Allahabad High Court
M/S Mawana Sugars Ltd. vs Deputy Commissioner, Commercial Tax ... on 27 May, 2013
Author: Prakash Krishna
Bench: Prakash Krishna, Manoj Kumar Gupta
HIGH COURT OF JUDICATURE AT ALLAHABAD Reserved/AFR Court No. - 32 Case :- WRIT TAX No. - 1970 of 2009 Petitioner :- M/S Mawana Sugars Ltd. Respondent :- Deputy Commissioner, Commercial Tax And Others Petitioner Counsel :- Rakesh Ranjan Agrawal Respondent Counsel :- C.S.C. Hon'ble Prakash Krishna, J Hon'ble Manoj Kumar Gupta, J.
(Delivered by Manoj Kumar Gupta, J)
1. The petitioner Company is engaged in manufacture of sugar at three of its Units, namely, Mawana Sugar Works, Mawana; Nanglamal Sugar Complex, Nanglamal, district Meerut and Titawi Sugar Complex, Titawi, district Muzaffarnagar.
2. The State of U.P. enacted 'The Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007' (hereinafter referred to as the 'Act'), in order to provide for levy and collection of tax on entry of goods into a local area for consumption, use or sale therein and for matters connected therewith or incidental thereto.
3.According to the petitioner, it being a manufacturer of sugar, is not a 'dealer' within the meaning of Section 2(b) of the Act and is, therefore, not liable to entry tax.
4. The petitioner is aggrieved by issuance of notices bearing No. 428 and 429 dated 4.9.2009 purportedly under section 12(5) of the Act. Notice no. 428 states that the petitioner has sold non levy sugar from its Mawana unit to the dealers of the local area and although non levy sugar attracts entry tax @ 2% but the same has not been deducted nor deposited as per the provisions of section 12 of the Act and, therefore, the Company should show cause why penalty of twice the amount be not imposed upon it. It is for the month of April,2009. The other notice no. 429 is for the month of May, 2009 and is on the similar lines. Apart from challenging these notices and proceeding in pursuance thereto, the petitioner has also challenged the vires of the Act.
5.During pendency of the writ petition, the vires of the Act has been upheld by the Division Bench of this Court in the case of I.T.C. Ltd Vs. State of UP and others, 2012 (Vol. 48) NTN 1. In such circumstances, the petitioner had confined the writ petition to the legality and validity of the proceedings for penalty, pursuant to the notices dated 4.9.2009.
6. Sri Bharatji Agarwal, senior counsel assisted by Sri Rakesh Ranjan Agarwal Advocate submitted that the impugned notices are confined to sales made within the local area of Mawana and such sales do not attract any entry tax. He further submitted that under section 12 of the Act, entry tax is to be deducted only from such persons who intend to bring goods into a local area from any manufacturer within the State. He further submits that under section 12 of the Act neither the purchaser is under obligation to pay entry tax to the manufacturer nor manufacturer is under obligation to realize the entry tax from purchaser who does not intend to take the goods into another local area and consequently impugned notices are wholly without jurisdiction. In such circumstances, he submits that the authorities should be restrained from proceedings any further in the matter.
7. On the other hand, Sri C.B. Tripathi, special counsel for the respondent submitted that though it is not in dispute that the transactions with regard to which the penalty proceedings have been initiated are sales made to person within the same local area but section 12 of the Act which starts with non-obstante clause requires a manufacturer to realize entry tax for every sale and to deposit the same in the manner prescribed, failing which, he will make himself liable for penalty. He further submits that section 12 of the Act is not a provision which imposes entry tax on the manufacturer but is only a machinery provided under the Act to facilitate collection of entry tax. He further submitted that the purchaser can get the amount refunded and for which there are adequate provisions under the Act. No prejudice would have been caused to the petitioner in collecting entry tax at source and in depositing it in the manner prescribed, but by not doing so, it has made itself vulnerable to penalty proceedings and which have been rightly initiated.
