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Chittarmal Ram Dayal Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case NumberS.T.R. No. 477 of 1977
Judge
Reported in[1983]52STC18(All)
AppellantChittarmal Ram Dayal
RespondentCommissioner of Sales Tax
Appellant AdvocateBharatji Agarwal, Adv.
Respondent AdvocateStanding Counsel
Disposition Petitionallowed
Cases ReferredState of Madras v. V.P.S.A. Narayana Nadar
Excerpt:
- - the assessing authority rejected the account books of the assessee and determined the turnover to best of judgment. 7. the learned standing counsel has placed strong reliance on the bombay decision, which has been the inspiration for the direction by the revising authority. the adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon sub-section (3) of section 14, since the assessee failed to prove that the very goods purchased against certificate in form 15 were utilised in the production of goods which were sold in accordance with the declaration contained in the said certificates, the price of all the purchases made against such certificates would be liable to be included in his turnover of purchases......be so whether it is manufactured as provided in sub-section (2) or otherwise. similarly, sale of goods notified whether manufactured out of raw material obtained against the recognition certificate or otherwise is a sale of notified goods, but the benefit of concessional rate of tax on the purchase of raw material is available only if condition of sub-section (2) has been complied. sale of oil is sale of notified goods whether it is manufactured by an assessee out of oil-seed obtained against the recognition certificate or otherwise. the penalty under sub-section (6) of loss of concessional rate of tax is to be considered in respect of only such oil as is manufactured out of oil-seed purchased under sub-section (2) and not to oil produced out of oil-seed obtained from other source. so.....
Judgment:

R.M. Sahai, J.

1. The following question of law was referred for opinion of this Court :

Whether or not the assessee was entitled to pay purchase tax on the first purchase of oil-seeds of Rs. 1,63,87,738 at the concessional rate of tax of 2 per cent being a holder of recognition certificate under Section 4-B of the Sales Tax Act

2. As the law has been amended, the reference is converted and decided as revision.

3. The facts giving rise to the revision are that the assessee runs an oil mill at Agra. Its premises were surveyed on 5th June, 1970, by the Sales Tax Officer (S. I. B.). The surveying officer found that the assessee maintained oil tank measurement register, commonly known as dip register (exhibit 3), and oil production register and as the figures of these two registers did not tally he submitted a report that the assessee was suppressing production of oil. The assessing authority rejected the account books of the assessee and determined the turnover to best of judgment. In appeal the order was set aside and the case was sent back for decision afresh. In revision, the accounts were accepted, but the order of remand was upheld as the -claim of the assessee that it was not the first purchaser of oil-seeds and therefore not liable to pay tax was not examined. From this the assessee is not aggrieved. But, while considering the alternative case that even if the assessee is held to be the first purchaser of oil-seed it was entitled to the concessional rate of 2 per cent as it held recognition certificate, the revising authority issued direction that as the oil produced by the assessee must be deemed to have flown from both the sources, that is, oil-seed purchased against recognition certificate and otherwise, the proportionate formula laid down by the Bombay High Court in Commissioner of Sales Tax v. Berar Oil Industries [1975] 36 STC 473 may be applied. The as,sessee is aggrieved against this direction.

4. The occasion for direction arose as sale of oil was higher as compared to oil extracted from oil-seed purchased against recognition certificate and the assessee did not maintain separate account of oil extracted from oil-seed purchased against recognition certificate and otherwise. The benefit of concessional rate therefore could be granted on proportionate basis laid down by the Bombay High Court and not as provided by the Madras High Court in S. Rathinaswamy Chettiar v. State of Madras [1962] 13 STC 419 because the Madras decision was set aside by the Supreme Court in State of Madras v. V.P.S.A. Narayana Nadar & Co. (1968) IT & TC 25 (SC).

5. It has been found and there is no dispute that in the year in dispute the assessee sold 33,37,244-525 quintals of oil whereas it had purchased 90,05,417-000 quintals of oil-seed against recognition certificate out of which only 30,97,963-448 of oil was or could be produced (admitted percentage of yield being 34 per cent). The sale of oil being more than oil extracted from oil-seed purchased against recognition certificate it was obvious that oil-seed apart from 90,054,17-000 quintals was purchased, could the assessee in these circumstances claim that sale of oil being more than what it should have been it was entitled to pay concessional rate of tax on purchase of oil-seed This necessitates examination of Section 4-B, as it stood in the year in dispute. The relevant subsections (2), (5) and (6) are quoted:

(2) A dealer who requires any goods referred to in Sub-section (1) for use as raw material for the purposes of manufacture in the State of Uttar Pradesh of any notified goods, and such notified goods are intended to be sold by him in the State or in the course of inter-State trade or commerce or in the course of export out of India, may apply within such period, and in such form and manner, as may be prescribed, to the assessing authority for the grant of a recognition certificate in respect thereof and if the applicant satisfies such requirements and conditions as may be prescribed, the assessing authority shall grant to the dealer in respect of such goods a recognition certificate in such form and subject 'to such conditions as may be prescribed.

