Gujarat High Court
Cheminova India Ltd. vs Sales-Tax Officer (1) on 9 November, 2001
Author: M.S. Shah
Bench: M.S. Shah
JUDGMENT M.S. Shah, J.
1. In this petition under Article 226 of the Constitution,thepetitioner,a Public Limited Company engaged in the manufacture of pesticides, challengesthe noticesdated2.8.2001 issued by the Sales-tax Officer, Surat under Section 41B of theGujaratSalesTaxAct, 1969(hereinafterreferred to as "the Act" for brevity) for making provisional assessment for the financial years 1997-98 to 2000-01 for levy ofadditionalpurchasetax under Section 15B ofthe Act.The petitioner has also prayed for a writ to permanently restrain therespondent fromlevyinganyadditional purchase tax under Section 15B.
2.Thefactsleadingtofilingof the petition, briefly stated and as averred by the petitioner,areas under :-
Thepetitioneris a manufacturing unit which is eligible to sales-tax incentive schemeunderwhichthe purchases made by it of raw materials etc.are nominally taxedinthehands of selling dealer who would recover the same from the manufacturer and the sales made bythe manufacturerof the manufactured goods would be exempted wholly.To give effect to the said incentive scheme, the State GovernmentexercisingitspowersunderSection 49(2) ofthe Act issued various notifications from time to time incorporating various entries under which various units were entitled to exemptions as perthetermsand conditions of the said entries.
Thepresent petition is concerned with Entry 255 for earlierperiodandEntry69forthesubsequent period. UnderEntry 255(2) sales of raw materials etc. by a registered dealertoaneligibleunitlikethe petitionerissubjected to nominal sales-tax only being 1/4thof1%,providedthateligibleunitgives a certificate in Form No.26whichcontainsthe declaration that the goods are required byhimforuse within theStateofGujaratas raw materials.in the manufacture of goods for sale within the State or outside the State.Thus, only nominal sales-tax is levied on the registereddealersellingtothemanufacturerwhich nominalsales-taxhe will recover from the manufacturer against Form No.26.It may be noted that Form No. 26 permitsthemanufacturernotonlytosell the goods within the State butalsooutsidetheState.Entry 255(3)dealingwith the sales of the manufactured goods by the eligible unitprovidesfortotalexemptionof sales-tax on the condition that the manufacturer does not give From 40 prescribed bytheRulesandalso incorporates a declaration in the bill, invoiceorcash memo in respect of the said goods that the sale is exempt fromtax under Entry 255(3) and that the buyer shall not be entitled to claim any draw back, set off etc.under therulesand further that the buyer shall not give any certificate in Form 40 of theRulestoanysubsequent purchaser.
Subsequent Entry 69 provides forsimilar exemption to eligible units.Reference maybemadeto clause (2) with regard to sales by a registered dealer to theeligibleunitwherethe tax payable would be only 1/4th of 1%, if the eligible unit furnishes a certificate in Form No.40 prescribed by the notificationdeclaring that the raw materials purchased shall be used within the StateofGujaratinthe manufacture of goods for sale within the State.Entry 69(3) wholly exemptsthesales madebyan eligible unit and it has to give declaration on the bill, invoice or cash memo that the sale is exempt under Section 69(3) and that it shall notgiveForm40 prescribed by the Rules to the buyer.
3. Whenthematterwastakenupforadmission hearing, submissions were madeonbehalfofthe petitioner contending that provisionalassessmentunder Section 41B couldberesortedtoonlywherethe Commissioner has reason to believe thatthedealerhas evadedthetax, but in the instant case leave alone any evasion of tax, in the first place there is noliability topaytaxunderSection 15B since the petitioner is granted exemption underSection 49(2) oftheActin respect of the finished goods whicharebeing manufactured by it and, therefore, sincethepetitioner isnot manufacturing taxable goods as defined by Section 2(33) of the Act, thequestionoflevyofadditional purchase tax under Section 15B does not arise at all.On theotherhand,onbehalf of the revenue Mr UR Bhatt, learned AGP submitted that sincetheliabilitytopay additionalpurchasetax under Section 15B was very much there, the respondents were prepared topassordersof regular assessment.
