispute:

Registration thresholds under Section 7 — conditions for dealers to register (summarised by the court as part of the statutory context).
Section 6 — identifies goods exempt from the operation of the Act and distinguishes goods dealt with under Schedule B and Schedule C.
Section 5 — establishes the concept of "taxable turnover" and enumerates permissible deductions from gross turnover, including the important sub-clause (ii) with its two provisos which are central to the controversy.

Applying this statutory framework, the court reasoned as follows:

The second proviso to Section 5(2)(a)(ii) is aimed at preventing evasion of sales tax which would otherwise have been realized at the first sale. If a purchasing dealer obtains goods free of sales tax on the basis of a declaration and subsequently uses those goods for a purpose other than that declared, the proviso renders the purchaser liable to pay tax on the purchase.
The mere fact that the purchaser manufactures a tax-free commodity does not, of itself, entitle the purchaser to buy all inputs free of sales tax. The court observed that no provision requires that all materials used in the manufacture of a tax-free commodity must themselves be tax-free.
Practical considerations: if the seller had been aware that the goods were to be used in the manufacture of a tax-free commodity, the seller might have levied sales tax; alternatively, the seller would have been selling at risk. The proviso operates to ensure that the tax which has been lost at the point of first sale (because of a declaration that turns out to be untrue or misapplied) can be recovered from the purchaser.
On the second contention, the court analysed the nature of the recovery and held that what was being recovered under the proviso is not a distinct "purchase tax" (purchase tax under the Act applies only to Schedule C goods) but rather tax which should have been collected as sales tax at the initial sale and which the proviso allows to be recovered later if the declared purpose is violated.
On the third contention, the court found the statutory machinery for recovery to be adequate. The absence or non-conformity of certain prescribed forms did not render the charging provision ineffective; the court relied on the Supreme Court's decision in Modi Spinning to support the position that omission to prescribe or issue a new form does not invalidate the substantive provisions permitting recovery.
The court considered the decision of Bal Raj Tuli, J., in Karnal Gur and Khandsari Industries, and explained that that decision rested on a specific admitted factual foundation (the declaration expressly stated the goods were purchased for manufacture of tax-free goods), which made the second proviso inapplicable in that case. The present court concluded that Tuli, J.'s reasoning was not of assistance on the facts before it and did not require overruling of the statutory operation of the proviso.

On the basis of the above statutory construction and application of precedent, the court rejected each of the petitioner's three contentions and sustained the assessing authority's invocation of the second proviso to Section 5(2)(a)(ii).

Holding and Implications

Holding: The petition is DISMISSED (the opinion records that the petition "fails and is dismissed with costs, which are assessed at Rs. 200").

Implications:

Direct consequence for the parties: the assessment made by the Assessing Authority under Section 5(2)(a)(ii) stands; the petitioner remains liable for the tax that the Assessing Authority has sought to recover under the proviso (the court dismissed the petition contesting that assessment and imposed costs).
On legal principle: the court reaffirmed that the second proviso to Section 5(2)(a)(ii) operates as an anti-evasion measure to render recoverable from a purchaser the tax which should have been collected on an earlier sale when the purchaser's declaration is contravened; it also reaffirmed that procedural/formal defects in prescribed forms do not necessarily invalidate substantive taxing provisions (following the Supreme Court precedent cited).
The opinion does not purport to lay down a new legal precedent beyond applying existing authorities and statutory construction; its decision is an application of the Act and cited precedent to the facts before the court.

Note: This summary is strictly confined to the content and reasoning contained in the provided opinion and does not add or infer facts beyond those stated in the opinion text.

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Fancy Nets And Fabrics v. The State Of Punjab And Anr

1. This is a petition under Article 226 of the Constitution of India calling in question the order of the assessing authority passed under Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 (Act 46 of 1948) (hereinafter referred to as the Act).

