Bentec Rubbers (P) Ltd. v. State of Kerala — 1997 DIGILAW 71 (KER)

Judgment :- Usha, J. The question raised in this appeal is whether the appellant has committed an offence under S.10(d) of the Central Sales-tax Act, 1956 (hereinafter referred to as the 'Act') for the reason that the goods purchased by it by issuing C forms would not satisfy the provisions contained under S.8(3)(b) of the Act, 2. Appellant, who is an assessee on the file of the Addl. Sales-tax Officer, 3rd Circle, Thrissur, effected inter-state purchase of machinery, chemicals etc. by issuing C Forms. They used the goods in the manufacture or processing of tread rubber as job work for M/s. Vikrant Tyres Ltd. It is the admitted case of the appellant that M/s. Vikrant Tyres Ltd. Mysore utilised the finished product received from the appellant for manufacture of tyres and the end product namely, tyres were brought to sale by M/s. Vikrant Tyres Ltd. The relevant assessment years are 1981-82,1982-83 and 1983-84. 3. Assessing authority found that the appellant had effected inter-state purchase issuing C forms to the tune of Rs. 15,85,619.01, Rs. 2,17,310.77 and Rs. 11,245.16 for the assessment years 1981-82,1982-83 and 1983-84 respectively. According to the assessing authority, since these goods were used for manufacture or processing of goods for a third party on job work basis, the assessee failed to satisfy the provisions in S.8(3)(b) of the Act. It also found that purchases amounting to Rs. 50,005.83, Rs. 8,422.95 and Rs. 2,900/-for the years 1981-82,1982-83 and 1983-84 respectively were unauthorised as they were not covered by the class or classes of goods mentioned in the CST registration certificate issued to the assessee. On this ground, the assessing authority found the appellant guilty of offence under Ss.10(b) and 10(d) of the CST Act. Penalty under S.10A to the extent of Rs. 2,37,840/-, Rs. 32.590/- and Rs. 1.680/- was also imposed for the three years. 4. Aggrieved by the order passed by the assessing authority, the assessee took up the matter in revision before the Deputy Commissioner, Ernakulam, who modified the order finding that the appellant did not commit any offence under S.10(d) of the Act But the offence under S.10(b) of the Act was sustained. Board of Revenue, in exercise of its power under S.37 of the Kerala General Sales tax Act, 1963 suo Motu initiated proceedings for revision of the order passed by the Deputy Commissioner. Board of Revenue, in exercise of its power under S.37 of the Kerala General Sales tax Act, 1963 suo Motu initiated proceedings for revision of the order passed by the Deputy Commissioner. Notice was issued to the assessee and considering its objections, the impugned order dated 27.12.1986 was passed finding the assessee guilty of the offence under S.10(d) of the Act. The order passed by the First appellate Authority was set aside and the order imposing penalty passed by the assessing authority was restored. 5. Learned counsel for the appellant contended that the Board of Revenue has committed an error in coming to the conclusion that the assessee has not satisfied the provisions contained under S.8(3)(b) of the Act. In support of his contention, he relied on the following decisions: Assessing authority-cum-excise & Taxation Officer, Gurgaon & Ann v. East India Cotton Mfg. Co. Ltd. (1981) 48 STC 239, Commercial Taxes Officer v. Foreign Import & Export Association (1994) 95 STC 101, J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur & Ann (1965) 16 STC 563 and Indian Aluminium Co. Ltd. v. Sales-tax Officer, Ward A, Sambulpur I Circle & Ors. (1993) 90 STC 410. 6. S.10(d) of the Act provides that if any person, after purchasing any goods for any of the purposes specified in Clause (b) or Clause (c) or Clause (d) of sub-s.3 of S.8 fails, without reasonable excuse, to make use of the goods for any such purpose, shall be punishable with imprisonment or fine as provided under S.10. S.10A provides for imposition of penalty in lieu of prosecution. Under this provision, penalty to the extent of a sum not exceeding one and a half times the tax which would have been levied under sub-s.(2) of S.8 in respect of the sale to him of the goods, if the sale had been a sale falling within that sub-section can be imposed. In the present case, under the impugned order, maximum penalty has been imposed. 7. In the present case, under the impugned order, maximum penalty has been imposed. 7. S.8(3)(b) reads as follows: (3) The goods referred to in clause (b) of sub-s.1 (b) are goods of the class or classes specified in the certificate of the 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 or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power". R.13 of Central Sales-tax (Registration and Turn-over) Rules, 1957 provides as follows: "13. Prescription of goods for certain purposes - The goods referred to in clause (b) of sub-s.