Inviewofthe aforesaid controversy centering round the basic question whether the petitioner is liable to pay additional purchase tax under Section 15B ofthe Actwhenthetaxable raw materials purchased by it are usedinmanufactureofgoodswhichare ultimately exempted fromsales-taxaspernotificationsunder Section 49(2) of the Act and in viewofthefactthat this controversy has arisen in case of all the industrial units exempted under Section 49(2) of the Act pursuant to variousnotifications issued by the State Government, at the joint request of the learned counsel for the parties, the Court proceeded to hear the elaborate submissionsof thelearnedcounselonthemerits of the controversy about applicability of Section 15B,thatis,thevery basicquestionabout liability of the petitioner to pay additional purchase tax under Section 15B of the Act when the taxable raw materials purchased byitareusedin manufacturing finished goods whichareultimately exempted from sales-taxpursuanttothenotifications under Section 49(2) of the Act.
5.Beforeenumeratingthe rival submissions, it is necessary to set out the main provisions of the Act which are relevant for the purposes of this petition.
Section 15B reads as under :-
"15B.PURCHASETAXON RAW OR PROCESSING MATERIALSOR CONSUMABLE STORES USED IN OF GOODS.
Where a dealer who being liable to pay taxunder thisActpurchases either directly or through a commission against any taxable goods(notbeing declared goods) and usedthemasrawor processing materials or consumable stores, in the manufacture of taxable goods, then there shall be levied in addition to any taxleviedunderthe otherprovisionsof this Act, a purchase tax at the rate of -
(a) two paise in a rupee on theturnoverof suchpurchasesmadeduringthe period commencing on the1stApril,1986and ending on the 5th August, 1988; and
(b) Fourpaisein the rupee on the turnover of such purchases made at any timeafter the 5th August 1988.
Providedthatwhere the raw materials purchased and used in the manufacture of goods arebullion or specie, .........."
Section 2 of the Act defines "Goods" and "taxable goods" as under :-
"2.Definitions In this Act,unlessthecontextotherwise requires, -
(12)"Goods" means allkindsofmovable property(notbeingnewspapersoractionable claimsorstocks, shares or securities) and all materials, articlesandcommodities,including ........."
(33)"Taxable goods" meansgoodsotherthan thoseon the sale or purchase of which no tax is payable undersection 5 orsection 49 ora notification issued thereunder."
Section 5 in so far as relevant reads as under :-
"5. SALESANDPURCHASES OF CERTAIN GOODS FREE FROM ALL TAX.
(1) subjecttothe conditions or exceptions (if any) setoutagainsteachofthe goodsspecifiedin column 3 of Schedule I, no tax shall be payable onthesales orpurchasesofany goods specified in that Schedule."
Sub-section (2) of Section 5 empowerstheState government to add to, or enlarge any entry in Schedule I, orrelaxoromitany condition or exemption specified therein.Sub-section (3)providesforlayingofthe notifications before the State Legislature.
Section 49 insofarasrelevantreadsas under:-
"49.EXEMPTIONS (1) Subject to the conditions orexemptions, ifany,specifiedin relation to them, thefollowingclasses of sales or purchases shall beexemptfromthe payment of the whole of tax payable under the provisions of the Act, namely :-
Clauses(i)to (vii) enumerate sales to Canteen StoresDepartmentsformembersofArmedForcesand various agencies of the United Nations organizations.
Sub-section (2) of Section 49 reads as under :-
"Subject to such conditions as it may impose, the State Government may, ifitconsidersit necessary so to do inthepublicinterest,by notificationin the Official Gazette, exempt any specified class of sales or of specified sales or purchases from payment of the whole oranypart ofthetaxapplicableunder the provisions of this Act."
Sub-section (3) of Section 49 provides for laying of notifications before the State Legislature.
Rule 42E reads as under :-
"42E.Drawback, set off or refundofpurchase tax under Section 15B - In assessing the purchase taxleviedunderSection 15-B and payable by a dealer (hereinafter referred to as `the assessee')theCommissionershallsubjectto conditions of rule 47 in so farastheyapply, and further conditions specified below, grant him a drawback, set off or as the case may be, refund ofthe whole of the purchase tax paid in respect of purchase of goods effected on and from the 1st April,1986usedbyhim,asrawmaterials, processingmaterials,orconsumable stores, in the manufacture of taxable goods.
