M/S. JHUNJHUNWALA AND ORS. versus STATE OF U.P. AND ORS.

Citation: [2006] SUPP. 6 S.C.R. 549 · Decided: 22-09-2006 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Disposed off

Judgment (excerpt)

, 
MIS. JHUNJHUNWALA AND ORS. 
A 
\I. 
STATE OF U.P. AND ORS. 
SEPTEMBER 22, 2006 
[ARIJIT PASA VAT AND S.H. KAPADIA, JJ.] 
B 
Tax/Taxation: 
Uttar Pradesh Trade Tax Act, 1948-Sections 2(ee) and 3AAAA-
liability to pay tax as "manufacturer"-Circu/ar issued by Commissioner of C 
Trade Tax covering the commission agent under expression 'manufacturer" 
when definition of "manufacturer" under the Act not saying so-Effect of 
circitlar~Held: Circular cannot be a substitute for factual determination of 
tax liability-Assessment under challenge set aside since it was wrongly 
done solely on the basis of view expressed in the Circular. 
Appellants are dealers registered with the concerned trade tax authority 
under the Uttar Pradesh Trade Tax Act, 1948. As commission agents, they 
were selling timber grown by agriculturists and were therefore exempt from 
tax. But on account of an amendment in S.2(ee) of the Act w.e.f. 1-12-1988, 
D 
the Trade tax authorities proposed to levy tax on Appellants. Commissioner E 
also issued circular stating that purchasers from farmers who have grown, 
cut or sown timber, ballies and bamboos would be covered by expression 
'manufacturer'. Though the Appellants 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 and the circular, 
the High Court held that the definition of Section 2(ee) was wide enough to F 
cover the Appellant and that Section 3AAAA empowered the authorities to 
levy and collect tax. Hence the present appeal 
Disposing of the appeals, the Court 
HELD: LI. The High Court appears to have completely lost sight of 
challenge before it and went on to decide issues which are really not relevant. G 
1554-q 
1.2; According to the High Court, the object of enacting amendment to 
Section 2(ee) was to prevent evasion of tax. Even if the aforesaid object is in 
549 
H 
550 
SUPREME COURT REPORTS [20061 SUPP. 6 S.C.R. 
A any way relevant for the purpose of the present dispute, the object appears to 
be to levy tax on manufacturer-dealer. It was, therefore, necessary to be 
established that the seller was a manufacturer-dealer. Commissioner's 
circular could not have created a liability by drawing inference that the 
purchasers from farmers who have grown, cut or sown timbers, ballis, 
B 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 
C 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 definitiun of 
"Manufacturer" are the sale of goods "after their manufacture". The 
expression "manufacture" cannot cover types of transactions referred to in 
the commissioner's circular. Whether an activity amounts to manufacture 
D has to be factually determined. There cannot be a direction to treat a part1~ular 
type of transaction to be a manufacturing activity without examining the factual 
scenario. There cannot be a generalization in such matters. 
ISS4-E-H; SSS-A-Bf 
2. The argument of the State that purchases from a person who is not 
E a registered dealer i3 also liable to tax in terms of Section 3-AAAA of the 
U.P. Trade Tax Act and that the circular is in order is not acceptable for the 
simple reason that in Section 3-AAAA the sine qua non for liability is that 
the goods must be liable to tax under the Act. That aspect has to be factually 
determined. The Commissioner's circular is not and cannot be a substitute 
F for such determination. The assessments in these cases appear to have been 
done solely on the basis of the view expressed in the circular. ISSS-C, DI 
3. The assessments/appellate orders under challenge are therefore set 
aside and the assessing officer is directed to consider the case of the 
appellants without treating them to be manufacturers for the purpose oflevy 
G of tax, solely on the basis of the Circular. [SSS-El 
H 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3019 of 2004. 
From the Judgmen

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