Commissioner Commercial Tax vs S/S Tkaula Sugar Mills Ltd.

Heard Sri B.K. Pandey, learned Standing Counsel for the revenue and Sri Lokesh Mittal, learned counsel for the assessee.

Present revision is directed against the order dated 05.09.2012 passed by the Commerical Tax Tribunal, Muzaffarnagar Bench, Muzaffarnagar in Appeal No. 466 of 2011 for A.Y. 2005-06 (Entry Tax). By that order, the Tribunal has allowed the appeal filed by the assessee and deleted the disputed demand of entry tax made from the assessee on the value of different quantities of sugar manufactured and dispatched by the assessee without obtaining prior deposit of entry tax.

The present revision has been pressed on the following question of law:

"Whether under the facts and circumstances of the case, the Commercial Tax Tribunal was legally justified in affirming the order passed by the first appellate authority in setting aside the tax liability created under Section 12 of the U.P. Tax on Entry of Goods Act upon not realization of tax by the manufacturer from the purchaser?"

Briefly, the assessee is a manufacturer of sugar. By the assessment order dated 07.06.2011, the assessing authority made the best judgement assessment under the Central Sales Tax Act, 1956 and rejected the claim of inter-State sale made by the assessee. As a consequence, the dispatch of sugar made by the assessee, claiming it to be inter-State sale was disbelieved and assessed as local sale wherein the entry of goods had been caused into a different local area than Muzaffarnagar where the assessee's mill was situated. The liability of entry tax had been raised relying on provisions of Section 12 of the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007 (hereinafter referred to as the 'Act'). The Tribunal has deleted the demand of entry tax on the reasoning, if the goods had been taken to a different local area by the purchaser, the liability would be on such purchasing dealer and not the assessee-manufacturer.

Relying on Section 12(3) of the Act, learned Standing Counsel would submit that since the assessee had delivered the goods to the purchaser without recovering the due amount of entry tax, by virtue of Section 12(3) of the Act, the assessee would be liable to tax for that amount.

To that extent, it has been submitted that the earlier decision of this Court in Commissioner, Commercial Tax Vs. S/s Ashoka Flavors Pvt. Ltd.; 2014 TLD 229, relied upon by learned counsel for the assessee is per incurium as it does not consider the mandatory provisions of Section 12(3) of the Act.

Having heard learned counsel for the parties and having perused the record, it would be relevant to take note of the Section 12 of the Act:

"12. Realization of tax through manufacturer -- (1) Notwithstanding anything contained in any other provision of this Act, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer shall not deliver such goods to the purchaser unless the amount of such tax has been paid by the purchaser.

(2) The manufacture receiving the tax under sub-section (1) shall submit to the assessing authority a return in respect of the goods supplied, and the tax received, by him under sub-section (1) and deposit the tax so received in such manner and within such time as may be prescribed.

(3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax along with the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue.

(4) Where the Assessing Authority is satisfied that any goods referred to in sub-section (1) is lost or destroyed after its delivery by the manufacturer and before its entry into the local area, it shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid the tax under sub-section (1):

Provided that no claim for such refund shall be entertained after the expiry of six months from the date of the loss or destruction of the goods.

(5) Provisions regarding imposition of penalty in respect of amount of tax deducted under Section 34 of the Uttar Pradesh Value Added Tax Act, 2008 and provision regarding payability of interest under sub-section (2) of Section 33 of the said Act shall mutatis mutandis apply to amounts collected by manufacturers from purchasers under this section.

(6) The amount of tax deposited under this section shall be deemed to have been deposited for and on behalf of the dealer from whom such tax has been received. The manufacturer shall mention the amount of such tax in the tax invoice or sale invoice, as the case may be, issued to the purchasing dealer. It shall be deemed to be the proof for deposit of tax unless the tax invoice or sale invoice, as the case may be, is found forged or bogus or fake or not validly issued or obtained fraudulently."

Besides the reason adopted by the learned Single Judge in the case of Commissioner, Commercial Tax Vs. S/s Ashoka Flavors Pvt. Ltd. (supra), it further appears that Section 12 of the Act does not create any liability of tax on the manufacturer. It only burdens the manufacturer to ensure pre-payment of tax leviable and due from the purchasing dealer as a condition to give delivery of the goods to such purchasing dealer. Thus, Section 12(1) of the Act clearly stipulates that the purchasing dealer shall pay to the manufacturer the amount of entry tax payable on the goods before taking delivery of the goods from the manufacturer. It is this amount which may be required to be paid by the purchasing dealer by way of tax liability imposed on him. It has been required to be deposited by the manufacturer under sub-Section 2 of Section 12 of the Act.

Sub-Section 3 of Section 12 of the Act only provides a consequence of default committed by the manufacturer in depositing the amount of tax received by him. Thus, if a manufacturer fails to deposit the amount of entry tax received by him from the purchasing dealer, such manufacturer would expose himself to pay the tax amount so received by him together with interest and penalty as may be payable thereon.

Sub-Section 6 of Section 12 of the Act further clarifies the consequences of such deposit made by the manufacturer dealer whether under sub-Section 2 or sub-Section 3 of Section 12 of the Act. Thus, the deposit of tax made by the manufacture would always be deemed to have been deposited for and on behalf of the purchasing dealer and not the manufacturer.

Consequently, the effect of Section 12 of the Act is only to provide for a mode of pre-payment of tax liability by the purchasing dealer. It does not in any way shift the impost of tax from purchasing dealer to the manufacturer. Also, the provisions of Section 12(3) of the Act come into play only in the event of the manufacturer having collected from the purchasing dealer, the amount of entry tax due and having still failed to deposit the same for and on behalf of the purchasing dealer. That provision does not create any charge of tax on the manufacturing dealer who may have sold the goods and handed over their delivery to the purchasing dealer on the representation made by the latter that he was not intending to sell the goods outside the local area where the delivery of the goods had been obtained by him or in the course of inter-state trade. The fact that the purchasing dealer may have acted contrary to the representation made to the manufacturer may expose such purchasing dealer to further consequences without creating any charge or liability of tax on the manufacturer.

In view of the above, there is no error in the order passed by the Tribunal. Accordingly, the question of law as framed above is answered in the affirmative i.e. in favour of the assessee and against the revenue.

Present revision stands dismissed.