Conditions.- (1) Theassesseeisa registered dealer, (2) the goodspurchasedaretaxablegoods other than declared goods, (3) thesaidgoodshavebeenused by the assessee within the Stateasrawmaterialsor processingmaterials or consumable stores in the manufacture of taxable goods, (4) the goods so manufactured have beensold by the assessee in the State of Gujarat."
5. Mr KH Kaji, learned counselforthepetitioner has vehementlycontendedas under :-
5.1 Userof taxable raw materials in the manufacture of taxable goods is sine qua non for levyofadditional purchase tax under Section 15B.Section 2(33) of the Act specifically providesthatthegoodsexemptedfrom sales-tax under the notifications under Section 49(2) go out ofthedefinitionof'taxablegoods'.Since the petitioner is manufacturing goods which are exempted from sales-tax pursuant tothenotificationsunderSection 49(2) of the Act, there could be no levy of purchase tax under Section 15B of the Act.
5.2 Theexpression`taxablegoods'cameup for consideration of this Court in Nawroji N. Vakil & Co.vs. State of Gujarat, 43 STC 238.In the said decision, this Courthasheldthatwhat is to be seen is whether the assessee sold taxablegoodsornotanditwouldbe determined by ascertaining whether a sale by the assessee was taxableorexempt.Thesaid decision came to be confirmed by the Supreme Court in Hindustan BrownBoveri Ltd.vs. State of Gujarat, 47 STC 376 wherein the Apex court compared and contrasted the definitionof`goods' under the Gujarat Act with the same expression as defined undertheBombayActand held that the goods exempted under the Government notifications under Section 49(2) go out of the category of taxable goodsandthedichotomy thatisstatedtoexitbetween`taxablegoods' and `taxableevents'hasbeengivenago-bye by the definitionunderSection 2(33) with the result that one has to wait till the disposal of the goods by thedealer to find out whether the goods are taxable goods or not.
5.3 The levy under Section 15B becomeseffectiveor getsactivatedon manufacture of taxable goods and that activation can only be ascertained by finding out whether the goods have borne tax ornotandwhetherthesaid goodsareexemptedeither by virtue of Section 5 or by virtue of notifications under Section 49(2).Evenif chargingevent or taxable event takes place earlier, the levy only materializes or becomes activeonmanufacture oftaxablegoodsorin other words the dormant charge becomes alive only when the goodsaremanufacturedand aresoldastaxablegoodswhicheventcanonly be ascertained at a later stage when the finished goodsare sold.
5.4 WhentheStateGovernmenthas already granted exemption to the petitioner'smanufacturingunitunder Section 49(2) frompayment of sales-tax on sale of the finished goods, there is no rationale inthedepartment interpreting Section 15B to mean that additional purchase taxe is payable by the petitioner under Section 15B (over andabovethetaxreimbursed by the petitioner to the dealer of the taxable raw materials) on the useofsuch raw materials in manufactureofgoodswhichare ultimately not to be subjected to sales-tax on account of the aforesaid exemption under Section 49(2) of the Act.
6. Inthealternative,evenif the department is right in law in contending that the petitioner isliable to pay purchase tax under Section 15B, the petitioner has beenbonafidebelievingthatthepetitioner is not liable to pay the saidtaxbecauseforthefinancial years1994-95and1995-96theSales-taxOfficer had accepted the petitioner's case that it was not liableto paysuchtaxanditwasonlythereafterthatthe respondentssoughttofastentheliabilityon the petitioner for the period from 1996-97 onwards.
7. In reply,MrURBhatt,learnedAGPforthe respondents submittedas under :-
7.1 Whentheconstitutional validity of Section 15B of the Act came to be challengedbeforethisCourtin Madhu Silica Pvt. Ltd.vs.State of Gujarat, 85 STC 258, this Court alsoexaminedthequestionaboutthe scopeofexpression`taxablegoods'asoccurring in Section 15B andthisCourtheldthatoncetheraw materialsareutilized in the manufacturing process for manufacturing goods which are generally taxable under the Act, charge under Section 15B gets attracted and that the question whether ultimately the manufactured goods emerge or not andthesubsequentquestionwhethersales-tax wouldbepayableor not are matters of no consequence. Mr Bhatt heavily relied upon the aforesaiddecisionand furthersubmitted that the decision of this Court on the question of constitutional validity and interpretation of Section 15B of theActcametobeconfirmedbythe Supreme Courtin Hotel Balaji & Ors vs.State of Andhra Pradesh, 88 STC 98.MrBhatt,therefore,vehemently submittedthatthequestion sought to be raised in the present petition is no longer res integra and isalready concludedbytheaforesaiddecisions in favour of the revenue.
