Purchase tax accrual follows the taxable purchase date, and later cancellation of exemption cannot shift liability to a later year.

Purchase tax liability under the mercantile system accrued when the taxable purchases were made, not when an exemption notification was later cancelled. The court reasoned that liability to tax arises on the taxable event itself; non-recovery by the Government does not defer accrual, and the later withdrawal of exemption merely ends the suspension of an existing liability. As a result, the assessee had to recognise and provide for the liability in the earlier accounting years in which the purchases occurred. Deduction in the later assessment year was therefore disallowed, and the reference was answered against the assessee.

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Issues: Whether purchase tax liability in respect of purchases made in earlier accounting years could be deducted only in the year in which the exemption notification was cancelled, or whether the liability accrued in the years of purchase itself.

Analysis: Under the sales tax law, liability to tax arises when the taxable purchase takes place. The assessee followed the mercantile system, so the relevant enquiry was when the liability was incurred, not when it was quantified or enforced. Non-recovery by the Government did not postpone accrual of liability. The later exemption notification did not create the liability for the first time; it only suspended the existing liability for the exempted period, and its subsequent cancellation could not shift the original accrual of liability into a later accounting year. Liability for the earlier purchases therefore had to be provided for in the years in which those purchases were made.

Conclusion: The deduction was not allowable in the later assessment year; the liability had accrued in the earlier accounting years. The reference was answered against the assessee and in favour of the Revenue.

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