1. These writ petitions are filed to quash the orders of the first respondent dated 30th November, 1978, issuing a demand notice for payment of the balance of tax of Rs. 1,38,113 and Rs. 1,88,271 respectively, by way of provisional assessment for the six months period from 1st April, 1978, to 30th September, 1978.
2. The petitioners state that they are tanners and exporters of tanned hides and skins and they purchases raw hides and skins from various centres, and they are processed in the petitioners' tannery at Madhavaram. Under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called as the Act), raw hides and skins are taxable at the point of last purchase in the State under item 7(a) of the Second Schedule read with section 4, whereas dressed hides and skins are taxable at the point of first sale in the State under item 7(b) of the Second Schedule read with section 4.
3. It is stated that for the period 1st April, 1978, to 30th September, 1978, returns were filed by the petitioners in form No. A-2 claiming exemption regarding the local purchases of raw skins to the extent mentioned in the returns. In spite of such a claim made, since the impugned demands have been made without authority, the writ petitions have filed.
4. Mr. I. Subramanian, the learned counsel for the petitioners, would first contend that in view of the decision in State of Madras v. Narayanaswami Naidu : 3SCR622 dealing in respect of cotton, it has been clearly held that until the purchases made acquire the quality of being the last purchase inside the State, there cannot be a demand for payment of tax. He claims that the liability to pay tax would arise only when the purchase acquires the characteristic of last purchase in the State. Merely because during the provisional assessment made, the petitioner was still holding stocks of raw hides and skins in the first half of the assessment year, it could be premature to treat is as the last purchase, because at any time thereafter, before the end of the assessment year, he may in turn sell it to another dealer in the State and thereby the incidence or the characteristics of the last purchase would apply to only such a purchaser. He, therefore, contends that till the end of the year, it cannot be predicted as to whether the raw hides and skins in the possession of the petitioners, have acquired the characteristic of being the last purchase, within the meaning of the Act, and hence, except in such of those instances where the raw hides and skins have lost their character on being converted as dressed hides and skins and in turn sold, or in such of those cases where any portion of it had been otherwise converted, at the stage of provisional assessment, such stocks/purchase cannot be taken into account for imposition of tax.
5. In the counter-affidavit, it is stated that the place of business was inspected and it was found out that the petitioner had effected local purchases, and therefore, it was treated as last purchase liable to pay tax at 3 per cent under section 4 read with item 7(a) of the Second Schedule to the Act. It is also stated that large stocks have been kept idle at a time when there was acute demand for raw skins, and hence, it is for the petitioners to prove whether the purchases have acquired the character of last purchase or not.
6. There can be no dispute about the point of time as to when the liability to pay tax would arise in respect of raw skins and hides. It can be levied only when the last purchase in respect of particular consignment has taken place during the assessment year. The right to assess a dealer provisionally is no doubt available but even then, unless there are clinching materials to hold that the last purchase has taken place for a particular consignment within the period of provisional assessment and which would be the unaltered position when the assessment year ends, then alone demand for tax can be made even at this stage and not otherwise. At the end of the assessment year, if raw hides and skins purchased during the assessment year had not been sold away, then those stocks bear the characteristic of last purchase and tax can then alone be demanded for those consignments or stocks.
7. Hence a dealer in custody of raw hides and skins during the period of provisional assessment and had neither sold them nor converted them as dressed hides and skins, unless and until the assessment is over, it cannot be held that it has acquired the character of being the last purchase inside the State, as held by the Supreme Court in State of Madras v. Narayanaswami Naidu : 3SCR622 . During the second half of the assessment year he may in turn sell to another, who may also in turn sell to others during the assessment year. When such possibilities exist and there being no determinative event or element made out to conclude that the assessee herein has already become the last purchaser even during the first half of the assessment year, the mere fact that the petitioners were holding huge stocks at a time when there is demand for the goods in the market would not be a ground for the treating that last purchases had taken place and hence on provisional basis tax can be recovered.
8. The right to demand tax would arise only when there is a completed transaction in respect of raw hides and skins and the assessee should be the last purchaser. This characteristic, if liable to be altered or changed subsequent to the provisional assessment, but well before the the end of the assessment year, it would be premature to treat them as completed transactions, which come within the scope of item 7(a) of the Second Schedule, read with section 4 of the Act.
9. In these assessments, only on presumptions, demand for tax has been made and hence the impugned demands are set aside.
10. As stated earlier, if within the period of the provisional assessment, a finality had been reached in respect of any stocks of hides and skins, there can then be no impediment in demanding payment of tax from the concerned dealer in accordance with the provisions of the Act; for instance, if raw hides and skins are converted as dressed hides and skins, etc.
11. In this view, the impugned order are quashed, resulting in rule nisi made absolute. No costs.