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2021 DIGILAW 195 (ORI)

Penguine Paper Plast (p) Ltd. v. State Of Orissa

2021-04-20

B.P.ROUTRAY

body2021
JUDGMENT Dr. S. Muralidhar, CJ. - These three revision petitions give rise to similar substantial questions of law and are accordingly being disposed of by this common judgment. 2. In STREV No.40 of 2006, the following questions of law were framed on 21st July, 2006: '(A) Whether in the facts and circumstances of the case the Orissa Sales Tax Tribunal is legally correct in holding that the turnover amounting to Rs.19,46,198.04 relating to conversion of corrugated box is in the nature of works Contract and liable to Sales Tax @ 8% and whether such a conclusion arrived at by the Tribunal does not run contrary to the law laid down by the Hon'ble Supreme Court in case of W.P.(C) No.183 of 2003 Bharat Sanchar Nigam Ltd. vs. Union of India and Others ? (B) Whether the Tribunal is legally correct in upholding addition of Rs.1,08,992.00 made only on estimation without having any rational nexus with materials on record ?' 3. The said revision petition arose out of the order dated 21st September, 2005 passed by the Odisha Sales Tax Tribunal, Cuttack (Tribunal) dismissing the Petitioner's appeals i.e. S.A. Nos.2128, 2129 and 2130 of 2002-03 thereby affirming the order dated 31st December, 2002 of the Assistant Commissioner of Commercial Taxes, Sundergarh Range, Rourkela (ACCT) dismissing the Petitioner's appeals i.e. Appeal Nos.468(RL-II) of 1997-98, AA 429(RL-II) of 1998-99 and AA157 (RL-II) of 2000-01. The ACCT's order in turn affirmed the order of assessment passed by the Sales Tax Officer, Rourkela-II Circle (STO) under Section 12(4) of the Orissa Sales Tax Act, 1947 (OST Act) raising an extra demand for the period 1996-97 pertaining to the Assessment Year (AY) 1997-98. 4. The accompanying two revision petitions i.e. STREV Nos.41 and 42 of 2006 pertain to the periods 1997-98 and 1998-99 arising from the same order of the Tribunal dismissing AA 429(RL-II) of 1998-99 and AA157 (RL-II) of 2000-01, by a common order dated 21st September, 2005. Correspondingly, the orders of ACCT dated 31st December, 2002 which was common to 1997-98 and 1998-99 as well except variation in the amount involved in the question that arose for consideration. 5. The background facts are that the Petitioner Assessee is a private limited company engaged in manufacturing cardboard boxes and cartoons. It is stated that the raw materials required for the purpose include paper, stitching wire, ink, adhesive and kraft paper. 5. The background facts are that the Petitioner Assessee is a private limited company engaged in manufacturing cardboard boxes and cartoons. It is stated that the raw materials required for the purpose include paper, stitching wire, ink, adhesive and kraft paper. On 3rd July, 1995 a meeting was held between M/s. I.D.L. Chemicals Ltd. (IDL) and the Petitioner at which IDL placed orders on the Petitioner for the supply of corrugated paperboard boxes as per the specification and size provided by IDL. The relevant clause of the minutes of the meeting are Clause-A which notes the agreement regarding the size of paper and board that was to be supplied by IDL to the Petitioner for conversion into corrugated paperboard boxes. The requirement of paper and board was indicated in clause B. It was agreed that IDL shall provide 3% towards process loss/weightage on paper and board. The conversion charge was agreed at Rs.5.25 per box without linking with the sizes of the box/weight. It was decided that IDL should arrange for delivery of paper and board for which all expenses will be borne by the IDL for sending the corrugated box after conversion. IDL was to consider Rs. 0.30 per box towards freight, which includes loading and unloading of boxes. 6. With a view to avoiding the Petitioner having to return the wastage material (paper and board) a norm of 3% wastage was fixed for use of quantum of paper and board for each box. As regards the sales tax the minutes of the meeting reads as under: "Sales Tax: 1. Though on conversion, sales tax is not applicable but during the process since additional material goes into the box there is every possibilities that we may have to pay 4% tax against form-IV for the material being used in the manufacturing process. Mr. Agarwal mentioned that all tax liabilities, if any to be borne by IDL. 2. To overcome the above, it is suggested that we may reflect in our job order, the amount being paid for labour charge and cost of the material for each box separately so that in the event of any demand by sales tax authority, in future can be paid only on the material cost. As per the Mr. Aditya Agarwal an amount of Rs.2/- per box can be charged towards cost of materials and rest Rs.3.25 towards labour overheads and profit." 7. As per the Mr. Aditya Agarwal an amount of Rs.2/- per box can be charged towards cost of materials and rest Rs.3.25 towards labour overheads and profit." 