7.2 As regards the decisions in Nawroji N. Vakil& Co. (Supra) and Hindustan Brown Boveri (Supra), Section 15B wasintroducedonthestatutebookafter the aforesaid decisions and, therefore,theyhaveno relevance to the controversy in the instant case.
8. We have givenanxiousandthoughtful consideration totherivalsubmissions.There is no dispute that on analysis of Section 15B ,thefollowing conditionshavetobe complied with before the levy of purchasetaxunderthesaidprovisionscan become effective:-
(i) Dealermust be liable to pay tax i.e. he must be a registered dealer.
(ii) He purchases any taxable goods.
(iii) He uses them as raw materials.
(iv) Such use is in the manufacture of taxable goods.
It is upon fulfillment oftheaforesaid conditions that there shall be levy of purchase tax under Section 15B of the Act inadditiontoanyotherlevy under theAct.In the instant case, there is no dispute that condition Nos.1to3arefulfilled.The controversy iswhetherconditionNo.(iv) is complied with or not.According to the petitioner-assessee, since it uses the raw materials inquestioninmanufacturing goodswhichareexemptedfromsales-taxpursuant to notifications under Section 49(2) of the Act,theyfall outside the definition of `taxable goods' as contained in Section 2(33) ofthe Act and, therefore, condition No. (iv) is not complied with.
For thesakeofconvenience,definitionof `taxable goods' in Section 2(33) of the Act is againset out hereinbelow :-
"Taxablegoods"means goods other than those on the sale or purchase of which no taxispayable u/s.5 orsection 49 or a notification issued thereunder".
Thisisno dispute about the fact that the sale by the petitioner of the goodsmanufacturedbyitare exempted under Entry 255(3) and Entry 69(3) being part of thenotificationissuedbythe State Government under Section 49(2) of the Act.
9. The bone of contentionbetweenthepartiesis abouttheinterpretationoftheexpression`taxable goods' as found in section 15B of the Act.A prima facie perusal oftheprovisionsofSection 15B readwith Section 2(33) ofthe Act may prima facie indicate that there is considerable substance in thecontentionurged on behalf of the petitioner that the use of raw materials inquestionby the petitioner is not in the manufacture of taxable goods because the finished goodsinquestion are exempted frompaymentofsales-taxunderthe aforesaid entries of the notification under Section 49(2) of the Act.The thrust of the submissions of the learned AGP is that in Madhu Silica's case(Supra),aDivision Benchofthis Court has considered this very expression `taxable goods' as occurring in Section 15B oftheAct andalsothe definition in Section 2(33) of the Act and has thereafter held that theexpressioninSec.15B means "generally taxable goods".
10. Ontheother hand, Mr Kaji, learned counsel for the petitioner submitted that the question raised inthe presentpetitionwasneverthesubject matter of the controversy before thisCourtinMadhuSilica'scase becauseinthatcasethe Court was concerned with the question of constitutional validity of Section 15B of the Act and the Court wasmerelyexaminingthecontention whether the provision of Section 15B seeks to levy tax in the natureofexcise.It is, therefore, submitted that the observations made by thisCourtinMadhuSilica's caseinthecontextofthat controversy can never be taken out of context and used to fasten levy ofpurchase taxonthe petitioner under Section 15B of the Act when the goods being manufactured by thepetitionerarenot taxablegoodsbecausetheyareexemptedpursuant to notifications under Section 49(2) of theAct.Itis, therefore, submitted by Mr Kaji that when the controversy raisedinthepresentpetition was never in the focus before the Division Bench deciding MadhuSilica'scase, theobservationsmadetherein were mere dictum and did not intend to lay down the principle which isnowbeing canvassed by the revenue.
Mr Kaji further vehementlysubmittedthatthis veryexpressioncame to be interpreted by this Court in Nawroji N.Vakil & Co.vs.State ofGujarat,43STC 238and this interpretation also came to be confirmed by the Supreme Court in Hindustan BrownBoveriLtd.vs. State of Gujarat, 47 STC 376.
