Full Judgment Text
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PETITIONER:
MUKERIAN PAPERS LTD-
Vs.
RESPONDENT:
STATE OF PUNJAB
DATE OF JUDGMENT13/02/1991
BENCH:
AHMADI, A.M. (J)
BENCH:
AHMADI, A.M. (J)
MISRA, RANGNATH (CJ)
VENKATACHALLIAH, M.N. (J)
CITATION:
1991 SCR (1) 347 1991 SCC (2) 580
JT 1991 (1) 400 1991 SCALE (1)221
ACT:
Punjab General Sales Tax Act, 1948: Sections 4B, 10(6) and
11D-Raw Material consumed in manufacture of goods sent
outside the State-Purchase Tax on such raw material-Levy of-
Whether valid interest and penalty on such levy-Imposition
of.
HEADNOTE:
The appellant, a registered dealer under the Punjab General
Sales Tax Act, 1948 despatched some part of the manufactured
goods outside the state, without paying the tax on the
taxable raw material consumed in the manufacture of such
goods. The assessing authority issued a show cause notice
for the assessee’s failure to pay the said tax. Interest
was also demanded on the tax amount. The assesses
disputed its liability to pay penalty and interest on the
amount of tax withheld on the plea that there was no wilful
default on its part, as it was under a bona fide belief
that no tax was to be paid on the raw material used in
the manufactured goods sent outside State. The assesses
further stated that it had acted on legal advice that it
was not liable to pay any Purchase Tax and, therefore, in
the absence of a clear intention to avoid the payment of
tax, there could be no question of imposition of penalty
and demand for interest. The assessee’s submissions did
not find favour with the Revenue, as also the Tribunal,
and the assesses sought a reference to the High Court
under section 22(1) of the Act. But the Tribunal rejected
application for reference. Thereafter the assesses
preferred appeals to this Court, against the Tribunal’s
rejection of reference as also the Tribunal’s order in
appeal.
On behalf of the appellants, it was contended that
the main question involved in this case is concluded by
several decisions of this Court, and it was not liable to
pay the tax, as demanded by the Revenue.
On behalf of the Revenue it was contended that the
assesses was liable to pay the tax on the raw materials used
in the manufactured goods sent outside the State.
Allowing the appeals, this Court,
348
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HELD: 1.1 Under Section 4B of the Punjab General Sales Tax
Act, 1948 the tax becomes exigible not on the purchase of
the raw material or on the use thereof in the manufacture of
a new and distinct commodity but only after the goods so
manufactured are despatched to a place outside the State.
Once the goods are sent outside the State the purchaser is
made liable to pay the tax at the rate prescribed on the
purchase of such goods provided no tax is payable on the
purchase thereof under any other provision of the Act. It
is obvious that the tax though described as purchase tax is
in effect a tax on consignment since it becomes effective on
the happening of an event which has nothing to do with the
actual purchase. Even if the raw material is used in the
manufacture of any taxable goods, the purchaser does not
become liable to pay tax on the raw material until the
manufactured item is sent out of the State. And between the
manufacture of the goods out of the purchased raw material
and their actual despatch outside the State there may be a
long time gap. The liability of tax only after despatch
of the manufactured goods outside the State and that event
may have no relation to the actual purchase or manufacture.
That being so, the tax though described as a purchase tax is
actually a tax on the consigmment of the manufactured goods,
the levy of which is beyond the competence of the State as
the power to impose such tax is vested in Parliament by
virtue of clause (h) of Article 269(1) of the Constitution
read with Entry 92B in Schedule 7, List 1. [352H; 353A-E;
354B]
1.2. Even though the language of section 4B of the Act is
not identical to section 9(1) of the Haryana Sales Tax Act,
it is in substance similar in certain respects, particularly
in respect of the point of time when the liability to pay
tax arises. Under that provision also the liability to pay
purchase tax on the raw material purchased in the State
which was consumed in the manufacture of any other taxable
goods arose only on the despatch of the goods outside the
State. [353D-E]
M/s. Goodyear India Ltd. v. State of Haryana, AIR
1990 SC 781; applied.
State of Tamil Nadu v. M. K. Kandaswami etc., [
19761 1 SCR 38; referred to.
2. Since the Revenue was not entitled to levy the tax
which it purported to levy as purchase tax on the raw
material, there can be no question of imposition of penalty
or interest on the unpaid amount of tax. Therefore, the
action taken in exercise of power under section 10(6) and
section 11D of the Act cannot be allowed to stand. [354G-H]
349
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 936 (NT),
937, 2339 & 2340 of 1988.
