1989 (1) TMI 331 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of Section 4-B(5) of the U.P. Sales Tax Act, 1948.
2. Correct interpretation of the term "intended" in sub-section (2) of Section 4-B.
3. Validity of the penalty imposed on the assessee.
4. Correctness of the Tribunal's reduction of the penalty amount.

Issue-wise Detailed Analysis:

1. Applicability of Section 4-B(5) of the U.P. Sales Tax Act, 1948:
The primary issue was whether the raw material purchased against Form III-B, without tax, used in job-work by the assessee, constituted a violation of the recognition certificate conditions under Section 4-B(5) of the U.P. Sales Tax Act, 1948. The Tribunal and lower authorities concluded that the assessee used raw material worth Rs. 29,00,000 in job-work, which was not the intended purpose for the tax exemption granted under the recognition certificate. This led to the imposition of a penalty under Section 4-B(5).

2. Correct Interpretation of the Term "Intended" in Sub-section (2) of Section 4-B:
The assessee argued that the term "intended" did not necessitate that the notified goods manufactured must be sold by the dealer himself. However, the judgment clarified that both conditions in sub-section (2) of Section 4-B must be met: the dealer must manufacture the notified goods, and these goods must be intended to be sold by the dealer himself. The court rejected the assessee's interpretation, emphasizing that the word "intended" signifies the dealer's obligation to sell the notified goods he manufactures, making it a sine qua non for obtaining the recognition certificate.

3. Validity of the Penalty Imposed on the Assessee:
The penalty was initially imposed by the assessing authority and subsequently enhanced by the Deputy Commissioner, Sales Tax, before being reduced by the Tribunal. The Tribunal's reduction was based on the determination that the normal wastage in this type of business ranged from 20 to 25 percent, not the 42 percent claimed by the assessee. The court upheld the Tribunal's findings that the assessee's claimed wastage was excessive and that the raw material was used for job-work, thus justifying the penalty under Section 4-B(5).

4. Correctness of the Tribunal's Reduction of the Penalty Amount:
The Revenue challenged the Tribunal's decision to reduce the penalty from Rs. 4,32,000 to Rs. 1,28,000, arguing that the wastage of Rs. 13,00,000 should have been apportioned to the Rs. 29,00,000 worth of raw material used in job-work. The court held that the Tribunal's finding of fact regarding the penalty amount was justified, as it was based on a comprehensive analysis of the facts and circumstances, including the normal wastage rates and the actual usage of raw material. Consequently, the court saw no error in the Tribunal's judgment to reduce the penalty.

Conclusion:
Both the revisions of the assessee and the Revenue were dismissed. The court upheld the applicability of Section 4-B(5) and the interpretation of "intended" in sub-section (2) of Section 4-B, validating the penalty imposed on the assessee for using tax-exempt raw material in job-work. The Tribunal's reduction of the penalty amount was also affirmed, concluding that there was no error in its judgment. No order as to costs was made.