2. The petitioner, Messrs Fancy Nets and Fabrics, Batala Road, Amritsar, is a partnership concern carrying on the business of manufacture of cloth. The firm is a registered dealer under the Act. The registration certificate is No. AMR-III-15152 and is annexure 'A' to the petition. The petitioner purchased yarn, dyes and chemicals, accessories, packing material, etc., during the year 1969-70. With regard to its turnover, the petitioner filed returns with the Assessing Authority wherein it was indicated that part of the goods purchased during the year 1969-70 were resold whereas the other part was used for the manufacture of cloth which is a tax-free item. The Assessing Authority brought to tax the goods which had been used by the petitioner for the manufacture of cloth under Section 5(2)(a)(ii) of the Act. The petitioner has objected in the present petition to this assessment. The State has filed the return and has controverted the stand taken by the petitioner. While dealing with the various contentions advanced at the Bar, the respective stands of the parties would be apparent.

5. In order to appreciate the first contention, it will be proper to examine the scheme of the Act and the purpose of Section 5(2)(a)(ii). Under the Act, every dealer who carries on the business of buying and selling goods has to get himself registered under Section 7 of the Act, provided his turnover is (a) in relation to a dealer who himself manufactures or produces any goods for sale Rs. 10,000, (b) in relation to any dealer who runs a tendoor, loh, dhaba, hotel, etc. Rs. 25,000, (c) in relation to any particular classes of dealers not falling within the above two categories, such sum as may be prescribed, and (d) in relation to any other dealer Rs. 40,000.

6. Section 6 of the Act exempts certain goods mentioned in Schedule B from the operation of the Act, both in the matter of sale and purchase. Regarding certain goods mentioned in Schedule C no sales tax can be levied; only purchase tax can be levied.

7. This brings us to Section 5, on which the entire controversy has been raised before us. This section provides the rate of tax and also defines taxable turnover as follows :

(2) In this Act the expression 'taxable turnover' means that part of a dealer's gross turnover during any period which remains after deducting therefrom--

(a) his turnover during that period on--

(i) the sale of goods declared tax-free under Section 6;

(ii) sales to a registered dealer of goods other than sales of goods liable to tax at the first stage under Sub-section (1-A) declared by him in a prescribed form as being intended for resale in the State of Punjab or sale in the course of inter-State trade or commerce or sale in the course of export of goods out of the territory of India or of goods specified in his certificate of registration for use by him in the manufacture in Punjab of any goods, other than goods declared tax-free under Section 6, for sale in Punjab and on sales to registered dealer of containers or other materials for the packing of such goods :

Provided that in case of such sales, a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing prescribed particulars on a prescribed form (obtained from the prescribed authority) is furnished by the dealer who sells the goods :

Provided further that when such goods are used by the dealer to whom these are sold for purposes other than those for which these were sold to him, he shall be liable to pay tax on the purchase thereof at such rate, not exceeding the rate of tax leviable on the sale of such goods, as the State Government may by notification direct in respect of a class of dealers specified in such notification, notwithstanding that such purchase is not covered by Clause (ff) of Section 2.

Clauses (iv) to (vii) of Sub-section (2)(a) are not relevant for our purposes. Sub-section (3) provides an exemption in respect of the declared goods and at what stage the tax would be levied thereon. It is really the two provisos to Section 5(2)(a)(ii) that are relevant for purposes of the contention that has been raised.

10. Therefore, whatever material had been purchased on the basis of the declaration furnished in pursuance of the registration certificate and had been used for manufacture of cloth, a tax-free item, that material was brought to tax under the proviso. If it had been disclosed at the time of the purchase of this material that it was to be used for the manufacture of tax-free items, the seller would have levied sales tax thereon inasmuch as these goods are not exempt from sales tax. The other alternative would have been that the registered dealer who sold those goods would not have sold them to the petitioner without levy of sales tax. If he had done so, he would have done so at his own risk because in that event the incidence of tax would have fallen on the seller. In a similar situation, the Patna High Court in Jamuna Flour and Oil Mills (Private) Ltd. v. The State of Bihar [1968] 22 S.T.C. 1, while dealing with a similar provision in the Patna Act, observed as follows:

