Madras HC: Buyer Not Liable for Purchase Tax Under Section 7A TNGST Act Due to Seller's Non-Payment

The Madras High Court has delivered a significant judgment clarifying the scope of purchase tax liability when a selling dealer defaults on their tax obligations. In the matter of M/s Light Roofing Limited v. State of Tamil Nadu & Ors., the Court ruled that the purchase tax provisions under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) cannot be invoked against a purchaser simply because the vendor failed to remit the tax collected or payable.

The Court emphasized that Section 7A is a specific charging section applicable only when goods are purchased in circumstances where "no tax is payable." It does not cover situations where tax was legally payable by the seller but remained unpaid due to default.

Factual Matrix

The case involved M/s Light Roofing Limited (hereinafter referred to as the "Assessee"), a manufacturer of Asphalt Roofing Sheets. The Assessee was registered under the TNGST Act for the assessment years spanning 1993-1994 through 1996-1997.

During the course of business, the Assessee procured asphalt from various vendors, specifically Sri Vinayaga Agencies and Sri Mahalakshmi Agencies. The Assessee utilized these raw materials in their manufacturing process and subsequently paid the requisite sales tax on the sale of the finished goods. The Assessee maintained comprehensive records, including sale bills, payment proofs via cheques, and transport documentation.