11. It is true that theexpression`taxablegoods' didcomeupforconsiderationbeforethisCourt in Nawroji N.Vakil & Co.vs.State ofGujarat,43STC 238andbeforetheSupremeCourtin Hindustan Brown Boveri Ltd.vs.State of Gujarat, 47 STC376.Those decisionssupportthepetitioner'scontention, but it cannot be overlooked that those decisionswererendered in1978-1981longprior to the introduction of Section 15B in its original form which was inserted in 1986with effect from1.4.1986. When the constitutional validity of such provisions madebythelegislaturesinother Stateswaschallengedonthegroundthat the tax in question was a tax on consignments which waswithinthe exclusivedomainoftheParliament, the Supreme Court upheld that challenge in Good Year India Ltd.vs.State of Haryana, (1990) 76 STC 71.Originalsection 15B as inserted in the year 1986 also came to be challenged in a group of writ petitions before this Court, but before the petitionscould be heard, the Governor of Gujarat issued an Ordinance repelling the earlier Sectionandenacting new Section 15B. TheOrdinancewasreplacedby an enactment in 1990andthesaidnewSection 15B was brought into force with effect from 1.4.1986.Those writ petitions,therefore,becameinfructuousanda fresh groupofpetitionswerefiledforchallenging the validity ofnewSection 15B. The said petitions were dismissedbythisCourton28.2.1991andthesaid decision is reportedasMadhuSilicaPvt. Ltd.vs. State of Gujarat,85STC258.ThisCourtspeaking throughaDivisionBenchcomprisingof Hon'ble Chief Justice G.N.Ray and Hon'ble Mr Justice S.B.Majmudar (asTheir Lordships then were) examined in depth all the challenges to the constitutional validity of Section 15B andin the process also considered all the facets of the provisions of Section 15B of the Act.Whilethemain challenge was on thetouchstoneoflegislative competence for enacting Section 15B,inthecourseof thatexamination,theCourtwasrequired to consider several aspects including thequestionwhetherSection 15B imposes ataxinthenatureofexcise.The discussion on that part of the controversy is to be found on page Nos.301 to 307 of the judgment reportedin85 STC.
In Madhu Silica (Supra), thecontentionofthe assesseewas that when the raw materials in question are used in the manufacture of taxablegoods,theimpugned levyunder Section 15B would be in the nature of excise. The Court negatived that contention by holdingthatthe chargingeventtakesplaceonthepurchaseofraw materials, but the charge remains dormant till thegoods (raw materials) are actually put to use in manufacture of taxable goods.Thecharge gets attracted then and the taxing event has nothing to do with ultimate emergence of taxable goods.At thatstage,theCourtspecifically consideredthesubmissionof the learned advocates for the petitioners in that case.It would be worthwhileto quote those observations in their entirety :-
"The submission of the learned advocates forthe petitioners that thissectioninsubstance imposes a tax in thenatureofexcisebecause manufacturecontemplatedbythesection is of taxable goods and, therefore, till taxablegoods emerge,taxingeventwouldnotbecomplete, cannotbecountenancedforobvious reasons. Taxablegoodsaredefinedby section 2(33) as goods other than those on the sale or purchase of which notaxispayableundersection 5 or section 49 or a notification issued thereunder. The learned Advocate General wasrightwhenhe contendedthatwhich types of goods are covered by section 5 or section 49 are clearlyindicated by theLegislature.A manufacturer/dealer who proceeds to manufacture taxable goods knowsvery wellatthestagethemanufacturingprocess startsastowhichgoodsaresoughttobe manufacturedby utilizing raw materials. Ultimately, whether the concerned goods whichhe producedbearfull burden of tax or get partial or full exemption frompaymentoftaxonthe happeningofcertaincontingencieswillhave nothing todowiththequestionwhetherraw materials, etc. were utilized for manufacturing such goods.Measure of tax or ultimate liability topaytaxeitherwhollyor partially on manufacturedgoods cannot have any impact on the question whetherpurchasedrawmaterialswere used or utilized in the manufacturing process for producing such manufacturedgoods.Reliance placed in this connection by the learned Advocate General on the decision of the SupremeCourtin (1975)36STC191(StateofTamilNaduv. Kandaswami) is justified.Referring to a similar question which arose in connectionwithsection 7-A ofthe Tamil Nadu Act, the Supreme Court in that case held that taxable goods would meanthe goods, the sale or purchase of which is generally taxable under the Act.Notwithstanding the goods being taxable goods, there may be circumstance in agivencaseby reason of which the particular sale orpurchasedoesnotattracttaxunder section 3,4 or 5.Sub-sections (4) and (5) of section 7-A withwhichtheSupremeCourtwas concerned read as under :-
"(4) The goods purchased aregoods,the saleorpurchaseof which is liable to tax under this Act;
(5) Suchpurchase is in circumstances in which no tax is payable undersection 3, 4 or 5, as the case may be."
