MIS. PEEKA Y RE-ROLLING MILLS (P) LTD v. THE ASSISTANT COMMISS!ONER & Anr.

A violates Section lS of the Central Act has to be examined. In other words, it needs to be found out whether not collecting the tax amount pursuant to the exemption necessarily implies that there was never any levy to begin with, as has been contended by the respondent. For if this is indeed the position, then there would be no infirmity with the levy of tax made under Section SA of the State Act in respect of the declared goods, since the exemption would negate B the levy and consequent liability to pay tax. However, ifthe exemption does not affect the liability to tax and operates subsequent to the levy, as the appellant has contended, then the tax under Section SA of the State Act would fall foul of the conditions of Section lS of the Central Act. (Para 24) (197-E-GJ C

#3. The Division Bench erroneously distinguished Shanmuga 's case from the present circumstances. There is no substantial difference between Shanmuga 's case and the present one. Both cases involve the condition of a single stage tax fixed at the point of first sale, which was exempted and the subsequent sale being taxed. The distinction sought to be brought in by the impugned judgment is that Shanmuga 's case involved the "point of first sale" D and not the "point of first taxable sale". It is true that the Second Schedule of the State Act fixes the point of tax at "the point of first sale in the state by a dealer who is liable to tax under Section S". However, the addition of the words 'liable to tax under Section S' does not make any difference because exemption does not negate the liability to tax, which continues regardless. The only other E difference is that in Shanmuga 's case, it was a circular which clarified that the subsequent sale would be taxed, whereas the present case does not involve any such clarification by way of a circular, but a direct claim for tax under Section SA of the State Act. This difference is insignificant as well. Shanmuga 's case has made it clear that exemption at the point of first sale does not affect the liability to tax and any subsequent levy on the goods would fall foul of the conditions of the Central Act. This position is equally true whether the subsequent levy is by way of a circular or directly under Section SA of the State Act - since both are required to comply with the conditions of the Central Act. The reasoning of this Court in the Shanmuga 's case is equally applicable to the present facts. (Para 29) (200-E-H; 201-A) F Shanmuga Traders v. State ofT.N., (1998) S SCC 349 and State ofTamil Nadu v. M.K. Kandaswami, (197S) 4 SCC 74S, relied on. Vasu General Traders v. State of T.N., (1987) 66 STC 3S8 and In Re: ,,,... Royal Steel Traders, (1992) 1 MTCR 580, referred to. G H PEEKA Y RE-ROLLING MILLS (P) LTD. v. THE ASS! ST ANT COMMNR. 189 .r.

4.1. The arguments raised by the respondelit have two aspects. They A contend that since the goods in question were exempt from tax at the first sale, no liability to tax attached on the seller. Additionally, it is also argued that since there was no collection of tax, there could be no 'levy' of tax. In both cases, the obvious implication that the respondent seeks to establish is that at the point of first sale, the seller was not liable to tax and, therefore, if a subsequent tax were to be levied on these goods, as Section SA of the State Act seeks to do, there is no violation of Section 15 of the Central Act . B (Para 34) (202-C-D)

4.2. The first aspect of the argument of the respondent is with respect to the impact of exemption upon the liability to tax. Exemption can only operate c when there has been a valid levy for, ifthere was no levy at all, there would be nothing to exempt. (Para 35) (202-E]

4.3. Exemption does negate a levy of tax altogether. Despite an exemption, the liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfill the liability is done away with. (Para 39] (204-A-BI D