8. After hearing the learned counsel for the petitioner and the learned standing counsel for some time, we initially showed our reluctance to enter into the merits of the case and thought of relegating the petitioner to the concerned authority for showing cause. However, both Sri Bharatji Agarwal, learned counsel for the petitioner and Sri CB Tripathi, special counsel appearing for the respondents joined hands in stating at the bar that there is no factual dispute and, therefore, the issues raised may be settled by this court, as it will be in the interest of both the petitioner and the Revenue. It in these circumstances, the Court proceeded to hear the matter on merits. On the basis of the arguments advanced by the counsel for the parties, following issues arise for consideration in the instant writ petition:-
(1) Whether entry tax is leviable on goods manufactured and sold within the same local area?
(2) What is the nature and scope of Section 12 of the Act?
(3 ) Whether section 12 takes within it's ambit all sales made by a manufacturer?
(4)Whether doctrine of 'no-prejudice' can be applied to compel the manufacturer to realize and deposit entry tax on all transactions irrespective of the intendment of the purchaser not to take the goods into another local area ?
Question No. 1.
9. For appreciating the said submission, a paranomic view of the Act is essential. The long title states that the Act is to provide for levy and collection of tax on entry of goods into a local area for consumption, use or sale therein and for matters connected therewith or incidental thereto. Section 4 of the Act is the charging section which is reproduced herein below:
Sec. 4. (1) For the purpose of development of trade, commerce and industry in the State, there shall be levied and collected a tax on entry of goods specified in the Schedule into a local area for consumption, use or sale therein, from any place outside that local area, at such rate not exceeding five percent of the value of the goods as may be specified by the State Government by notification and different rates may be specified in respect of different goods or different classes of goods;
Provided that the State Government may by notification amend the Schedule and upon issue of any such notification, the Schedule shall, subject to the provisions of sub-section (10), be deemed to be amended accordingly.
(2) The Tax under sub-section (1) shall be continued to be levied till such time as is required to improve infra-structure within the State such as power road, market condition etc., with a view to facilitate better market condition for trade, commerce and industry.
(3) The tax levied under sub-section (1) shall be payable by a dealer who brings or causes to be brought into the local area such goods, whether on his account or on the account of his principle or takes delivery or is entitled to take delivery of such goods on its entry into a local area. .........................
10. It is clear that the incidence of tax is upon entry of goods specified in the Schedule into a local area for consumption, use or sale therein from any place outside that local area. It is also clear that the person liable to pay entry tax is a dealer, or a person who brings or causes to be brought into local area the goods specified in the Schedule.
11. Section 2(b) gives inclusive definition of the word ''dealer' and it ,inter-alia, includes any person who in the course of business, whether on his own account or on account of a principle or any other person brings or causes to be brought into a local area, any goods or take delivery or is entitled to take delivery of goods on its entry into local area.
12. Section 2 (c) defines the phrase 'entry of goods' as follows:
Sec 2 (c) Entry of Goods: With all its grammatical variations and cognate expressions, means, entry of goods:
(i)Into a local area from any place outside such area;
(ii)Into a local area from any place outside the State;
(iii) Into a local area from any place outside the Territory of India for consumption, use or sale therein.
13. The word ''Local Area' is defined in section 2(d) as follows:
Sec 2 (d) "Local Area" means the territorial areas of -
(i) a Municipal Corporation under the Uttar Pradesh Municipal Corporation Act, 1969;
(ii) a Municipality under the Uttar Pradesh Municipalities Act, 1916;
(iii) a Zila Panchayat or a Kshettra Panchayat under the Uttar Pradesh Kshettra Panchayats and Zila Panchayats Adhiniyam, 1961;
(iv) a Gram Panchayat under the United Provinces Panchayat Raj Act, 1947;
(v) a Cantonment under the Cantonment Act, 1924;
(vi)Any Industrial Development Area under the Uttar Pradesh Industrial Area Development Act, 1976;
(vii)an Industrial Township by whatever name called;
(viii)any other local authority by whatever name called under an Act of the Parliament or the State Legislature.
