Orissa High Court
Indian Explosives Limited vs The Assistant Commissioner Of Sales Tax ... on 7 January, 2005
Equivalent citations: 99(2005)CLT405, 2005(I)OLR273, [2005]141STC103(ORISSA)
Author: A.K. Patnaik
Bench: A.K. Patnaik, M.M. Das
JUDGMENT A.K. Patnaik, J.
1. The petitioner manufactures bulk premix and bulk explosives at its factory at Kalunga in District Sundargarh in the State of Orissa. The petitioner also has branches at other places in the State of Orissa. Accordingly, the petitioner is registered as a dealer under the Orissa Sales Tax Act, 1947 (for short, "the Act") and the Orissa Sales Tax Rules, 1947 (for short, "the Rules") with the Sales Tax Officer, Rourkela-II Cirecle, Panposh, the Sales Tax Officer, Dhenkanal Circle, Angul, the Sales Tax Officer, Sambalpur-IIE Circle, Jharsuguda and the Salex Tax Officer, Sambalpur-I Circle, Sambalpur. By Notification dated 5.5.2000 the Commissioner of Sales Tax, Orissa, Cuttack, has allowed the petitioner to file one consolidated return in respect of its businesses in all its branches in the State of Orissa before the Salex Tax Officer, Rourkela-II Circle, Panposh (now Assistant Commissioner of Sales Tax, Sundargarh Range, Rourkela (Assessment) with effect from 1.4.2000. For the year 2000-2001 the petitioner filed consolidated return under Section 11 of the Act before the Assistant Commissioner of Sales Tax, Sundargarh Range, Rourkela (Assessment). In the said return, the petitioner claimed that it had purchased goods including Ammonium Nitrate which were specified in its certificate of registration as being intended for use in the manufacture of goods for sale by furnishing declaration to that effect in Form IV to the seller of such goods and 4 percent on the value of such goods purchased by the petitioner was paid by the petitioner as provided in Entry 48 of the notification issued under Section 5(1) of the Act. The Assistant Commissioner of Sales Tax, Sundargarh Range, Rourkela (Assessment) allowed the said claim of the petitioner that it was liable to pay tax at 4 percent on the value of such goods purchased by it on the strength of the declaration furnished in Form IV and was not liable to differential tax thereon under the fifth Proviso to Section 5(1) of the Act. Thereafter, the Assistant Commissioner of Sales Tax, Sundargarh Range, Rourkela (Assessment) initiated proceedings for reassessment under Section 12(8) of the Act for Indian Explosives Limited v. The Asst. Commr. of Sales Tax the year 2000-2001 but subsequently dropped the said proceedings under Section 12(8) of the Act. Instead, a show cause notice under Section 23(4)(a) of the Act read with Rule 80 of the Rules has been issued to the petitioner by the Commissioner of Sales Tax, Orissa, which is extracted herein below :
"Office of the Commissioner of Commercial Taxes;
Orissa : Cuttack No. 1237/CT., Dated. 14.1.2004 Suo-Motu Revision Case No. SU-3/2003-2004
Show-Cause notice Under Section 23(4)(a) of the O.S.T. Act, 1947 Read With Rule 80 of the Orissa Sales Tax Rules, 1947.
To M/s. Indian Explosives Limited, Plot No, 77, Industrial Estate, Kalunga, Dist: Sundargarh.
Sub : Initiation of Sou Motu revision under Rule 80 of the O.S.T. Rules, 1947.
Whereas it appears that the assessment Order dated 30.3.2002 passed by the A.C.S.T. (Assessment) Sundargarh Range, Rourkela under Section 12(4) of the O.S.T. Act for the year 2000-2001 is erroneous in so far as the same is prejudicial to the interest of Revenue for the following reason :
That the dealer-assessee M/s. Indian Explosives Ltd., after purchase of goods on the strength of declaration Form - IV is found not to have utilized the goods so purchased against declaration Form-IV in the manufacture of the authorised finished goods inside the State of Orissa. It is further found that the dealer has effected branch transfer of the intermediate product to out side the State of Orissa instead of selling the same in contravention of the 5th proviso to Section 5(1) of the O.S.T. Act and is liable to pay the differential tax on the purchase value of the goods so purchased on the strength of the declaration in Form-IV. While passing the assessment order, the Assessing Officer failed to apply the correct law and wrongly held that there was no contravention.
