2007 (9) TMI 380 - SC - VAT and Sales Tax

SALES TAX RATE OF TAX CONCESSION IN RATE IN RELATION TO RAW MATERIALS - DECLARATION IS FOR MANUFACTURE FOR SALE

Summary

Issues Involved:
1. Contravention of declaration in Form IV for availing concessional tax rate.
2. Utilization of raw materials for manufacturing intermediary and final products.
3. Interpretation of the fifth proviso to Section 5(1) of the Orissa Sales Tax Act, 1947.

Issue-wise Detailed Analysis:

1. Contravention of Declaration in Form IV for Availing Concessional Tax Rate:
The appellants challenged the views of the sales tax authorities that they had contravened the declaration given in Form IV to avail the concessional tax rate under the Orissa Sales Tax Act, 1947. The High Court upheld the sales tax authorities' decision, stating that the appellants violated the declaration terms by transferring the manufactured "bulk premix" to other branches for further processing into "bulk explosives," instead of selling it directly. The Supreme Court agreed with the High Court, noting that the transfer of "bulk premix" to other branches for further manufacturing constitutes a violation of the terms of the declaration, making the appellants liable for the differential tax.

2. Utilization of Raw Materials for Manufacturing Intermediary and Final Products:
The appellants argued that the raw material "ammonium nitrate liquor" was used within the State of Orissa to manufacture "bulk premix," which is an intermediary product for the final product "bulk explosives." They contended that there was no contravention of the fifth proviso to Section 5(1) of the Act, as the final product was for sale. However, the court held that the manufactured "bulk premix" was not sold but transferred to other branches, thus not fulfilling the requirement of being used for the manufacture of goods for sale within the State of Orissa.

3. Interpretation of the Fifth Proviso to Section 5(1) of the Orissa Sales Tax Act, 1947:
The fifth proviso to Section 5(1) stipulates that if goods purchased at a concessional rate are used for any purpose other than manufacturing goods for sale within the State of Orissa, the dealer must pay the differential tax. The court emphasized that the raw materials must be used for manufacturing goods intended for sale within the state. Since the "bulk premix" was transferred for further manufacturing outside the Rourkela plant, it was deemed to be used for "any other purpose," triggering the proviso and making the appellants liable for the differential tax.

Conclusion:
The Supreme Court dismissed the appeals, upholding the High Court's judgment that the appellants violated the declaration terms in Form IV by transferring "bulk premix" instead of selling it directly. The court clarified that the fifth proviso to Section 5(1) of the Orissa Sales Tax Act requires raw materials to be used for manufacturing goods for sale within the state, and any deviation from this purpose attracts the differential tax liability. The court did not express any opinion on the High Court's observations regarding the mention of the final product in the certificate of registration.