Commodity classification by true composition defeated trade tax and penalty where rexine was held non-taxable.

Rexine or cotton coated fabrics were treated as not exigible to tax under the U.P. Trade Tax Act, because the record showed the turnover in the books and the assessing authority did not make an independent finding on the nature of the goods; the classification turned on the commodity's true composition and character rather than commercial nomenclature. On that footing, penalty under section 15A(1)(o) could not be sustained, since the finding of non-taxability removed the basis for any alleged intention to evade tax. The assessee therefore obtained relief against both the tax demand and the penalty.

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Issues: (i) Whether rexine or cotton coated fabrics was exigible to tax under the U.P. Trade Tax Act, 1948. (ii) Whether penalty under section 15A(1)(o) of the U.P. Trade Tax Act, 1948 could be sustained.

Issue (i): Whether rexine or cotton coated fabrics was exigible to tax under the U.P. Trade Tax Act, 1948.

Analysis: The turnover had been recorded in the books and the assessing authority did not record any independent finding on the nature of the goods. The reasoning proceeded on the basis that the goods were rexine with a dominant plastic composition. The conclusion was supported by the view that cotton coated fabrics were not a taxable item under the Act and by the principle that commercial nomenclature does not prevent a commodity from being classified according to its true composition and character.

Conclusion: Rexine or cotton coated fabrics was not exigible to tax under the Act.

Issue (ii): Whether penalty under section 15A(1)(o) of the U.P. Trade Tax Act, 1948 could be sustained.

Analysis: Once the goods were held not taxable, the foundation for alleging an intention to evade tax disappeared. In the absence of taxable liability on the relevant goods, the essential ingredient for penalty was not made out.

Conclusion: The penalty could not be sustained and was liable to be set aside.

Final Conclusion: Both revisions succeeded, and the assessee obtained complete relief against the tax and penalty demands.

Ratio Decidendi: Where the commodity is held not taxable, penalty for evasion cannot survive in the absence of any intention to evade tax.

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