Judgment · High Court · 2012

(cid:28) ithin the state. The second product mustard oil cake is disposed off by the deal er by way of stock transfer to its appointed agents in the state of Tripura. Out of total stock of mustard seed used in the manufacturing of mustard oil cake, a part comprises locally procured mustard seed from unregistered dealer without p ayment of VAT. As per section 12(iii) of the AVAT Act, 2003 the dealer is found liable to purchase tax @ 4% on the proportionate purchase value of locally procu red mustard seed, from unregistered dealer without payment of VAT, which was use d as raw material in the manufacturing of mustard oil cake which was subsequentl y stock transferred to outside the State (Tripura). (cid:29)

#4. Aggrieved by the above, the petitioner filed a revision petition before the Commissioner of Taxes, which has been dismissed with the following observati ons :- In the course of hearing the learned Senior Advocate for the petitioner (cid:28) admitted that mustard oil cake is mentioned in certificate of registration of th e petitioner as a commodity being dealt by the petitioner along with mustard oil . He also agreed that the value of mustard oil cake procured is more than 30% of the value of mustard oil produced in the process of manufacture. The value of mustard oil cake is significant part of total turnover of t he petitioner, it cannot be considered as wastage as claimed by the petitioner. Although mustard oil cake is not the main product of the process of manufacture, but it is also a product of manufacture. Further, the petitioner has got mustar d oil cake included as a commodity dealt by it. Hence, the petitioner cannot cla im it to be wastage. (cid:29) The contention raised in the petition is the intention of the Legislatur 5. e is to collect tax on purchase of goods where no tax is leviable on sale under section 10. In the present case, the petitioner is paying tax on the sale of oil which is manufactured from the mustard seeds and oil cake was merely bye produc t. The proportionate value of purchase turnover of mustard seeds referable to va lue of oil cakes, produced therefrom, could not be subjected to purchase tax as manufacture of oil cakes is automatic. Reliance has been placed on the judgment of the Hon’ble Supreme Court in Steel Authority of India Ltd. -Vs.- Collector of Central Excise, Bholpur (1997) 3 SCC 34. Learned counsel for the State, on the other hand, submitted that turnove 6. r of oil cakes was exigible to sales tax under section 10. If the said goods are disposed of in a situation where sale tax is not attracted, the levy of purchas e tax was certainly permissible on oil seeds. Reliance has been placed on the ju dgment of Hon’ble Supreme Court in Hotel Balaji and others v. State of A.P. and others, 1993 Supp (4) SCC 536 and the judgment of the Punjab and Haryana High C ourt in M/s Shri Krishna Oil and General Mills Vs. State of Punjab passed in GST R No.63 of 1997, decided on 22.1.2009.

#7. Question for consideration is whether when oil cakes are disposed of in a situation where sale tax is not attracted under Section 10, the oil seeds refe rable thereto will be covered by levy of purchase tax under the provisions of Se ction 12.

#8. provisions in Sections 10 and 12:- To appreciate the issue in hand, reference may be made to the statutory (cid:28)10. Levy of tax on sales :- (1) Every dealer, who is liable to pay tax for any year under section 7, shall pay output tax on his taxable turnover for such year ,- (a) in respect of goods specified in the Second, Third and Fifth Schedule, a t every point of sale of such goods within the State, at the rate or rates speci fied therein; and (b) in respect of goods specified in the Fourth Schedule, at the first point of sale of such goods within the State, at the rate or rates specified therein; (cid:29) (cid:28) 12. Levy of tax on purchases - Every dealer who in the course of his business purchases any taxable goods from any person, in the circumstances in which no ta x under section 10 is leviable on the sale price of such goods, shall be liable to pay tax on the gross turnover of purchase of such goods, if after such purcha se, the goods are - (i) ; or (ii) irst Schedule; or (iii) consumed or used in the manufacture of taxable goods, and such manufactu red goods are disposed of otherwise than by way of sale in the State or in the c ourse of inter-state trade and commerce or export out of the territory of India; used or disposed of in any manner other than by way of sale in the State consumed or used in the manufacture of tax free goods specified in the F (iv) despatched to a place outside the State other than as a result of sale i n the course of inter-state trade or commerce or export out of the territory of India, and such tax shall be levied at the same rate at which tax under section 10 would have been levied on the sale of such goods within the state on the dat e of such purchase. (cid:29)

#9. A reference to Section 12 shows that when the petitioner purchase taxabl e goods, namely mustard seeds and in respect of turnover referable to the produc tion of oil cakes disposed of by way of stock transfer, no tax under Section 10 was leviable, levy of purchase tax under Section 12 is clearly attracted.

