Purchase tax on unregistered dealer purchases upheld, but penalty failed for lack of wilful non-disclosure finding.

Purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 was held leviable on purchases from unregistered dealers when the statutory conditions for tax on goods used in manufacture were satisfied, and the assessee failed on that issue. Penalty under Section 16(2) could not be sustained because the assessment order contained no finding of wilful non-disclosure of assessable turnover, which was a mandatory precondition for penalty. The purchase tax levy was therefore upheld, while the penalty was set aside for want of the requisite finding of wilful suppression.

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Issues: (i) Whether purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 was leviable on purchases from unregistered dealers of goods used in manufacture; (ii) Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 could be sustained without a finding of wilful non-disclosure of assessable turnover.

Issue (i): Whether purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 was leviable on purchases from unregistered dealers of goods used in manufacture.

Analysis: Section 7A is a charging provision intended to plug the gap where goods have not suffered tax and are consumed or used in manufacture or otherwise in circumstances attracting the section. The liability depends on the statutory conditions in the section being met, and does not turn on whether the seller failed to register or pay tax. The Court held that the assessee's purchases from unregistered dealers satisfied the requirements of Section 7A.

Conclusion: The levy of purchase tax was upheld and the assessee failed on this issue.

Issue (ii): Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 could be sustained without a finding of wilful non-disclosure of assessable turnover.

Analysis: Penalty under Section 16(2) can be imposed only when the authorities are satisfied that the escape from assessment resulted from wilful non-disclosure of assessable turnover. The assessment order recorded no such satisfaction and contained only a statement that the turnover was not disclosed. In the absence of a finding of wilfulness, the statutory precondition for penalty was not met.

Conclusion: The penalty was unsustainable and was set aside in favour of the assessee.

Final Conclusion: The assessment under Section 7A was confirmed, but the penalty under Section 16(2) was annulled for want of the requisite finding of wilful suppression, leaving the assessee partially successful.

Ratio Decidendi: Purchase tax under Section 7A is attracted when the statutory conditions are satisfied irrespective of the seller's registration default, whereas penalty for escaped assessment cannot be imposed unless wilful non-disclosure is expressly found.

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