The Madras High Court strongly ruled that no purchase tax is leviable under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) on the premise that tax has not been paid/remitted by the seller/vendor. The Court clarified that the levy of purchase tax is impermissible, as the turnover of the petitioner’s vendor is in excess of the threshold under Section 3(2) of the TNGST Act.
The Court explained that the purchase tax under Section 7A of the TNGST Act gets attracted only if the sale is made in circumstances in which no tax is payable; however, the sale by the petitioner’s vendor is liable to tax.
Having found that the sale to the petitioner is liable to tax in the hands of the petitioner’s vendor, the levy of purchase tax only on the premise that the petitioner’s vendor had not remitted tax cannot be sustained. If the petitioner’s vendor fails to remit the appropriate tax, the 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 Division Bench comprising Justice S.M. Subramaniam and Justice Mohammed Shaffiq observed that for the levy of purchase tax to get attracted, the purchase must be made “in circumstances where no tax is payable”. The Bench clarified that the expression no tax is payable would not take within its fold a transaction of sale on which tax is payable but not paid by the vendor.
The Bench emphasised that the approach of the Sales Tax Appellate Tribunal (STAT) in looking to the factum of only non-payment of taxes by the petitioner’s seller/vendor to levy purchase tax under Section 7A of the TNGST Act, is misconceived since, admittedly, the goods in question are liable to tax at the 1st point of sale.
When the taxable person is the petitioner’s vendor, and the petitioner’s vendor’s turnover is beyond and in excess of the threshold limit provided under Section 3 of the TNGST Act, then the sale by the petitioner’s vendor is liable to tax, added the Bench while answering the petition in favour of the taxpayer.
Briefly, the business place of the petitioner, engaged in the manufacture and sales of Asphalt Roofing Sheets, was inspected by the Enforcement Wing, to unearth that the petitioner had effected purchases of Asphalt from Vinayaga and Mahalakshmi Agencies; however, the said sellers/vendors had not discharged the taxes on such sales. The petitioner used the Asphalt so purchased in the manufacture of other goods, which were sold and appropriate taxes were paid.
Later, the assessment order came to be passed, levying tax on the purchases made by the petitioner from the two dealers under Section 7A of the TNGST Act, on the premise that those sellers had neither paid tax dues nor claimed exemption as a second or subsequent sale in the State of Tamil Nadu. When the Appellate Assessment Commissioner remanded the matter, the AO confirmed the levy of purchase tax under Section 7A of the TNGST Act on finding that the petitioner’s vendors were non-existent dealers. The Appellate Assistant Commissioner quashed the levy, finding that the AO ought to have proceeded against the seller. The matter then reached the Sales Tax Appellate Tribunal, which restored the order passed by the AO.
Case Relied On:
The Kerala Premo Pipe Factory Ltd., vs. State of Kerala [57 STC 84]
Appearances:
Advocate P. Rajkumar, for the Petitioner/ Taxpayer
Advocate V. Prashanth, for the Respondent/ Revenue
