Purchase tax and works contract sales: old machinery, lease rentals, and value-adjusted supplies remain taxable where property passes.

Purchase tax under the Uttar Pradesh Trade Tax Act can apply to a registered dealer buying from an unregistered dealer without payment of tax, even if the seller is below the registration threshold. Old and obsolete machinery cannot be taxed at the higher rate reserved for new machinery where the record shows the goods were old and no proof of new condition exists. Lease rent received for transfer of equipment remains taxable where the equipment was leased in the course of business and the later refund does not negate liability. Cement and iron supplied to contractors under works contracts are treated as sales when property in the goods passes through deduction from bills.

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Issues: (i) Whether purchases made from unregistered dealers could be taxed under Section 3 AAAA of the Uttar Pradesh Trade Tax Act, 1948. (ii) Whether old and obsolete machinery sold by the assessee could be taxed at 8% as new machinery. (iii) Whether lease rent received for transfer of equipment and the amount later refunded escaped tax liability. (iv) Whether cement and iron supplied to contractors against works contracts amounted to sale under the Act.

Issue (i): Whether purchases made from unregistered dealers could be taxed under Section 3 AAAA of the Uttar Pradesh Trade Tax Act, 1948.

Analysis: Liability under Section 3 AAAA(1)(b) attached to a registered dealer purchasing goods from an unregistered dealer without payment of tax. The fact that the selling dealers were below the registration threshold did not negate the statutory liability on the purchasing dealer.

Conclusion: The issue was decided against the assessee and in favour of the revenue.

Issue (ii): Whether old and obsolete machinery sold by the assessee could be taxed at 8% as new machinery.

Analysis: The assessment record itself described the goods as old machinery, and there was no evidence that the goods were new. Mere absence of vouchers could not substitute proof that the machinery was new or justify tax at the higher rate applicable to new machinery.

Conclusion: The issue was decided in favour of the assessee and against the revenue.

Issue (iii): Whether lease rent received for transfer of equipment and the amount later refunded escaped tax liability.

Analysis: The decisive fact was that the assessee had leased out equipment and received lease rent in the course of business. The refund of part of the amount was made after six months from delivery and was not shown to be legally ineffective; the liability therefore remained intact.

Conclusion: The issue was decided against the assessee and in favour of the revenue.

Issue (iv): Whether cement and iron supplied to contractors against works contracts amounted to sale under the Act.

Analysis: Supplies made to contractors with deduction of value from bills involved passing of property in the goods. Such adjustment in payment brought the transaction within the concept of sale for tax purposes.

Conclusion: The issue was decided against the assessee and in favour of the revenue.

Final Conclusion: The revision succeeded only to the limited extent of the challenge to the rate applied on sale of old machinery, while the remaining substantive questions were answered against the assessee.

Ratio Decidendi: Statutory purchase tax can be attracted to a registered dealer buying from an unregistered dealer without payment of tax, and goods described and proved as old machinery cannot be assessed at a higher rate reserved for new machinery; lease rentals and value-adjusted supplies in works contracts are taxable where property in goods passes.

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