Trade tax on finished sariya upheld where exempt raw material had suffered no prior tax

Iron and steel rods manufactured from ingots purchased from exempt units under section 4A of the U.P. Trade Tax Act were held liable to trade tax at the full notified rate on the finished goods. The court noted that iron and steel were taxable at the stage of manufacture or import, and that the office memorandum dated 21 May 1994 contemplated four per cent tax on sariya, with reduction only where tax had already been paid on the raw material. Because the assessee had paid no tax on the ingots, no reduction was available and the levy on the finished product was upheld.

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Issues: Whether iron and steel rods (sariya) manufactured from ingots purchased from units enjoying exemption under section 4A of the U.P. Trade Tax Act, 1948 were liable to trade tax at four per cent on the finished goods.

Analysis: The dispute concerned levy of trade tax on finished sariya manufactured by the assessee. The raw material, namely ingots, had been purchased from new units enjoying exemption under section 4A and therefore no tax had been paid at that stage. The Court noted that iron and steel were taxable at the point of manufacture or import and that, where the raw material had already borne tax, the effective burden on other manufacturers was two per cent on raw material and two per cent on finished goods, making four per cent in all. The office memorandum dated May 21, 1994 was relied upon to show that the tax on sariya was leviable at four per cent, subject to reduction where tax had already been paid on the raw material. As the assessee had paid nil tax on the raw material, there was no basis for reducing the rate on the finished product.

Conclusion: The assessee was liable to pay trade tax at four per cent on the finished goods, and the levy made by the assessing authority was upheld.

Final Conclusion: The revision was rejected after affirming the tax liability fixed on the finished product manufactured from exempt raw material.

Ratio Decidendi: Where the raw material for manufacture has suffered no tax because it was purchased from an exempt unit, the full notified tax rate may be levied on the finished product so as to maintain the statutory tax incidence at the prescribed level.

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