You are, therefore, required to attend in person or by agentat my Office at 11.00A.M. on 31.1.2004 and show-cause as to why the order passed by the Ld. A.C.S.T. (Assessment) Sunclagarh Range, Rourkela shall not be revised under Section 23(4)(a) of the O.S.T. Act read with Rule 80 of the O.S.T. (O) Rules, 1947 and as to why differential tax on the goods so mis-utilised shall not be levied. You are to produce or cause to be produced the accounts and other documents and any other evidence on which you may rely in support of your contentions.
In the event of your failure to comply with all the terms and conditions of this notice, I shall proceed to revise the said order as aforesaid ex-parte in accordance with law without any further reference to you.
Sd/-lllegible.
14.1.2004 Commissioner of Sales Tax, Orissa"
Aggrieved by the said show cause notice dated 14.1.2004 under Section 23(4)(a) of the Act and Rule 80 of the Rules, the petitioner has filed this Writ Petition.
2. Dr. Debi Pal, Learned Counsel for the petitioner, submitted that it will be clear from the aforesaid show cause notice that the Commissioner of Sales Tax, Orissa, has taken a view that the petitioner after purchase of the goods specified in its certificate of registration against declaration in Form-IV utilized the same in the manufacture of intermediate products and has not sold such intermediate products in the State of Orissa and has instead effected branch transfers of the same to outside the State of Orissa and has therefore contravened the fifth Proviso to Section 5(1) of the Act and was liable to pay the differential tax over and above the 4 percent tax paid on purchase value of goods so purchased on the strength of the declarations in Form-IV but the Assessing Officer has instead wrongly held that there was no such contravention of the fifth Proviso to Section 5(1) of the Act and has allowed the claim of the petitioner that it was liable to pay tax at 4 percent on the purchase value of the goods purchased on the strength of declarations in Form-IV. Dr. Pal submitted that a plain reading of both Entry 48 in the notification issued under Section 5(1) of the Act and the fifth Proviso to Section5(1) of the Act would show that the goods specified in the certificate of registration and purchased by a dealer must only be used in the manufacture of goods inside the State of Orissa and such goods manufactured may be also intermediate products used in further manufacture of finished goods for sale inside or outside the State of Orissa. In support of this submission, Dr. Pal relied on the decision of the Supreme Court in J. K. Cotton Spinning and Weaving Mills Co., Ltd., v. The Sales Tax Officer, Kanpur and Anr., AIR 1965 SC 1310 in which Section8{3)(b) of the Central Sales Tax Act which is similarly worded as Entry 48 of List 'C' and the Proviso to Section 5(1) of the Act has been interpreted. Dr. Pal further submitted that the show cause notice under Section 23(4)(a) of the Act read with Rule 80 of the Rules is without jurisdiction and law is well settled that where the show cause notice is issued without jurisdiction, the party on whom the notice has been served can straight away approach the High Court under Article 226 of the Constitution for relief and need not exhaust the statutory remedy available to him under the Act. In support of this contention, he cited the decisions of the Supreme Court in East India Commercial Co., Ltd., Calcutta and Anr. v. Collector of Customs, Calcutta, AIR 1962 SC 1893, Ram and Shyam Company v. State of Haryana and Ors., (1985) 3 SCC 267 and Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Ors., AIR 1999 SC 22. He submitted that the High Court in exercise of its jurisdiction under Article 226 of the Constitution should quash the notice dated 14.1.2004 under Section 23(4)(a) of the Act read with Rule 80 of the Rules after laying down the law on the subject so that the Sales Tax authorities do not harass the petitioner for the other periods of assessment.
