Skip to content


Ahmedabad Steel Craft and Rolling Mills Vs. State of Gujarat - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtGujarat High Court
Decided On
Case NumberSales Tax Reference No. 20 of 1979
Judge
Reported in[1983]52STC227(Guj)
ActsCentral Sales Tax Act, 1956 - Sections 14; Gujarat Sales Tax Act, 1969 - Sections 2(26), 7, 46, 46(1), 56 and 69(1)
AppellantAhmedabad Steel Craft and Rolling Mills
RespondentState of Gujarat
Appellant Advocate R.D. Pathak, Adv.
Respondent Advocate J.U. Mehta, Assistant Government Pleader, i/b.,; Bhaishanker Kanga and Girdharlal
Cases ReferredState of Tamil Nadu v. Pyare Lal Malhotra
Excerpt:
.....not expressly mentioned in bill that sales price inclusive of sales tax - whether sales made by assessee liable to tax - facts revealed that no sales tax was included in sales price - held, such sale price could not be taken as comprehending collection of amount by way of tax. (ii) penalty - section 46 (1) (ii) of central sales tax act, 1956 - sales-tax officer levied penalty equal to amount shown to have been collected by way of sales tax - whether tribunal justified in ordering refund which had been recovered from assessee in form of penalties under section 46 (1) (ii) - facts revealed that no amount recovered by assessee by way of tax - held, tribunal right in ordering refund of penalty. - - the question of penalty is absolutely dependent upon the question of legality of tax..........tax officer. 4. the assessee thereupon carried the matters in further appeal before the gujarat sales tax tribunal ('the tribunal', for short). the contention on behalf of the assessee before the tribunal was that the assessee had not recovered any amount by way of sales tax and that as such it had not contravened the provisions of section 56 of the act so as to attract the penal provisions contained in section 46 of the act. the tribunal, while dealing with this contention, took note of the fact that the assessee had not recovered sales tax separately from the buyers as was evident from the bills issued to them by the assessee. however, in its books of account, the assessee had separately shown from month to month a portion of the amount collected as sale price as having been.....
Judgment:

Desai, J.

1. The assessee is a dealer registered under the Gujarat Sales Tax Act, 1969 (hereinafter referred to as the 'Act'). The assessee manufactures bars and angles out of iron and steel ingots, billets, scrap, etc., which it purchases from registered dealers. In the three assessment periods, namely, 6th May, 1970, to 31st March, 1971, 1st April, 1971, to 31st March, 1972, and 1st April 1972, to 19th October, 1972, the assessee effected sales of bars and angles. In the bills issued at the time of effecting those sales, no amount was separately mentioned as having been recovered as sales tax, nor was it mentioned in the bills that the sale price was inclusive of sales tax. In the books of account maintained by the assessee, however, entries were made whereunder a specific amount was bifurcated from month to month out of the amount recovered by way of sale price and it was separately shown as the amount of sales tax. At the time of furnishing the quarterly returns, the amount of sales tax worked out accordingly was paid along with the returns. In the assessment orders for the relevant periods, the Sales Tax Officer held that the sales of bars and angles were resales of goods (iron and steel) purchased by the assessee from registered dealers and that therefore those resales were required to be deducted from the assessee's turnover of sales of goods under section 7 read with section 2(26)(iii) of the Act. In view of the fact, however, that the assessee had in its books of account bifurcated and separately shown the amount of sales tax as aforesaid and paid such amount along with the quarterly returns for the relevant assessment periods, the Sales Tax Officer held that the assessee had acted in breach of the prohibition against collection of tax prescribed in section 56 of the Act and that, therefore, it was liable to be visited with penalty under section 46(1)(ii) of the Act. The Sales Tax Officer, therefore, levied penalty in sums equal to the amounts shown to have been collected by way of sales tax by the assessee during the three accounting periods. The amounts paid as sales tax along with the quarterly returns for the assessment period in question were adjusted against the penalty levied accordingly.