7. For the year 1996-97, the STO issued a notice under Section 12(4) of the OST Act. It was pointed out in response to the notice by the Petitioner, it had mistakenly furnished a declaration in Form-IV paying tax @ 4% even though the entire transaction being in the nature of service was not liable to sales tax under the OST Act. 8. By order dated 29th November, 1997 the STO rejected the above contention of the Petitioner and levied sales tax by treating the above agreement as a works contract. The specific findings in this regard read as under: "The job undertaken by the assessee is a works contract and there is transfer of property in goods which has been agreed by the party towards material component at the rate of Rs.2.00 per box. The assessee has submitted form IV covering the material component which is not acceptable because (illegible) under works contract are treated as a separate class and a flat rate of 8% has been notified as works contract tax on the schedule for rate of tax. Under the circumstances declaration in form IV is not permissible and the assessee is liable to pay works contract tax @8% on the material component as agreed upon by the both the parties." 9. A similar order was passed on 19th December, 1998 for the subsequent year 1997-98 and on 16th August, 2000 for the period 1998-99. Three appeals were filed by the Petitioner against the aforementioned three orders of the STO. The ACCT passed a common order dated 31st December, 2002 dismissing the appeals. Being aggrieved by the aforementioned order, three appeals i.e. S.A. Nos.2128, 2129 and 2130 of 2002-03 were filed by the Petitioner before the Tribunal. By a common judgment dated 21st September, 2005, the Tribunal also dismissed all the above three appeals of the Petitioner. 10. This Court has heard the submission of Mr. Sidhartha Ray, learned counsel appearing for the Petitioner and Mr. Sunil Mishra, learned Additional Standing Counsel for the Opposite Party (Sales Tax). 11. It is contended by Mr. By a common judgment dated 21st September, 2005, the Tribunal also dismissed all the above three appeals of the Petitioner. 10. This Court has heard the submission of Mr. Sidhartha Ray, learned counsel appearing for the Petitioner and Mr. Sunil Mishra, learned Additional Standing Counsel for the Opposite Party (Sales Tax). 11. It is contended by Mr. Ray that the STO, as well as the ACCT and the Tribunal, misconstrued the arrangement between IDL and the Petitioner as a works contract whereas it was a pure and simple job work, which was not amenable to sales tax at all. Mr. Ray referred to Section 2 (jj) of the OST Act which defines 'works contract' and Section 2 (g) thereof which defines 'sale'. He referred to the judgment of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi (1978) 42 STC 386 (SC) and submitted that a contract which only involves skill and labour with no transfer of the property in the goods is only a job work and not a works contract. He also referred to the decision of this Court in M/s. Orissa Small Industries Corporation Ltd. v. State of Orissa, (2009) 107 CLT 565 . 12. On the other hand, Mr. S. Mishra, learned Additional Standing Counsel for the Opposite Party defended the impugned order and submitted that in the present case there were good reasons that weighed with the Tribunal to conclude that it was a works contract. He submitted that the taxable turnover was determined only after deducting labour and service charges. He pointed out that levy of sales tax was limited to the raw materials utilized in the manufacturing of the cardboard boxes after deducting labour and service charges. Mr. Ray has contested the above submission by pointing out that tax has been levied not only on the materials used in the making of the boxes but on the labour and service component as well. 13. The Court has considered the above submissions. A careful perusal of the agreement between the Petitioner and IDL would show that what was entrusted by IDL to the Petitioner was in sum and substance, a job work. The quality of paper and the material to be supplied for making of the corrugated boxes was pre-determined. M/s. IDL also determined the dimensions of the boxes. A careful perusal of the agreement between the Petitioner and IDL would show that what was entrusted by IDL to the Petitioner was in sum and substance, a job work. The quality of paper and the material to be supplied for making of the corrugated boxes was pre-determined. M/s. IDL also determined the dimensions of the boxes. The minutes of the meeting make it clear that after conversion of the material into corrugated boxes, they had to be sent back to M/s. IDL. What was paid for the job work was the conversion rate of Rs.5.25 per box. Freight was borne separately by M/s. IDL. At no point in time was there any transfer of property in the boxes to the Petitioner. 