2008 (7) TMI 907 - HC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case the Trade Tax Tribunal was legally justified to annul the taxation order passed by the Deputy Commissioner (Executive) Bulandshahr under section 10B of the U.P. Trade Tax Act 1948 in as much as the order of the Deputy Commissioner (Executive) was based on proven facts found on survey dated August 25 1994 December 8 1994 and December 9 1994? Held that - The eligibility certificate granted in favour of the dealer-opposite party will grant exemption from trade tax only on such goods which were manufactured by the dealer-opposite party and not otherwise. A dealer may be a manufacturer and trader as well. Specified goods manufactured by a manufacturer holding eligibility certificate may not be liable to tax due to section 4A but it does not mean that such person cannot be taxed for other business activities which are otherwise taxable under the Act. In other words grant of eligibility certificate grants exemption from trade tax liability in respect of the manufactured goods mentioned therein only. The first appellate authority was perfectly justified to restore the matter to the assessing officer to reframe the assessment order taking into consideration the facts as noted in the survey dated August 25 1994 and the Tribunal was not justified to set the order of the first appellate authority aside. In this view of the matter the Tribunal has committed a legal error in allowing the appeal and setting aside the order passed by the Deputy Commissioner (Executive) in exercise of the powers under section 10B of the Act.The question of law raised in the memo of revision is therefore decided in favour of the Department and against the assessee and it is held that the power was rightly exercised by the Deputy Commissioner (Executive) under section 10B of the Act. The Tribunal was not correct in setting aside the said order. Revision allowed.

Summary

Issues Involved:
1. Interpretation of eligibility certificate under section 4A of the U.P. Trade Tax Act, 1948.
2. Validity of the Trade Tax Tribunal's decision to annul the taxation order passed by the Deputy Commissioner (Executive).
3. Applicability of exemption from trade tax to a dealer holding an eligibility certificate for specified goods.
4. Legal error in the Trade Tax Tribunal's decision to allow the appeal and set aside the order of the Deputy Commissioner (Executive).

Interpretation of Eligibility Certificate under Section 4A:
The case involved a dealer who was a manufacturer of M.S. round flat blades and held an eligibility certificate under section 4A of the U.P. Trade Tax Act, 1948. The assessing officer initially declared the dealer as not assessable for the assessment year 1994-95. However, the Deputy Commissioner (Executive) found the assessment order improper based on facts from a survey and set it aside for a fresh assessment. The Tribunal allowed the dealer's appeal solely based on the eligibility certificate without considering the nature of goods covered. The High Court highlighted that the exemption under section 4A applies only to goods manufactured by the dealer holding the certificate, not to all trading activities. The judgment emphasized that a person must be a manufacturer to be entitled to the exemption and that trading activities may still be taxable under the Act.

Validity of Trade Tax Tribunal's Decision:
The Trade Tax Tribunal's decision to annul the taxation order passed by the Deputy Commissioner (Executive) was challenged. The Tribunal had set aside the Deputy Commissioner's order based on the dealer's eligibility certificate without considering the specific goods covered by the certificate. The High Court found that the Tribunal erred in allowing the appeal solely on the grounds of the eligibility certificate without analyzing the nature of the dealer's activities. The judgment emphasized that the exemption from trade tax applies only to goods manufactured by the dealer holding the eligibility certificate and not to all business activities, including trading. Therefore, the High Court held that the Tribunal's decision to set aside the Deputy Commissioner's order was legally incorrect.

Applicability of Exemption from Trade Tax:
The case revolved around the applicability of exemption from trade tax to a dealer holding an eligibility certificate. The Tribunal had allowed the dealer's appeal based on the eligibility certificate without considering the specific goods covered by the certificate. The High Court clarified that the exemption under section 4A of the Act is limited to goods manufactured by the dealer holding the certificate and does not extend to all business activities. The judgment highlighted that while specified goods manufactured by the dealer may be exempt from tax, other taxable activities of the dealer are not automatically exempt. Therefore, the High Court found that the Tribunal's decision to grant blanket exemption based on the eligibility certificate was legally incorrect.

Legal Error in Tribunal's Decision:
The High Court concluded that the Trade Tax Tribunal committed a legal error in allowing the appeal and setting aside the order of the Deputy Commissioner (Executive). The Tribunal had focused solely on the dealer's eligibility certificate without considering the specific goods covered by the certificate. The judgment emphasized that the exemption from trade tax applies only to goods manufactured by the dealer holding the certificate and not to all business activities. Therefore, the High Court held that the Tribunal's decision was legally flawed, and the order of the Deputy Commissioner (Executive) was reinstated.