1975 (7) TMI 123 - SC - VAT / Sales Tax

Scope of Section 7-A of Madras General Sales Tax Act: purchase tax imposed only when taxable person, goods and event coincide.

Consideration of the scope of section 7-A of the Madras General Sales Tax Act addresses whether purchase tax can be imposed on a dealer when three ... Scope of Section 7-A of the Madras General Sales Tax Act, 1959 - Whether, in the facts and circumstances of the case, the applicant was a dealer during the assessment period under the Act and the imposition of purchase tax on him under section 7 of the Act was in order? Held that:- With due respect, it seems to us that in arriving at this erroneous interpretation, the learned judges mixed up the concept of goods liable to tax with the transactions liable to tax under the Act. The scheme of the Act involves three inter-related but distinct concepts which may conveniently be described as 'taxable person', 'taxable goods' and 'taxable event'. All the three must be satisfied before a person can be saddled with liability under the Act. Nevertheless, the distinction between them, if overlooked, may lead to serious error in the construction and application of the Act. In our opinion, the Kerala High Court has correctly construed section 5A of the Kerala Act which is in pari materia with the impugned section 7-A of the Madras Act. 'Goods, the sale or purchase of which is liable to tax under this Act' in section 7-A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that section 7-A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act have not, due to the circumstances of particular sales, suffered tax under section 3, 4 or 5, and which after the purchase, have been dealt by him in any of the modes indicated in clauses (a), (b) and (c) of section 7-A(1). Thus, we allow these appeals, set aside the judgment of the High Court and dismiss the writ petitions. Issues: Whether section 7-A of the Madras General Sales Tax Act, 1959 applies to purchases by a dealer of goods that are generally taxable under the Act when the particular sales by the sellers did not attract tax, and whether such purchases become liable to purchase tax where the purchaser consumes or despatches the goods as provided in clauses (a), (b) or (c) of section 7-A(1).Analysis: Section 7-A(1) must be read as a charging and remedial provision directed at situations where the goods in question are of a class ordinarily liable to tax under the Act (i.e., 'taxable goods') but, owing to particular circumstances of the sellers' transactions, no tax was paid under sections 3, 4 or 5. The expression 'goods, the sale or purchase of which is liable to tax under this Act' qualifies the class of goods and excludes goods wholly exempted under sections 8 or 17(1). The provision imposes liability on a purchasing dealer only when the statutory ingredients are cumulatively satisfied: (i) the purchaser is a dealer acting in the course of business; (ii) the goods are of the class generally taxable under the Act; (iii) the specific purchase occurred in circumstances where no tax was payable under sections 3, 4 or 5; and (iv) one of clauses (a), (b) or (c) of section 7-A(1) applies (consumption in manufacture or otherwise, disposal other than by sale in the State, or despatch outside the State except in inter-State trade as a direct result of sale or purchase). Prior authorities construing analogous provisions (including Ganesh Prasad Dixit and Kerala decisions) support this reading and confirm that section 7-A is operative to plug leakage where taxable goods escape point-of-charge taxation because of the sellers' non-liability.Conclusion: Section 7-A applies to purchases of goods that are 'taxable goods' though the particular sales by the sellers did not attract tax; where the other statutory ingredients including clauses (a), (b) or (c) are satisfied, the purchasing dealer is liable to purchase tax. This construction is in favour of the Revenue.