14. Bare perusal of the aforesaid provisions makes it clear that the taxing event comes into existence on entry of goods specified in the Schedule into a local area for consumption, use or sale thereof from any place outside that local area.
15. Entry of goods which has been defined under section 2(c) makes it explicit that there should be movement of goods into a local area from any place outside such area, State or territory of India for consumption, use or sale thereof within the local area. The Legislative intent is clear. The tax is levied on entry of the goods into a local area from outside such area.
16. The natural corollary of the above discussion is that no entry tax is leviable if there is no movement of goods into a local area. In case, purchase and sale of goods takes place within the same local area, then it will not attract any entry tax as there is no movement of goods into a local area from any place outside such area, State or territory of India.
17. In the instant case, it is not in dispute that the notices have been issued only in respect of transactions of sale made by the petitioner Company to persons within the same local area of Mawana where it's manufacturing unit is situate. It is also not in dispute that under the Rules framed under the Act elaborate procedure is prescribed under Rule 7 with regard to manner in which the manufacturer has to realize and deposit tax in order to ensure compliance of section 12(1) of the Act.
18. It requires a manufacturer to receive tax payable on value of goods through a Demand Draft in the name of concerned assessing authority and to file monthly return in form ''E'. It is not in dispute that the Petitioner Company has duly filed returns in form ''E' for the month of April and May, 2009 (Annexure SA-1 and SA-2 respectively). In the aforesaid statutory form, under column 5, aggregate of the value of goods supplied during the month is to be specified; under item No. 6 value of goods supplied on which no tax has been collected has to be specified alongwith the reasons and Item No. 7 relates to value of goods on which tax has been collected. The petitioner Company at Item No. 6 has given figures of sales made within the local area and on which no tax has been collected. The aforesaid statutory form has been substituted by UP Tax on Entry of Goods into Local Area (first amendment Rules, 2010) and now the only the difference is that under Item No. 6 the Legislature has itself mentioned various categories which do not attract entry tax and for which manufacturer is not liable to collect entry tax from the purchasers. Item No. 6 of the amended form ''E' is as follows:
Value of goods delivered on which no tax has been received
(i)Intere-State sales Rs.............
(ii)Transfer outside the State Rs.............
(iii)Export sales Rs..............
(iv)Sale within local area Rs..............
(v)Other Sales (specify) Rs...............
Total Rs..............
19. It seems that legislature in order to remove confusion had itself chosen to amend form ''E' and to provide various categories under which manufacturer is not liable to collect entry tax, one of which being sale within the local area.
20. A Division Bench of this Court, in the case of the Commissioner, Trade Tax, UP Vs. S/s Ramesh Chandra Sanjaya Kumar Shamli, Muzaffarnagar; 2009 NTN (Vol. 39) 70 has taken the same view and has held that "The purchase of levy sugar manufactured within the local area of Shamli did not attract entry tax.
21. Thus there cannot be any iota of doubt that in case a person or dealer situate within the local area of Mawana purchases sugar from the manufacturing unit of the Petitioner Company at Mawana (within same local area), such sale will not attract any entry tax.
22. Question no 1 is answered accordingly.
Question Nos. 2 and 3.
23. Section 12 of the Act is as follows:
(1). Realization of tax through manufacturer (1): Notwithstanding anything contained in any other provision of this Act, any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule as may be notified by the State Government, shall at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer shall not give such goods to the purchaser unless the amount of such tax has been paid by the purchaser.
(2) The manufacturer receiving the tax under sub-section (1) shall submit to the Assessing Authority a return in respect of the goods supplied, and the tax received, by him under sub-section (1) and deposit the tax so received in such manner and within such time as may be prescribed.
(3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax alongwith the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue.