Analyzingtheseingredientsof section 7-A, the aforesaid observations were made bythe Supreme Court.Itis true that in the present case, there isacleardefinitionoftaxable goods; while in Tamil NaduAct,onthe ingredients ofsub-sections(4)and(5),the Supreme Court heldthatthesesub-sections contained definition of taxable goods. However, the resultremainsthesame.Ingredients of sub-sections (4) and (5) of TamilNaduActare parallel to the provisions foundinthe definition of taxable goods in section 2(33) of the GujaratAct. Therefore, it must be held on parity of reasoning, that the phrase"usesthem as rawmaterialorprocessingmaterialsor consumable stores in the manufactureoftaxable goods" as employed by section 15B would mean user of such raw material in the manufacturing process formanufacturinggenerally taxable goods under the Act and ultimately, ingivencircumstances, such manufactured goods may not attract tax under thechargingprovisionandstilltheywould remain taxable goods.Itis,therefore,not possibletoagreewiththecontention of the petitioners that charging event under section 15B would bemanufactureoftaxablegoods. As alreadydiscussedearlier, charging event would stop short at the stageofutilizationofthe purchased rawmaterialinthemanufacturing process oftaxablegoods. Ultimately such taxable goodsmayemerge or not.That would be totally irrelevant, but the charge wouldoperate under the section of its own the moment goods are purchased and utilized as raw materials, etc., in themanufacturingprocessof generally taxable goods."
Thereafter, this Court dealt with the submissions of the learned advocates for the petitioners in that case based on the decision of this Court in Nawroji N. Vakil & Co. vs. State ofGujarat(1979)43STC238andthe decision of the Apex Court in Hindustan Brown Boveri Ltd. vs.StateofGujarat, (1981) 47 STC 376 which are also relied upon by the learned counsel for the petitioners in the instant case.After explaining those decisions, this Court observed as under :-
"Itisdifficultto appreciate how these decisions can be of any avail to the petitioners. Inthepresentcase,oncerawmaterials are utilizedinthe manufacturing process for manufacturingtaxablegoods which are generally taxable under the Act, charge under sectiongets attracted.Ultimately, if the manufactured goods arefoundnot to bear tax, then the question of refund at the stage of assessment may arise.But that by itself would not whittle down thecharge or postpone it in any manner as suggested.It is also not possible to agree with the contention of thelearnedadvocatesofthe petitioners that underthepresentsection,thechargewould extendevenbeyondthemanufacture of taxable goods till manufacturedtaxablegoodsactually bear thetax.Actualliability to pay tax is quite distinct fromgeneraltaxabilityofthe goodsmanufactured,as laid down by the Supreme Court in Kandaswami case (1975) 36 STC 191.In fact,onepurchased raw material is utilized in the manufacturing process,chargingeventgets completed underthesectionandtheaspect whether ultimately the manufactured goodsemerge ornot,wouldpale into insignificance as seen earlier.It is not the taxingeventunderthe section.Once taxing event takesplace, subsequenteventpales into insignificance. Thus,itisnotpossibletoagreewith the contentionofthelearnedadvocatesof the petitionersthat the impugned provision seeks to impose excisedutyortaxinthenatureof excise. DecisionoftheBombay High Court in (1990) 79 STC 255(HindustanLeverLtd.vs. State of Maharashtra) strongly pressed in service bythe learned advocates of the petitioners with respect cannot be agreed to.It is difficultto agree with the reasoning of the Bombay High Court intheaforesaiddecisiontothe effect that under section 13AA,levytakeseffectonthe occasionofmanufacture and, therefore, levy is in thenatureofexcise.Suchaline of reasoningisnotcountenancedby the section. Neither in section 13AA oftheMaharashtraAct norinsection 15B of the present case levy is imposed on the manufacture of taxable goods. As laiddownby the Supreme Court in Goodyear case (1990) 76 STC 71, taxable eventisoneonthe occurrence ofwhichchargegetsimmediately attracted.In our view,chargegetsattracted whenthe raw materials are purchased and used in the process of manufacture of taxablegoodsand ithasnothing to do with ultimate emergence of taxable goods.Theymayemergeormaynot emerge,they may remain taxable goods or may not remain taxable goods.Charge underthesection is not concerned with these eventualities.Under thesecircumstances,withrespect,itis not possible to agree withtheviewtakenbythe BombayHigh Court in Hindustan Lever case (1990) 79 STC 255.In our view, section 15B doesnot coverthefieldenvisagedbyentry 84 of the Union List, and cannot be termed as imposingany duty in the nature of excise............. Thesection nowhere contemplates the phraseology like "and use themformanufactureoftaxable goods".Consequently,themomentgoodsare purchased as inputs and user of the purchased raw material, etc.,ismadeinthemanufacturing process and they enterasinputsinthe manufacture of generallytaxablegoods,charge under the Actgetscompletelysettledand attracted.Such charges has nothing todowith ultimatestageofmanufacture of taxable goods nor does it cover it in its sweep."
