1987 (7) TMI 560 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Imposition of sales tax on converted iron and steel items.
2. Interpretation of the declaration form (Form No. XXXIV) and its implications.
3. Applicability of the second proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act.
4. Examination of relevant judicial precedents.

Detailed Analysis:

1. Imposition of Sales Tax on Converted Iron and Steel Items:
The primary issue was whether the Sales Tax Officer was justified in imposing sales tax on the price of iron and steel scraps, which were subsequently converted into M.S. rounds, M.S. bars, and M.S. flats, on the grounds that these were commercially different commodities. The court noted that the petitioner, a registered dealer, purchased scrap iron and converted it into various steel products, which were then sold. The Sales Tax Officer raised additional demands on the basis that the petitioner violated the undertaking given in the declaration form by not selling the purchased material in the same form.

2. Interpretation of the Declaration Form (Form No. XXXIV) and Its Implications:
The declaration form stated that the goods were meant for resale in Orissa and were covered by the registration certificate. The Sales Tax Officer's rejection was based on the premise that the milling process converted the scrap iron into a different commercial commodity. The court examined the form and concluded that the declaration did not imply that the goods must be sold in the same form. The process of business inherently includes manufacturing, and the petitioner was justified in converting the purchased materials before resale.

3. Applicability of the Second Proviso to Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act:
The second proviso to section 5(2)(A)(a)(ii) stipulates that if goods purchased tax-free are utilized for a different purpose, the price of such goods should be included in the taxable turnover of the purchasing dealer. The court held that the petitioners did not violate this proviso as the converted materials (M.S. rounds, bars, and flats) still fell under the category of "iron and steel" as specified in entry No. 46 of the notification under section 5(1) of the Act. Therefore, there was no breach of the undertaking given in the declaration form.

4. Examination of Relevant Judicial Precedents:
The court reviewed several judicial decisions to support its conclusion. Notably, the case of State of Tamil Nadu v. Pyare Lal Malhotra was distinguished as it dealt with a different statutory context where conversion to a different category was not permissible. The court also referenced the Supreme Court decision in State of Madhya Bharat v. Hiralal, which supported the view that re-rolled materials did not lose their character as "iron and steel." Additionally, the Bombay High Court's decision in Shree Ram Steel Rolling Mills v. State of Maharashtra was cited, which held that processed materials still fell within the same entry for tax purposes.

The court further referenced other decisions, such as Commissioner of Sales Tax, Lucknow v. D.S. Bist, and Alladi Venkateswarlu v. Government of Andhra Pradesh, to illustrate that processed materials retaining their essential character were not subject to additional tax. The comprehensive nature of entry 46 in the notification was emphasized, which included various forms of iron and steel, thus covering the processed materials sold by the petitioners.

Conclusion:
The court concluded that the petitioners did not violate the declaration given in the forms for purchasing iron and steel materials. The converted materials remained within the definition of "iron and steel" as specified in entry 46. The assessing authority misdirected itself by holding that the materials became different goods. Consequently, the writ applications were allowed, and the additional tax demands were quashed. The court did not impose costs on the opposite parties.