Patna High Court
I.T.C. (Indian Tobacco Co.) Ltd. And ... vs Assistant Commissioner Of Commercial ... on 3 May, 1984
Equivalent citations: [1984]58STC193(PAT)
JUDGMENT Hari Lal Agrawal, J.
1. The petitioners have filed this writ application for quashing an order of penalty (annexure 18) in respect of assessment year 1976-77 passed under Section 10A of the Central Sales Tax Act by the Assistant Commissioner of Commercial Taxes, Hunger, the notice of demand (annexure 19) issued in pursuance of the assessment order for Rs. 8,21,850.53 and the appellate order (annexure 23) passed by the Deputy Commissioner of Commercial Taxes (Appeals), Bhagalpur.
2. The petitioner No. 1 is a leading cigarette manufacturing company of the country and has its factory, offices and places of business at various places in India including one in the town of Hunger in the State of Bihar. The company is registered both under the Bihar Sales Tax Act, 1959 and the Central Sales Tax Act, 1956. It obtained a certificate of registration under the Central Sales Tax Act read with Rule 5 of the Rules framed thereunder regarding registration and turnover which are known as Registration and Turnover Rules, 1957.
The company has also a printing section in its Hunger factory with machines for printing shells and labels, etc., for packing the products manufactured and sold by the company containing representations of various trade marks as the products cannot be sold in loose.
For the purpose of packing the products the petitioner-company purchases large quantities of papers and boards inside the State as well as from outside the State of Bihar. The registration certificate granted to the company under the Central Act in the prescribed form also mentions papers and boards for use by the company in the packing of its materials. During the relevant year the company purchased papers and boards from outside the State of Bihar under the declaration issued by it in the prescribed C form. It may be mentioned that on this account the petitioner-company had to pay tax only at the rate of 4% in place of 10% as provided under Section 8 of the Central Act. Undisputedly the company despatched some of the materials to its other factories and branches outside the State of Bihar for their consumption/use "as inter-branch transfers" and it is not disputed that at those places also the said materials were used for actual packing of goods manufactured by those units of the company.
3. The question that arises for decision in this case is as to whether the transfer of those materials which were purchased by the company at Hunger, amounted to any violation of its declaration and thus it committed any infraction of the restrictions imposed under the Central Act in its Section 10(d) and thereby made itself liable for imposition of penalty in lieu of prosecution under Section 10A thereof. *
4. The main thrust of the argument of Mr. K. D. Chatterji on this score was that the dealer was Indian Tobacco Co. Ltd. as such and transfer from one branch to another by the same dealer did not make any change in the character of the user of the articles purchased in pursuance of the registration certificate granted to one of its units at Hunger and there was no violation of the provisions of Section 10 of the Act.
5. The argument pressed on behalf of the respondents is that each registered dealer must be deemed to be a separate entity for the purposes of the Central Sales Tax Act, and liable to submit separate returns and assessments, and therefore, the transfer of the articles purchased for the consumption and use of one registered dealer to another registered dealer was a clear violation of the declaration, and therefore, Section 10(d) had full application to the present case and the petitioners cannot escape the penalty.
According to the contention of Mr. Additional Advocate-General, the transfer of the goods by the petitioner to its other branches were in disguise sales and it being separately registered in this State, it must be deemed to be a separate "person". The learned Additional Advocate-General adopted the same reasoning which has been assigned by the assessing authorities in passing the impugned order.
In the counter-affidavit filed on behalf of respondents Nos. 1 and 3 also the same stand has been taken besides denying the further allegations of the petitioners regarding the irregularities committed in passing the assessment and the appellate orders. However, those details are not necessary.
6. The original assessment order (annexure 9) shows that the petitioner-company had made purchases of packing materials after furnishing form IX for a sum of Rs. 2,77,47,445.34. The value of the goods consumed was Rs. 2,65,06,293.87. It further purchased paper, printing ink, board, etc., after furnishing declaration, worth Rs. 9,21,899.03. The total value of the goods consumed after furnishing form C was calculated at Rs. 1,34,10,164.08 on which the value of goods consumed after furnishing declaration in form IX amounting to Rs. 2,35,06,293.87 was added. It was found that goods worth Rs. 1,76,88,177 was consumed by the petitioner and the remaining materials of the value of Rs. 1,35,02,870.00 was transferred outside the State of Bihar, tax on this amount was calculated at Rs. 8,10,172.20 The same amount of penalty was also imposed under Section 10A in lieu of prosecution after adding Central sales tax of Rs. 1,34,464.59.