2. The assessee feeling aggrieved by the order imposing penalty carried the matters in appeal.

3. The appeals were heard by the Assistant Commissioner of Sales Tax who confirmed the order of the Sales Tax Officer.

4. The assessee thereupon carried the matters in further appeal before the Gujarat Sales Tax Tribunal ('the Tribunal', for short). The contention on behalf of the assessee before the Tribunal was that the assessee had not recovered any amount by way of sales tax and that as such it had not contravened the provisions of section 56 of the Act so as to attract the penal provisions contained in section 46 of the Act. The Tribunal, while dealing with this contention, took note of the fact that the assessee had not recovered sales tax separately from the buyers as was evident from the bills issued to them by the assessee. However, in its books of account, the assessee had separately shown from month to month a portion of the amount collected as sale price as having been recovered on account of sales tax and that the amount so shown was ultimately paid up along with the quarterly returns. Having noted this fact the Tribunal proceeded to observe as follows :

'The question is whether from these facts one can say that the appellant had recovered tax from the buyers so as to attract the provisions contained in section 56 of the Act. Mr. Vakil said that what the appellant had recovered from the buyers is the sale price which is composed of the cost of raw materials used in the manufacture, other costs, and the profit. He said that in other costs, the tax element would also be there. But from that fact we cannot say that the appellant had recovered any amount by way of tax from the buyers. What the appellant had recovered is only the sale price and nothing by way of tax. It may be that while fixing the sale price, tax element would be included therein but to come within the purview of section 56 of the Act, one should recover the amount by way of tax. Here the amount has not been recovered by way of tax and as such section 56 would not be applicable ..... We are of the view that in the present case also the appellant cannot be said to have recovered the tax from the buyers so as to attract the provisions of section 56 of the Act. Hence, penalty under section 46(1)(ii) of the Act cannot be levied.'

5. One should have thought that having arrived at the aforesaid finding the Tribunal would quash the orders of penalty and order refund of the amounts retained by way of penalty. Instead of adopting such course, however, the Tribunal observed that it was necessary to consider a further question, namely, whether in view of the decision of the Supreme Court in State of Tamil Nadu v. Pyare Lal Malhotra reported in [1976] 37 STC 319 (SC), the sales of goods in the shape of bars and angles effected by the assessee during the course of the three assessment periods could be subjected to sales tax as they could not be considered to be resales of the goods purchased, namely, iron and steel. The Tribunal considered this inquiry necessary because in Pyare Lal's case [1976] 37 STC 319 (SC), it was held that each sub-item in entry No. (iv) in section 14 of the Central Sales Tax Act, 1956, is a separate taxable commodity for the purpose of sales tax and that each of them forms a separate species for each series of sales although they may all belong to the genus, 'iron and steel'. The Tribunal was of the view that if there was no resale of the goods purchased the sale transaction would be liable to be taxed. The Tribunal then observed :

'In the case the question of applying the provisions of section 46 of the Act would not arise because in that case the appellant cannot be held to have recovered any amount by way of tax illegally (even assuming that the amount which has been spilt up as sales tax and which has been paid along with the quarterly returns is held to have been recovered from the buyers by the appellant) ........... If the Supreme Court's decision referred to above is interpreted to mean that the definition of 'resale' given in section 2(26)(iii) of the Act would be applicable only when the goods purchased and the goods sold would fall under the same sub-item of entry 3 of Schedule II-Part A to the Act, then the position would be that in this case even assuming that the appellant had recovered the tax on the sales made by it from the buyers; that tax has been rightly recovered and the appellant had rightly paid up that tax along with the returns. In that case, the question of penalty would not arise at all ....... So the question of legality of tax recovered and the question of penalty are interwoven. The question of penalty is absolutely dependent upon the question of legality of tax said to have been recovered .... We have held that the appellant had not recovered any amount by way of tax and so the order of penalty would be bad in law only when the sales made were not liable to tax. Thus the legality of the order of penalty would also depend upon whether the sales made by the appellant were liable to tax or not ..... So, the question of penalty and the question of levy of tax on the sales are inter-dependent and hence, we feel that the question of levy of tax on the sales made by the appellant requires to be decided in the light of the aforesaid decision of the Supreme Court ..... Therefore, in the interest of justice, all these matters should be remanded to the Sales Tax Officer for considering the point whether the tax was leviable on the sales made by the appellant in view of the Supreme Court decision reported in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319 (SC).'

6. The Tribunal, in the light of its aforesaid observations made the final order in the following terms :

'However, all these matters are sent back to the Sales Tax Officer to consider whether the sales made by the appellant are liable to tax in view of the Supreme Court decision reported in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319 (SC). If the sales are held not liable to tax, then the amount levied by way of penalty may be refunded to the appellant. If the sales are held liable to tax, the Sales Tax Officer shall then consider whether the appellant is entitled to administrative relief granted by the Government in view of the aforesaid decision of the Supreme Court and then decide the matters accordingly.'