From the Judgments and Orders dated 12.8.1987, 3.7.1986, and
22.8.1988 of the Sales Tax Tribunal, Punjab in Misc.
Reference No. 60 of 1986-87, First Appeal No. 379 of 1986
and in Appeal Nos. 46 and 47 of 1987-88.
B
V.M. Tarkunde, R.C. Misra and Ms. Meera
Aggarwal for the Appellant.
H.S. Munjral and C.M. Nayar for the Respondent.
c
The Judgment of the Court was delivered by
AHMADI, J. the assessee-appellant M/s. Mukerian
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Papers Ltd., is a company engaged in the manufacture of
paper at Mukerian in the State of Punjab and is a
registered dealer under the Punjab General Sales Tax
Act, 1948 (’The Act’ hereinafter). The assessee
despatched some part of the manufactured goods outside
the State of Punjab for sale on consignment basis.
However, the assessee had not paid the taxes on the
taxable raw material consumed in the manufacture of
such goods. A show cause notice was, therefore, issued
by the Assessing Authority under section 10(6) of the Act
for the assessee’s failure to pay the taxes along with
the return as required by section 4B of the Act.
Interest on the tax amount which the assessee had
failed to pay was also claimed under Section 11D of the
Act. The assessee disputed its liability to pay penalty
and interest on the amount of tax withheld on the plea
that there was no wilful or intentional default on the
part of the assessee to pay the taxes due under section 4B
of the Act as the assesee was under a bona fide belief
that no tax was to be paid on the raw material
purchased for the manufacture of paper which was
ultimately sent outside the State on consignment basis.
This impression,based on the language of the statute,
stood confirmed by the subsequent decisions of the
Punjab & Haryana High Court in the case of Goodyear
India Ltd., 53 STC 163 and Bata India Ltd., 54 STC 226
till those decisions were overruled by the Full Bench
decision in Des Raj Pushpak Kumar’s case 58 STC
393. The assessee further contended that it had acted
on legal advice that it was not liable to pay any
purchase tax and, therefore, in the absence of a clear
intention to avoid the payment of tax, there could be no
question of imposition of penalty and demand for
interest. On the other hand it was contended on
behalf of the revenue that the two decisions on which
the assessee
350
placed reliance were subsequent to the date on which the
liability to pay the tax had arisen and hence the assessee
could not take shelter under the said two decisions. The
submissions made on behalf of the assessee did not find
favour with the Revenue. The assessee thereupon sought a
reference under section 22(1) of the Act but the Presiding
Officer of the Tribunal by its order dated 12th August, 1987
rejected the application as he saw no point of law to make a
reference to the High Court. Civil Appeals Nos. 936 and 937
of 1988 arise out of the said order of ]2th August, 1987.
In the other two appals Nos. 2239 and 2240 of 1988 the
appellants have come to this Court directly from the
Tribunal’s order in appeal without going through the
formality of seeking a reference under section 22(1) of the
Act in view of the rejection of a similar request by the
impugned order of 12th August, 1987. This Court granted
special leave to appeal without insisting on the appellant-
assessee approaching the High Court in view of the Full
Bench decision of that Court in Des Raj’s case. As the
facts are identical and common questions of law arise we
have thought it proper to dispose of all the four appeals by
this common judgment.
Counsel for the assessee-appellant contended that the
main question of law involved in this case is concluded by
the decision of this Court in M/s. Goodyear India Ltd. v.
State of Haryana, AIR 1990 SC 781 which was an appeal
arising from the High Court’s decision in the case of the
same assessee reported in (1983) 53 STC 163 to which
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reference is made hereinabove. He further pointed out that
while deciding the true scope of section 9 of the Haryana
General Sales Tax Act, 1974, which, says counsel, is in pari
materia with section 4B of our Act, this Court affirmed the
High Court’s view expressed in Goodyear India Ltd., 53 STC
163 and Bata India Ltd., 54 STC 226 and disapproved the
Full Bench view in Des Raj’s case 58 STC 393. Counsel for
the Revenue, however, placed strong reliance on this Court’s
decision in State of Tamil Nadu v. M.K. Kandaswami etc.,
[19761 1 SCR 38 and submitted that the assessee’s -case
falls within the ratio of the said decision. But counsel
for the assessee pointed out that this Court had considered
the ratio of Kandaswami’s case in the subsequent decision
and had pointed out that in that case this Court was not
concerned with the actual argument with which it was
concerned in the subsequent case and, therefore, the
decision in the former case is not an authority for the
question of law involved in the subsequent case. In order
to appreciate the rival submissions it would, we think, be
appropriate to examine the language of section 4B of the
Act, which reads as under:
"4B. Levy of Purchase tax on certain goods-
351
Where a dealer who is liable to pay tax under this Act
purchases any goods other than those specified in Schedule B
from any source and-
(i) uses them within the State in the manufacture.