Sales to registered dealers may be of two categories. There may be sales of raw materials which the registered dealer converts into manufactured goods. Such sales are exempt from sales tax by virtue of the said notification, and they will come within the scope of sub-clause (i) of clause (a) of sub-section (2) of section 7. But there may also be sales to registered dealers of goods which are subsequently sold by them without undergoing any process of manufacture, milling, etc. Such sales are regulated by Clause (b) of Sub-section (2) of Section 7. If, in respect of such sales, the purchasing dealer mentions in his certificate of registration that those goods were intended for sale by him inside Bihar or in the course of inter-State trade or commerce or export out of the territory of India or for use by him in the packing of goods [Sub-clauses (i) and (ii) of Clause (b)], the sale price on account of such sales may be excluded from the turnover of the selling dealer. But the second proviso is in the nature of a provision for preventing evasion. If the purchasing dealer, after obtaining them from the selling dealer free from sales tax, utilises the goods for purposes other than those mentioned in his declaration, he is penalised by the inclusion in his taxable turnover of the sale price of the goods so purchased. This liability is in addition to other penalties provided in the Act for contravention of a declaration made under the provisions of the Act....

Even if the view taken by the Sales Tax Tribunal regarding the applicability of the second proviso to Clause (b) of Section 7(2) to sales to a purchasing dealer of raw materials and their subsequent conversion into manufactured products be taken as correct, the conclusion drawn by the Tribunal will not necessarily follow. The second proviso merely says that, if the very goods which are purchased by the purchasing dealer from the selling dealer free of sales tax are utilised for any purpose other than those specified in Sub-clause (i) or (ii), the sale price of the goods so purchased shall be included in the taxable turnover of the purchasing dealer. This would only mean that, if wheat is purchased free of sales tax by a purchasing dealer from a selling dealer and the purchasing dealer subsequently contravenes the declaration given under the notification, the sale price of that wheat may be added to the turnover...

11. These observations fully apply to the facts of the present case and we are in respectful agreement with the same. The mere fact that in the registration certificate it is mentioned that the petitioner is manufacturing cloth does not mean that he is entitled to purchase goods liable to sales tax without paying sales tax thereon. What he produces is a commodity which is tax-free. No provision has been brought to our notice that in order to produce a tax-free commodity, all material used therein has to be tax-free. In this situation, we are unable to accept the contention advanced before us. The object of the second proviso to Section 5(2)(a)(ii) is that where certain goods liable to sales tax were not made so liable because of a declaration furnished under the registration certificate of a purchasing dealer, and in the hands of the purchasing dealer those goods have not earned the tax which they would have earned when the purchasing dealer disposed them of in one of the four methods mentioned in form S.T. 22, that tax which would have been recovered at the stage of the first sale is made recoverable by fiction of law in the hands of the purchasing dealer.

12. Before we part with this part of the case, it will be proper to deal with the decision of Tuli, J., in Messrs Karnal Gur and Khandsari Industries v. The State of Haryana C.W. No. 1287 of 1968 decided on 10th February, 1970. Strong reliance has been placed by the learned Counsel for the petitioner for his contention on this decision. If the learned Judge is taken to have accepted the contention raised at the Bar, with utmost respect to him we have no hesitation in saying that that view would be unsupportable. However, that is not the case. The learned Judge proceeded on a simple basis, the basis being admitted before him, namely, that in the declaration furnished at the time of the purchase of the goods, it was specified that the goods were being purchased to manufacture tax-free item. Therefore, the purchaser of goods committed no violation of his registration certificate. On the face of that certificate, the seller had to recover sales tax and the incidence of that tax fairly and squarely fell on the seller. In that situation, the learned Judge came to the conclusion that the provisions of Section 5(2)(a)(ii) could not be made applicable and tax recovered from the purchaser of goods. There can be no quarrel with this proposition and Mr. Sibal, learned Advocate-General concedes that on that assumption no fault could be found with the decision of Tuli, J. Therefore, this decision is of no assistance to the learned Counsel for the petitioner.

13. If the scheme of the Act and the considerations we have mentioned above are kept in view, it would be evident that there is no merit whatever in the first contention. The same is repelled.

