2007 (3) TMI 356 - SC - VAT and Sales Tax

Purchase Tax Imposition vs. Collection: Exemptions, Levies, and Tax Liability

Peekay Re-Rolling Mills (P) Ltd. Versus Assistant Commissioner And Another

The court held that levying purchase tax under Section 5A was permissible despite exemptions, as the term 'levy' encompasses both imposition and ... Whether the tax sought to be levied under section 5A on goods, would amount to tax at a second stage and therefore violate section 15 of the Central Act? Held that:- Appeal allowed. After an examination of the relevant case law, we find that the liability to tax or taxability under section 5 of the State Act remains unaffected by an exemption under section 10 of the State Act. Consequently, the respondent cannot validly shift the burden of tax to the purchaser under section 5A of the State Act for the same would violate the condition of single-stage tax under section 15 of the Central Act. Issues Involved:1. Validity of show cause notices issued under Section 5A of the Kerala General Sales Tax Act, 1963.2. Applicability of Article 286(3) of the Constitution of India and Section 15 of the Central Sales Tax Act, 1956, to the levy of purchase tax.3. Interpretation of the term 'levy' in the context of tax exemption and collection.Detailed Analysis:1. Validity of Show Cause Notices Issued Under Section 5A of the Kerala General Sales Tax Act, 1963:The appellant, a registered dealer under the Kerala General Sales Tax Act, 1963, received show cause notices for the assessment years 1994-95 and 1996-97 to 1999-2000. The notices stated that the appellant had purchased steel ingots from dealers within the State who were exempted from tax and consumed them in manufacturing. Since the ingots did not suffer tax at the time of sale, the purchase turnover attracted liability under Section 5A. The appellant challenged these notices, but the single Judge dismissed the writ petitions, directing the appellant to avail remedies under the State Act. The division Bench upheld this decision, rejecting the appellant's main contention that levying purchase tax under Section 5A was impermissible under Article 286(3) of the Constitution and Section 15 of the Central Sales Tax Act.2. Applicability of Article 286(3) of the Constitution of India and Section 15 of the Central Sales Tax Act, 1956, to the Levy of Purchase Tax:The appellant argued that iron and steel, being declared goods, could only be taxed at one point, specified as the 'first sale.' The division Bench, however, held that the term 'levy' includes both imposition and collection of tax. Since the goods were exempted from sales tax, they could be subjected to purchase tax under Section 5A. The division Bench relied on a previous judgment, which stated that without collection, there is no levy, and thus, the goods could be taxed under Section 5A.3. Interpretation of the Term 'Levy' in the Context of Tax Exemption and Collection:The appellant contended that the word 'levy' should cover both imposition and non-collection of tax, and that exemption does not negate the liability to tax. The court examined various precedents, including Shanmuga Traders v. State of Tamil Nadu and Bhawani Cotton Mills Ltd. v. State of Punjab, which clarified that exemption does not affect the liability to tax. The court reiterated that exemption operates after the levy and does not negate it. The distinction between levy and collection was emphasized, with the court noting that collection is not a necessary facet of a levy.Conclusion:The court concluded that the liability to tax under Section 5 of the State Act remains unaffected by an exemption under Section 10. Therefore, shifting the burden of tax to the purchaser under Section 5A would violate the single-stage tax condition under Section 15 of the Central Sales Tax Act. The appeals were allowed, and no costs were ordered.