COMMISSIONER OF TRADE TAX v. M. K. J. CORPORATION — 1999 DIGILAW 1261 (ALL)

M. C. AGARWAL, J. ( 1 ) THIS revision petition under Section 11 of the U. P. Trade Tax Act, 1948 (hereinafter referred to as "the Act") has been preferred by the Commissioner against an order dated December 6, 1994 passed by the Trade Tax Tribunal, Kanpur whereby it allowed the dealers second appeal no. 408 of 1994 for the assessment year 1980-81 and quashed the penalty in the sum of Rs. 5,97,967 levied under Section 15-A (1) (l) of the U. P. Trade Tax Act, 1948 read with Section 9 (2-A) of the Central Sales Tax Act, 1956. ( 2 ) I have heard Sri Surya Prakash, learned Standing Counsel for the Commissioner-revisionist and Sri Ashok Trivedi, learned counsel for the dealer-respondent. ( 3 ) THE dealer-respondent is engaged in the business of tanning of hides and skins for manufacturing leather and the manufacture of shoe uppers. The latter product was sold in the course of export of the goods out of India. ( 4 ) THE dealer purchased raw hides and skins from other merchants to whom it issued declarations in form H in respect of the purchases of raw hides and skins. As a result of the issue of declarations in form H no sales tax was leviable on the selling dealers. After purchases of raw hides and skins the dealer processed them and manufactured leather by carrying out the processes of tanning, dressing, etc. Thereafter it manufactured shoe uppers which have admittedly been exported to some other countries. ( 5 ) SECTION 5 (3) of the Central Sales Tax Act, 1956 grants exemption to last sale of the exported goods. It reads as under : " (3) Notwithstanding anything contained in Sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of india shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. " ( 6 ) IN order that the selling dealer may claim exemption on such last sales the purchasing dealer has to issue a certificate of export in form H prescribed under the Central Sales Tax (Registration and Turnover) Rules, 1957. " ( 6 ) IN order that the selling dealer may claim exemption on such last sales the purchasing dealer has to issue a certificate of export in form H prescribed under the Central Sales Tax (Registration and Turnover) Rules, 1957. The exporting dealer has to certify that the said goods have been sold in the course of export out of the territory of India. Various details have to be furnished in form H which it is not necessary to discuss here. Section 9 (2-A) of the Central Sales Tax Act, 1956 provides that all provisions relating to offences and penalties--of the general sales tax law of each State shall, with necessary modifications, apply in relation to the assessment, reassessment, collection and the enforcement of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, reassessment, collection or enforcement of payment as if the tax under this Act were a tax under such sales tax law. ( 7 ) SECTION 15-A (1) (1) of the U. P. Sales Tax Act provides that if the assessing authority is satisfied that any dealer or any person issues or furnishes a false certificate or declaration by reason of which a tax on sale or purchase ceases to be leviable under this Act or the Rules made thereunder, he may after such enquiry direct such dealer to pay by way of penalty a sum not less than 50 per cent but not exceeding one and a half times of the tax which would thereby have been avoided. ( 8 ) SINCE what the dealer exported were shoe uppers and not leather, the assessing officer took the view that what was exported were not goods purchased and, therefore, the declarations in form H were false and because of the said declaration tax ceased to be levied on the selling dealers, i. e. , indian Hide Company and Eastern Leather Company. The assessing officer, therefore, issued notice to the assessee to show cause why penalty under Section 15-A (1) (l) of the U. P. Sales Tax act, 1948 be not levied. The dealer explained that shoe uppers and leather were one and the same thing and, therefore, there was no violation of Section 5 (3) and no false statement was made in form H and no penalty could be levied. The dealer explained that shoe uppers and leather were one and the same thing and, therefore, there was no violation of Section 5 (3) and no false statement was made in form H and no penalty could be levied. Rejecting this contention, the assessing officer levied a penalty of Rs. 5,97,967 which is equivalent to one and a half times of the tax that would have been levied on the purchase of hides and skins and which tax was avoided by issue of form h. The first appeal preferred to the Assistant Commissioner (Judicial) was dismissed. It was thereafter that the dealer preferred the aforesaid second appeal which has been allowed by the tribunal holding that the assessing officer was not certain about the facts and, therefore, it was not established that the declaration in form H was false. The Tribunal has pointed out that the assessing officer has at some place mentioned that the dealer purchased cow-boy leather and exported shoe uppers and at another place he mentioned that the dealer purchased leather. The tribunal also took the view that the shoe upper exported by the dealer did not change the nature of the goods and, therefore, the goods exported were the. same as were purchased and for this reason also no penalty could