1999 (8) TMI 929 - HC - VAT and Sales Tax

High Court overturns Tribunal's decision on tax penalty, emphasizes detailed factual inquiry

Commissioner of Trade Tax, UP., Lucknow Versus MKJ. Corporation

The High Court allowed the revision petition, setting aside the Tribunal's order that quashed the penalty imposed on the dealer under section 15-A(1)(l) ... - Issues Involved:1. Validity of the penalty imposed under section 15-A(1)(l) of the U.P. Trade Tax Act, 1948.2. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956.3. Applicability of Section 9(2-A) of the Central Sales Tax Act, 1956.4. Whether shoe uppers can be equated to raw hides and skins or finished leather for tax exemption purposes.5. Legal precedents and their applicability to the present case.Issue-wise Detailed Analysis:1. Validity of the penalty imposed under section 15-A(1)(l) of the U.P. Trade Tax Act, 1948:The revision petition was filed by the Commissioner against the Trade Tax Tribunal's order that quashed the penalty of Rs. 5,97,967 levied on the dealer under section 15-A(1)(l) of the U.P. Trade Tax Act, 1948. The penalty was initially imposed because the assessing officer believed the dealer issued false declarations in form H, resulting in the non-levy of sales tax on the selling dealers.2. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956:Section 5(3) grants exemption to the last sale preceding the export of goods. The Tribunal held that the shoe uppers exported by the dealer did not change the nature of the goods and, therefore, the goods exported were the same as those purchased, thus no penalty could be levied. However, the High Court noted that the dealer purchased raw hides and skins, processed them into finished leather, and then manufactured shoe uppers, which were exported. This transformation was central to determining whether the goods exported were the same as those purchased.3. Applicability of Section 9(2-A) of the Central Sales Tax Act, 1956:Section 9(2-A) applies the provisions relating to offenses and penalties of the general sales tax law of each state to the Central Sales Tax Act. The High Court upheld that penalties under the State Act could be levied in relation to the Central Act by virtue of section 9(2-A), as established in Shiv Dutt Rai Fateh Chand v. Union of India.4. Whether shoe uppers can be equated to raw hides and skins or finished leather for tax exemption purposes:The High Court disagreed with the Tribunal's finding that shoe uppers and leather were the same. It emphasized that the shoe uppers were a different product manufactured from the finished leather. The Tribunal did not adequately investigate the facts, such as the specific processes involved in converting leather into shoe uppers. The High Court highlighted the need for a detailed factual determination to ascertain whether the dealer's transformation activities constituted a new product.5. Legal precedents and their applicability to the present case:The Tribunal relied on Sterling Foods v. State of Karnataka, where the Supreme Court held that processes like cleaning and dressing did not change the nature of the goods. However, the High Court found this precedent inapplicable, citing Vijayalaxmi Cashew Company v. Deputy Commercial Tax Officer, where the Supreme Court held that processed cashewnut kernels were different from raw cashewnuts, thus not qualifying for exemption under section 5(3). This case was more analogous to the present situation, where shoe uppers were considered a different product from raw hides and skins or finished leather.Conclusion:The High Court allowed the revision petition, setting aside the Tribunal's order. It directed the Tribunal to dispose of the appeal afresh after conducting necessary inquiries to arrive at proper findings of fact. The Tribunal was instructed to investigate the specific processes involved in manufacturing shoe uppers from leather to determine whether the dealer's declarations in form H were false. The petition was allowed, and the case was remanded for further proceedings in accordance with the law.