(5) Where a dealer in whose favour a recognition certificate has been granted under Sub-section (2) has used the goods, after their purchase after payment of the tax at concessional rate under this section or, as the case may be, without payment of tax, for a purpose other than that for which the recognition certificate was granted or has otherwise disposed of the said goods, such dfiakr shall be liable to pay as penalty an amount--

(a) not less than the difference between the amount of the tax on the sale or purchase of such goods payable under Section 3, Section 3-A, Section 3-AA or Section 3-D as the case may be, and the amount of the tax payable at concessional rate under this section, where the goods are purchased after paying the tax at concessional rate, and

(b) not less than the amount of the tax payable under Section 3, Section 3-A, Section 3-AA or Section 3-D as the case may be, where the goods are purchased without payment of the tax, but not exceeding three times the amount of such difference or of the tax, as the case may be.

(6) Where a dealer in whose favour a recognition certificate has been granted under Sub-section (2) has sold the notified goods otherwise than in the State of Uttar Pradesh or in the course. of inter-State trade or commerce or in the course of export out of India or has despatched such goods to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce or in the course of export out of India, such dealer shall be liable to pay an amount, which shall be equal to the difference between the amount of the tax on the sale or purchase of such goods payable under Section 3, Section 3-A, Section 3-AA or Section 3-D as the case may be, and the amount of the tax payable at concessional rate, under this section, where the goods are purchased after paying the tax at concessional rate, or which shall be equal to the tax payable under Section 3, Section 3-A, Section 3-AA or Section 3-D, as the case may be, where the goods are purchased without payment of the tax.

6. It is not disputed that oil is notified goods and as the assessee required oilseed which is a goods referred in Sub-section (1) as raw material for manufacture of notified goods and such notified goods were intended to be sold in State or in inter-State trade it was granted recognition certificate under Sub-section (2). The payment of concessional rate of tax could be denied if the assessee committed any breach as provided in Sub-section (5) or (6). It was found by the assessing authority that 2,77,78,916.60 quintals of oil over and above oil extracted but of oil-seed purchased against recognition certificate was sold through commission agency out of State and as the sale was of notified goods not in State or inter-State the assessee was not entitled to concessional rate. In other words, it committed breach of Sub-section (6) as sale was made otherwise than in the State or in the course of inter-State trade of notified goods. This does not appear to be correct. If Sub-section (6) is read in isolation it may result in the interpretation put by the assessing authority. According to him once sale has been made of oil which is notified goods out of State it is contrary to recognition certificate and no concession could be granted irrespective of the consideration whether oil sold was extracted out of oil-seed purchased against recognition certificate or otherwise. This however was very harsh view and was not accepted even by the revising authority. In the Bombay decision also, on which great reliance has been placed by the learned standing counsel and which shall be discussed later, such an interpretation was described as too technical and harsh and did not receive approval. The provisions of the Bombay Act were however slightly different. The requirement under Sub-section (2) (of Section 4-B) of the U. P. Act is that a dealer who requires any goods mentioned in Sub-section (1) for use as raw material for the purpose of manufacturing notified goods may apply for a recognition certificate. The goods manufactured out of the raw material should, however, be intended to be sold in the State or in the course of inter-State trade or commerce. The words 'such notified goods' are important. The requirement of selling in the State or in the course of inter-State trade or commerce is confined to such notified goods as are manufactured out of raw material obtained against the recognition certificate, and not to notified goods manufactured otherwise. In Sub-section (6) the words 'notified goods' have to be understood in the same sense as in Sub-section (2), that is, such notified goods as are manufactured out of raw material purchased against the recognition certificate. A reading of these two subsections together, therefore, hardly leaves any room for doubt that breach so as to disentitle an assessee from claming the benefit of concessional rate of tax should be in respect of goods manufactured out of raw material purchased against the recognition certificate. The reason is obvious. If a particular goods has been notified it shall continue to be so whether it is manufactured as provided in Sub-section (2) or otherwise. Similarly, sale of goods notified whether manufactured out of raw material obtained against the recognition certificate or otherwise is a sale of notified goods, but the benefit of concessional rate of tax on the purchase of raw material is available only if condition of Sub-section (2) has been complied. Sale of oil is sale of notified goods whether it is manufactured by an assessee out of oil-seed obtained against the recognition certificate or otherwise. The penalty under Sub-section (6) of loss of concessional rate of tax is to be considered in respect of only such oil as is manufactured out of oil-seed purchased under Sub-section (2) and not to oil produced out of oil-seed obtained from other source. So long as oil manufactured out of oil-seed obtained on concessional rate was sold in the State or in inter-State trade or commerce, the assessee was entitled to benefit under the law. The objective of Section 4-B is to encourage manufacture of notified goods and not to restrict it. It does not prohibit the assessee from manufacturing goods apart from raw material obtained against the recognition certificate. It would be contrary to the inherent purpose of encouraging manufacture of notified goods. In a case where production of oil or finished goods is more than what could have been out of raw material purchased against the recognition certificate, as is in this case, it should present no difficulty because the assessee having purchased raw material, manufactured goods out of it and sold it either in the State or inter-State, it complied with the recognition certificate and did not commit any breach of Sub-section (6). The department cannot be concerned with goods manufactured out of raw material purchased otherwise. The Act or the Rules do not restrict an assessee holding a recognition certificate from carrying on business otherwise. The anxiety should be to see that raw material obtained was not abused or utilised for a purpose other than that for which it was obtained. It is true that the assessee did not maintain separate account of extraction of oil from two sources but that does not make any difference as it having been established that oil extracted was more, the burden on the assessee stood discharged and it shall be taken that oil sold in the State or inter-State was out of oil extracted from oil-seeds obtained against the recognition certificate and the remaining was manufactured out of oil-seed purchased otherwise. In this view of the matter, the principle of determining liability on proportional extraction and sale does not arise.