3. Mr. Ashok Mohanty, Learned Senior Standing Counsel, Commercial Tax Department, on the other hand, submitted relying on the counter-affidavit filed by the Opp. Parties No. 1 to 3 that disputed questions of fact arise for decision in this case Which can be adjudicated by the taxing authorities under the Act and this Court exercising powers under Article 226 of the Constitution should not decide such disputed questions of fact. He cited the decision of the Supreme Court in The Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr., 2004(1) Supreme 431 and submitted that at the stage of notice to show cause the High Court should not interfere under Article 226 of the Constitution. Mr. Mohanty further submitted that the language of Section 8(3)(b) of the Central Sales Tax Act and the language of Entry 48 of List 'C' and the fifth Proviso to Section 5(1) of the Act are different and therefore the decision of the Supreme Court in J. K. Cotton Spinning and Weaving Mills Co., Ltd., v. The Sales Tax Officer, Kanpur and another (supra) cited by Dr. Pal on Section 8(3)(b) of the Central Sales Tax Act will be of no assistance for the Court to decide the present dispute. Mr. Mohanty vehemently argued that the language of Entry 48 of List 'C' and the language of the fifth Proviso to Section 5(1) of the Act make it clear that the goods manufactured out of the goods purchased on the strength of the declaration in Form-IV must be "for sale" and bulk premix which are not saleable goods are certainly not goods for sale and the Commissioner has rightly taken a view that the petitioner has contravened the provisions of the fifth Proviso to Section 5(1) of the Act and is liable to pay the differential tax over and above the tax at 4 percent on the value of goods purchased by the petitioner on the strength of the declarations in Form-IV.
4. The first question to be considered in this Writ Petition is whether the Court should dismiss the Writ Petition under Article 226 of the Constitution on the ground that the impugned notice is only a show cause notice issued under Section 23(4)(a) of the Act read with Rule 80 of the Rules. In East India Commercial Co., Ltd., Calcutta and Another v. Collector of Custom, Calcutta (supra) K. H. Subba Rao, J. delivering the judgment for himself and J. R. Mudhokar, J. observed in Para 26 of the judgment as reported in the AIR that a Writ of prohibition is an order directed to an inferior Tribunal forbidding it from continuing with a proceeding therein on the ground that the proceeding is without or in excess of jurisdiction or contrary to the laws of the land, statutory or otherwise and rejected the preliminary contention raised in that case that the Writ Petition was not maintainable under Article 226 of the Constitution against the notice. The reason for entertaining the Writ Petition given by Subba Rao, J. in that case is quoted herein below :
"... Assuming that a notice could be laconic, in the present case it was a speaking one clearly specifying the alleged act of contravention. If on the assumption that the facts alleged or allegations made therein were true, none of the conditions laid down in the specified sections was contravened, the respondent would have no jurisdiction to initiate proceedings pursuant to that notice. To state it differently, if on a true construction of the provisions of the said two sections the respondent has no jurisdiction to initiate proceedings or make an inquiry under the said sections in respect of certain acts alleged to have been done by the appellants, the respondent can certainly be prohibited from proceedings with the same. ..."
Thus, if the facts stated in the impugned show cause notice are assumed to be true and yet the authority had no jurisdiction to issue the notice and initiate the proceeding pursuant to the notice, the High Court can entertain the Writ Petition under Article 226 of the Constitution. This position of law has been reiterated in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Ors., wherein the Supreme Court has held that the jurisdiction of the High Court in entertaining a Writ Petition under Article 226 of the Constitution in spite of alternative statutory remedy, is not affected, specially in a case where the authority against whom the Writ is filed had no jurisdiction or had purported to usurp jurisdiction without any legal foundation. In the case of The Special Director and Anr. v. Mohd. Ghulam Ghouse and Anr. (supra) on the other hand, the Supreme Court observed :
"This Court in a large number of cases has deprecated the practice of the High Courts entertaining Writ Petitions questioning legality of the show cause notices stalling enquiries as proposed and retarding investigative process to find actual facts with the participation and in the presence of the parties. Unless, the High Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of jurisdiction of the authority to even investigate into facts, Writ Petitions should not be entertained for the mere asking and as a matter of routine, and the Writ Petitioner should invariably be directed to respond to the show cause notice and take all stands highlighted in the Writ Petition...."
