TMI Blog1985 (8) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... did not maintain stock register as provided under rule 42(2) whether amounts to contravention and penalty could be imposed?" Non-petitioner No. 1, M/s. Gadia Textiles, Pali (the manufacturer), is a partnership firm of Pali carrying on the business of dyeing and printing cloth and selling it in the market. The case relates to the period July 26, 1972 to March 4, 1973. The cloth, i.e., cotton fabrics were exempt from levy of tax under section 4(1) of the Act. The subsequent period involved is March 5, 1973 to July 15, 1973. By a notification issued in exercise of the powers conferred by sub-section (2) of section 4 of the Act and in supersession of all previous notifications so far as they relate to the exemption of goods, the State Government by means of S.O. 129/F. 2(12)FD/Gr. IV/73/2 dated March 5, 1973 exempted from tax the sale or purchase of cotton fabrics, rayon or artificial silk fabrics, woollen fabrics, sugar and tobacco as defined in the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957). The C.T.O., Pali (assessing authority) passed an order dated October 1, 1976 which was an assessment-cum-penalty order. He did not levy any t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok in respect of raw materials and of finished goods', certainly the eight dealers had been assessed to 'nil' tax and the department had accepted their contention that the turnover was wholly of sales of exempted goods, namely, the textiles. If the assessing authority had made any observation that the total quantity of raw materials purchased is not commensurate with their use in the printing of exempted goods and some more raw materials must have been misused, one can understand about the imposition of penalty. In other words, the penalty has been imposed only on a technical ground that the stock register was not maintained. As the dealers were not liable to tax, since they dealt with only exempted goods, I do not think that these are fit cases to be admitted only for a technical omission to maintain stock registers when in the previous years no such warning was given asking the dealers to maintain such stock registers." Aggrieved, the assessing authority filed a special appeal. The Division Bench of the Board dismissed it on July 2, 1982. It relied on its earlier decision in Laxmi Misthan Bhandar's case 1978 RRD 533. The assessing authority submitted a reference application und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (k) which is as follows: "(k) 'manufacture' includes any process or manner of producing, collecting, extracting, preparing or making any goods but does not include such manufactures or manufacturing processes as may be notified by the State Government." "Taxable turnover" has been defined in section 2(s) as under: "(s) 'taxable turnover' means that part of turnover which remains after deducting therefrom the aggregate amount of the proceeds of sale of goods (i) on which no tax is leviable under this Act, (ii) which have already been subjected to tax under this Act, (iii) which have been sold to persons outside the State for consumption outside the State, and (iv) which are taxable at a point of sale within the State subsequent to the sale by the dealer and such sale is covered by a declaration as may be required under any provision of this Act or the Rules made thereunder: Provided that where a dealer in goods which are exempted from tax unconditionally, sells any bardana, container or any other packing material received along with such goods at the time of purchase thereof by him, the taxable turnover in respect of such sale shall, at the option of such dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r obtains goods from another dealer and immediately disposes of the same to the said customer or purchaser, the sale in respect of such goods shall be included in the turnover of the latter dealer alone." Section 3 of the Act is a charging section. It deals with incidence of taxation. The material part of section 3 for the present purpose is as under: "3. Incidence of taxation.-(1) Subject to the provisions of this Act, every dealer whose turnover in the previous year in respect of sales or supplies of goods exceeds- (a) ......................... (b) ......................... (c) ......................... shall be liable to pay tax under this Act on his taxable turnover." Section 4 relates to exemption. It is a provision which lays down that the Act does not apply to certain sales. We may read sub-sections (1) and (2) of section 4 of the Act. "4. Act not to apply to certain sales.-(1) No tax shall be Payable under this Act on the sale or purchase of any of the exempted goods if the conditions specified in column 3 of the Schedule are satisfied. (2) Where the State Government is of the opinion that it is necessary or expedient in the public interest so to do, the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act" and "tax shall be payable" deserve our pointed attention. In rule 42 the words used in both the sub-rules (1) and (2) are "liable to pay tax under the Act". We shall first examine the connotation of the word "liable". The word "liable" is generally/normally interpreted to mean, "exposed to a certain contingency or casualty, i.e., it means a future possibility, probability, happening which may or may not actually occur". The word "liable" ordinarily denotes (1) "legally subject or amenable to", (2) "exposed or subject to or likely to suffer from (something prejudicial)", (3) "subject to the possibility of (doing or undergoing something undesirable)". According to Webster's New World Dictionary also the word "liable" denotes "something external which may befall us". It is not in dispute that the cloth that was manufactured by the manufacturer during the periods under consideration was exempt from payment of tax either under section 4(1) or section 4(2) of the Act and since the cloth which is a cotton fabric which the manufacturer was dealing was exempt from payment of tax, he was not required to pay any tax on it or in other words the tax was not payable by him. But n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross turnover as well as the net turnover on which sales tax can be levied or imposed." (emphasis added) It has been laid down therein that there are three stages in the imposition of a tax; a declaration of liability as the starting point. If there is a liability to taxi imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. If there is no liability to tax, there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatever to the same. But for the exemption, the manufacturer in this case was required to pay tax under the Act on the cloth dyed and printed by him or in other words on the cloth manufactured by him, the tax was payable. Section 3 to our mind is a provision for levy of tax, if the conditions laid down therein are satisfied, then the dealer/manufacturer is liable to pay tax under the Act. It is a charging section. The liability to pay tax is dependen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the dealer/manufacturer under the Act. From a dealer/ manufacturer tax may not be payable because of exemption under the Act, none the less it cannot be said that he is not liable to pay tax under the Act. The view taken by the Board in Karani Dall Mills' case [1977] 11 TR 432 and K.D. Jhaveri's case [1978] 12 TR 395 and Dharam Chand Paras Chand's case [1978] 12 TR 286 is not correct as it is not based on the correct interpretation of the expression "liable to pay tax under the Act" as used in rule 42(1) or 42(2) of the Rules. The manufacturer (assessee) in this case was a manufacturer of cloth. He did business of dyed and printed cloth. He did not maintain stock book of the raw materials as well as of the finished goods. On his turnover section 3 of the Act was applicable and so he was liable to pay tax under the Act. But no tax was payable from him in view of the provisions of section 4(1) and the notification issued in exercise of the powers conferred by sub-section (2) of section 4 of the Act in respect of both the periods under consideration. As the manufacturer was liable to pay tax though no tax was payable from him as cotton fabrics were exempted from payment of tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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