7. The original assessment order was, however, quashed by this Court in C.W.J.C. No. 629 of 1978 (annexure 11) on the ground that notice under Section 10A was not properly served. This Court had directed in the remand order that the matter should be examined in the light of the judgment of the Supreme Court in the case of Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi AIR 1978 SC 897 and it is thereafter that the impugned order of assessment (annexure 18) was passed.
The assessing authority has taken the view that as the entry in the registration certificate "particularised" I.T.C. at Hunger, the materials purchased for resale after manufacture is limited within the State of Bihar and the contention of the petitioner that geographical limitations cannot be drawn on account of the entry in the registration certificate from the petitioner was rejected.
The Assistant Commissioner of Commercial Taxes after the remand also arrived at the same figures as was done in the earlier assessment order. Before the appellate authority a further plea was advanced on behalf of the appellant-petitioners that no penalty could be imposed unless it was found that the alleged deviation of Clause (d) of Section 10 was "without reasonable excuse" which was an important ingredient of the offence for imposing a penalty which was a penal action inasmuch as the petitioner-company was under a bona fide belief that such transfers were permissible under the certificate of registration and it did not amount to violation of any provisions of law or any declaration made by it in form C. The appellate authority also came to the same conclusion that the company could not transfer these goods purchased on the strength of declarations in form C issued by the Hunger Circle, to other branches situated outside the State, on the assumption that the branches were of I.T.C. Ltd. and not the branches of I. T. C., Munger branch, and thus it violated the provisions of Sections 8(3)(c) and 10(d) of the Central Act.
It may be mentioned that the declaration in form C was made to show that the materials purchased by the company were required by it for use in packing of goods for sale under the head "For the use in the packing of goods for sale".
It was accordingly argued before us by Mr. Chatterji, as was done before the assessing authorities, that the goods so purchased in fact had been used for packing of materials for sale and had not been utilised for any other purpose. It was not mentioned anywhere in the certificate of registration or the declaration that the dealer after purchasing the goods on the strength of form C, could utilise the packing of goods for sale inside the State only. It was argued that the company carried on business of manufacturing and selling of cigarettes at different places and, therefore, it was entitled to use the materials purchased for packing of the goods for sale at any place of business for the same purpose and thus it committed no violation of any of the legal provisions because it is not disputed that the shells and labels which were transferred to the company's branches outside the State of Bihar were actually used in the packing of the goods manufactured by the company for sale, and therefore, it was argued that the declaration given by the company in form C had been legally carried out and that in any case, there was no mens rea on the part of the company. The arguments, as already said earlier, were rejected.
8. Section 10 which deals with penalties, inter alia, 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-section (3) of Section 8 fails, without reasonable excuse, to make use of the goods for any such purpose...he shall be punishable...". Section 10A provides for imposition of penalty in lieu of prosecution by a sum not exceeding one-and-a-half times the tax which would have been levied under Section 8(2) in respect of the sale to him of the goods, if the sale had been a sale falling within that sub-section.
9. Mr. K. D. Chatterji, appearing for the petitioners, raised the same said arguments as already indicated above, that the petitioner-company was a dealer carrying on business in the country within the meaning of Clause (b) of Section 2 of the Act, and the petitioner-company must be deemed to be the same dealer throughout the country wheresoever it has its branches or office, notwithstanding the fact that it had to apply for separate registration in the appropriate States as provided under Section 7 of the Central Act. inasmuch as that provision had to be made on account of the varying rates of taxation in every State for goods purchased by him in the course of inter-State trade and commerce and no geographical limits could be imposed.