In the aforesaid decision, the Supreme Court has thus made it clear that if the High Court is satisfied that the show cause notice was totally non est in the eye of law for absolute want of jurisdiction of an authority to even investigate into the facts, the Writ Petition can be entertained by the High Court.
5. Bearing in mind the aforesaid principles laid down by the Supreme Court, we may now examine as to whether we should entertain this Writ Petition under Article 226 of the Constitution against the impugned notice dated 14.1.2004 issued by the Commissioner under Section 23(4)(a) of the Act read with Rule 80 of the Rules at the show cause stage when alternative statutory remedy is available to the petitioner. In the impugned notice dated 14.1.2004 under Section 23(4)(a) of the Act read with Rule 80 of the Rules, it is stated that the petitioner after purchasing goods on the strength of declaration in Form-IV is found not to have been utilised the goods so purchased in the manufacture of the authorised finished goods inside the State of Orissa and has instead effected branch transfers of intermediate products to outside the State of Orissa instead of selling the same. Assuming the aforesaid facts stated in the impugned show cause notice to be true, we may now examine as to whether there has been any contravention of the fifth Proviso to Section 5(1) of the Act so as to call for exercise of jurisdiction under Section 23(4)(a) of the Act read with Rule 80 of the Rules by the Commissioner of Sales Tax, Orissa.
6. Entry 48 of List 'C' as introduced by the notification under Section 5(1) of the Act which is subject to 4 percent of tax, the declaration in Form-IV prescribed by the Rules and the fifth Proviso to Section 5(1) of the Act are extracted herein below :
Entry 48 of List 'C' "Goods of the class or classes specified in the Certificates of registration of the registered dealer purchasing the goods as being intended for use by him in the manufacture or processing or packing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power subject to the production of true declaration by the purchasing registered dealer or his authorised agent in Form-IV.
... Four percent."
Declaration in Form-IV "I/We............hereby declare that the goods purchased by me/us in Cash Memo/Bill No.............dated the..........from......................shall be used in the manufacture/processing or packing of goods for sale/in mining/generation or distribution of electricity or any other form of power."
Fifth Proviso to Section 5(1) of the Orissa Sales Tax Act, 1947 "Provided further that where a registered dealer purchases goods of the class or classes specified in his Certificate of Registration as being intended for use within the State of Orissa by him in the manufacture or processing of goods for sale or in mining or in generation or distribution of electricity or any other form of power at concessional rate of tax or free of tax after furnishing a declaration in the prescribed form, but utilises the same for any other purpose or outside the State of Orissa, he shall pay the difference in tax or the tax, as the case may be, payable had he not furnished the declaration."
A plain reading of Entry 48 of List 'C' quoted above shows that 4 percent tax is payable on the value of goods of a class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for use by him in the manufacture or processing or packing of goods for sale or in mining or in generation or distribution of electricity or any other form of power subject to the furnishing of a declaration in Form-IV by the purchasing registered dealer or his authorised agent. The declaration in Form-IV requires that the purchasing registered dealer or his authorised agent shall declare that the goods purchased shall be used in the manufacture/processing or packing of goods for sale/in mining/generation or distribution of electricity or any other form of power. The fifth Proviso to Section 5(1) further provides that where a registered dealer purchases goods of the class or classes specified in the certificate or registration as being intended for use within the State of Orissa by him in the manufacture or processing of goods or for sale or in mining or in generation or distribution of electricity or any other form of power at concessional rate of tax or free of tax after furnishing a declaration in Form-IV but utilises the same for any other purpose (or outside the State of Orissa) he shall pay the difference in tax or the tax, as the case may be, payable had he not furnished the declaration.
