2011 (4) TMI 1224 - HC - VAT and Sales Tax

High Court upholds tax levy on purchase from unregistered dealers for packaging cassettes. Exemption denied; penalty set aside.

Tharangini Sound Technics Versus The State of Tamil Nadu rep. By the Joint Commissioner (SMR)

The High Court upheld the tax levy under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act for the purchase of materials from unregistered dealers ... Levy of tax u/s 7A of the Tamil Nadu General Sales Tax Act, 1959 - Imposition of penalty under Section 12(5)(iii) - Held that:- In order to make the recorded cassettes marketable under its name, the assessee had pasted its name therein, apart from printing the details of contents of the recorded cassettes by purchasing inlay cards as well as stickers from unregistered dealers, got them printed and pasted them in the plastic case, in which recorded the cassettes were laid and sold. A look at the cassettes placed before this Court shows that the ownership of the cassettes were vested with the assessee and that the sale is under the brand name of the assessee - assessee had thus gone further on the sale of the cassettes by putting them in the plastic case with its name printed therein, with other details of the contents by getting them printed on the blank papers purchased, the provision of Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959, stands attracted, particularly on the aspect of the purchase of the white card boards from unregistered dealers and printed with materials for further pasting them on the cassettes for sale. Section 7-A(1)(a) of the Act applies not only to a case of manufacture of other goods for sale, but also to cases falling under 'otherwise', which means, dealing with the materials purchased in any other manner too, we have no hesitation in holding that the purchase of white boards from the unregistered dealer and got them printed and pasted in a plastic case, in which cassettes are laid and sold, certainly would fall under the term 'otherwise' for the purpose of making levy under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959. Levy of penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, it is not denied that the turnover was available in the books of accounts and on a bona fide impression as to the non liability the said turnover was not included in the taxable column - it is held that no levy of penalty is warranted on the assessment made solely relying on the turnover available in the books of accounts. Following the above said decision, we set aside the order of penalty imposed under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act - Decided partly in favour of assessee. Issues:1. Interpretation of Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 regarding the purchase of materials from unregistered dealers used in the sale of goods.2. Application of second sales exemption to the turnover related to the purchase of materials for packaging.3. Validity of penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act.Analysis:1. The case involved the interpretation of Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 concerning the purchase of materials from unregistered dealers for use in the sale of goods. The Assessing Authority sought to assess the turnover related to the purchase of blank papers and stickers under this section. The Appellate Assistant Commissioner initially ruled in favor of the assessee, stating that as the assessee was not engaged in manufacturing, Section 7-A(1)(a) did not apply.2. The Joint Commissioner initiated Suo Moto Revision proceedings, disagreeing with the Appellate Assistant Commissioner's decision. The Joint Commissioner held that the purchase of materials from unregistered dealers for packaging purposes fell under the purview of Section 7-A(1)(a). The assessee objected, but the Joint Commissioner upheld the Assessing Authority's order, leading to the appeal before the High Court.3. The High Court analyzed the facts and observed that the assessee purchased recorded cassettes from registered dealers, repackaged them with printed materials, and sold them under the brand name. The Court noted that the provision of Section 7-A(1)(a) applied to the purchase of materials like white boards from unregistered dealers for further use in packaging and sale. The Court upheld the Joint Commissioner's decision on this aspect.4. Regarding the second sales exemption, the appellant argued that since the cassettes were purchased from registered dealers, no new manufacture occurred, and Section 7-A(1)(a) should not apply. However, the Court held that the purchase of materials from unregistered dealers for packaging and selling the cassettes constituted a transaction attracting purchase tax under Section 7-A(1)(a).5. Lastly, the Court addressed the penalty imposed under Section 12(5)(iii) of the Act. Citing relevant case law, the Court set aside the penalty, noting that the turnover was available in the books of accounts, and the non-inclusion was due to a bona fide belief in non-liability. The Court partially allowed the Tax Case Appeal, setting aside the penalty but upholding the tax levy under Section 7-A(1)(a) for the purchase of materials from unregistered dealers.