12. Theaboveobservationsleave no room for doubt that this Court specifically considered the definition of `taxable goods' as contained in Section 2(33) of theAct andthereafterheldthatwhetherthe concerned goods which the manufacturer produces bear full burdenoftax orgetpartial or full exemption from payment of tax on the happening of certain contingencies will havenothing to do with the question whether raw materials, etc.were utilized formanufacturing such goods.At more than one place, this Court dealt with the definitionof`taxable goods'in Section 2(33) of the Act and held that Section 15B levies tax on "userofsuchrawmaterialinthe manufacturing process for manufacturing generally taxable goods under the Act and ultimatelyincertain circumstances such manufactured goods may not attract tax and still they would remain taxable goods".
13. In our view, therefore, the question sought to be raised in this petition was alreadyraisedbeforethis Court inMadhuSilica'scase.Merely because that was not the only question ormerelybecausevariousother facetsof Section 15B were also considered, it cannot be a ground forholdingthattheinterpretationofthe expression'taxablegoods'in Section 15B in the Madhu Silica's casewasadictum.ThisCourt carefully consideredthespecificquestion after considering the provisions of Sections 15B, 2(33) and also Sections 5 and 49 of the Act and also very muchafterconsideringthe decision ofthisCourtinNowrojiN.Vakil& Co. (supra) and the decision of the Apex CourtinHindustan Brown Boveri Ltd.(supra).At the cost of repetition, we may say that those decisions in Nowroji N.Vakil& Co.andHindustanBrownBoveri Ltd.were rendered in 1978-1981, when Section 15B was not even onthestatute book.
14. Wemayalso note the principle laid down by the Apex Court in Hico ProductsLtd.vs.Collectorof Central Excise,1994(71)ELT339.In that case, the Apex Court has held that the exemption from duty by means of a statutory notification does not take awaythelevy or have the effect of erasing levy of duty; the object of theexemptionnotificationis to forgo due duty and to confer certain benefitsuponthemanufacturerorthe buyerortheconsumer through the manufacturer, as the case may be.Of course, that was adecisionunderthe CentralExcise Act and the Rules framed thereunder, but, in our opinion, the principle laiddownthereinisof general applicationtoexemptionsunderalltaxing enactments.
Section 2 oftheGujaratSales Tax Act, 1969 opens with the words "In thisAct,unlessthecontext otherwise requires".In our view, the expression "unless thecontextotherwise requires" would be applicable for appreciating the import of the expression "taxable goods" occurring in Section 15B of the Act.It is also required to be noted that a manufacturer who is grantedsales-tax exemption under a notification under Section 49(2) of the Act is grantedsuchexemptionsubjecttoseveral conditions.At the stage of levying charge under Section 15B of the Act when the raw materialsareusedinthe manufactureofgoods,itwillbetooearly to know whether the goods in question will ultimately betaxable or not because theconditionsstipulatedinthe notification underSection 49(2)mayormaynotbe complied with.Even when sales-tax exemption is given by wayofincentiveforestablishingnewindustries in backward areas, there is anouterlimitofexemption. Whenthatlimit is reached and the goods are being sold beyond that exemption limit, the manufacturer wouldhave topaytaxinrespect of the goods when that limit si reached.Evenforworkingoutthoselimitsoftax liability,themanufacturer would have to first proceed on the footingthatthegoodsaretaxableandthen compute thebenefitsofexemption.We are, therefore, inclined toagreewiththeDivisionBenchinMadhu Silica'scasewhenitobserved that by the expression "taxable goods" what was meant was thegoodswhichare generallytaxableundertheAct and that the charging event was not intended to be postponed till thefinished goods were finallyandactuallysold.Asalready indicated above, the object of exemption is only to forgo due duty and not to erase the levy of tax.
