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IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE JURISDICTION

CIVIL  APPEAL  NO. 5586   OF 2008

[Arising out of SLP(C) No. 13500/2006]

M/S. M.J. TIMBER MERCHANT & COMM. AGENT ... APPELLANT(S)

:VERSUS:

STATE OF U.P. AND ORS. ... RESPONDENT(S)

O R D E R

Leave granted.

Appellant  herein  is  before  us  aggrieved  by  and  dissatisfied  with  the

judgment  and  order  dated  6.10.2004  passed  by  the  High  Court  of  Judicature  at

Allahabad in Civil  Misc. Writ Petition No. 1419 of 2004, whereby and whereunder a

Division Bench of the said Court dismissed the writ application filed by the appellant

on the premise that the matter was covered by a decision of that Court in  Bharat

Timber vs. State of U.P. and Ors., (2004 U.P.T.C. 613).  

..2/-

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It is now conceded at the Bar that the said decision of the High Court has

since been reversed by this Court in  Jhunjhunwala and Ors. vs.  State of U.P. and

Ors., [(2006) 8 SCC 196] opining:

“7.  The  Commissioner's  circular  dated  13-12-2000  which  was

impugned before the High Court reads as follows:

'... with regard to the above the tax payability has been prescribed

at the manufacturers and importers points, after promulgation of

Section 2(ee) of the Trade Tax Act such traders' purchases or sells

from  unregistered  traders,  fall  within   the  category  of

manufacturers.  Thus all the produce  purchased from the farmers,

timbers, ballis, bamboos, which are being grown, cut or sawing, but

their produce does not include burning woods have been purchased

and sold to other traders fall within the category of manufacturer

under Section 2(ee) of the Uttar Pradesh Tax Act.  Keeping in view

this provision after 1-12-1998 the payability of tax is made out on

the registered dealer who purchases  the above produce from the

unregistered traders'.

..3/-

8.  The  High  Court  appears  to  have  completely  lost  sight  of

challenge before it and went on to decide issues  which are really

not relevant.  It took note of para 3(c)(iii) of the counter-affidavit

filed  by  the  respondent  before  the  High  Court  which  reads  as

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follows:

'Many of the big dealers, sell after showing the purchase

from such alleged manufacturer-dealer who are not liable to pay

tax under the Act and do not pay tax because  of manufacturer-

dealer liable to pay tax, only if,  its sales exceed Rs 1 lakh in any

assessment year. To prevent the evasion of tax and in the interest of

revenue, these dealers have been  brought by bringing in amended

Section  2(ee)  so  as  to  include  such  within  the  definition  of

manufacturer'.

9. According to the High Court, the object of enacting amendment

to  Section  2(ee)  was  to  prevent  evasion  of  tax.   Even   if   the

aforesaid

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object is in any way relevant for the purpose of the present dispute,

the object appears to be to levy tax on  manufacturer-dealer and/or

manufacturer-dealer who did not pay tax as his turnover did not

exceed Rs 1 lakh in any assessment year.

10. It was, therefore, necessary to be established that the seller was

a manufacturer-dealer. The Commissioner's circular could not have

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created a liability  by drawing  inference that  the  purchases  from

farmers who have grown, cut or sawn timbers, ballis, bamboos will

bring 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

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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

Commissioner's  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 generalisation in such matters.”

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We have been taken through the writ petition filed by the appellant, from a

perusal  whereof  it  appears that  the validity  of  the said circular letter only was in

question before the High Court and not Section 2(ee) of the U.P. Trade Tax Act, 1948

as such.  

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Mr.  Krishnan  Venugopal,  learned  counsel  appearing  on  behalf  of  the

respondents, however, submits that the definition of “manufacturer” as contained in

Section 2(ee) of the Act must be held to have wide application as has been held by this

Court  in  Kumar Motors,  Bareilly  vs.  Commissioner  of  Sales  Tax,  U.P.,  Lucknow,

[(2007) 4 SCC 140] wherein another decision of this Court in Sonebhadra Fuels vs.

Commissioner, Trade Tax, [(2006) 7 SCC 322] has been referred to.   

When questioned, Mr. Jain, learned counsel for the appellant submits that

although the order of assessment passed against the assessee as for the financial year

2000-2001 has  not  been  questioned  in  the  High  Court  but  there  was  no  necessity

therefor as the appellant was asked to deposit the amount of security pursuant to the

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circular issued by the Commissioner of Trade Tax.  We do not find any such averment

in the writ petition.  We, therefore, do not intend to make any observation as regards

the correctness of the said statement or otherwise.  

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We, therefore, deem it fit and proper to set aside the impugned judgment

and remit the matter to the High Court for consideration thereof afresh on merit. The

appeal is disposed of with the aforementioned direction.

Before parting with the case, however, we must place on record that Mr.

Krishnan Venugopal,  learned counsel for the respondents submitted before us that

the order of assessment passed by the respondents has attained finality. It would be

open to the respondents to raise the said contention before the High Court.

..........................J. (S.B. SINHA)

..........................J.   (CYRIAC JOSEPH)    NEW DELHI, SEPTEMBER 8, 2008.