of goods specified in Schedule B, or
B
(ii) uses them within the State in the
manufacture,of any goods, other than those
specified in Schedule B,and sends the goods
so manufactured outside the State in any
manner other than by way of sale in the
course of inter-State trade or commerce or
in the course of export out of the territory of
India; or
(iii) uses such goods for a purpose other than
that of resale within the State or sale in the
course of inter-State trade or commerce or
in the course of export out of the territory of
India, or
D
(iv) sends them outside the State other than
by way of sale in the course of inter-State
trade or commerce or in the course of export out
of the territory of India,
and no tax is payable on the purchase of such
goods under any other provision of this Act, there
shall be levied a tax on the purchase of
such goods at such rate not exceeding the
rate specified under sub-section (1) of section
5 as the State Government may direct.
We may first read the plain language of the
section bearing in mind the contextual setting and the
objective of the law. The section seeks to provide for
the levy of purchase tax on certain goods specified in to
levy a tax on the purchase of goods, other than those
Schedule B, which are used in the manufacture of goods
specified in Schedule B or in the manufacture of goods,
other than those specified in Schedule B and sent outside
the State in any manner other than by way of sale in the
course of inter-State trade or commerce or in the course of
export out of Indian territory provided of course no tax is
payable on the purchase of such goods under any provision of
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the Act. Where a dealer purchases raw material other than
the goods referred to in Schedule B and uses the said raw
material within the State in the manufacture of goods
specified in Schedule B, he becomes liable to purchase tax
at the rate specified by the State Government not exceed-
352
ing the maximum fixed under section 5(1) provided no tax
is paid on such goods under any other provision of the Act.
However, when the raw material is used within the State in
the manufacture of goods under than the one specified in
Schedule B and the manufacturer ’sends’ the goods so
manufactured outside the State in any manner (other than by
way of sale in the course of inter-State trade or commerce
or in the course of export out of India) he becomes liable
to pay purchase tax at the rate specified. To attract this
provision the revenue must show that (i) the manufacturer is
a dealer liable to pay tax under the Act (ii) he has
purchased goods other than those specified in Schedule B
from any source (iii) he has used the said goods within the
State in the manufacture of any goods other than those
specified in Schedule B and (iv) he has sent the goods so
manufactured outside the State in any manner other than the
one excepted. Before this provision can be invoked the
above requirements must be strictly proved. The first
requirement identifies the tax-payer, the second and the
third requirements identify the goods liable to tax in the
event the fourth requirement of the goods so manufactured
being sent outside the State takes place. Thus the
liability to pay purchase tax does not accrue on the
purchase of the raw material within the State or its use in
the manufacture of goods other than those specified in
Schedule B but falls on the dealer when the goods so
manufactured are sent outside the State. To avoid a
duplication of the levy the charging clause provides that
the purchase tax will be leviable under Section 4B provided
it is not leviable on the said goods under any other
provision of the Act. Although the purchase tax is levied
on the raw material purchased by the manufacturer, the
actual levy is postponed till after the said raw material is
consumed in the manufacture of another commercially distinct
commodity having its own separate identity and character and
is actually sent outside the State. The relevant date is
the date on which the goods are sent outside the State.
The taxable event takes place when the taxable goods are
sent outside the State and not before that date
notwithstanding the fact that the raw material was purchased
and converted into a new commodity long before that date.
In the present case since it is not disputed that the demand
of purchase tax is based on the fact that the goods
manufactured within the State from raw material purchased
earlier had been sent outside the State of sale on
consignment basis, we are concerned only with clause (ii) of
Section 4B whereunder the tax liability accrues on the date
the goods are sent outside the State.
