Bombay High Court
Commissioner Of Sales Tax vs Premier Automobiles on 9 January, 1990
Equivalent citations: (1990)92BOMLR138
Author: Sujata V. Manohar
Bench: Sujata V. Manohar
JUDGMENT T.D. Sugla, J.
1. These two references are at the instance of the department. The references relate to the assessment to sales tax for the period covering from July 1, 1965 to June 30, 1966 and July 1, 1966 to June 30, 1967. The questions of law referred to this Court for opinion are :
(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the "service pool charges" recovered by the opponent-assessee from its distributors at the rate of Rs. 10 per vehicle did not form a part of the sale price of the vehicle as defined in section 2(29) of the Bombay Sales Tax Act, 1959 ?
(ii) When the opponent-assessee bought raw materials against a certificate in form 15 issued under section 11(1A)(b) of the Bombay Sales Tax Act, 1959 and used the same in the manufacture of motor vehicles which were not sold but were capitalised, was the Tribunal justified in coming to the conclusion that such use of the raw materials did not amount to use for another purpose contrary to the certificate in form 15 within the meaning of section 14(1) of the Act ?"
2. The counsel are agreed that the first question is covered by this Court's decision in Commissioner of Sales Tax v. Premier Automobiles Ltd. [1985] 59 STC 147 (Bom). In view thereof, the question is answered in the affirmative and in favour of the assessee.
3. Relevant facts in relation to question No. 2 are that the assessee purchased certain goods in respect of which it was granted a certificate of recognition under section 25 of the Bombay Sales Tax Act, 1959 (for short the "Act"). The goods were purchased by issuing form 15 as laid down in section 11(1A) of the Act. The goods so purchased are liable to concessional rate of purchase tax subject, however, to the condition that the goods are of the class specified in the certificate of recognition and are purchased for use within the State in the manufacture of taxable goods for sale or in the packing of the goods so manufactured.
4. It is common ground that the assessee-company manufactures motor cars for sale and that a few of the cars were not sold but were retained by the assessee for use in the business. The departmental authorities took the view that the act of not selling the motor cares and retaining them for own use was in violation of the undertaking given under section 11(1A) and form 15 and the assessee was liable to make up for difference in tax, i.e., the tax paid and the tax it should have paid without issuing declaration in form 15 as contemplated in section 14(1) of the Act.
5. In second appeal, the Tribunal accepted the assessee's case that use of the vehicles by the assessee for its own business was not in violation of the provisions of section 11(1A) or the undertaking given in form 15 and consequently the provisions of section 14(1) of the Act were not attracted.
6. The case of the department is that the provisions of section 11(1A) and the undertaking given by the assessee in form 15 are in absolute terms and, therefore, unless the motor cars manufactured with the use of raw materials and/or components so purchased were actually sold, the assessee was in violation of the provisions of section 11(1A) and undertaking given in form 15 and consequently liable to differential duty/tax under section 14(1). Section 14(1), it was stated, was very clear as to its contents. It provided that if an assessee had made purchases under section 11 or section 12 by giving a declaration in form 15 and contrary to the declaration, the goods were used for another purpose, the provisions of section 14(1) were attracted. In support, Shri Jetley relied on this Court's judgment in Commissioner of sales Tax v. East Asiatic Commercial Co. [1985] 59 STC 10. Emphasis was laid on the observations in paragraph 19 of the judgment for the proposition that the phrase "contrary to such certificates the goods are used for another purpose" used in section 14(1) did not convey anything more than that the certificate was contravened by using the goods for another purpose. There being no dispute about the fact that the cars in question were not kept for sale and were retained for use in its own business, he contended that this Court's aforesaid decision was squarely applicable. This Court, it was further state, had relied on the Supreme Court decision in the case of B. K. Wadeyar, Sales Tax Officer v. Daulatram Rameshwarlal .
7. Shri Shah, the learned counsel for the assessee, on the other hand, submitted that the raw materials and/or components were purchased with an intention to be used in the manufacture of cars which constituted taxable goods and were meant for sale. Therefore, the certificate when given was an honest certificate. Mere fact that subsequently a few cars manufactured by the assessee were required by the assessee for use in its business did not make such a use as a use in breach of the undertaking. Use of the cars in the assessee's own business was interlinked with the carrying on of the business, that it could not be held that the cars were put to use other than contemplated in the certificate. Besides relying on the Tribunal's order, Shri Shah invited the court's attention to a Gujarat High Court decision in Ruby Laboratories v. Commissioner of Sales Tax [1971] 27 STC 326. The assessee in that case was manufacturing medicines. Samples of medicines were supplied free to the doctors with a view to promote sales. The question arose whether the distribution of medicines by way of free samples constituted a use different from the use contemplated in the certificate so as to attract the penal provisions of section 36. It was held that that distribution of medicines by way of free samples formed an integral part of sale, was for the purpose of promoting sales and, therefore, could not be held to be in violation of the undertaking given by the assessee. The penalty imposed for alleged breach of the undertaking was deleted.
