Ici
India Ltd. & Anr Vs. State of Orissa & Ors [2007] Insc 984 (28 September 2007)
Dr.
Arijit Pasayat & Tarun Chatterjee
CIVIL
APPEAL NOs.1193-1194 OF 2002 Dr. ARIJIT PASAYAT, J.
1.
These two appeals assail correctness of the judgment rendered by a Division
Bench of the Orissa High Court dismissing the writ petitions filed by the
appellants. The two writ petitions i.e. OJC 16928 of 1998 and 1500 of 2000 were
filed questioning correctness of the views expressed by the Sales Tax
Authorities that the appellants had contravened the declaration given in Form
IV to avail concessional rate as provided in the Orissa Sales Tax Act, 1947 (in
short the 'Act') and the Orissa Sales Tax Rules, 1947 (in short the 'Rules').
In the first writ petition challenge was to the appellate order passed by the
Assistant Commissioner of Sales Tax confirming the assessment made by the
assessing officer for the assessment year 1997-98, whereas in the second writ
petition challenge was to the assessment order passed by the Sales Tax Officer
for the assessment year 1998-99.
2.
Background facts sans unnecessary details are as follows:- The ICI India Ltd.
(hereinafter referred to as ''the assessee") is a company incorporated
under the Companies Act, 1956 having its registered office at ICI House, 34, Chowranghee
Road, Calcutta. It is engaged, inter-alia, in the business of manufacture and
sale of "Bulk Explosives". For the purpose of carrying on business at
Rourkela in the State of Orissa, the appellant has set up an
industry on Plot No. 77, Industrial Estate, Kalunga, and is registered as a
dealer with the Sales Tax officer, Rourkela II Circle, Panposh (Respondent No.3). The certificate of registration
granted under Section 9 of the Act indicates that the appellant requires,
amongst others, "Ammonium Nitrate" to be used for
manufacture/processing of "Bulk Premix" for sale. The appellant had
set up and commissioned its third bulk emulsion premix manufacture unit at Rourkela in April, 1997.
The
principal raw material for manufacture of "Bulk Premix" is
"Ammonium Nitrate Liquor". The principal supplier of the said raw
material is the Rourkela Steel Plant of the Steel Authority of India (in short
the 'SAIL') from whom the appellant purchases the same. The other raw materials
are either purchased locally or purchased centrally at Gomia in Bihar and the stock is transferred to its Rourkela Plant.
At the Rourkela Plant, all the raw materials are utilized for manufacture of
Emulsion Premix or Bulk Premix, which is an excisable product. For purchase of
raw material from the Rourkela Steel Plant, the appellant gives declaration in
Form No.IV to avail the concessional rate of tax @ 4%. It is an admitted case
of the parties that the "Bulk Premix" so manufactured at Rourkela is not sold as such because it is
an intermediary product which is used for manufacture of "Bulk
Explosive". This "Bulk Explosive" is not manufactured in the Rourkela plant of the appellant. So the
"Bulk Premix" is sent to its other branches at Angul (Talcher) and Belpahar
in the State of Orissa, for which the appellant has
obtained Sales Tax Registration, wherein the raw material has been mentioned as
"Bulk Premix", while the finished product is mentioned as "Bulk
Explosive". Apart from sending the "Bulk Premix" to its
different branches in the State of Orissa, the appellant also transfers/sells the goods outside the State.
3. For
manufacture of "Bulk Explosive", the "Bulk Premix"
is
carried in special tankers dedicated for such purpose to the actual blasting
site from the onsite support plants where the ingredient i.e. "Bulk
Premix" and other chemicals are mixed in proportion commensurate with the
character of the rock and/or other substances to be blasted. Such mixing in
right proportion takes places at the site of blasting and the resultant
manufacture being explosive is discharged into the bore holes at the mine
bench. It is at this stage that the "Bulk Premix" when mixed with the
other chemicals and discharged into bore holes becomes explosives and at that
stage the sale of explosives takes place and the sales tax and excise duty are
paid on such sale of "Bulk Explosive".
4. In
the assessment order for the year 1998-99, the assessing officer did not find
any violation of the declaration given by the appellant while purchasing
"Ammonium Nitrate", though the "Bulk Premix" has been
transferred from Rourkela plant to Talcher and Belpahar, i.e., inside the State
of Orissa, and did not make any addition for the same. But, for goods sent
outside the State of Orissa, the assessing officer was of the
view that the appellant had contravened the provisions of the 5th proviso to
Section 5(1) of the Act by furnishing wrong declaration as the goods
manufactured were not sold. For the year 1997-98, however, all transfers of
"Bulk Premix", whether inside or outside the State of Orissa, were
disallowed and it was held that the appellant has contravened the declaration
given in Form IV while purchasing the raw material. This order was confirmed by
the Assistant Commissioner of Sales Tax.