Under Section 4B of the Act the tax becomes exigible
not on the purchase of the raw material or on the use
thereof in the manufacture
353
of a new and distinct commodity but only after
the goods so manufactured are despatched to a place
outside the State. Once the goods are sent outside the
State the purchaser is made liable to pay the tax at the
rate prescribed on the purchase of such goods provided
no tax is payable on the purchase thereof under any other
provision of the Act. It is, therefore, obvious that the
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tax though described as purchase tax is in effect a tax on
consignment since it becomes effective on the happening
of an event which has nothing to do with the actual
purchase. Even if the raw material is used in the
manufacture of any taxable goods, the purchaser does not
become liable to pay tax on the raw material until the
manufactured item is sent out of the State. And between
the manufacture of the goods out of the purchased raw
material and their actual despatch outside the State
there may be a long time gap. There is, therefore. no
room for doubt that the liability of tax falls only
after despatch of the manufactured goods outside the
State and that event may have no relation to the
actual purchase or manufacture. That being so, the
conclusion is inescapable that the tax though described
as a purchase tax is actually a tax on the consignment
of the manufactured goods. Therefore, even though the
language of section 4B of the Act is not identical with
the relevant part of section 9( 1) of the Haryana Act, it
is in substance similar in certain respects.particularly
in respect of the point of time when the liability to pay
tax arises. Under that provision, as here, the liability to
pay purchase tax on the raw material purchased in the
State which was consumed in the manufacture of any
other taxable goods arose only on the despatch Of
the goods outside the State. We are, therefore, of the
opinion that the ratio of the said decision of this Court
in Goodyear India Ltd. (supra) applies on all fours to
the main question at issue in this case.
In the case of Goodyear India Ltd. (supra), this
Court was concerned with the interpretation of section
9(1) and section 24(3) of the Haryana Act. The facts
revealed that the assessee-company, which was engaged
in the manufacture of automobile tyres and tubes at
its factory at Ballabgarh in Haryana, had purchased
raw materials from within and outside the State for the
manufacture of the said products.
After manufacturing the same, the assessee-
company despatched some part of the manufactured products
to its depots outside the State - The revenue sought
to recover purchase tax on the raw material
purchased in the State and consumed in the manufacture
of such goods under section 9(1) of the Haryana Act. The
action of the revenue was challenged in the High
Court of Punjab & Haryana. The High Court held that
both on principle and on precedent, a mere despatch
of goods to various depots of the assessee-company
outside the State did
354
not fall within the ambit of the phrase "disposes of the
manufactured goods in any manner otherwise than by way of
sale" employed in section 9(l)(a)(ii) of the Haryana Act.
The High Court also held that the decision of this Court in
Kandaswami (supra) was not an authority for the proposition
that a mere despatch of goods outside the State fell within
the ambit of the said provision. This Court while upholding
the final order passed by the High Court came to the
conclusion that as the tax levied was a tax on consignment
of goods, the provisions imposing the said tax were beyond
the competence of the State Legislature as the power to
impose such tax vested in Parliament by virtue of clause (h)
of Article 269(1) of the Constitution read with Entry 92B in
Schedule 7. List I, inserted by the 46th Amendment to the
Constitution. This Court also clarified that even before
the amendments introduced by the 46th Amendment came into
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effect, Entry 54, in List 11 of the 7th Schedule read with
Article 246(3) of the Constitution conferred power on the
State Legislature to impose a tax on sale or purchase of
goods and not on the mere consignment of goods, since
consignment of goods simpliciter is neither a sale nor
purchase or disposal of goods. Holding that in substance
the levy was sought on the consignment of goods, this Court
held that it was not liable to tax since the State’s power
to tax did not extend that far.
Counsel for the revenue placed reliance on an earlier
decision of this Court reported in the case of Kandaswami
(supra) which dealt with Section 7A of the Tamil Nadu Act
which though not identical was similar to Section 9(1) of
the Haryana Act. The decision in Kandaswami though rendered
in the context of an analogous provision was distinguished
by this Court in Goodyear India Ltd. on the ground that it
did not touch the core of the question at issue in the
latter case. This aspect of the matter is elaborately dealt
with in paragraphs 31 to 34 at page 796 of the Report. We
need not dilate on this any more since the correctness of
the judgment in Goodyear India Ltd, is not canvassed before
us. This Court, therefore, affirmed the High court’s view
in Goodyear India Ltd., 53 STC 163 and Bata India Ltd, 54
STC 226 and disapproved of the Full Bench decision in the
case of Des Raj 58 STC 393.
Once it is found that the revenue was not entitled to levy
the tax which it purported to levy as purchase tax on the
raw material, there can be no question of imposition of
penalty or interest on the unpaid amount of tax. Therefore,
the action taken in exercise of power under section 10(6)
and section 11D of the Act cannot be allowed to stand and
must be set aside.
355
In the result these appeals succeed. We allow all these
appeals and set aside the decision of the Sales Tax
Tribunal, Punjab, in each case. Any recovery made under the
impugned orders will be refunded within a period of three
months from today. Having regard to the facts and
circumstances of the case, we make no order as to costs.
B
G. N. Appeals allowed.
356