15. In our view, therefore,thedecisioninMadhu Silica'scase,85STC 258 concludes the controversy in favour of the revenue and accordingly we are of theview thatthe petitioner is liable to pay additional purchase tax under Section 15B of the Act on the purchaseofraw materialsbythepetitionersandon their use in the manufacture of goods which aregenerallytaxablegoods undertheAct, though they may be exempted from payment of sales-tax pursuant to the notifications underSection 49(2) of the Act.
16. Whentheprovisions of Section 15B have already been interpreted by this Court and the aforesaid viewis taken,itisnot necessary to go into the rationale of the levy of additional purchase tax under Section 15B of theActonthe goods which are generally taxable goods under the Act, but whichareultimatelyexemptedfrom paymentof sales-tax pursuant to the notifications under Section 49(2) of the Act.
17. Evenso,weareinclinedto consider the alternative submission of Mr Kaji for the petitioner that in the event of this Court holding against the petitioner ontheinterpretationofSection 15B, the respondent could not have formed the belief that the petitionerhad evaded tax by reason of it raising a contention that levy underSection 15B isnot attracted as it manufactures non-taxable goods.Mr Kaji has stronglyreliedonthe decision of thisCourtinBotliboi&Co. Ltd.vs. SalesTaxOfficer,119STC583whereinthisCourt observed that the power under Section 41B for provisional assessment can be invoked only if the Commissioner or his delegatehasreason to believe that a dealer has evaded the tax.The show cause noticeissuedforprovisional assessment should record reasons or grounds for coming to the conclusionthatthedealerhadevaded tax.Such formation of opinion is also a condition for invoking the power of provisional assessment.The expression `evasion of tax' conveys mens rea on the part of the dealer. The expression conveys a meaningthatthedealerby infringing the law has been trying toavoidpaymentof tax induetime. The Court relied on the observations made by another Division Bench of thisCourtinNatraj Rubbers vs. Sales Tax Officer, (1999) 113 STC 575 where the similar word `evasion' used in section 62 of theAct wasconstrueddenoting "some overt or covert act on the part of the dealer in furtherance of avoiding or to evade the tax".Where the dealer has not paid tax under a bona fide belief, it would not amount to evasion of tax.
18. Since the expression"taxablegoods"under Section 16 of the Act wasearlierinterpretedbythis Court in NowrojiN.Vakil & Co.(Supra) in favour of the assessee in that case and that decision wasconfimed bythe Apex Court in Hindustan Brown Boveri (Supra), the assessee interpreted the same expression as occurringin Section 15B of the Act (though found on the statute book subsequently) on the same lines and since theSalesTax Officerhimself had accepted the interpretation canvased by the petitioner for thefinancialyears1994-95and 1995-96,weare of the view that the belief entertained by the petitioner for the subsequent yearsthatitwas notliable to pay tax under Section 15B of the Act was a bona fide belief and non-payment of tax by the petitioner on that ground cannot amount to evasion of tax.
19. On the aforesaid short ground only, while holding thatthe interpretation placed by the respondents on the expression "taxable goods" as occurring in Section 15B of the Act on the basis of the decisionofthisCourtin Madhu Silica Pvt. Ltd.vs.State of Gujarat, 85 STC 258 is the correct interpretation in law,wequashthe impugned notices under Section 41B of the Act at Annexure "C"tothepetitionfor the years 1997-98 to 2000-01, without prejudice to the powersoftherespondentsto frameregularassessments in respect of the said period for the petitioner's liabilityforpurchasetaxunder Section 15B of the Act.
20. Rule is made absolutetotheaforesaidextent only with no order as to costs.