5.
Considering the rival stands taken before it, the High Court noted that the
only question that arose for consideration was whether the appellant who
purchased raw materials for manufacture/processing of "Bulk Premix"
for sale on the strength of declaration can be said to have violated the
declaration when the "Bulk Premix" was transferred to its different
branches for manufacture of "Bulk Explosive". The High Court held
that the Sales Tax Authorities were justified in demanding differential tax as
provided in the 5th Proviso to Section 5(1) of the Act on the raw material
(Ammonium Nitrate) purchased by furnishing declaration in Form IV by paying concessional
tax at the rate of 4%. The writ applications were accordingly dismissed.
6. In
support of the appeals it is stated by Dr. D.P. Pal, learned Senior Advocate
that the only question that arises for consideration is whether the raw
material i.e. "Ammonium Nitrate Liquor" was used for the purpose of
manufacturing "Bulk Premix" in the Rourkela factory? Such "Bulk Premix" is undisputedly the
raw material for manufacturing used in the manufacture of "Bulk
explosive". Such products were for sale and were actually sold. Even if
the "Bulk Premix" gets transferred outside the State of Orissa for being further used in the manufacture
of a final product i.e. "Bulk Explosive", there is no contravention
of the 5th proviso to Section 5(1) of the Act. Raw materials purchased at concessional
rate of tax would be liable to tax at the full rate prevailing on the following
conditions satisfied :
(1)
The dealer must be a registered dealer.
(2)
The goods or class of goods must be specified in its certificate of
registration as being intended for use within the State of Orissa by him in the
manufacture/processing of goods for sale.
(3) The
goods so manufactured must be sold.
(4)
The purchasing dealer must furnish a declaration in Form IV.
In
case the goods so purchased are used for any other purpose or utilized outside
the State of Orissa, the dealer shall pay the
differential tax on the goods.
7. It
was pointed out that there is no dispute or controversy that the raw material
i.e. "Ammonium Nitrate Liquor" has been used within the State of Orissa by the appellant in the manufacture
of goods namely "Bulk Premix". But the "Bulk Premix" so
manufactured gets further processed for the manufacture of the final product
i.e. "Bulk Explosives" which undisputedly was for sale and is
actually sold. It is submitted that law does not require that the final
products which are for sale should to be sold within the State of Orissa. Reliance is placed on Paragraphs
11 and 18 of M/s. Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner,
Sales Tax and Another (1978(1) SCC 636) to support the argument. Reference is
also made to J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. S.T.O., Kanpur,
and another (1965 (16) STC 563) which related to meaning of expression "in
manufacture of goods" appearing in Section 8(3) (b) of the Central Sales
Tax Act, 1956 (in short the 'Central Act') which, according to appellant is in pari
materia with the 5th proviso to Section 5 (1) of the Act.
Reference
is also made to decision of the Orissa High Court in Indian Aluminium Co. Ltd.
v. S.T.O. (1993) 90 STC 410) for this purpose. It is, therefore, submitted that
so long as the goods, that is, the intermediary products are manufactured
within the State of Orissa but are used in the manufacture of final product
either in the State of Orissa or outside, the raw materials have been used for
manufacture of goods for sale, and there is no contravention of the 5th proviso
to Section 5 (1) of the Act.
8. Per
contra, learned counsel for the respondent-State and its functionaries
submitted that the factual position as noticed by the Authorities and the High
Court clearly shows that the 5th proviso to Section 5(1) is clearly attracted.
The said provision pertains to tax concession. When the claim concessions are
under consideration, these provisions have to be construed strictly. The
appellant is in the business of manufacture and sale of "Bulk
Explosive", which has several uses in Orissa. "Bulk Premix" is
used as raw material for manufacture and sale of "Bulk Explosive" as
per the Certificate of Registration. However, so far as the Rourkela unit is concerned, the company has
different Certificate of Registration and it is admitted that the appellant
manufactures only "Bulk Premix" in this unit. In the Certificate of
Registration it is mentioned that raw materials purchased would be used in the
manufacture of "Bulk Premix". Though certificate also mentioned about
"machineries for explosives" before the High Court it was conceded
that it is a mistake and assessee does not manufacture "Bulk
Explosives" in the Rourkela Unit. Thus the appellant purchases raw
materials mainly from SAIL in Orissa and other raw materials in Bihar and had manufactured "Bulk Premix" in
their Rourkela Unit. Undisputedly, appellant gave declaration in Form IV for concessional
rate of tax i.e. 4%.