7. The learned standing counsel has placed strong reliance on the Bombay decision, which has been the inspiration for the direction by the revising authority. It is, therefore, necessary to examine it. The facts of the case mentioned at page 475 are as under :

During the assessment period the respondents sold goods for the aggregate price of Rs. 2,50,00,145. Out of these total sales, sales of the aggregate value of Rs. 1,40,97,329 were in accordance with the declaration made by the respondents in the certificates in form 15 given by them while purchasing the raw materials, while sales of the aggregate value of Rs. 1,09,11,816 were sales not in accordance with such declaration, that is, had -the raw materials which had gone into the manufacture of such goods been purchased against certificates in form 15, the said sales would have been contrary to the declaration made in such certificate. For the sake of convenience we will refer to the first type of sales, namely, sales where, had the raw materials been purchased against certificates in form 15, the condition of such certificates would have been complied with, as 'qualifying sales' and the sales of the other type, namely, where, had the raw materials been purchased against certificates in form 15, the sales would have been contrary to the declaration contained in the said certificates, as 'non-qualifying sales'. On the figures aforesaid, during the assessment period the purchases made by the petitioners against certificates in form 15 were 59 per cent of their total purchases of raw materials, while the purchases of raw materials made otherwise than against certificates in form 15 were 41 per cent of their total purchases. So far as the sales made by the respondents are concerned their 'qualifying sales' were 56 per cent of the total sales effected by them during the period of assessment, while their 'non-qualifying sales' were 44 per cent of the total sales.

8. It is apparent that the goods manufactured out of raw materials purchased against recognition certificates were contrary to the Act as purchases against recognition certificates were of 59 per cent whereas sales were of 56 per cent, therefore, it was not a case where notified goods produced out of raw material was more. In fact it was observed at page 478 :

In our view, in such a case the pro rata formula adopted by the Assistant Commissioner and approved by the Deputy Commissioner is a proper and rational formula to apply in estimating such turnover of purchases. The adoption of this formula is also not unfair to the assessee, for if one were to place an extremely strict construction upon Sub-section (3) of Section 14, since the assessee failed to prove that the very goods purchased against certificate in form 15 were utilised in the production of goods which were sold in accordance with the declaration contained in the said certificates, the price of all the purchases made against such certificates would be liable to be included in his turnover of purchases. The pro rata formula avoids this harsh result.

9. With this enunication there is respectful agreement but as pointed out above it shall apply in a case where sales of notified goods is less than what it should have been and not where it is more.

10. In the result, this revision succeeds and is allowed. The question of law raised by the assessee is decided by saying that in case it is held that the assessee is the first purchaser he shall be entitled to the benefit of concessional rate of tax at 2 per cent as provided under Section 4-B. The assessee shall be entitled to its costs, which is assessed at Rs. 300.


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