(4) Where the Assessing Authority is satisfied that any goods referred to in sub-section (1) is lost or destroyed after its delivery by the manufacturer and before its entry into the local area, it shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid the tax under sub-section (1):
Provided that no claim for such refund shall be entertained after expiry of six months from the date of the loss or destruction of the goods.
(5 ) Provisions regarding imposition of penalty in respect of amount of tax deducted under Section 8-D of the Uttar Pradesh Tax Act, 1948 and provision regarding playability of interest under sub-section (1) of Section 8 of the said Act shall mutatis mutandis apply to amounts collected by manufacturers from purchasers under this section.
24. Perusal of section 12 and other provisions of the Act reveals that Sec. 12, is wider in scope than section 4 as it starts with non-obstante clause and takes within its ambit certain transaction which do not strictly attract entry tax but ultimate liability with regard to which can only be determined in assessment proceedings upon proof of certain facts. Some such instances are:
(a) Where at the time of entry of any goods into a local area, the quantity or value of goods to be sold within such local area for the purpose of being taken outside the local area without consumption, use or sale in such local is not ascertainable: [Sec. 4(6) Proviso (unamended)].
(b) Where a single consignment of goods, partially meant for consumption, use or sale within a local area and partially meant for transfer to any place outside such local area, is brought or received by a dealer into such local area and where value of the goods to be consumed, used or sold in the local area is not ascertainable, the dealer shall pay tax on the value of all goods of the consignment and shall, after any goods are transferred as aforesaid, may claim refund of the amount, paid as tax in respect of goods so transferred in the manner provided in Section 5 of this Act. [Sec. 4(7) unamended].
In these cases, as well, the manufacturer is required to realize entry tax from a purchaser. However, Section 12 is not all pervasive. It does not have universal application. It neither applies to all sale transactions, without exception, nor extends the liability of entry tax to a manufacturer. The liability continues to be of the person/dealer who intends to bring goods into a local area for consumption, use or sale therein. Section 12 is only a machinery provided to facilitate collection of entry tax. It will only apply to such persons who intend to bring the goods into a local area from any manufacturer within the State. If the purchaser does not intend to bring goods into a local area, it will not attract any entry tax. It is noticeable that in case the legislature had intended to bring all transactions of sale and purchase within the ambit of section 12, it could have said that "any person who purchases goods specified in the Schedule ....., shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area..." instead of using the words "....any person who intends to bring into a local area from any manufacturer within the State, such goods specified in the Schedule....,shall, at the time of taking delivery of goods from the manufacturer, pay to the manufacture the tax payable on entry of such goods into a local area..." Any contrary interpretation will render the words "intends to bring into a local area" otiose. It is settled principle of interpretation of statutes that every word should be given its full meaning.
25. It is noticeable that though section 12 casts an obligation on the manufacturer not to hand over goods to a purchaser, unless entry tax has been paid, but it depends upon the intention of the person making the purchase. If a dealer registered under the Act within the same local area, purchases goods from the local manufacturer with intent to sell goods within the same local area, then the purchaser is neither obliged to deposit entry tax with the manufacturer nor the manufacturer is under obligation of law to refuse to sell the goods to him. All that the manufacturer is required to do is to disclose quantum of such sales to the Authorities while submitting return in Form-E.
26. In view of the discussion made above, it can safely be concluded that section 12 has no universal application and will not apply to sales made within the same local area where there is no intention on part of the purchaser to take goods to another local area. Question Nos. 2 and 3 are answered accordingly.
Question No. 427. Since section 12 of the Act has no universal application as has been held while deciding question no. 2 and 3 and therefore, a manufacturer cannot compel a person, who does not intend to take goods outside the local area, to pay entry tax to him, for being deposited with the authorities in the prescribed manner.