#10. As regards judgment in Steel Authority of India Ltd., the same relates t o leviability of excise duty under the Central Excise Act, 1944 on scrap which w as by-product in the course of production of iron steel. On facts noted in the s aid judgment, scrap was chargeable to nil rate of duty and the question was whet her the inputs used for production of steel qualified for exemption when duty wa s paid on the production of steel and scrap was merely a by-product. The stand o f the Revenue was that since scrap was exempted from tax, the exemption notifica tion will not apply to the inputs in view of condition for exemption that the pr oduct should not be exempted from the tax. This plea of the Revenue was not acce pted. The said judgment is distinguishable as the scheme of exemption of inputs of exempted excisable goods is different from the concept of purchase tax.

#11. s -Vs.- State of A.P. and others 1993 Supp (4) SCC 536 as under :- The concept of purchase tax has been discussed in Hotel Balaji and other

#91. & & & If, however, the manufactured goods are sold within the State, n (cid:28) o purchase tax is collected on the raw material, evidently because the State get s larger revenue by taxing the sale of such goods. (The value of manufactured go ods is bound to be higher than the value of the raw material.) The State legisla ture does not wish to - in the interest of trade and general public - tax both t he raw material and the finished (manufactured) product. This is a well-known po licy in the field of taxation. But where the manufactured goods are not sold wit hin the State but are yet disposed of or where the manufactured goods are sent o utside the State (otherwise than by way of inter-State sale or export sale) the tax has to be paid on the purchase value of the raw material. The reason is simp le: if the manufactured goods are disposed of otherwise than by sale within the State or are sent out of State (i.e., consigned to dealers own depots or agents) , the State does not get any revenue because no sale of manufactured goods has t aken place within Haryana. In such a situation, the State says, it would retain the levy and collect it since there is no reason for waiving the purchase tax in these two situations. Now coming to inter-State sale and export sale, it may be noticed that in the case of inter-State sale, the State of Haryana does get the tax revenue - may be not to the full extent. Though the Central Sales Tax is le vied and collected by the Government of India, Article 269 of the Constitution p rovides for making over the tax collected to the States in accordance with certa in principles. Where, of course, the sale is an export sale within the meaning o f Section 5(1) of the Central Sales Tax Act (export sales) the State may not get any revenue but larger national interest is served thereby. It is for these rea sons that tax on the purchase of raw material is waived in these two situations. Thus, there is a very sound and consistent policy underlying the provision. The object is to tax the purchase of goods by a manufacturer whose existence as suc h goods is put an end to by him by using them in the manufacture of different go ods in certain circumstances. The tax is levied upon the purchase price of raw m aterial, not upon the sale price - or consignment value - of manufactured goods. Relying on the said scheme, the Punjab and Haryana High Court in M/s Shr 12. i Krishna Oil and General Mills -Vs.- State of Pubjab passed in GSTR No.63 of 19 97 decided on 22.1.2009, dealt with identical question of levy of purchase tax o n the purchase of oil seeds referable to production of oil cakes, as follows :- It is thus evident that Section 4 B applies only on those cases where (i (cid:28) ) the goods are purchased like raw material by a dealer liable to pay tax under the Act in the State (ii) the goods so purchased ceased to exist as such goods f or the reason they are consumed in the manufacture of different commodities and (iii) such manufactured commodities are either disposed of within the State othe rwise than by way of sale or despatched to a place outside the State otherwise t han by way of an inter-State sale or export sale. In other words, if such manufa ctured goods are not sold within the State of Punjab, but yet disposed of within the State than no tax is payable on such disposition. Likewise where manufactur ed goods are despatched out of State as a result of an inter-State sale or expor t sale, no tax is payable on such sale. Again where such manufactured goods are taken out of street to manufacturers own depots or to the depots of his agents t hen no such tax is payable on such removals. The question which has arisen is wh ether purchase