Admittedly,
the appellant did not sell "Bulk Premix" manufactured by it and the
same is used after stock transfer for manufacture of "Bulk Explosive"
in other units in Orissa and places outside the State.
9. It
is submitted by the revenue that the stress is on use of the goods purchased in
the manufacture/process of "goods for sale". By not selling
"Bulk Premix" and instead effecting stock transfer for manufacturing
of "Bulk Explosives" for sale, there is clear violation of the first
limb of the 5th proviso to Section 5(1) and therefore second limb of the
proviso is attracted making the assessee liable to pay the differential tax on
goods.
10.
The First proviso to Section 5(1) is conceptually different from Section 8(3)
of the Central Act. While the Act used the expression "within the State of
Orissa" the Central Act does not have
any such restriction. This is inevitable because in respect of the Central Act,
the sale has to be outside the State.
The
use of the expression "within the State of Orissa" in 5th proviso makes the position clear that the raw
materials purchased must be used for manufacture of goods in the State of Orissa for sale.
11.
Entry serial No. 48 of List C, is quoted below :- "Goods of the class or
classes specified in the certificates of registration of the registered dealer
purchasing the goods as being intended for use by him in the manufacture or
processing or packing of goods for sale or in mining or in the generation or
distribution of electricity or any other form of power subject to the
production of true declaration by the purchasing registered dealer or his
authorized agent in Form IV."
12.
The 5th proviso to section 5(1) of the Act reads as under :- "5. Rate of
tax (1) The tax payable by a dealer under this Act shall be levied on his
taxable turnover at such rate, not exceeding twenty five percent, and subject
to such conditions as the State Government may, from time to time, by
notification specify:
xx xx xx
Provided further that where a registered dealer purchases goods of the class or
classes specified in his Certificate of Registration as being intended for use
within the State of Orissa by him in the manufacture or processing of goods for
sale or in mining or in generation or distribution of electricity or any other
form of power at concessional rate of tax or free of tax after furnishing a
declaration in the prescribed form, but utilizes the same for any other purpose
or outside the State of Orissa, he shall pay the difference in tax or the tax,
as the case may be, payable had he not furnished the declaration."
13.
Form IV, which is appended to the list of taxable goods, is in the following language
:- "I/wehereby declare that the goods purchased by me/us in ash Memo/Bill
Nodated the fromshall be used in the manufacture/processing or packing of goods
for sale in mining/generation or distribution of electricity or any other form
of power. Dealer/Auhorised Agent."
14.
The 5th proviso to Section 5(1) indicates the purpose for which the goods are
intended to be used i.e. for manufacture/processing of goods for sale. In the
instant case the raw material purchased for manufacture of "Bulk
Premix", has not been used for any other purpose. But the manufactured
product i.e. "Bulk Premix" has not been sold but has been transferred
to other branches of the appellant situated inside as well as outside the State
of Orissa.
15. As
noted above the Certificate of Registration indicates that the raw materials
purchased would be utilized in the manufacture of "Bulk Premix".
There is also a mention about "machinery for explosive". Though it
was contended by the appellant that the same is the mistake of fact and the
only thing which is intended to be produced at Rourkela is "Bulk
Premix", it is conceded that the "Bulk Premix" manufactured had
not been sold but has been sent to different places for manufacture of other
goods i.e. "Bulk Explosive". The position is factually different from
that under consideration in Indian Aluminum's case (supra) as the appellants
instead of selling the manufactured goods transferred it to other places for further
manufacture of "Bulk Explosive". The transfer clearly falls within
the expression "any other purpose" mentioned in the 5th proviso to
Section 5(1) of the Act. As the goods manufactured have not been sold but have
been transferred, there is a violation of the terms of the declaration and the assessee
has been rightly held to be liable for payment of the differential tax payable
on the raw materials purchased at concessional rate of tax by 4% paid by
furnishing Form IV.
High
Court's impugned judgment, therefore, does not warrant any interference. It may
be noted that the High Court made some observation about what would have been
the consequence had there been mention of final product in the Certificate of
Registration of the appellant.
16.
Learned counsel for the respondent-State submitted that the observations of
High Court are erroneous. Though learned counsel for the appellants also
referred to the observation to support their stand, we make it clear, that we
have not expressed any opinion about the correctness of the said view as that
does not really fall for determination in the present case.
17.
The appeals fail and are accordingly dismissed.
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