(3) of S.8, which a registered dealer may purchase, shall be, goods intended for use by him, as raw materials, processing materials, machinery, plant equipment, tools, stores, spare parts, authorities, fuel or lubricants, in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity of any other form of power". Registration certificate issued is for manufacture and sale of tread rubber and other allied rubber products. Assessing authority took the view that the assessee availed the benefit of concessional rate on inter-state purchases by issue of C form, but there was no manufacture and sale of tread rubber and other allied rubber products by the assessee and therefore, it does not satisfy the conditions contained under S.8(3)(b). As mentioned earlier, the above view was affirmed by the Board of Revenue also. 7. It is contended by the appellant that it has, as a matter of fact, complied with the conditions under S.8(3)(b). According to learned counsel, it is not necessary that the goods which were manufactured or processed by utilising the goods purchased by the assessee, should be brought to sale by the assessee itself. The only condition necessary is that the manufactured goods should be brought to sale. In this case, according to the appellant, the machinery and other chemicals purchased by the assessee were used in the manufacture of tread rubber, which, in turn was utilised for the manufacture of tyres by M/s. Vikrant Tyres Ltd. who has brought the goods, namely, the tyres, for sale. In this case, according to the appellant, the machinery and other chemicals purchased by the assessee were used in the manufacture of tread rubber, which, in turn was utilised for the manufacture of tyres by M/s. Vikrant Tyres Ltd. who has brought the goods, namely, the tyres, for sale. Under these circumstances, it has to be taken that there is sufficient compliance of clause (h). 8. We find it difficult to accept the above contention raised on behalf of the appellant-assessee. In order to satisfy clause (b), the goods purchased should have been used by the assessee in the manufacture or processing of goods, which itself were subject matter of sale. Even if it has to be taken that the sale need not be directly by the assessee, it is mandatory that the goods purchased shall be utilised for the manufacture or processing of goods which are to be subject matter of sale and the manufacture and processing should be by the assessee himself. Now, coming back to the facts of this case, we find that the goods purchased by the assessee were used by him in the manufacture of tread rubber. To that extent, it can be taken that there is compliance with cl. (b). But then, the tread rubber as such is not brought to sale by the assessee. On the other hand, the raw material, other than chemicals used by the assessee is provided by M/s. Vikrant Tyres Ltd. and the assessee is manufacturing tread rubber for M/s. Vikrant Tyres Ltd. only on a job work arrangement basis. Therefore, it cannot be taken that the goods manufactured by using the goods purchased by the assessee, were sold by the assessee. It is true that tread rubber manufactured by it for M/s. Vikrant Tyres Ltd. was being utilised by M/s. Vikrant Tyres Ltd. in the manufacture of tyres, which were subject matter of subsequent sale. Bui, then, as mentioned earlier, the goods which are brought to sale, are not the one which is manufactured by the assessee. Therefore, by a plain reading of Cl. (b) and applying the same to the facts of the present case, it can be seen that the assessee has not satisfied the provisions contained under clause (b). 9. Now, we will consider the different decisions relied on by the learned counsel for the appellant in support of the contention taken by the assessee. (b) and applying the same to the facts of the present case, it can be seen that the assessee has not satisfied the provisions contained under clause (b). 9. Now, we will consider the different decisions relied on by the learned counsel for the appellant in support of the contention taken by the assessee. In (1981) 48 STC 239 supra, Supreme Court had occasion to consider the scope of S.8(3)(b) of the Act. In the above case, the assessee, who was carrying on the business of manufacturing and processing textiles in Faridabad, purchased goods in the course of inter-state trade on the basis of its certificate of registration and furnished to the selling dealers declarations in form C stating that the goods were purchased for use by the assessee in the manufacturing of goods for sale. On the strength of the declaration, the selling dealers were taxed on a concessional rate. The goods purchased were used by the assessee for sizing, bleaching and dyeing of textiles partly belonging to the assessee and partly belonging to third parties on job work basis. The question arose as to whether that portion of the manufacture done by the assessee which was job work, would make it eligible for being brought under clause (b). Supreme Court took the view that going by the language of the section, it has to be taken that the legislature as well as the rule making authority did not intend that the sale of manufactured goods should be restricted to sale by the registered dealer who is manufacturing the goods. Once the goods are utilised by the registered dealer for manufacturing process, the end product can be brought to sale, by anybody else. Similar is the view taken by the apex Court in (1994) 95 STC 101 supra. 