The Supreme Court last week dismissed the appeal of the Punjab government against the judgment of the high court allowing sales tax deduction for Perfect Synthetics, manufacturers of yarn.
The companys stand was that it bought raw materials from tax-exempted units within the state and used them in the manufacture of yarn. A majority of the yarn was sold intra-state and tax on finished goods was paid.
However, the department did not allow deduction in the taxable turnover on the ground that the goods bought by the company are liable to tax at the first stage of sale.
Since no tax on purchase of raw materials from exempted units has been paid, the company was not entitled to the deduction under Rule 29. The high court rejected the departments view and it has been upheld by the Supreme Court.