First-point sales tax exemption cannot defeat deduction claims merely for lack of proof of tax payment at the exempt stage.

A dealer claiming deduction for turnover of goods taxable at the first point under the Goa, Daman and Diu Sales Tax Act was not required to produce proof of first-point tax payment where the first sale was exempt under section 10, because no tax was payable or paid at that stage and insisting on proof would defeat the deduction scheme. Indian-made foreign liquor remained a first-point taxable commodity, but the statutory exemption of the first seller did not shift the tax incidence to the subsequent dealer on the facts found. The reference was answered against the revenue, and the assessee succeeded.

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Issues: (i) Whether, for claiming deduction under section 7(3)(III) of the Goa, Daman and Diu Sales Tax Act, 1964, a dealer who is not the first seller must adduce proof of payment of tax at the first point when the first-point sale is exempt under section 10 of the Act; (ii) Whether sales of Indian-made foreign liquor effected by the applicant were exigible to tax having regard to the Act and Government Notification No. F 8/F.III/2-36/64 dated 23rd October, 1964.

Issue (i): Whether, for claiming deduction under section 7(3)(III) of the Goa, Daman and Diu Sales Tax Act, 1964, a dealer who is not the first seller must adduce proof of payment of tax at the first point when the first-point sale is exempt under section 10 of the Act.

Analysis: Section 7(3)(III) permits deduction of turnover relating to goods specified as taxable at the first point, subject to proof of payment of tax at that first point. The provision is directed to avoid double taxation where tax has actually been paid at the first point. Where the first-point dealer is exempt from tax under section 10 read with the Second Schedule, the condition of producing proof of payment cannot be insisted upon, because no tax was payable or paid at that stage. Requiring such proof in a case of statutory exemption would defeat the object of the deduction provision.

Conclusion: The dealer was not required to adduce proof of first-point tax payment, and the deduction could not be denied on that ground.

Issue (ii): Whether sales of Indian-made foreign liquor effected by the applicant were exigible to tax having regard to the Act and Government Notification No. F 8/F.III/2-36/64 dated 23rd October, 1964.

Analysis: Indian-made foreign liquor was a commodity taxable at the first point under section 8. During the relevant period, the first seller enjoyed exemption under section 10 read with item 68 of the Second Schedule. That exemption did not justify shifting the incidence of tax to the subsequent dealer merely because the first-point dealer did not pay tax. The statutory scheme continued to treat the commodity as first-point taxable, and the exemption at that point did not alter the point of levy in the hands of the later dealer so as to sustain the demand made on the facts found.

Conclusion: The sales were not liable to be taxed in the manner asserted against the applicant on the facts of the case.

Final Conclusion: The reference was answered against the revenue on both questions, and the assessee succeeded with costs.

Ratio Decidendi: Where goods are statutorily taxable at the first point but the first-point sale is exempt from tax, a subsequent dealer cannot be denied deduction merely for want of proof of tax payment at the first point; the exemption prevents insistence on proof of payment and does not, by itself, justify a contrary levy on the subsequent sale.

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