Tax liability and tax exemption are distinct; exempt goods do not excuse statutory stock book compliance or penalty exposure.

Liability to pay tax under the Act is distinct from actual tax payable: exemption from payment on goods does not remove a dealer or manufacturer from the charging provision if turnover otherwise attracts liability. Rule 42(2) therefore applies to a manufacturer dealing in exempt goods where the statutory liability exists, and the prescribed stock book for raw materials and finished goods must still be maintained. Failure to keep that record constitutes non-compliance and attracts penalty under Section 16(1)(n).

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Issues: Whether a manufacturer dealing only in exempt goods can still be regarded as liable to pay tax under the Act for purposes of Rule 42(2), and whether failure to maintain the prescribed stock book attracts penalty under Section 16(1)(n).

Analysis: The relevant scheme of the Act distinguishes between a dealer who is liable to pay tax and the actual payment of tax. Section 3 creates the liability where the turnover conditions are satisfied, while exemption under Section 4 only removes the obligation to pay tax on the exempt goods. Rule 42(2) uses the expression liable to pay tax under the Act, which is wider than tax payable under the Act. A manufacturer whose turnover otherwise attracts Section 3 does not cease to be liable merely because the goods manufactured are exempt. The failure to maintain the stock book of raw materials and finished goods therefore amounted to non-compliance with Rule 42(2), and the Board's view that only dealers from whom tax is actually payable are covered was incorrect.

Conclusion: The manufacturer was liable to pay tax under the Act notwithstanding exemption from payment of tax, and the penalty under Section 16(1)(n) for failure to maintain the stock book was rightly leviable.

Ratio Decidendi: Liability to pay tax under the Act is distinct from actual tax payable, and a dealer or manufacturer whose turnover attracts the charging provision remains subject to statutory account-keeping obligations even if the goods sold are exempt from tax.

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