Reliance was placed upon the case of Polestar Electronic (Put.) Ltd. AIR 1978 SC 897. The assessee in this case was a registered dealer and the certificate of registration specified the class of goods intended for resale by it or for use by it as raw materials in the manufacture of goods for sale. The assessee, inter alia, sold some of the goods manufactured out of the raw materials purchased on the basis of its entry in the registration certificate, outside Delhi. The Supreme Court on examining the scheme of the Act observed in paragraph 10 of the report:
...It is clear from the scheme of the Act that a dealer who carries on business of selling goods in the territory of Delhi and who is liable to pay tax under Section 4 of the Act is required to be registered and he must possess a. registration certificate. If such a dealer purchases goods of the class or classes specified in his certificate of registration on furnishing a declaration that the same are intended for resale 'by him', the sale to him would be exempt from tax and hence he would not have to pay any amount by way of tax to the selling dealer. But then the goods must be resold by the purchasing dealer himself and in case of such resale the requirement of the statutory provision as well as the declaration would be satisfied and there will be no breach of the statement of intention contained in the declaration. The emphasis which is sought to be added by the words 'by him' is that the goods must be resold by the same person who has purchased them, namely, the purchasing dealer. It would be straining the language of the enactment too much to say that the words 'by him' are intended to mean 'by him as a registered dealer'. Moreover, it may be noted that though a registered dealer has to be a person who carries on business of selling goods in the territory of Delhi, there is no requirement of law that a registered dealer must effect sales only in Delhi and not outside. There is nothing in the Act which prohibits a registered dealer from selling goods outside Delhi. If a registered dealer can effect sales outside Delhi, it is impossible to see how, by any stretch of reasoning, the words 'by him" can be pressed into service for the purpose of restricting 'resale' to that inside Delhi.
The argument that the assessee must be held to have utilised the goods for a purpose different from that for which the goods were purchased, namely, resale by them, "fails to take into account the plain and obvious fact that when the branches of the assessees resell the goods outside Delhi, it is really the assessees who resell the goods, for the branches are not distinct and independent from the assessees but are merely establishments of the assessees. Resales effected by the branches are nothing else than resales made by the assessees at the branches and hence it is not possible to say that when the goods were resold by the branches, the resales, were not by the assessees so as to attract the applicability of the second proviso".
10. In my opinion, the above decision gives full support to the contention of Mr. Chatterji that the Hunger branch of the company, although having a separate registration certificate, cannot be held to be a separate personality independent of its principal company or other offices and branches at different places in other States.
11. In view of my conclusion that separate registration certificates in different States did not constitute the branches into separate and independent dealers/persons, it has got to be held that the petitioners did not commit any breach of the provisions of Section 10(d) of the Act. As laid down in the Polestar & Co.'s case AIR 1978 SC 897 the petitioner-company had full liberty to utilise the shells and packets for packing its products anywhere in the country.
12. For the view on the main question just indicated above that on account of a separate registration the individuality of the dealer is not lost as such, the answer must be given in favour of the petitioners that the company did not commit any breach of the stipulations of the declaration, and thus there was no infringement of the restrictions imposed upon under Clause (d) of Section 10 of the Act. It cannot be held that the transfers by the petitioner-company amounted to sales.
I find full support for this view also from the case of Assessing Authority-cum-Excise and Taxation Officer, Gurgaon v. East India Cotton Mfg. Co. Ltd., Faridalad AIR 1981 SC 1610. In this case the explanation "for use...in the manufacture...of goods for sale" was under consideration and on consideration of the relevant provisions of the Central Act it was held that the sale of manufactured goods need not be by the registered dealer manufacturing the goods; it may be by anyone else, inasmuch as the goods manufactured by the registered dealer must be goods for sale or intended for sale. It was immeterial whether they were intended for sale by the registered dealer himself or by anyone else.
On this principle the purchases made for packing of goods for sale by the petitioner-company on furnishing the declaration, fully satisfied the obligation by utilising them for packing of the goods for sale and for no other purpose. The question as to whether they have been so utilised by the same registered dealer or anybody else, becomes irrelevant, although in the present case they have been utilised by a person not different than the dealer- himself. In this regard I may also usefully refer to Section 6A of the Central Act which contemplates an exemption from the liability to pay tax under this Act in respect of any goods "on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, ...and not by reason of sale..." and in that case he has simply to discharge the burden of proving "that the movement of those goods was so occasioned". This section was added with effect from 1st April, 1973 and it clearly contemplates and makes it permissible for transfer of goods by a dealer from one State to another place of his business or even to his agent or principal, etc. The disputed transfers of packing materials by the company, in my view, should also be covered by the amenity provided by Section 6A of the Act.
13. For the reasons discussed above, I come to the irresistible conclusion that respondents Nos. 1 and 2 have committed serious error of law in passing the impugned order of penalty and the application, therefore, must succeed and the penalty be set aside. I would accordingly allow this application and quash the orders contained in annexures 18 and 23, but would make no order as to costs.
M.P. Verma, J.
I agree.