14.1 The above facts are more or less identical to those in the decision in M/s. Orissa Small Industries Corporation Ltd. (supra). Since that judgment was delivered on 11th February 2009, the Tribunal in the instant case did not have occasion to peruse it. There the Assessee was carrying on the business in agricultural implements, iron and steel good, coal, wax plastic goods, hand-pump, electric motor, machinery, steel furniture, electric pump-set, photographic materials, paints etc. The job work was the preparation of photo identity cards for voters as per the orders of the Chief Electoral Officer. The Petitioner received Rs.12.70 per photo identity card. The amount was shown as gross turnover by the Petitioner for supply of such photo identity cards. The Petitioner there claimed expenditure of Rs. 6,13,12,696/- towards labour and service charges. 14.2 The question that arose for determination in M/s. Orissa Small Industries Corporation Ltd. (supra) was whether the work undertaken by the Petitioner there was a works contract or a job contract? The Assessing Officer allowed 30% of the gross turnover towards labour charges and treated the balance as taxable turnover and levied 4% tax thereon. The first appellate authority rejected the Petitioner's appeal which order was affirmed by the Tribunal. Thereafter the Petitioner there filed a sales tax revision case in this Court. The Assessing Officer allowed 30% of the gross turnover towards labour charges and treated the balance as taxable turnover and levied 4% tax thereon. The first appellate authority rejected the Petitioner's appeal which order was affirmed by the Tribunal. Thereafter the Petitioner there filed a sales tax revision case in this Court. 14.3 Before this Court, the Department sought to contend that the Tribunal had correctly come to the conclusion that the transaction undertaken by the Petitioner in that case is 'in the nature of sale for cash.' 14.4 After referring to the decisions in Assistant Sales Tax Officer v. B.C. Kame (1977) 39 STC 237 ; State of Himachal Pradesh v. Associated Hotels of India (1972) 29 STC 474 (SC); Hindustan Aeronautic Ltd. v. State of Karnataka (1984) 55 STC 314 ; Hindustan Aeronautic Ltd. v. State of Orissa (1984) 55 STC 327 and State of Tamil Nadu v. Anandam Viswanathan (1989) 73 STC 1 , this Court came to the conclusion that the very wording of the agreement made it clear that it was a job work. It was concluded that the photo identity cards supplied to the CEO are not commercial commodities and the same cannot be used or sold by the Petitioner to any other person. The material purchased and utilized in preparation of photo identity cards was very negligible and incidental. It was categorically held as under: '24. Thus, there is no element of sale or transfer of property in the goods involved in the present case. The photo identity cards of voters are not the commodities sellable in open market. It fetches no commercial value in the open market. Had it been photographs of god, goddess, national leaders, popular film stars or cricketers, which are tradable in open market, it would have been exigible to tax, if not otherwise exempted from payment of tax. Hence, supply of photo identity cards to CEO cannot be held as sale. It is a contract for labour and service.' 15. By the same yardstick in the present case, it is not possible to agree with the contention of learned counsel for the Department that the arrangement was in fact a works contract and not a job work. Hence, supply of photo identity cards to CEO cannot be held as sale. It is a contract for labour and service.' 15. By the same yardstick in the present case, it is not possible to agree with the contention of learned counsel for the Department that the arrangement was in fact a works contract and not a job work. Like in the above case, the value of material used in making the corrugated boxes and the cartoons themselves were not to be sold by the Petitioner to anyone in the market. As explained by the Supreme Court in Northern India Caterers (India) Ltd. what has to be examined is the dominant object of the contract in question. The agreement between the Petitioner and M/s. IDL does not answer the characteristics of a works contract as defined in Section 2 (jj) of the OST act. There is also no element of sale as defined under Section 2 (g) thereof. The dominant object is indeed skill and labour to convert paper and board into corrugated cartons or boxes. 16. Accordingly, the impugned orders of the Tribunal, the ACCT and the STO for the three years are hereby set aside. Questions of law (A) and (B) framed by this Court are accordingly answered in the negative i.e. in favour of the Petitioner Assessee and against the Department. The amounts paid by the Petitioner during pendency of the present revision petitions will be refunded to the Petitioner not later than eight weeks from today, in accordance with law. The STREVs are disposed of in the above terms. 17. As the restrictions due to resurgence of COVID-19 situation are continuing, learned counsel for the parties may utilize a printout of the order available in the High Court's website, at par with certified copy, subject to attestation by the concerned advocate, in the manner prescribed vide Court's Notice No.4587, dated 25th March, 2020 as modified by Court's Notice No.4798, dated 15th April, 2021.