14. The second contention of the learned Counsel is that the return was filed in form S.T. VIII. This return is filed by dealers who are engaged in the business of selling goods. There was no question of the petitioner having purchased goods and thus making himself liable to purchase tax. Therefore, this Assessing Authority had no jurisdiction to levy the purchase tax. This argument has to be stated to be rejected. It is a misnomer to say that what is levied from the petitioner is purchase tax. Purchase tax is only levied on goods mentioned in Schedule C. The goods in question are not the goods mentioned in Schedule C. What Section 5(2)(a)(ii) provided for is for the evasion of sales tax at the stage of the sale and does not impose a purchase tax. In fact, it is aimed at preventing evasion. What should have been recovered at the time of sale is sought to be recovered at a later stage, not because the seller deliberately did not realise the tax but, because he was misled by the declaration form furnished by the purchaser. It is the purchaser who has violated the declaration form and used the goods for a purpose other than those mentioned in the form. It is in fact the recovery of a tax which should have been recovered at the stage of the sale but for the default of the purchaser. We, therefore, repel the second contention.

15. The third contention is that no machinery has been provided to recover the tax due under Section 5(2)(a)(ii). In this connection certain forms were brought to our notice Where the consequential changes have not been made. Section 5 provided for the purchase of declaration forms from the department. It is on the basis of those forms that goods are purchased. It has been held that the tax which is sought to be recovered is sales tax. The mariner and the form for its recovery is provided in the Act. In the second place, the mere fact that the forms do not conform to the substantive provisions of the Act will not derogate from the machinery to recover the same as provided in the Act. A similar contention was advanced in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab and Anr. [1965] 16 S.T.C. 310 (S.C.) and their Lordships of the Supreme Court repelled this contention in the following terms:

The contention that the charging section is incomplete without the prescription of the proper form for the certificate of registration need not detain us. We have already shown that the old form must be deemed to be modified and even otherwise the section and the rules did not depend on the new form. They were complete and effective. The registration certificate was only the evidence that the company was a registered dealer for purposes of certain commodities to be used in manufacture, one of them being cotton. The omission to prescribe the new form or to issue it did not render Section 5 and the rules ineffective.

16. We see no infirmity in the Act which stands in the way of collection of tax due under Section 5(2)(a)(ii). There is no substance in the third contention.

17. For the reasons recorded above, this petition fails and is dismissed with costs, which are assessed at Rs. 200.

Appendix [The judgment of Bal Raj Tuli, J., of the Punjab and Haryana High Court in Karnal Gur and Khandsari Industries v. The State of Haryana and Anr. Civil Writ No. 1287 of 1968 delivered on 10th February, 1970, is printed below :--] Karnal Gur and Khandsari Industries

The State of Haryana and Anr.

18. The petitioner is a firm registered under the Indian Partnership Act and carries on business at Smalkha in the district of Karnal. The firm is registered as a dealer under the Punjab General Sales Tax Act (hereinafter called the Act) and the Rules made thereunder. According to the certificate of registration issued to the petitioner on 3rd June, 1965, the petitioner-firm is a dealer in gur, khandsari, baidana, etc., and manufacturer of khandsari and gur-sheera and is entitled to purchase gur, firewood, sajji and lime for purposes of manufacture, and gur etc., for resale free of tax. On the basis of this registration certificate the petitioner-firm purchased gur and other goods, some of which were resold and others were used for manufacturing khandsari and gur-sheera during the assessment year ending 31st March, 1966. For that year the petitioner submitted quarterly returns of its turnover and paid the tax in accordance with the returns every quarter. According to these returns the gross sales of the petitioner-firm amounted to Rs. 2,28,312.43, out of which sales to the extent of Rs. 1,87,895.23 were of exempted goods, namely, khandsari, sales to the extent of Rs. 39,652.61 were made to registered dealers against the relevant forms supplied by them and were, therefore, exempt from the taxable turnover and the tax was payable only on the turnover amounting to Rs. 765.69. On this turnover the tax was assessed at Rs, 45.94 which was duly paid.

19. The Assessing Authority, respondent 2, issued notice to the petitioner-firm for assessment purposes under Sections 11(2) and 14 of the Act calling upon the petitioner to appear before him on 20th March, 1968, with particulars regarding the purchase of gur and accounts etc. The date was changed to 27th March, 1968, and the petitioners were given to understand by respondent 2 that in his view the petitioner-firm was liable to purchase tax on the purchases of gur made by them for utilization in the manufacture of khandsari under second proviso to Section 5(2)(a)(ii) of the Act. The petitioner-firm controverted the view of the Assessing Authority by filing a written reply stating its own contentions which were rejected by the Assessing Authority with the following observations :

I have considered over the matter and I find that the arguments advanced by you in your communication referred to above regarding the non-taxability of tax liable to be imposed on the purchase of gur utilised in the manufacture of khandsari, a tax-free commodity under the Punjab General Sales Tax Act, 1948, purchased on the strength of registration certificate granted to the party under the Punjab General Sales Tax Act, 1948, under the second proviso to Section 5(2)(a)(ii) of the Act ibid are not convincing. You are, accordingly, requested to furnish before me the relevant account books and also the details of purchases of gur made by your client on the strength of registration certificate under the Punjab General Sales Tax Act, 1948.

