The Hon’ble Madras High Court in the case of M/s Light Roofing Limited v. State of Tamil Nadu & Ors. [W.P. Nos. 19625 to 19628 of 2008 and MP. Nos. 1, 1 & 1 of 2008, order dated November 03, 2025] held that purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959, does not arise on the purchaser merely because the vendor did not pay the tax, when the transaction is otherwise one in which tax is actually payable by the vendor under the Act.
Facts:
M/s Light Roofing Limited (‘the Petitioner’) is a manufacturer of Asphalt Roofing Sheets, registered under the TNGST Act during the assessment years 1993-1994 to 1996-1997. The Petitioner purchased asphalt from Sri Vinayaga Agencies and Sri Mahalakshmi Agencies.
State Revenue/Tamil Nadu Sales Tax Authorities (‘the Respondent’), upon inspection, found that these vendors did not discharge sales tax on the supplies made to the Petitioner. The Petitioner used these goods in manufacturing, paid applicable sales tax on sale of finished goods, and furnished sale bills, cheques, and transport documents.
The Petitioner contended that imposition of purchase tax under Section 7A is misplaced, as the section applies only when goods are bought “in circumstances in which no tax is payable”, and not when tax, though payable, is not paid by the vendor.
The Respondent contended that as the vendors failed to pay tax due on first-point sales, the purchase tax liability automatically shifted to the Petitioner under Section 7A.
The Petitioner, aggrieved by the confirmation of purchase tax by the Sales Tax Appellate Tribunal (STAT), approached the High Court through writ petitions to set aside the impugned orders, arguing that the Tribunal had misapplied Section 7A and ignored proper documentary proof.
Issue:
Whether purchase tax under Section 7A of the TNGST Act is attracted to the purchaser merely because the seller did not remit the tax?
Held
The Hon’ble Madras High Court in W.P. Nos.19625 to 19628 of 2008 held as under:
- Observed that, Section 7A of the TNGST Act is a separate charging section, as clarified by the Supreme Court in State of Tamil Nadu v. M.K. Kandaswami & Ors. [36 STC 191]
- Noted that, for levy of purchase tax to get attracted, the transaction must be in “circumstances in which no tax is payable”; this phrase does not encompass cases where tax is payable by the seller but remains unpaid.
- Observed that, the Petitioner’s vendors had turnover in excess of the threshold and were liable to pay tax as first sellers. The alleged non-remittance does not convert the purchase into a tax-free transaction triggering Section 7A.
- Noted the case of Kerala Premo Pipe Factory Ltd. v. State of Kerala [57 STC 84], holding that purchaser is not liable under parallel statutory provisions where the vendor is taxable, but fails to remit tax.
- Noted that, the Revenue, upon finding non-remittance of tax by the seller, ought to proceed against the seller, and not the purchaser, for recovery, failing which the attempt to levy purchase tax lacks jurisdiction and is unsustainable.
- Set aside the Tribunal’s order confirming purchase tax and allowed the writ petitions.
Our Comments:
The Madras High Court judgment in M/s Light Roofing Ltd. aligns largely with the Supreme Court’s seminal ruling in State of Tamil Nadu v. M.K. Kandaswami [(1975) 36 STC 191 (SC)]. The Apex court clarified that Section 7A is a charging and remedial provision meant to plug tax evasion but requires strict satisfaction of cumulative ingredients, including that goods purchased must be “taxable goods” whose sale or purchase is liable to tax, and the purchase occurs “in circumstances in which no tax is payable” under Sections 3, 4, or 5. The Court emphasized these concepts are distinct: “taxable person,” “taxable goods,” and “taxable event.” It rejected constructions that render Section 7A otiose or contradictory, highlighting that mere non-payment of tax by the seller does not ipso facto invoke purchase tax liability on the buyer. This accords with Madras HC’s rejection of imputing purchase tax liability simply because the vendor failed to remit tax.
In The Commissioner Trade and Tax Delhi vs. M/S Shanti Kiran India (P) Ltd [Civil Appeal No(S).2042-2047/2015 with Civil Appeal No: 9902 of 2017 order dated October 9, 2025] case recently decided by the Supreme Court, the Court dealt with a related but distinct issue under the Delhi VAT Act concerning Input Tax Credit to purchasers who paid tax to registered vendors who failed to remit it to the government. The Court upheld ITC benefits to bona fide purchasers who transacted with registered sellers having valid tax invoices and found that loss due to vendor default should be recovered from the defaulting seller, not from the purchaser. This principle resonates with Madras HC’s stance to protect bona fide purchasers from collateral tax liability and insists on targeting tax recovery at the defaulting seller.
Relevant Provisions:
Section 7A of the Tamil Nadu General Sales Tax Act, 1959:
“7-A. Levy of Purchase Tax.—
(1) Subject to the provisions of sub-section (1) of Section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under Section 3 or 4, as the case may be, not being a circumstance in which goods liable to tax under sub-section (2) of Section 3 or Section 4 were purchased at a point other than the taxable point specified in the First or the Second Schedule and either,-
(a) consumes or uses such goods in the manufacture of other goods for sale or otherwise; or
(b) disposes of such goods in any manner other than by way of sale in the State; or
(c) despatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in Sections 3 or 4, as the case may be.”
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