10. We find that the above decisions will not be of any help to the appellant-assessee in this case as the goods manufactured by it, namely, tread rubber, are not brought to sale at all. On the other hand, the tyres manufactured with the tread rubber and which are brought to sale are not manufactured by the assessee, but by M/s. Vikrant Tyres Ltd. Therefore, the second limb of clause (b) is not satisfied by the assessee. 11. On the other hand, the tyres manufactured with the tread rubber and which are brought to sale are not manufactured by the assessee, but by M/s. Vikrant Tyres Ltd. Therefore, the second limb of clause (b) is not satisfied by the assessee. 11. In (1965) 16 STC 563 supra, Supreme Court had occasion to consider the meaning of the expression "in the manufacture of goods" in S.8(3)(b) of the Act. It was held that the above expression should be given a wide interpretation. It should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". Drawing and photographic materials falling within the description of goods intended for use as "equipment' in the process of designing, which is directly relating to the actual production of goods and without which commercial production would be inexpedient, must be regarded as goods intended for use "in the manufacture of goods". If having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale. But, this would not include electrical equipment not directly connected with the process of manufacture. Drawing support from the above decision, learned counsel would submit that manufacture of tread rubber by the assessee is integrally connected with the manufacture of tyres which are the goods brought to sale, and the assessee is entitled to contend that it subsequently satisfies the provision contained under Clause (b). 12. In (1993) 90 STC 410 supra, reference is made to the decisions in (1981) 48 STC 239 and (1965) 16 STC 563 while holding that so long as the dealer used the raw materials in manufacture of aluminium finished products, even if such manufacture was outside the State, there was no contravention of the provision of the Act„ so as to attract the mischief of S.10(d) read with S.10A of the Act. The emphasis in S.8(3)(b) is on the question of manufacture of a distinct commercial product, but on the fact that the use put to by the dealer of the raw materials in the manufacture of goods for sale. There was nothing either in the certificate of registration or in the provisions of S.8(3)(b) to restrict the situs of manufacture of aluminium. 13. We find that the above decisions are of no help to the assessee. Reliance could have been made on these decisions, if the assessee himself was manufacturing the tyres which are the goods ultimately brought to sale. Since the goods ultimately brought to sale in this case were manufactured not by the assessee, but by M/s Vikranth Tyres Ltd. the assessee cannot be heard to contend that it satisfies clause (b). We therefore find that the Board of Revenue was fully justified in coming to the conclusion that the assessee has committed an offence under S.10(d). 14. Learned counsel for the appellant made a further submission that even if it is found that the assessee has committed offence under S.10(d), the maximum penalty imposed in this case is unjustified. It is contended that there was no contumacious conduct on the part of the assessee in committing the offence. It had only just started the business of manufacturing tread rubber on job work basis. He submits that the quantum of penalty is liable to be reduced. The above contention is opposed by the learned Government Pleader. He points out that the appellant has not taken any such contention either before the Board of Revenue or before this Court in the memorandum of appeal. Under these circumstances, according to learned Government Pleader, the contention put forward at the time of hearing, cannot be countenanced. 15. We find a reference to this aspect in the assessment orders. But, as pointed out by learned Government Pleader, it is not seen that the assessee has taken any objection regarding the quantum of penalty before the Board of Revenue. A copy of the objection filed before the Board of Revenue to the notice issued under S.37 was made available by learned Government Pleader before us. On going through the objections, we find no such contention is taken by the assessee. It is also correct that such a contention is not seen taken in the memorandum of appeal filed before this court also. On going through the objections, we find no such contention is taken by the assessee. It is also correct that such a contention is not seen taken in the memorandum of appeal filed before this court also. Under these circumstances, we are not inclined to consider the above prayer made by the appellant In the result, the appeal fails and it stands dismissed.