Purchase tax on branded packing materials upheld, but penalty deleted where turnover was fully disclosed and omission was bona fide.

Purchase tax under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act was held leviable on materials bought from unregistered dealers and printed, pasted, and used to pack and brand pre-recorded cassettes for sale, as the use fell within the wider statutory expression "otherwise." The penalty under Section 12(5)(iii) was held unsustainable because the turnover was disclosed in the books of account and the omission to enter it in the taxable column was treated as bona fide. The tax demand was sustained, but the penalty was deleted.

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Issues: (i) Whether purchase tax under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 was leviable on materials purchased from unregistered dealers, printed and used for packing and branding pre-recorded cassettes for sale; (ii) Whether penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was sustainable when the turnover was available in the books of accounts and omission was claimed to be bona fide.

Issue (i): Whether purchase tax under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 was leviable on materials purchased from unregistered dealers, printed and used for packing and branding pre-recorded cassettes for sale.

Analysis: The materials purchased from unregistered dealers were not merely used as raw material in a manufacturing process, but were printed and pasted on the cassette packs so as to make the goods marketable under the assessee's brand. Section 7-A(1)(a) was treated as extending beyond manufacture to cases covered by the expression "otherwise", and the use of the purchased materials in the manner adopted by the assessee fell within that ambit.

Conclusion: The levy of purchase tax under Section 7-A(1)(a) was upheld, and this issue was decided against the assessee.

Issue (ii): Whether penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was sustainable when the turnover was available in the books of accounts and omission was claimed to be bona fide.

Analysis: The turnover was reflected in the books of accounts, and the omission to include it in the taxable column was treated as arising from a bona fide impression regarding taxability. In such circumstances, penalty was held to be unwarranted.

Conclusion: The penalty was set aside, and this issue was decided in favour of the assessee.

Final Conclusion: The tax demand was sustained, but the penalty was deleted, leaving the appeal only partly successful.

Ratio Decidendi: Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 applies not only to materials used in manufacture, but also to purchased materials dealt with in another manner for sale, while penalty is not justified where the turnover is fully disclosed in the books and the omission is bona fide.

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