Purchase tax on sugarcane fails where exemption and schedule provisions are misconstrued under the value added tax scheme.

Purchase tax under the Orissa Value Added Tax Act, 2004 could not be sustained on sugarcane used as industrial input where the assessment proceeded on a misconstruction of the exemption and schedule provisions. Section 12(ii)(b) applies only to goods consumed or used in manufacturing exempt goods, and the relevant schedules showed sugar was not listed as exempt while Part II of Schedule B treated it as taxable subject to the linked explanation. The distinction between exigibility to tax and liability to pay tax was material, and the assessment order was set aside for ignoring that statutory scheme.

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Issues: Whether the purchase of sugarcane used as industrial input for manufacture of sugar was liable to purchase tax under the Orissa Value Added Tax Act, 2004, and whether the assessment order taxing such purchase was based on a correct understanding of the statutory scheme.

Analysis: Section 12(ii)(b) of the Orissa Value Added Tax Act, 2004 levies purchase tax on goods consumed or used in the manufacture of goods declared exempt from tax. Sugar was not shown in Schedule A as exempt, while entry 108 in Part II of Schedule B treated sugar as a taxable item, subject to the Explanation linked with levy of excise duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The assessment authority proceeded on the footing that sugarcane became taxable merely because sugar was exempt, but that approach misunderstood the statutory scheme. The distinction between exigibility to tax and liability to pay tax was material, and the assessment order ignored the effect of the relevant schedules and explanation.

Conclusion: The levy of purchase tax on sugarcane could not be sustained on the reasoning adopted in the assessment order, and the order was liable to be quashed.

Final Conclusion: The writ petition succeeded, the assessment was set aside, and the deposited amount was directed to be refunded with interest if not refunded within the stipulated period.

Ratio Decidendi: Exigibility to tax is distinct from liability to pay tax, and purchase tax under the statute cannot be imposed on a misconstruction of the exemption and schedule provisions governing the goods concerned.

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