IMPORTANT POINT
A circular issued Under Tax Statutes can not create tax liability.

Headnote:Uttar Pradesh Trade Tax Act, 1948—Section 2(ee) r/w Circular dt. 13-12-2000 issued by Commissioner of Trade Tax—Liability to pay tax as “manufacturer”—Appellants were doing commission business of horticulture produces of agriculturists and they, as commission agents, were selling timber grown by agriculturists—Tax authorities levied tax—Writ petition challenging levying of tax on plea that petitioners could not have been treated as manufacturers of timber—High Court dismissed writ on basis that definition of manufacturer was wide enough to cover case of appellant—Appeal—It was necessary to be established that seller was a manufacturer-dealer—Commissioner’s circular could not have created a liability by drawing inference—Crucial words in the definition of “manufacturer” was sale of goods “after their manufacturer”—Expression “manufacture” could not cover types of transactions referred to in Commissioner’s circular—Impugned order was liable to be set aside.
Held : It was, therefore, necessary to be established that the seller was a manufacturer-dealer. Commissioners circular could not have created a liability by drawing inference that the purchases from farmers who have been grown, cut or sawn timbers, ballis, bamboos will brings them within the umbrella of expression manufacturer. The view that tax liability has been prescribed at the manufacturers and importers points and therefore after the amendment traders who purchase the timber from unregistered dealers fall within the category of manufacturer is indefensible. There is no logic for such a conclusion, where the statutory definition does not say so. It needs no emphasis that the circular cannot create tax liability. That is precisely what has been done which the High Court has failed to notice. Therefore, to that extent the circular cannot be of any assistance for levying tax. The crucial words in the definition of "Manufacturer" is the sale of goods "after their manufacture". As noted above, the expression "manufacture" cannot cover types of transactions referred to in the commissioners circular Whether an activity amounts to manufacture has to be factually determined. There cannot be a direction to treat a particular type of transaction to be a manufacturing activity without examining the factual scenario. There cannot be a generalization in such matters (Para 10)
We, therefore, set aside the assessments/appellate orders under challenge and direct the assessing officer to consider the case of the appellants without treating them to be manufacturers for the purpose of levy of tax, solely on the basis of the Circular.(Para 12)

JUDGMENT

Arijit Pasayat, J.—Leave granted in SLP (C) Nos. 5645 of 2005 and 5646 of 2005.

2. These appeals involve identical questions and, therefore, are taken up for disposal together. In each of the appeals challenge is to legality of the judgment rendered by a Division Bench of the Allahabad High Court holding that the appellant/each of the appellants, as the case may be, was liable to pay tax as "manufacturer" under Section 2(ee) of the Uttar Pradesh Trade Tax Act, 1948 (in short the Act). It was also held that the circular dated 13.12.2000 issued by the Commissioner of Trade Tax, was valid in law.

3. Background facts in a nutshell as projected in these appeals are as follows–

Writ petitioners who are the appellants are dealers registered with the concerned trade tax Authority under the Act and the Central Sales Tax Act, 1956 (in short the Central Act). The appellants claim to be doing business as commission agents to effect the commission business of horticulture produces of agriculturists. Earlier there was no levy of tax on their transactions under the Act. They, as commission agents, were selling timber grown by the agriculturists and were therefore exempt from tax. On account of the amendment of Section 2(ee) of the Act with effect from 1.12.1988 the Trade tax authorities proposed to levy tax purportedly on the basis of the amendment even though writ petitioners were selling timber grown by the agriculturists on their own land. It was submitted that there was no question of any liability to pay "trade tax" as they could not have been treated as manufacturers of timber even after the aforesaid amendment as well as the circular. The High Court proceeded on the basis that the definition of Section 2(ee) was wide enough to cover the case of the appellant. In any event it was held that Section 3-AAAA empowered the authorities to levy and collect tax. The circular of the Commissioner of Trade Tax was also held to be legal.

4. In support of the appeals, learned counsel for the appellants submitted that the High Court proceeded on entirely erroneous premises. There could be no question of any levy of tax unless the seller is a manufacture-dealer. The High Court proceeded on the basis as if their case is covered under Section 2(ee)(ii) of the Act. That provision applies to transactions between two registered dealers. No liability could have been created by a circular of the Commissioner. The definition of "Manufacturer" in terms of Section 2(ee) does not encompass the case of the appellants.

5. In response, learned counsel for the State of Uttar Pradesh submitted that a combined reading of Section 2(ee) and Section 3-AAAA makes the position clear that validity of the circular has been rightly upheld by the High Court.

6. In order to appreciate the rival submissions, the provisions of the Act and the circular issued by the Commissioner need to be noted. Section 2(e-1) defines "Manufacture" and Section 2(ee) defines "Manufacturer" while Section 3-AAAA deals with transaction regarding certain services. They read as follows:-

"2(e-1) Manufacture" means producing, making, mining, collecting, extracting, altering, ornamenting, finishing, or otherwise processing, treating or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed;

2(ee) Manufacturer in relation to any goods means the dealer who makes the first sale of such goods in the State after their manufacture and includes:

(i)a dealer who sells bicycles in completely knocked down form;

(ii)a dealer who makes purchases from any other dealer not liable to tax on his sale under the Act other than sales exempted under Sections 4, 4-A and 4-AAA."(Underlined for emphasis)

Section 3-AAAA. Liability to tax on purchase of goods in certain circumstances—Subject to the provision of Section 3, every dealer who purchases any goods liable to tax under this Act

(a)from any registered dealer in circumstances in which no tax is payable by such regist

Click Here to Read the rest of this document

2006 Supreme(SC) 890

IMPORTANT POINTA circular issued Under Tax Statutes can not create tax liability.

IMPORTANT POINT
A circular issued Under Tax Statutes can not create tax liability.