8. In order to appreciate rival contentions, it is desirable to refer to the provisions of sections 11(1A) and 14(1) of the Act. At the material time the provisions read as under :
"Section 11. Where any dealer liable to pay tax under this Act, sells any taxable goods -
(1) ...........
(a) and (b) ..........
(1A) to a recognised dealer, who certifies in the prescribed form -
(a) that the goods are of the class specified in his recognition, and
(b) that they are purchased by him for use by him within the State in the manufacture of taxable goods for sale by him or in the packing of the goods so manufactured;
...........
Section 14. Liability to purchase tax for contravention of terms of certificate. - (1) where any dealer or commission agent has purchased any taxable goods under a certificate given by him under section 11 or 12 and contrary to such certificate, the goods are used for another purpose, or are not resold or despatched in the manner and within the period certified, then such dealer or commission agent shall be liable to pay purchase tax on the purchase price of the goods purchased, under such certificate; and accordingly, he shall include the purchase price thereof, in his turnover of purchases in his return under section 32 which he is to furnish next thereafter :
............"
It is not necessary to reproduce form 15 as the form contained nothing more than that was provided in section 11(1A). Form 15, it may be stated, was subsequently amended as a result of which the undertaking about the sale of goods, as a fact, was made explicit. An attempt was made on behalf on the assessee to suggest that but for the amendment the undertaking was not so rigid. Apart from the fact that the amendment in form 15 merely uses the word of emphasis section 14(1) continues to remain couched in the same language. Section 11(1A) clearly provides that the assessee will be entitled to pay tax at a concessional rate on its purchases provided the goods purchased are of the class specified in its recognition certificate and the goods so purchased are used within the State in the manufacture of taxable goods for sale by him or packing of the goods so manufactured. This is the undertaking given in form 15 by the assessee at the time of purchases. It may be that if there is an intention to use such goods in the manufacture of articles for sale at the time of making purchases of raw materials and/or components, the requirement of section 11(1A) will be satisfied on the face of it. Section 14(1) however, provides that where an assessee has purchased any taxable goods under a certificate or declaration given by him under section 11 or section 12 and contrary to such certificate the goods are used for another purpose, the assessee is liable to differential duty/tax. The question, therefore, is whether use of a few cars by the assessee for its own business is contrary to the certificate in form 15 which contemplated the use of such articles in the manufacture of taxable goods for sale. There is no suggestion that the motor cars so kept by the assessee were to be sold at some time later. The admitted position is that these cars are kept for the use by the assessee and are not meant for sale. In this view of the matter, whether or not such goods were purchased with the intention of manufacturing taxable goods for sale at the time of purchases becomes immaterial inasmuch as section 14(1) clearly refers to the actual use of the articles so manufactured. This is what this Court has observed in [1985] 59 STC 10 Commissioner of Sales Tax v. East Asiatic Commercial Co. in paragraph 19 at page 17 as under :
"... What is the meaning to be given to the phrase 'contrary to such certificates ?' In all certificates given under sections 11 and 12 save and except for the certificates which are required to be given under suction 12(c) and 12(e), the dealer concerned states that he will either use the goods in a certain manner or will resell the goods or export them, etc. In the case of some certificates the period within which the goods have to be so dealt with, is also prescribed. There is therefore contravention of such a certificate when the goods are used for another purpose or when the goods are not resold or are not despatched in the manner specified or within the time specified, as the case may be. The phrase therefore in section 14 that 'contrary to such certificates the goods are used for another purpose' etc., do not convey anything more than the fact that the certificate is contravened by reasons of the goods being used for another purpose, etc. Since the certificates are of different types, the various contraventions are set out in section 14. In case of these certificates, therefore there is no difficulty in interpreting the phrase 'contrary to such certificate', as merely denoting a contravention, e.g., goods being used for another purpose, goods not being resold, goods not being despatched as per the certificate, or within the prescribed period."
In view of the above exposition of legal position we hold that the intention is not material. What is material for the purpose of section 14(1) is the actual use of the articles manufactured. If the actual use is other than sale, the provisions of section 14(1) are attracted and the assessee is liable to differential tax.
9. The Gujarat High Court decision strongly relied on by Shri Shah, in our view, is not applicable in this case for more than one reason. In the first place, Gujarat High Court was not called upon to consider the provisions of section 14(1). It considered the penal provisions of section 36(3). Moreover, the distribution of medicines by way of free samples to the doctors is always done with a view to advertise and promote sale of medicines. Therefore such an activity has direct nexus with the sale. Use of motor cars in one's business, on the other hand, may be necessary irrespective of the fact whether the assessee manufactures motor cars. Besides the Supreme Court decision Wadeyar, Sales Tax Officer v. Daulatram Rameshwarlal, was not noticed by the Gujarat High Court in that decision.
10. In the above view of the matter, we do not think that Gujarat High Court decision is of any help to the assessee. Accordingly, following the ration of this Court's judgment in [1985] 59 STC 10 Commissioner of Sales Tax v. East Asiatic Commercial Co., we hold that the provisions of section 14(1) are attracted in this case. The question of law is, thus, answered in the negative and in favour of the Revenue.
No order as to costs.
11. References answered accordingly.