be levied. ( 9 ) THE short question that is involved in this revision petition, therefore, is whether the dealer manufactured a different thing out of the goods purchased by it and it was that different thing, i. e. , shoe uppers that was exported. The Tribunals observation that the assessing officer was not clear about the thing purchased and in respect of which form H was issued is misplaced. It is specifically mentioned at page 2 of the assessing officers order that the dealer purchased raw hides and by processing them in its own factory it produced finished leather from which shoe uppers were prepared. Therefore, an inadvertent averment at one place that the dealer purchased cow-boy leather and prepared shoe uppers in its factory could not be a ground on which the tribunal could base its decision. In any case the. Tribunal being the last fact finding authority, it was its duty to investigate the facts with the help of the counterfoil of form H or if need be so by summoning the originals thereof and the concerned bills, etc. In any case the. Tribunal being the last fact finding authority, it was its duty to investigate the facts with the help of the counterfoil of form H or if need be so by summoning the originals thereof and the concerned bills, etc. Before me, the learned counsel for the assessee-respondent did not dispute that the assessee purchased raw hides and skins and subjecting them to various processes of tanning, etc. , it converted those hides into finished leather and it was thereafter that the shoe uppers were made and were exported. ( 10 ) IN case such finished leather had been exported no penalty could, in my view, have been levied under Section 15-A (1) (l) of the Act because the explanation to Section 3-AAAA as it stood at the relevant time provided that for the purposes of Sections 3-AAA and 3-AAAA the sale of dressed hides and skins or tanned leather after dressing or tanning raw hides and skins shall be deemed to be in the same form and condition. In this case, however, the dealer-respondent has not exported the leather as such. It has exported shoe uppers manufactured out of finished leather that it manufactured out of the raw hides and skins purchased in respect of which form H were issued to the selling dealers. Therefore, what has to be seen is whether shoe uppers could also be equated to the raw hides and skins and it could be said that the dealer had exported the same goods that were purchased and in respect of which form H were issued. The tribunal has placed reliance mainly on Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC) ; 1986 UPTC 1236. That was a case in which shrimps, prawns and lobsters were purchased locally by the dealer and were then dressed, cleaned, frozen and packed and were then exported out of India. The honourable Supreme Court held that the processes of cleaning, dressing, cutting, etc. , did not make them different commodities and the exemption under Section 5 (3) was still available to the dealer. The honourable Supreme Court held that the processes of cleaning, dressing, cutting, etc. , did not make them different commodities and the exemption under Section 5 (3) was still available to the dealer. The honourable Supreme Court observed that the question whether there was a change in the original character or identity of goods has to be determined not on the basis of a distinction made by the State Legislature for the purpose of exigibility to State sales tax but on the basis of what is commonly known or recognised in commercial parlance. The tribunal has referred to Commissioner, Sales Tax v. Girdhari Lal Football Maker [1987] 65 STC 287 (All.) ; 1987 UPTC 93 in which the assessee who was a manufacturer of football and volleyball covers and not bladders sold such covers to exporter was held to be entitled to exemption under Section 5 (3) of the Act. Reliance is also placed on Commissioner of Sales Tax v. Tin Manufacturing Co. of India 1989 UPTC 856. There is nothing in this judgment which is akin, to the facts of the present case. It seems that hocca tobacco paste packed in tin containers was exported and it was held that exemption under Section 5 (3) would be available on the last sale of such tin containers. Learned counsel for the dealer-respondent also placed reliance on the aforesaid judgments in support of his contention that the shoe uppers were not different from leather and, therefore, the statement made in form H could not be treated to be false. ( 11 ) ON the other hand, the learned Standing Counsel placed reliance on Vijayalaxmi Cashew company v. Deputy Commercial Tax Officer [1996] 100 STC 571 ; 1996 UPTC 602 in which the honourable Supreme Court held that where the assessee purchased raw cashewnuts and after processing the same exported cashewnut kernels exemption under Section 5 (3) of the Central sales Tax Act, 1956 was not available. The earlier judgment of the apex Court in Sterling Foods v. State of Karnataka [1986] 63 STC 239 ; 1986 UPTC 1236 was also noticed and it was held that the position in the case of shrimps, prawns and lobsters was different because even if the purchaser goes to the retail market to buy lobsters the seller may if so required by the buyer, clean the prawns and shrimps and cut the head and tail of the lobsters according to the direction of the customer and the sale will nonetheless