7. In J. K. Cotton Spinning and Weaving Mills Co., Ltd., v. The Sales Tax Officer, Kanpur and Anr. (supra) a question arose as to whether drawing and photographic materials used for designing for production of textile goods can be held to be used in the manufacture of goods and the Supreme Court observed that drawing or photographic materials are directly related to actual production of goods and without such drawing and photographic materials, commercial production would be inexpedient and therefore must be regarded as goods intended for use in the manufacture of goods. Relevant paragraphs from the said decision of the Supreme Court in the case of J. K. Cotton Spinning and Weaving Mills Co., Ltd., v. The Sales Tax Officer, Kanpur and Anr. (supra) are quoted herein below :
"... The expression 'in the manufacture of goods' 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, in our judgment, fall within the expression 'in the manufacture of goods'. For instance, in the case of cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yearn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included 'in the manufacture' of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth.
*** *** *** The High Court can rightly pointed out that unless designs are prepared it would be 'impossible for the workmen to turn out goods for sale. If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regards the process of designing as not being a part of the process of manufacture within the meaning of Rule 13 read with Section 8(3)(b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression 'in the manufacture of goods' to the process of production of goods only. The expression 'in the manufacture' takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use as 'equipment' in the process of designing which is directly related 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."
It will be clear from the aforesaid judgment of the Supreme Court that if goods are used in the processes anterior to the manufacture of the finished goods, such goods are said to be used for manufacture of goods for sale. In the aforesaid judgment, the Supreme Court has also given illustration that in case of cotton textile manufacturing concern, raw cotton undergoes various processes before it is turned out to a cloth and all these processes were to be regarded as integrated processes and included in the manufacture of cloth.
8. The aforesaid judgment of the Supreme Court will equally apply to interpretation of Entry 48 of List 'C' declaration in Form-IV and the fifth Proviso to Section 5(1) of the Act. The expression "use within the State of Orissa by him in the manufacture or processing of goods for sale" in the fifth Proviso to Section 5(1) of the Act will include not only use within the State of Orissa in the manufacture or processing of finished goods for sale but also use within the State of Orissa in the manufacture or processing of intermediate products which in turn are for use within or outside the State of Orissa in the manufacture or processing of finished goods for sale. Hence if the petitioner has purchased some goods specified in its certificate of registration such as Ammonium Nitrate by furnishing declaration in Form-IV that these goods will be utilised in the manufacture of goods for sale and has paid concessional rate of tax at the rate of 4 percent on the value of goods so purchased and has used the same within the State of Orissa in the manufacture of intermediate products such as bulk premix and such intermediate products have been subsequently utilised within or outside the State of Orissa in the manufacture of finished products for sale, the petitioner cannot be held to be liable for the differential tax over and above 4 percent tax paid by him on the purchase of the goods as if the petitioner had not furnished the declaration. The test to be applied in each case is whether the goods specified in the certificate of registration of the registered dealer and purchased by the registered dealer have been used by him in the manufacture or processing of goods in the State of Orissa and the finished goods which are ultimately produced are sold inside or outside the State of Orissa. The fact that the intermediate products are sent outside the State by way of branch transfers for further use in the manufacture of finished goods will not make a difference so long as the finished goods which are ultimately produced by the manufacturing or other process are sold inside or outside the State of Orissa.
9. In the result, we hold that even if the facts stated in the impugned notice dated 14.1.2004 under Section 23(4)(a) of the Act read with Rule 80 of the Rules issued by the Commissioner of Sales Tax, Orissa that the petitioner after purchase of goods on the strength of declaration in Form-IV is found to have used the goods so purchased in the manufacture of intermediate products which have been sent outside the State of Orissa by way of branch transfers are assumed to be true, the Commissioner of Sales Tax, Orissa would have no jurisdiction to initiate the proceedings for revision under Section 23(4)(a) of the Act and Rule 80 of the Rules unless it is further found that the finished goods manufactured or processed out of such intermediate products were not for sale either inside or outside the State of Orissa.
10. Subject to the aforesaid observations, the Writ Petition is allowed and the impugned notice dated 14.1.2004 issued by the Commissioner of Sales Tax, Orissa under Section 23(4)(a) of the Act read with Rule 80 of the Rules is quashed. Considering however the facts and circumstances, the parties shall bear their own costs.
M.M. Das, J.
11. I agree.