28. Perusal of other provisions of the Act lends support to the aforesaid conclusion. Sec 5 (unamended) provides for the contingencies in which entry tax deposited can be refunded. These are:-
Sec. 5. (a) Where purchased goods, without using them in such local area, are returned to the selling dealer within a period of six months from the date of purchase;
(b) Where goods, without using them in such local area, are consigned to any place outside the State;
(c ) Where goods, without using them in the local area, are consigned to any place in any other local area for consumption, use or sale therein;
(d) Where goods are re-sold either in the course of inter-State trade or commerce or in the course of the export of the goods out of the territory of India;
(e) Where any scheduled goods are sold for being taken outside such local area and are actually taken out.
(f) Where a dealer has paid tax in respect of entry of any goods into any local area but goods are destroyed before entry into the local area, any amount paid as tax shall, subject to provisions of sub-section (3), be refundable to the dealer.
Sec.4(5)and (6) are other instances where initially entry tax is to be paid and subsequently upon furnishing proof of non- consumption of such goods within the local area and of their being taken outside such local area, that the refund of tax can be claimed.
Section 5 has undergone amendment w.e.f. 1.11.1999. Perusal of amended provision will show that it does not contemplate any contingency for reversal/refund of entry tax paid on purchases made from local manufacturers, without the good entering into other local area except in cases where such good are lost or destroyed before their entry into a local area.
29. There is no other contingency provided under the Act, where refund can be claimed or allowed. This also supports the conclution that Act does not contemplate deposit of entry tax by the purchasers, on sales made from manufacturers, with in the same local area.
30. Thus, doctrine of 'no prejudice' cannot be pressed in the instant case to compel a manufacturer to realise entry tax on sales within same local area. In 1967 SCR(3) 577, Bhawani Cotton Mills Vs. State of Punjab and another, the Apex Court disapproved the practice of compelling a person to pay tax, when under law he is not liable to pay it by observing: "To say that if a person is not liable for payment of tax in as much as on completion of the assessment refund can be obtained at a later stage is no solace". The aforesaid dictum of law has been quoted with approval by the Apex Court in the judgment in M/S Nathpa Jhakrijt, Venture Vs. State of Himanchal Pradesh and others: 2000 UPTC 459.
31. Sri C.B. Tripathi, counsel for the department placed reliance on 2001 UPTC 1110, West UP Sugar Mills Association and others Vs. State of UP to support his argument that the manufacturer has to realise and deposit entry tax for every sale, irrespective of whether it is made to local dealers/purchasers, without any intention of their being taken out to another local area. He further placed reliance on the same judgment for the proposition that in case entry tax is realised by a manufacturer even in case of local sales, he can claim refund without any prejudice. This is a case where vires of similar provision viz section 4-A of the UP Tax on Entry of Goods Act, 2000, was under challenge on the ground that placing burden on Sugar factories to collect tax is an unreasonable restriction imposed on them and which is violative of Article 19(1)(g) of the Constitution of India. While repelling the said contention, it was held as under:-
"In our opinion the liability continues to be of the dealer, but Section 4-A was inserted since the legislature in its wisdom thought there was some difficulity in collection/realisation of the tax. Under Section 4-A the manufacturer is in the position of middle man between the dealer and the Government and this concept is not unknown to Tax law. For instance under the Income Tax Act the employer is also in a position of the middle man when he deducts tax from the salary of the employee, or representative assessees. The penalty is imposed only if the manufacturer refuses to receive or fail to deposit the tax. If he does not want to suffer the penalty the manufacturer should not fail to receive or deposit the Tax. Moreever, sub-section (4) of Section 4-A makes it clear that if the goods are lost or destroyed after the delivery by the manufacturer and before its entry into the local area, the concerned authority shall direct that the tax paid in respect of such goods shall be refunded to the person who had paid the tax under sub-section (1). Sub-section (4) of Section 4-A thus protects the person who had paid the tax in the contingencies of the goods being lost or destroyed after delivery by the manufacturer and before entry into local area. This provisions make it clear that what is being imposed is Entry Tax and in case the goods never entered the local area the tax has to be refunded.
