1975 (7) TMI 126 - HC - VAT and Sales Tax

Issues Involved:
1. Whether conversion of paddy into rice is a manufacturing process within the meaning of section 2(j) of the M.P. General Sales Tax Act, 1958.
2. Whether purchase tax under section 7 of the Act could be levied on the paddy delivered by the members of service societies to the assessee.
3. Whether the assessee had 'sufficient cause' within the meaning of section 17(3) not to have filed the three quarterly returns.
4. Whether the penalty under section 17(3) should be correspondingly reduced if the tax liability on the assessee is reduced.

Issue-Wise Detailed Analysis:

1. Manufacturing Process:
The court referred to the Division Bench's opinion in Laxmi Chand Badri Narain v. Commissioner of Sales Tax, which established that turning paddy into rice after dehusking it amounts to manufacturing within the meaning of section 2(j) of the M.P. General Sales Tax Act, 1958. Therefore, the court affirmed that the conversion of paddy into rice is indeed a manufacturing process, making the levy of purchase tax under section 7(1) read with section 8(1) of the Act perfectly legal. The question was answered in the affirmative.

2. Levy of Purchase Tax:
The court examined the nature of the transactions between the petitioner-marketing society and the agriculturists, who are members of the primary service societies. The primary service societies advance loans to their members, who repay these loans by supplying paddy to the petitioner-marketing society. The petitioner processes the paddy into rice and sells it, adjusting the sale proceeds against the loan. The court noted that the transaction involved a transfer of property in goods for cash (paid in advance as a loan), fulfilling the conditions of a sale under section 2(n) of the Act. Thus, the court concluded that the purchase tax under section 7(1) was rightly levied on the paddy delivered by the members of service societies to the assessee.

3. Sufficient Cause for Late Returns:
The court determined that the question of whether there was 'sufficient cause' for not filing the quarterly returns was a question of fact, not law. The taxing authorities had rejected the assessee's explanation for the delay, and no illegality or irregularity in their decision was demonstrated. Therefore, the court declined to answer this question, stating that only questions of law could be referred to the High Court for its opinion.

4. Corresponding Reduction of Penalty:
Given the refusal to answer question No. 3, the court found that there was no occasion to consider reducing the penalty under section 17(3) of the Act. Consequently, this question did not arise for consideration.

Conclusion:
The court answered the questions as follows:
1. The conversion of paddy into rice is a manufacturing process within the meaning of section 2(j) of the M.P. General Sales Tax Act, 1958.
2. Purchase tax under section 7 of the Act was rightly levied on the paddy delivered by the members of service societies to the assessee.
3. The question of sufficient cause for late filing of returns was a pure question of fact and was not answered.
4. The question of reducing the penalty did not arise for consideration.

The case was remitted to the Board of Revenue to act in accordance with the court's opinion, with the petitioner bearing the costs of the reference.

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