tax would be payable when the event of purchase tax place or at a ny later stage ? In the present case, the cotton seed purchased by the dealer-petitioner were subjected to manufacturing process. It resulted into extraction of oil whic h was the primary product. However, it also brought into existence the oil cakes (khal). The undisputed facts are that the oil extracted and a part of oil cakes were sold in the State of Punjab and on account of the provisions made in Secti on 5(2)(a)(ii) of the Act such sales were not to be included in taxable turnover . However, purchase tax on such purchase made by the dealer assessee is leviable under Section 4 B of the Act in respect of those transactions which are not to be included in taxable turnover under Section 5(2)(a)(ii) of the Act. The sale o f oil cakes outside the State of Punjab is not covered by any of the clauses of Section5(2)(a)(ii) of the Act. Therefore, the event of tax would come into exist ence on such purchases of the cotton seed to the extent the bye product oil cake s has been sold outside the State of Punjab. The aforesaid view is fully support ed by the judgment of Hon’ble the Supreme Court in the case of Hotel Balaji Vs. State of Andhra Pradesh (1993) suppl (4) SCC 536. The Hon’ble Supreme Court was considering Section 9 of the Haryana General Sales Act, 1973 (as it stood then). The Hon’ble Supreme Court has also opined that provisions of Section 4 B of the Act are similar in material particulars to that of the provisions of Section 9 of the Haryana Act and therefore we are of the view that the views expressed in Hotel Balaji’s case (supra) would apply to the provisions of Punjab Act as well. While over-ruling the view taken by it in the earlier judgment in the case of G ood Year India Ltd. v. State of Haryana (1990) 2 SCC 71, it has been held that t axable even is the purchase of raw material which is subjected to manufacturing process in the hands of the last purchaser. The aforesaid view is discernible in para 91 of the judgment and is extracted hereunder : (cid:28) & &. Goodyear (supra) takes only the last eventuality and holds that the taxable is the removal of goods from the State and since such removal is to dealers’ ow n depots/ agents outside the State, it is consignment, which cannot be taxed by the State legislature. With the greatest respect at our command, we beg to disag ree. The levy created by the said provision is a levy on the purchase of raw mat erial purchased within the State which is consumed in the manufacture of other g oods within the State. If, however, the manufactured goods are sold within the S tate, no purchase tax is collected on the raw material, evidently because the St ate gets larger revenue by taxing the sale of such goods. (The value of manufact ured goods is bound to be higher than the value of the raw material). The State legislature does not wish to - in the interest of trade and general public - tax both the raw material and the finished (manufactured) product. (cid:29) The aforesaid reasoning has been found to be based on a sound policy in the field of taxation. Explaining the policy, their Lordships have observed as u nder : (cid:28) & & & & This is well-known policy in the field of taxation. But where the manufact ured goods are not sold within the State but are yet disposed of or where the ma nufactured goods are sent outside the State (otherwise than by way of inter-Stat e sale or export sale) the tax has to be paid on the purchase value of the raw m aterial. The reason is simple: if the manufactured goods are disposed of otherwi se than by sale within the State or are sent out of State (i.e., consigned to de alers own depots or agents), the State does not get any revenue because no sale of manufactured goods has taken place within Haryana. In such a situation, the S tate says, it would retain the levy and collect it since there is no reason for waiving the purchase tax in these two situations. Now coming to inter-State sale and export sale, it may be noticed that in the case of inter-State sale, the St ate of Haryana does get the tax-revenue - may not be to the full extent. Though the Central Sales Tax is levied and collected by the Government of India, Articl e 269 of the Constitution provides for making over the tax collected to the Stat es in accordance with certain principles & &.. (cid:29) It is further appropriate to mention that the object of charging is to tax the p urchase of goods by the manufacturer. The observations completely answers the ar gument raised by the counsel for the petitioner that the disposal of oil cakes ( khal) outside the State of Punjab on consignment basis would not attract the lev y of purchase tax as it is a consignment sale. In