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The State of Tamil Nadu Vs. East Coast Constructions and Industries - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 19 and 20 of 1985 (Revision Case Nos. 18 and 19 of 1985)
Judge
Reported in[1986]61STC337(Mad)
ActsKerala General Sales Tax Act, 1963 - Sections 5A(1); Tamil Nadu General Sales Tax Act, 1959 - Sections 3, 4, 5, 7, 7A, and 7A(1)
AppellantThe State of Tamil Nadu
RespondentEast Coast Constructions and Industries
Advocates:K.S. Bakthavatsalam, Additional Government Pleader
Cases ReferredDeputy Commissioner of Sales Tax v. Pio Food Packers
Excerpt:
.....purchase turnover can be assessed under section 7-a(1)(a) of the act, we would like to refer to the said..........act, to find out whether the disputed purchase turnover could be assessed under either of these clauses. clause (a) can be applied only when the goods purchased had been consumed in the manufacture of other goods for sale or otherwise. the expression 'otherwise' occurring in clause (a) will qualify only sale and not the expression 'consumed'. therefore, that provision will come into play only when the purchasing dealer consumes the goods in the manufacture of other goods for sale or otherwise. clause (a) obviously cannot apply when the purchasing dealer consumes the goods in the construction of buildings, which is an immovable property and can in no sense be called 'other goods'. in our view, clause (a) can be invoked only when the purchasing dealer consumes the goods purchased in the.....
Judgment:

Ramanujam, J.

1. In this tax revision case filed by the revenue, the decision of the Sales Tax Appellate Tribunal holding that the turnover of Rs. 9,55,485.78 could not be brought to charge under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959, has been challenged.

2. The assessees are building contractors and engineers. For the assessment year 1980-81, they reported a taxable turnover of Rs. 54,161.96. This however did not include a turnover of Rs. 9,55,485.78 which represented the purchase value of sand and blue-metal from unregistered dealers, which the assessee had used in the construction of the buildings. The assessee claimed that the said sum of Rs. 9,55,485.78 representing the purchase price of blue-metal and sand cannot be brought to charge under section 7-A of the Act. That contention was negatived by the assessing authority and the said turnover was brought to charge. The matter was taken in appeal to the Appellate Assistant Commissioner, who also sustained the levy under section 7-A of the Act on the said turnover. Thereafter, the matter was taken up in further appeal to the Sales Tax Appellate Tribunal by the assessee denying his liability to be assessed to tax under section 7-A of the Act on the said turnover of Rs. 9,55,485.78. The Tribunal, after dealing with the scope of section 7-A(1)(a) of the Act and following the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner [1983] 53 STC 42, held that section 7-A(1)(a) of the Act will not apply to the disputed turnover of Rs. 9,55,485.78 as the assessee had purchased sand and blue-metal only for the construction of the buildings and not for the manufacture of other goods for sale. In that view, the Tribunal set aside the assessment on the disputed purchase turnover.

3. According to the learned Additional Government Pleader, the facts of this case attract the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 and in so far as the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner [1983] 53 STC 42 is inconsistent with the said decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 the Tribunal should not have applied the decision of the Andhra Pradesh High Court. Before considering the various decisions referred to by the learned Additional Government Pleader in support of his case that the disputed purchase turnover can be assessed under section 7-A(1)(a) of the Act, we would like to refer to the said provision.

Section 7-A runs as follows :

'7-A. Levy of purchase tax. - (1) 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, 4 or 5, as the case may be, and either,

(a) consumes 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 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 section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year.'

Section 7-A(1) consists of three clauses. However, on the facts of this case, clause (c) cannot obviously apply. The contention of the learned Additional Government Pleader is that even if clause (a) of section 7-A(1) is held not to apply to the facts of this case, clause (b) thereof may apply. We have, therefore, to consider the scope of clauses (a) and (b) of section 7-A(1) of the Act, to find out whether the disputed purchase turnover could be assessed under either of these clauses. Clause (a) can be applied only when the goods purchased had been consumed in the manufacture of other goods for sale or otherwise. The expression 'otherwise' occurring in clause (a) will qualify only sale and not the expression 'consumed'. Therefore, that provision will come into play only when the purchasing dealer consumes the goods in the manufacture of other goods for sale or otherwise. Clause (a) obviously cannot apply when the purchasing dealer consumes the goods in the construction of buildings, which is an immovable property and can in no sense be called 'other goods'. In our view, clause (a) can be invoked only when the purchasing dealer consumes the goods purchased in the manufacture of other movable properties and not when the goods purchased are in the construction of buildings, which cannot be held to be a movable property.