7. The assessee felt aggrieved by the decision of the Tribunal and at its instance, the Tribunal has referred the following two questions of law for the opinion of this Court under section 69(1) of the Act :

(1) Whether, in the facts and circumstances of the case, the Tribunal was justified in remanding the matter back to the Sales Tax Officer for considering whether the sales made by the applicant are liable to tax in view of the Supreme Court decision in the case of State of Tamil Nadu v. Pyare Lal Malhotra as reported in [1976] 37 STC 319 (SC)

(2) Whether, in the facts and circumstances of the case, the Tribunal was justified in not ordering the refund of the amounts of Rs. 48,386, Rs. 23,689, and Rs. 18,510 to the applicant which had been recovered as penalties from it under section 46(1)(ii) of the Gujarat Sales Tax Act, 1969, in respect of the three periods in question

8. Section 56, sub-sections (2) and (3), of the Act which are relevant for the present purposes read as under :

'56. (2) no person selling any goods shall collect from the purchaser any amount by way of tax unless such person is a registered dealer and is liable to pay the tax in respect of such sale.

(3) Subject to sub-sections (1) and (2), no dealer shall collect any amount by way of tax in exercise of the amount of tax payable by him under the provisions of this Act in respect of any transaction.

Provided .......................'

9. It is apparent on a bare reading of this statutory provision that the prohibition is against collection from the purchaser of any amount by way of tax unless such person inter alia is liable to pay the tax in respect of such sale or against the collection of any amount by way of tax in excess of the tax payable by the dealer under the provisions of the Act in respect of any transaction. Section 46, in so far as it is relevant for the present purposes, reads as under.

'46. (1) If any person collects any amount by way of tax in contravention of the provisions of section 56, he shall be liable to pay, in addition to any tax for which he may be liable.

(i) a penalty equal to such amount as shall not be less than the amount so collected or more than double such amount, in a case where the Commissioner has reason to believe that such person has wilfully contravened the provisions of section 56, and

(ii) a penalty equal to the amount so collected, in any other case.'

10. It is apparent that the penal provision is attracted where 'any person collects any amount by way of tax in contravention of the provisions of section 56'. In other words, a person collecting any amount in breach of the prohibition contained in section 56 is liable to be visited with the penalty prescribed in section 46, sub-section (1).

11. In the instant case, the Tribunal having regard to the language of the relevant provisions and on the facts and in the circumstances of the case, came to a definite conclusion that the assessee had not recovered any amount by way of tax from the persons to whom it sold the goods in question and that the assessee had recovered only the sale price and that such sale price, even assuming that it contains the tax element, could not be taken as comprehending collection of an amount by way of tax. In terms, the Tribunal found that no amount was recovered by way of tax under section 56 and that, therefore, the prohibition enacted by section 56 was not breached and that the penalty under section 46(1)(ii) was not leviable and that the assessee was entitled to succeed in the penalty proceedings. In our opinion, the Tribunal, in view of these clear and unequivocal findings, had no option but to quash the penalty orders and to order the refund of the amounts retained by way of penalty. The further exercise undertaken by the Tribunal appears to us to be wholly unjustified and unwarranted having regard to the clear findings recorded by it as aforesaid. In the face of such findings, there was no room for any further exercise based on the assumption that even if what was collected was tax, it was necessary to determine afresh whether tax, in fact, was leviable in view of the decision of the Supreme Court in Pyare Lal's case [1976] 37 STC 319 (SC). Such an exercise, even assuming that it was permissible, would have been required to be undertaken only if the Tribunal had found that the assessee had in fact collected any amount by way of tax. Under such circumstances, the question raised and considered by the Tribunal is entirely irrelevant for the penalty proceedings. Be it noted in this connection that the assessments allowing deductions on the ground that the sales of the goods in question were resales of goods purchased, have become final and that it is not shown that there is any way in which they can be lawfully reopened.

12. In view of the foregoing discussion, we are of the view that the Tribunal's decision ordering remand to the Sales Tax Officer to consider the question whether the assessee was liable to pay sales tax in view of the decision in Pyare Lal Malhotra's case [1976] 37 STC 319 (SC), is not in accordance with law. The questions referred for our opinion are therefore answered as follows :

Question No. (1) :- In the negative, that is, in favour of the assessee and against the revenue.

Question No. (2) :- In the negative, that is, in favour of the assessee and against the revenue.

13. The revenue shall pay the costs of the reference to the assessee.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //