Per Shri T. V. K. Nataraja Chandran, Accountant Member -In this appeal by the assessee the short point for decision is whether the penalty of Rs. 64,048 imposed under section 10A of the Central Sales Tax Act, 1956 for misuse of Form C is allowable as a deduction or not. The facts of this case briefly are that the assessee-firm carries on printing work and is also a registered dealer under the Central Sales Tax Act. The assessee purchased paper, printing inks, machine spare parts, machine oil by issuing Form C declaring that the goods were for the purpose of manufacturing of processing of goods for sale in terms of clause (b) of sub-section (3) of section 8 of the Central Sales Tax Act. Instead of using them for the aforesaid purpose, it used the material in the execution of works contract, namely, printing the beedi labels of the sister concern, Bharath Beedi Works, and thereby committed an offence punishable under section 10A. On 11-1-1971, the Additional Commercial STO, levied penalties of Rs. 4,778 for the assessment year 1966-67, Rs. 18,743 for the assessment year 1967-68, Rs. 16,245 for the assessment year 1968-69 and Rs. 76,461 for the assessment year 1969-70 holding that the assessee had no reasonable excuse for the offence committed. On appeal, the Additional Deputy Commissioner of Commercial Taxes (Appeals) upheld the findings and levy of penalty in his order CST - A. P. Nos. 185, 186, 187 and 188 of 1970-71, dated 24-11-1975, but he reduced the quantum to Rs. 64,048 on the ground of reasonableness which represented the difference in the rate of tax payable without Form C (10 per cent) and the rate actually paid (3 per cent) of the assessee by issuing Form C. The penalties were levied and sustained in view of the decision of the Karnataka High Court in the case S. S. Umadi v. State of Mysore  34 STC 228.
2. The ITO in his assessment for 1977-78, for which the relevant previous year ended on 31-10-1976, disallowed Rs. 64,048 claimed by the assessee on the ground that it was a penalty in nature. On appeal, the Commissioner (Appeals) upheld the addition made by the ITO on the view that the assessee has deliberately attempted to evade sales tax and the penalty was levied for an offence and, therefore, it was not an admissible deduction.
3. The learned representative of the assessee submitted that the so-called penalty levied was only the difference between the sales payable without Form C and thereat paid on Form C and, therefore, it was not a penalty in nature. Although, the misuse of Form C was an offence as per law prevailing at the time of commission of offence, nevertheless, in view of the later decision of the Supreme Court in the case of Assessing Authority-cum-Excise & Taxation Officer v. East India Cotton Mfg. Co. Ltd. : 1SCR55 , the penal character of user of Form C was wiped out, inasmuch as the user of goods for the purpose of own manufacture without sale was held to be sufficient compliance with the requirement of Section 8(3) (b). In the light of the aforesaid decision of the Supreme Court, the learned representative urged that the authorities were not justified in disallowing the claim made by the assessee. He further submitted that the claim of the assessee was also to be allowed on the ground of commercial expediency under section 37(1) of the Income-tax Act, 1961 (the Act).
4. The learned departmental representative, on the other hand, supported the order of the authorities. We have duly considered the rival contentions urged and the facts of this case. At the outset, we have to observe that as per the law prevailing at the material time when the transactions took place, the penalties were imposed and sustained by the sales tax authorities as the assessee has contravened section 8(3) (b) of the Central Sales Tax Act, inasmuch as the goods purchased by the assessee against the certificate of registration and From C were used for purposes of manufacture or processing of goods for sale. The decision of Vinayaka Saw Mills v. State of Mysore [S. T. S. P. No. 44 of 1973 dated 13-12-1973] and S. S. Umadis case (supra) were directly against the assessee and, therefore, the assessee has not contested the matter in further appeals and the matter has become final. The authorities have imposed penalties only on the interpretation of section 8(3) (b) holding that the assessee has misused the Certificate of Registration of From C and thereby committed and offence under section 10(d) of the Central Sales Tax Act for which penalties are prescribed under section 10A of the said Act. Before proceeding further, it is essential to reproduce the relevant section 8(3) (b) which reads as under :
'(a) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture of processing of goods for sale or in mining or in the generation of distribution of electricity or any other form of power;'
The scope and meaning of the expression for use by him in the manufacture or processing of goods for sale came up for consideration before the Supreme Court in the light of differing judgments of the various High Courts in the case of East India Cotton Mfg. Co. Ltd. (supra). Applying a well settled rule of interpretation according to plain language, the Supreme Court noticing the significance of the qualifying words by him following the words for resale in the first sub-clause and the absence thereof in the second sub-clause after the words for sale, held that the resale contemplated was by the registered dealer and no one else while the Legislature did not intend that the sale of manufactured goods should be restricted to the registered dealer manufacturing the goods. Similarly, the Supreme Court pointed out that the words use in second sub-clause is followed by the words by him clearly indicating that the use of the goods purchased in the manufacture of goods for sale must be by the registered dealer himself but these words were significantly absent after the words for sale. Therefore, it was held that the words by him governed and qualified only use and could not be projected into the words for sale According to their Lordship, the words for sale following the words goods clearly indicated that the goods manufactured or processed by the registered dealer must be goods intended for sale and it is immaterial whether they are intended for sale by the registered dealer himself or by any one else. Therefore, it was held that second sub-clause of section 8(3) (b) would clearly cover a case where a registered dealer manufactures or processes goods for a third party on a job contract and uses in the manufacture of processing of such goods, the materials purchased by him against his Certificate of Registration and the declaration in Form C so long as the manufactured or processed goods are intended for sale by such third party.
5. Applying the aforesaid ratio to the assessees case and in view of the admitted fact that the labels manufactured by the assessee for sister concern were meant for sale by it along with beedis, we find that there is no violation of section 8(3) (b) and the levy is no more penal in nature. On the facts and in the circumstances of the case, we hold that the authorities were not justified in rejecting the claim made by the assessee and, accordingly, it has to be allowed.
6. In the result, the appeal is allowed.