4. In support of his submission that the use of the expression 'consumption of such goods in the manufacture of buildings' will also fall within clause (a) of section 7-A(1) of the Act, the learned Additional Government Pleader placed reliance on the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 . The purchasing dealer in that case was a building contractor and he is said to have consumed the goods purchased in his business. After finding that he has used the materials purchased by him in his business, the Supreme Court held that the purchase turnover of the building materials by the purchasing dealer will attract section 7 of the Madhya Pradesh General Sales Tax Act, 1958, on the purchase price of the goods used in the course of their business as building contractors. The said decision proceeds on the basis that the materials purchased has been used in the course of the assessee's business. Whether the assessee used the materials purchased by him in the construction of buildings is not clear. As a matter of fact, to find out the factual position, we referred to the decision of the Madhya Pradesh High Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax [1966] 17 STC 14, which gave rise to the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 . But the said decision also does not indicate that the goods purchased by the building contractor has been used in the construction of buildings. Therefore, neither the decision of the Madhya Pradesh High Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax [1966] 17 STC 14 nor the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 can be said to have decided the question as to whether section 7-A(1) will be applicable to a case where a dealer purchased goods and used the same in the construction of a building, which is an immovable property. While constructing section 7-A(1)(a) of the Act which uses the expression 'consumes such goods in the manufacture of other goods for sale', the significance of the expression 'manufacture of other goods' cannot be lost sight of. A person who is constructing a building, which is an immovable property, cannot be said to manufacture other goods for sale so as to come within clause (a) of section 7-A(1) of the Act. In this case, the Tribunal has referred to the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner [1983] 53 STC 42 where the building contractor purchasing goods for use in the construction of buildings has been held not to come within the mischief of clause (a). Even though that decision supports the view taken by the Tribunal, it has not considered the scope of the expression 'manufacture of other goods for sale' occurring in clause (a) of section 7-A(1). The Andhra Pradesh High Court purports to follow the decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers : 1980(6)ELT343(SC) , which does not deal with a case of the purchasing dealer using the goods in the manufacture of building. Admittedly, it was a case of a dealer purchasing pineapple and thereafter slicing and canning and selling. The Supreme Court held that the slicing of a pineapple and canning does not convert it a different product but it still continues to be a pineapple and, as there is no manufacture of a new commodity, section 5A(1)(a) of the Kerala General Sales Tax Act, 1963, similar to section 7-A(1) of our Act, will not apply. Therefore, even Deputy Commissioner of Sales Tax v. Pio Food Packers : 1980(6)ELT343(SC) which has been relied on by the Andhra Pradesh High Court can have no application to the facts of this case. Therefore, we have to proceed to consider the case only on the basis of the language used in clause (a). As we have already expressed, that clause can be invoked only when the purchasing dealer uses the goods purchased in the manufacture of other goods for sale, and not when he use the goods in the construction of immovable property. Thus, the view taken by the Tribunal that section 7-A(1)(a) of the Act will not apply to the assessee's case, for the goods have been utilised for the construction of buildings and not in the manufacture of other goods for sale, has to be upheld as correct.

5. The learned Additional Government Pleader then contends that even if clause (a) does not apply, clause (b) thereof may be invoked in the circumstances of the case as there has been a disposal of the goods purchased in any manner otherwise than by way of sale in this case. This contention of the learned Additional Government Pleader ignores the significance of the use of the expression 'disposes' in clause (b). 'Disposal of goods in any manner other than by way of sale' would indicate that there has been a transfer of the goods other than by way of sale from the assessee to some other person. In this case, admittedly there is no disposal or transfer of the goods in any manner otherwise than by way of sale as contemplated by the section, but the goods have been used in the construction of the buildings and such user cannot be said to be a disposal of the goods as contemplated by clause (b) of section 7-A(1) of the Act. We are, therefore, of the view that clause (b) of section 7-A(1) of the Act has no application at all. In this view we are not in a position to disagree with the conclusions arrived at by the Tribunal in this case. T.C. (R) No. 19 of 1985 is, therefore, dismissed.

T.C. (R) No. 20 of 1985.

6. This tax revision case is against the order of the Tribunal dismissing the enhancement petition filed by the revenue as regards the cancellation of the levy of penalty under section 12(5) of the Tamil Nadu General Sales Tax Act. In the connected case T.C. (R) No. 19 of 1985, we have held that the assessee is not liable to be taxed under section 7-A of the Act on the purchase turnover of Rs. 9,55,485.78. Now that the tax on the disputed turnover has been set aside by the Tribunal, the Tribunal is justified in cancelling the quantum of penalty levied by the appellate authority on the basis of its finding that the sum of Rs. 9,55,485.78 is taxable under section 7-A of the Act. Since the assessment on the disputed turnover is set aside, there cannot be any levy of penalty for non-disclosure of the purchase turnover of Rs. 9,55,485.78. Therefore, this tax revision case is also dismissed.


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