Manufacturing accounts for exempt goods are not required where tax liability is absent under the sales tax law.

A dealer manufacturing and selling exempted goods was not required to maintain manufacturing accounts under section 12(2) of the U.P. Sales Tax Act, 1948, because that obligation applies only to a manufacturer liable to pay tax on those goods. Section 12(1) still required true and correct accounts of goods bought and sold, including for an exempted dealer. Rejection of books was therefore justified only for non-compliance with section 12(1), and not merely because manufacturing accounts were absent where the goods were exempt. On that basis, rejection of the books for breach of section 12(2) was unwarranted.

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Issues: Whether a dealer manufacturing and selling exempted goods was bound under section 12(2) of the U.P. Sales Tax Act, 1948 to maintain manufacturing accounts, and whether rejection of books for non-maintenance of such accounts was justified.

Analysis: Section 12(1) requires every dealer, including an exempted dealer, to maintain true and correct accounts of goods bought and sold, while section 12(2) imposes the additional obligation of maintaining stock and manufacturing accounts only on a manufacturer who is liable to pay tax. Since the goods manufactured and sold by the assessee were exempted, he was not liable to pay tax on those goods and could not be required to maintain manufacturing accounts under section 12(2). The books could be rejected only if there was failure to maintain the accounts required by section 12(1), and not merely for absence of manufacturing accounts meant for a taxable manufacturer.

Conclusion: Rejection of the assessee's books for non-maintenance of manufacturing accounts under section 12(2) was unwarranted and the assessee succeeded on this issue.

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