be of lobsters and if this is done on a big scale by a trader the character of the goods sold will not change. ( 12 ) LEARNED counsel for the assessee-dealer contended that penalty under Section 15-A (1) (l) of the U. P. Sales Tax Act, 1948 cannot be levied as no such penalty is provided for under Section 10 of the Central Sales Tax Act, 1956. This contention is not correct. No doubt, Section 10 of the central Sales Tax Act, 1956 read with Section 10-A thereof provides for certain specific penalties but Section 9 (2-A) adopts the provisions of the general sales tax law of the State in matters not provided for in Section 10 or 10-A. ( 13 ) IN Shiv Dutt Rai Fateh Chand v. Union of India [1983] 53 STC 289 (SC) ; 1983 UPTC 920 the validity of Section 9 (2-A) was upheld and it was held that penalties leviable under the State act could be levied in relation to the Central Act by virtue of Section 9 (2-A ). Further the penalty in question is not for the avoidance of Central sales tax. The sales through which the raw hides and skins were purchased were, but for the Section 5 (3), local sales taxable under the U. P. Sales tax Act and, therefore, what stood avoided was the local sales tax. When Section 15-A (1) (1)talks of a false certificate or declaration it does not mean that the certificate or declaration should be in a certificate or declaration prescribed under the U. P. Sales Tax Act and any declaration made under any Act by which sales tax ceases to be leviable could be punished under Section 15-A (1) (1 ). When Section 15-A (1) (1)talks of a false certificate or declaration it does not mean that the certificate or declaration should be in a certificate or declaration prescribed under the U. P. Sales Tax Act and any declaration made under any Act by which sales tax ceases to be leviable could be punished under Section 15-A (1) (1 ). Learned counsel for the dealer also contended that Article 286 of the Constitution of india prohibits the State from levying sales tax on the sale of goods in the course of export and that in any case the raw hides and skins purchased by the dealer stood exported though in the form of shoe uppers and, therefore, no penalty should be levied. This contention has no force. The reason is that Article 286 does not protect local sales even though goods purchased in such local sales are ultimately exported out of India. Such an argument was repelled by the honourable Supreme Court in the case of Vijayalaxmi Cashew Company [1996] 100 STC 571 ; 1996 UPTC 602. Learned counsel for the assessee-respondent asserted that while issuing certificate in form H the dealer did not make any false statement because the finished leather and raw hides and skins were provided to be one and the same thing in Section 3-AAAA and the shoe uppers were merely pieces of leather cut out of the leather sheets and could not be treated as a separate and different commodity. He emphasised that the shoe uppers cannot be used as a consumer goods and it was leather that was exported in the form of shoe uppers just to reduce the volume or bulk of the consignment and to save transport and other costs. A perusal of the tribunals order would show that on this point no finding of fact had been recorded by the tribunal and even the assessing officer has not given any details of the operation that the dealer carried out in converting leather into shoe uppers and a finding of fact on this point was necessary for a proper disposal of the appeal before the Tribunal. In case the dealer merely cut the leather sheets in the form of a shoe upper the contention of the dealer may be acceptable as in that case it could reasonably be argued that the dealer was under a bona fide impression that mere cutting of the leather sheets into proper sizes and shapes did not change the nature of the commodity and even the pieces so cut remained leather and, therefore, it cannot be said that it made a false statement in the certificate. However, if some other manufacturing activity is conducted on such pieces as may have to be done for manufacture of shoe uppers, the dealers contention will not prevail. A shoe upper may not be a simple piece of leather, it might require several manufacturing processes to convert a piece of leather into a shoe upper. For example an inner lining may have to be stitched or pasted. A flap may have to be stitched below the place where the shoe lace is tied. That part of the shoe upper which protects the heel may have to be made stronger and the upper edges have to be stitched or pasted in a manner that they dont hurt the feet. Even several shoes have some design and several pieces of leather of different shapes may have to be stitched together to make a particular shoe upper. On these points, therefore, there is no finding of the Tribunal and its finding that the shoe upper and the leather were one and the same thing, therefore, cannot be sustained particularly in view of the law as explained by the honourable Supreme Court in Vijayalaxmi Cashew Company v. Deputy Commercial Tax officer [1996] 100 STC 571 ; 1996 UPTC 602. ( 14 ) IN the result, this revision petition is allowed and setting aside the Tribunals order, it is directed that the Tribunal would dispose of the appeal afresh in accordance with law after such enquiries as it may deem necessary for arriving at proper findings of fact. .