that regard the observation ma de in para 91 are extracted in extenso which reads thus : (cid:28) & & The object is to tax the purchase of goods by a manufacturer whose existence as such goods is put an end to by him by using them in the manufacture of diffe rent goods in certain circumstances. The tax is levied upon the purchase price o f raw material, not upon the sale price - or consignment value - of manufactured goods. Would it be right to say that the levy is upon consignment of manufactur ed goods in such a case ? True it is that the levy materialises only when the pu rchased goods (raw material) is consumed in the manufacture of different goods a nd those goods are disposed of within the State otherwise than by way of sale or are consigned to the manufacturing-dealer’s depots) agents outside the State of Haryana. But does that change the nature and character of the levy ? Does such postponement - if one can call it as such - convert what is avowedly a purchase tax what is on raw material (levied on the purchase price of such raw material) to a consignment tax on the manufactured goods? We think not. Saying otherwise w ould defeat the very object and purpose of Section 9 and amount to its nullifica tion in effect. The most that can perhaps be said is that it is plausible (as po inted out by Ranganathan, J. in his separate opinion) to characterize the said t ax both as purchase tax as well as consignment tax. But where two interpretation s are possible, one which sustains the constitutionality and/or effectuates its purpose and intendment and the other which effectively nullifies the provision, the former must be preferred, according to all known cannons of interpretation & & & (cid:29) The provision of Section 4 B of the Act fell for consideration before a three Judge Bench of the Hon’ble Supreme Court in the case of Devi Das Gopal Kri shan Pvt. Ltd. and others V. State of Punjab and others 1994 Supp (2) SCC 59. Af ter considering the provisions of various other Acts and noticing the judgment o f the Hon’ble Supreme Court rendered in the case of Mukerian Papers Ltd. v. Stat e of Punjab (1991) 2 SCC 580, the Hon’ble Supreme Court held that there was no c onflict between Hotel Balaji case (supra) and Mukerian Papers Ltd. Case (supra). The view has been expressed in para 6 of the judgment which reads thus : (cid:28) Now coming to the merits of the contention, we are of the considered opinion t hat, there is no reason to take a view different from the one taken in Hotel Bal aji (1991) 2 SCC 580). All the contentions urged now have been considered and de alt with in the said decision. In our opinion, the approach adopted in Goodyear (AIR1990 SC 781) does not accord with the scheme, intendment and language of the relevant provisions of the Haryana and Bombay Acts and cannot be accepted. (cid:29) A further perusal of the judgment in Devi Dass Gopal Krishan Pvt. Ltd.’s case (supra) would show that Hon’ble Supreme Court has upheld the validity of S ection 4 B of the Act holding that the State is fully empowered to levy purchase tax and has adopted the same reasoning as adopted in Hotel Balaji’s case (supra ). The argument that the levy created by the purchase tax levied by Section 4 B (or any other similar section in respect of other States) has really been o n manufacture of goods and therefore not a tax referable to Entry 54 of List II of 7th Schedule of the Constitution was rejected and the contrary argument that such provision merely levies pure and simple purchase tax on the raw material, l ike cotton seed in the present case, was accepted. Therefore, the legislative co mpetence of the State Legislature to levy purchase tax under Section 14 B of the Act has been upheld. Once the aforesaid position is clear from the various judg ments of Hon’ble the Supreme Court then the first question of law deserves to be answered against the dealer-assessee and in favour of the revenue especially wh en taxable even is the purchase of cotton seed which in the hands of oil mill is the last stage of purchase. (cid:29)

#13. Second consequential question was also considered and it was held that t he proportionate turnover of seeds referable to oil cake could be split up from the total turnover of purchase.

#14. The issue in the above judgment is identical with the issue with which w e are concerned. We do not find any reason to differ from the above view.

#15. Accordingly, we do not find any reason to interfere with the order passe d by the statutory authorities levying purchase tax on the purchase value of oil seeds referable to the production of oil cakes which is disposed of by way of s tock transfer in a situation where no sale tax is attracted.

#16. The petitions are dismissed.