1975 (8) TMI 109 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Interpretation of Section 8(3)(b) of the Central Sales Tax Act, 1956.
2. Determination of the maximum penalty under Section 10A of the Central Sales Tax Act, 1956.

Detailed Analysis:

Issue 1: Interpretation of Section 8(3)(b) of the Central Sales Tax Act, 1956
The primary issue revolves around whether the goods purchased against form C should be used by the dealer in manufacturing or processing goods for sale, and whether these goods must be sold by the dealer himself. The applicant-company contended that the goods processed on job-work for M/s. Gaekwar Mills Ltd., Bulsar, which were sold by the said mills, should suffice to meet the requirements of Section 8(3)(b). The Tribunal, however, rejected this contention, holding that the goods must be sold by the dealer who made the purchase against form C.

The language of clause (b) of sub-section (3) of Section 8 was scrutinized, and it was determined that the words "for use by him" govern the entire clause, implying that the dealer must not only use the goods in manufacturing or processing but also sell the manufactured or processed goods himself. This interpretation aligns with the scheme of Section 8, which provides a concessional tax rate under sub-section (1) only if the goods are used as stipulated in sub-section (3). Accepting the applicant's contention would lead to potential tax evasion and undermine the legislative intent behind the concessional rate.

The court rejected the applicant's interpretation, affirming that the goods processed must be sold by the dealer who purchased them against form C, thereby upholding the Tribunal's decision.

Issue 2: Determination of the Maximum Penalty under Section 10A of the Central Sales Tax Act, 1956
The second issue pertains to the calculation of the maximum penalty under Section 10A. The applicant argued that the penalty should be based on one-and-half times the concessional tax rate under sub-section (1) of Section 8, rather than the usual rate under sub-section (2).

Referring to a related judgment in Gaekwar Mills Ltd. v. State of Gujarat, the court held that the penalty under Section 10A should be calculated based on the rates of tax under sub-section (2) of Section 8, not the concessional rate under sub-section (1). Consequently, the Tribunal's decision to impose the penalty based on the usual rate was affirmed.

Conclusion
The court answered both questions referred by the Tribunal in the affirmative:
1. The goods purchased against form C must be used in manufacturing or processing and sold by the dealer himself.
2. The penalty under Section 10A is to be calculated based on the tax rates under sub-section (2) of Section 8.

The reference was decided in favor of the respondent, State of Gujarat, and against the applicant-assessee, who was ordered to bear the costs of the respondent.