Mercantile system and purchase tax accrual: later exemption cancellation did not defer liability into a subsequent accounting year.

Under the mercantile system, purchase tax liability accrues in the year of the taxable transaction, not when it is later quantified or enforced. A subsequent exemption notification does not shift the point of accrual, and its later cancellation merely removes the concession without creating a fresh liability in the year of cancellation. The principle that a past-year statutory liability cannot be carried forward into a later accounting year was applied, so deduction of the earlier liability in the later year was not allowable.

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Issues: Whether purchase tax liability for earlier accounting years could be deducted in a later year after an exemption notification was issued and subsequently cancelled.

Analysis: Under the mercantile system, liability is accounted for when it accrues, not when it is later enforced or quantified. The purchases were taxable under the governing sales tax law in the years in which they were made, and the Government's later exemption notification did not shift the point of accrual of the liability. The subsequent cancellation of the exemption only removed the earlier concession and did not create a fresh liability for the first time in the year of cancellation. The principle that a past-year liability cannot be carried forward into a later year was applied.

Conclusion: The deduction was not allowable in the later accounting year. The questions were answered in the negative, in favour of the Revenue and against the assessees.

Ratio Decidendi: Under the mercantile system, a statutory tax liability accrues in the year in which the taxable transaction occurs, and a later exemption or cancellation notification does not defer the accrual of that liability to the later year.

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