In para 18, it has further observed as follows:
"As regards the objection that the tax is only on intention and only (sic) not on actual entry of goods into a local area, in our opinion the manufacturer obviously cannot predict whether the dealers buying goods will actually bring them into the local area or not. All that the manufacturer can know is what the dealers informs him. However, since the Entry Tax has to paid by the dealers to the manufacturer at the time of taking the delivery of the goods from the manufacturer, obviously on dealer in his sense will pay the tax and will yet not bring the goods into the local area. If the goods are lost or destroyed, he can get the refund vide sub-section (4)".
32. The aforesaid observations of the division bench were made in a different context and for repelling the argument that impugned provisions are onerous or arbitrary or places unreasonable restrictions on the manufacturer, in as much as, the Act contains adequate provisions for refund in cases where entry tax has been realised, but is ultimately found to be not payable. In that case, the court was not called upon to adjudicate on the scope of impugned section 4-A vis-a-vis local sales. It cannot be said to be a precedent on the question involved in the instant case.
33. However there is a caveat. The aforesaid principle of law will not be applicable to those cases where there may be dispute whether the sale has been made to dealers within the same local area or outside it. Since in the instant case, there is no such dispute as impugned notices proceed on the assumption that the sales in question are to purchasers within the same local area of Mawana and even at the time of hearing of the writ petition, a categorical statement has been made by the learned special counsel for the department that there is no factual dispute in this regard and therefore this Court is deciding the dispute on the premise that the sales have been made to the persons within the same local area.
34. In view of it, it is held that the petitioner company could not be compelled to make deduction of entry tax at source for sales made to persons/dealers within the same local area.
35. Consequently, there is no infraction of law on part of the Petitioner Company in not making deductions of entry tax at source from persons/dealers for sales made within the same local area i.e. Mawana, as provisions of sec.12 will not apply to such sales. A fortiori, there is no justification for initiating penalty proceedings against the Petitioner Company.
Conclusions
36. The question now arises is the relief to which petitioner is entitled to. In the case of M/s East India Commercial Co. Ltd Vs. Collector of Customs, AIR 1962 SC 1893, the Apex Court was called upon to adjudicate on the validity of proceedings initiated by the Collector of Customs for confiscation of goods and for taking penal action. The Apex Court by its majority judgment held that in case facts stated in the show cause notice are assumed to be correct and even then, the authority issuing notice lacks jurisdiction, then in that case, the authority can be restrained from proceedings any further in the matter. The relevant observation made therein are as follows:
"If on a reading of the said notice, it is manifest that 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 proceeding with the same."
37. Similar view was taken by the Apex Court in the case of Calcutta Discount Co. Ltd Vs. Income Tax Officer, (1961) 41 ITR 191, wherein the reassessment proceedings initiated on the basis of notice were challenged as barred by limitation. The Apex Court observed as under:
"Mr. Shastri next pointed out that at the stage when the Income Tax Officer issued the notices he was not acting judicially or quasi judicially and so a writ or certiorari or prohibition cannot issue. It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences."
38. Thus the Apex Court held that though the Income Tax Officer who has issued the notice was not acting judicially or quasi judicially and therefore a writ of prohibition cannot be issued but by issuing a writ of mandamus he can be prohibited from proceedings any further in the matter. Same view has been reiterated by the Apex Court in Union of India and another Vs. M/s Brij Fertilizers Pvt. Ltd, JT 1993 (3) SC 403.
39. In the instant case as well, no disputed question of facts are involved and the court has proceeded to decide the controversy assuming the facts mentioned in the impugned notices to be correct. Even then, it has been found that the proceeding initiated on the basis of impugned notices are illegal and an exercise in futility and therefore impugned Notice Nos. 428 and 429 dated 4.9.2009 issued by respondent no. 1 are hereby quashed. The authorities are restrained from proceeding any further, in pursuance of such notices. The writ petition succeeds and is allowed.
40. No order as to cost.
(Manoj Kumar Gupta, J) (Prakash Krishna,J)
Date: 27th May, 2013.
SKS