1977 (11) TMI 65 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the orders of penalty under Section 46(1)(ii) read with Section 56 of the Gujarat Sales Tax Act, 1969.
2. Determination of whether the appellant recovered tax from buyers.
3. Interpretation of "resale" under Section 2(26)(iii) of the Gujarat Sales Tax Act, 1969.
4. Impact of the Supreme Court decision in State of Tamil Nadu vs. Pyarelal Malhotra on the definition of "resale."
5. Entitlement to administrative relief based on the Supreme Court decision.

Detailed Analysis:

1. Legality of the Orders of Penalty Under Section 46(1)(ii) Read with Section 56 of the Gujarat Sales Tax Act, 1969:
The appeals arose from the orders passed by the Assistant Commissioner of Sales Tax (Asstt. CST), Ahmedabad, dismissing the appeals against the penalty orders issued by the Sales Tax Officer (STO) under Section 46(1)(ii) read with Section 56 of the Gujarat Sales Tax Act, 1969. The penalties were imposed for the periods 6th May 1970 to 31st March 1971, 1st April 1971 to 31st March 1972, and 1st April 1972 to 19th October 1972. The STO held that the appellant had recovered tax from buyers illegally and thus contravened Section 56, warranting penalties under Section 46(1)(ii).

2. Determination of Whether the Appellant Recovered Tax from Buyers:
The appellant contended that it had not recovered tax from the buyers, as tax amounts were not separately mentioned in the sale bills. Instead, the sale price was split into sale price minus sales tax and sales tax calculated at 3% in the sales register at the end of each month. The STO inferred that the appellant had recovered tax from buyers based on the separation of tax amounts in the sales register and payment of the same along with quarterly returns. However, the Tribunal found that merely splitting the sale price into components, including a tax element, did not constitute recovery of tax from buyers under Section 56.

3. Interpretation of "Resale" Under Section 2(26)(iii) of the Gujarat Sales Tax Act, 1969:
The appellant purchased ingots, billets, and scrap of iron and steel from registered dealers and manufactured bars and angles from these materials. The STO held that the sales of bars and angles were resales of purchased goods under Section 2(26)(iii) and thus not liable to tax. The Tribunal agreed with this interpretation, noting that the goods purchased and sold fell under the same head entry (Entry 3 of Schedule II Part A) despite being different sub-items.

4. Impact of the Supreme Court Decision in State of Tamil Nadu vs. Pyarelal Malhotra on the Definition of "Resale":
The Supreme Court decision in State of Tamil Nadu vs. Pyarelal Malhotra held that each sub-item in Entry No. (iv) of Section 14 of the Central Sales Tax Act, 1956, is a separate taxable commodity. Consequently, manufactured goods could be taxed again even if the raw materials had already been taxed. This decision implied that the definition of "resale" under Section 2(26)(iii) would apply only when purchased and sold goods fell under the same sub-item of Entry 3 of Schedule II Part A. The Tribunal acknowledged that this interpretation might affect the tax liability of the appellant's sales, necessitating a reassessment by the STO.

5. Entitlement to Administrative Relief Based on the Supreme Court Decision:
The appellant argued that the Tribunal should not consider the Supreme Court decision as the STO and Asstt. CST had already determined the sales as R.D. resales not liable to tax. However, the Tribunal emphasized that the question of penalty was interwoven with the legality of the tax recovered. If the sales were liable to tax under the Supreme Court decision, the appellant could seek administrative relief granted by the State Government. Consequently, the Tribunal remanded the matter to the STO to reassess the tax liability of the sales in light of the Supreme Court decision and determine the appellant's entitlement to administrative relief.

Conclusion:
The Tribunal allowed the appeals, setting aside the penalty orders and remanding the matters to the STO for reconsideration of the tax liability of the sales based on the Supreme Court decision. The STO was directed to determine whether the sales were liable to tax and, if so, to consider the appellant's entitlement to administrative relief. If the sales were not liable to tax, the penalty amounts were to be refunded to the appellant.