2025 (11) TMI 1688 - HC - VAT / Sales Tax

Purchase tax under s.7A TNGST applies only to tax-free purchases; buyer not liable for seller's unpaid tax

M/s. Light Roofings Ltd. Versus The Tamil Nadu Sales Tax Appellate Tribunal, The Appellate Assistant Commissioner (CT) IV, The Commercial Tax Officer, Chennai.

HC held that purchase tax under s.7A TNGST Act is attracted only when purchases are made in circumstances where no tax is payable, not where tax is ... Levy of purchase tax u/s 7A of the Tamil Nadu General Sales Tax Act, 1959 - tax has not been paid/remitted by the seller/vendor - STAT fails to apply its mind to relevant material records/documents in the form of sale bills, payment of sale consideration by way of cheques, transport documents etc. - HELD THAT:- It is clear that for levy of purchase tax to get attracted, purchase must be made “in circumstance which no tax is payable”. The expression no tax is payable would not take with in its fold a transaction of sale on which tax is payable but not paid by the vendor. The following portion of the order of the STAT would show that the Tribunal looked to the factum of non payment of taxes by the petitioner's seller/vendor to levy purchase tax under Section 7A of TNGST Act. On applying the ratio of the judgment in The Kerala Premo Pipe Factory Ltd., v. State of Kerala [1983 (3) TMI 244 - KERALA HIGH COURT] to the facts of this case, it leaves no room for doubt that turnover of petitioner's vendor being in excess of the threshold under Section 3(2) of TNGST Act, levy of purchase tax is impermissible. We say so, inasmuch as purchase tax under Section 7A of TNGST Act, gets attracted only if sale is made in circumstances in which no tax is payable, however, as seen, sale by petitioner's vendor is liable to tax. Thus, levy of purchase tax under Section 7A of TNGST Act, cannot be sustained. Having found that the sale to petitioner is liable to tax in the hands of the petitioner's vendor, levy of purchase tax only on the premise that petitioner's vendor had not remitted tax cannot be sustained. If petitioner's vendor fails to remit appropriate tax, Revenue ought to proceed against the petitioner's vendor, instead any levy of purchase tax by the respondent would be bad for want of jurisdiction and cannot be sustained. The impugned order of the Tribunal is set aside and the writ petitions are allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 is attracted solely because the selling dealers, who were liable to pay tax under Section 3(2), failed to remit such tax to the State. 1.2 Whether, in circumstances where the seller's turnover is above the taxable threshold and the sale is liable to tax in the seller's hands, the buyer can nonetheless be assessed to purchase tax under Section 7A on the same transaction. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Levy of purchase tax under Section 7A where seller was liable to tax but did not pay Legal framework 2.1 The Court extracted and examined Section 7A of the Tamil Nadu General Sales Tax Act, 1959, governing levy of purchase tax where purchases are made 'in circumstances in which no tax is payable under Section 3 or 4'. 2.2 The Court referred to the decision of the Supreme Court in the State of Tamil Nadu v. M.K. Kandaswami, which laid down the cumulative conditions for invoking Section 7A(1), including that the purchase must be 'in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be'. 2.3 The Court relied on the judgment of the Kerala High Court in The Kerala Premo Pipe Factory Ltd. v. State of Kerala, interpreting a pari materia 'purchase tax' provision, to emphasize that the test is whether tax is payable on the sale in the hands of the seller, not whether tax was in fact collected or remitted. Interpretation and reasoning 2.4 The Court held that Section 7A is a distinct charging provision which becomes operative only when purchases are made in circumstances where no tax is payable on the corresponding sale under Sections 3 or 4 of the Act. 2.5 The expression 'in circumstances in which no tax is payable' in Section 7A was construed narrowly: it refers to sales which are not liable to tax at all in the seller's hands, and does not extend to cases where tax is legally payable but is in fact not paid or remitted by the seller. 2.6 The Court noted that the goods in question were first-point taxable goods, and the taxable person for those sales was the petitioners' vendors, whose turnovers were above the threshold prescribed under Section 3(2). Consequently, the vendors' sales were liable to tax in law. 2.7 The Tribunal's reasoning that non-payment of tax by the vendors under Section 3(2) automatically attracted purchase tax liability on the buyer under Section 7A was held to be misconceived. The Tribunal conflated the vendor's failure to pay tax with the statutory condition that the sale be one 'in which no tax is payable'. 2.8 Following the Kerala High Court's reasoning in an analogous context, the Court emphasized that the relevant enquiry is whether the vendor's sale was liable to tax given his turnover, irrespective of whether the tax authorities actually assessed or collected such tax from the vendor. 2.9 Since the vendors' turnovers exceeded the taxable minimum and the sales were at a taxable point, those transactions could not be characterized as occurring in circumstances in which 'no tax is payable' under Section 3; hence the foundational statutory condition for invoking Section 7A against the purchaser was absent. 2.10 The Court further reasoned that, where tax is legally payable by the vendor but has not been remitted, the proper course for the Revenue is to proceed against the vendor, not to shift the incidence of tax to the purchaser by invoking Section 7A. Conclusions 2.11 Purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 cannot be levied on a purchaser merely because the seller, who was liable to pay tax under Section 3(2), did not in fact remit such tax to the State. 2.12 Where the seller's turnover exceeds the threshold and the sale is at a taxable point such that tax is legally payable in the hands of the seller, the purchase is not one 'in circumstances in which no tax is payable' within the meaning of Section 7A. In such circumstances, Section 7A is inapplicable to the purchaser. 2.13 Any levy of purchase tax on the purchaser in such a situation is without jurisdiction and unsustainable; the Revenue must proceed, if at all, against the defaulting seller. 2.14 On this basis, the Court set aside the Tribunal's order confirming the levy of purchase tax under Section 7A and allowed the writ petitions.