Exemption claim must be decided before penalty is restored; purchase-point levy may fall within sales tax exemption

A penalty order could not be sustained where the Tribunal had not finally decided the assessee's cross appeal on exemption from tax, because the penalty issue depended on whether the turnover was exempt under the notification; the matter was remitted for fresh consideration. The Court also held that tax levied at the purchase point by a 100% export oriented unit could still fall within the statutory exemption scheme, so the exemption claim under Notification No. 528 and the related statutory provision required reconsideration. The Revenue's narrow distinction between sales tax and purchase tax was rejected, and the consequential penalty issue was left open.

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Issues: (i) Whether the Tribunal could restore the penalty without finally deciding the assessee's cross appeal on exemption from tax under the exemption notification. (ii) Whether the levy on the last purchase of cotton by a 100% export oriented unit was covered by the statutory scheme and Notification No. 528 dated 21.11.1997.

Issue (i): Whether the Tribunal could restore the penalty without finally deciding the assessee's cross appeal on exemption from tax under the exemption notification.

Analysis: The Tribunal had discussed the assessee's claim for exemption, but it had not recorded any final decision on that claim before disposing of the Revenue's penalty appeal. The penalty issue was linked to the assessee's claim that the turnover itself was not exigible in view of the exemption notification. In such a situation, a final order on penalty could not be sustained without an adjudication on the exemption claim raised in the cross appeal.

Conclusion: The restoration of penalty without deciding the cross appeal was unsustainable, and the matter had to go back for fresh consideration.

Issue (ii): Whether the levy on the last purchase of cotton by a 100% export oriented unit was covered by the statutory scheme and Notification No. 528 dated 21.11.1997.

Analysis: Section 4E contemplated reimbursement of tax paid by a registered 100% export oriented unit on purchases of goods, while Notification No. 528 granted exemption from payment of sales tax on raw materials purchased by such units. The Court held that levy at the purchase point did not cease to be sales tax in substance, and the scheme of the Act did not support the Revenue's narrow distinction between sales tax and purchase tax in this context.

Conclusion: The exemption claim required reconsideration in the light of Notification No. 528 and the statutory scheme, and the Revenue's objection was rejected.

Final Conclusion: The revisional challenge succeeded, the Tribunal's order was set aside, and the disputes were remitted for fresh decision on the exemption claim and the consequential penalty issue.

Ratio Decidendi: A penalty order cannot stand where the underlying exemption claim affecting exigibility has not been finally adjudicated, and tax levied at the purchase point may still fall within the expression "sales tax" for the purpose of an exemption scheme.

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