Tax liability cannot rest on a circular alone where manufacture must be determined on facts.

Tax liability under section 3-AAAA of the U.P. Trade Tax Act depended on the statutory charging scheme and a factual finding that the activity amounted to manufacture. A circular could not enlarge the charging provision or treat every purchase from agriculturists or unregistered persons as manufacture; the Court held that such liability had to be determined on facts. Assessments based solely on the circular were therefore unsustainable, and the assessment and appellate orders were set aside for reconsideration in accordance with law.

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Issues: Whether the appellants could be treated as manufacturers under section 2(ee) of the U.P. Trade Tax Act, 1948 on the strength of the impugned circular and whether tax liability could be fastened without a factual determination that their activity amounted to manufacture.

Analysis: The statutory scheme showed that liability under section 3-AAAA depended upon goods being liable to tax under the Act and upon the factual circumstances of the purchase and sale. The circular could not enlarge the charging provision or create a tax liability by treating every purchase from agriculturists or unregistered persons as manufacture. Whether an activity amounted to manufacture had to be determined on facts, and a general instruction could not substitute for that determination. The Court therefore held that the assessments made solely on the basis of the circular were unsustainable and that the assessing authority had to reconsider the matter without treating the appellants as manufacturers merely by reason of the circular.

Conclusion: The issue was decided in favour of the appellants. The circular could not by itself impose tax liability, and the assessment orders and appellate orders were set aside for fresh consideration in accordance with law.

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