CASE NO.: Appeal (civil) 1193-1194 of 2002 PETITIONER: ICI India Ltd. & Anr RESPONDENT: State of Orissa & Ors DATE OF JUDGMENT: 28/09/2007 BENCH: Dr. ARIJIT PASAYAT & TARUN CHATTERJEE JUDGMENT:
J U D G M E N T
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.