20. The petitioner-firm then filed the present writ petition in this Court on 8th April, 1968, which was admitted on the following day but the assessment proceedings were not stayed. It was, however, directed that after assessment is made, recovery would not be made if bank guarantee is given. During the pendency of the writ petition the Assessing Authority passed an order of assessment on 10th April, 1968, in order to challenge which the petitioner-firm amended the writ petition after obtaining the permission of this Court. The assessment order is annexure 'E' to the amended writ petition. In this assessment order the gross turnover is mentioned as Rs. 2,28,312.93. Tax has been assessed under Section 5(2)(a)(ii) of the Act on Rs. 1,31,522.31 at the rate of 6 per cent. amounting to Rs. 7,891.32. This figure of Rs. 1,31,522.31 represents the purchase value of gur consumed by the petitioner-firm in the manufacture of khandsari which is a tax-free commodity. Respondent 2 has applied the second proviso to Section 5(2)(a)(ii) of the Act for the imposition of the tax. Section 5(2)(a)(ii) of the Act with its proviso reads as under :

(2) In this Act the expression 'taxable turnover' means that part of a dealer's gross turnover during any period which remains after deducting therefrom--

(a) his turnover during that period on--

(i)...

(ii) sales to a registered dealer of goods other than sales of goods liable to tax at the first stage under Sub-section (1-A) declared by him in a prescribed form as being intended for resale in the State of Punjab or sale in the course of inter-State trade or commerce or sale in the course of export of goods out of the territory of India or of goods specified in his certificate of registration for use by him in the manufacture in Punjab of any goods, other than goods declared tax-free under Section 6, for sale in Punjab and on sales to a registered dealer of containers or other materials for the packing of such goods:

Provided that in case of such sales, a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing prescribed particulars on a prescribed form obtained from the prescribed authority is furnished by the dealer who sells the goods :

21. It is not the case of the respondents in the written statement nor has the Assessing Authority stated in the order of assessment that the petitioner-firm purchased gur for some other purpose and used it for the manufacture of khandsari. The registration certificate entitled the petitioner-firm to purchase gur for the manufacture of khandsari and gur-sheera free of tax. It cannot, therefore, be said that the petitioner-firm used gur purchased for the manufacture of khandsari and gur-sheera for any purpose other than that for which it was sold to it. There was thus no misuse of the registration certificate by the petitioner-firm when it purchased gur free of tax for the manufacture of khandsari and gur-sheera on the strength of the registration certificate. The proviso to Section 5(2)(a)(ii) of the Act has thus no applicability to this case. The dealer or dealers, who sold gur to the petitioner-firm on the basis of this registration certificate for the manufacture of khandsari and gur-sheera, may not be entitled to deduct from its/their gross turnover the value of such sales as khandsari is a tax-free goods but the petitioner cannot be held liable to the sales tax department for the payment of sales tax on the purchase of that gur. It was open to the seller to realise it from the purchaser, that is, the petitioner, but it is not open to the department to realise it from the purchaser because it is, under the Act, payable only by the seller. The levy of sales tax on the amount of Rs. 1,31,522.31 at the rate of 6 per cent. is, therefore, liable to be quashed.

22. For the reasons given above, I accept this writ petition with costs and quash the order of the Assessing Authority, Karnal, dated 10th April, 1968, in so far as it levies tax of Rs. 7,891.32 on the purchase value of gur amounting to Rs. 1,31,522.31 under Section 5(2)(a)(ii) of the Act. Counsel's fee Rs. 100.

Fancy Nets And Fabrics v. The State Of Punjab And Anr

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

State / Respondent's Position (as presented in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Fancy Nets And Fabrics v. The State Of Punjab And Anr

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