1992 (5) TMI 178 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the penalty imposed under Section 10A of the Central Sales Tax Act.
2. Interpretation of Section 8(3)(b) of the Central Sales Tax Act.
3. Compliance with the certificate of registration.
4. Violation of Section 10(d) of the Central Sales Tax Act.
5. Applicability of principles of natural justice.
6. Reasonableness of the excuse for the alleged contravention.

Issue-wise Detailed Analysis:

1. Legality of the Penalty Imposed under Section 10A:
The Sales Tax Officer imposed a penalty of Rs. 1,03,02,503 on the petitioner, alleging a violation of Section 10(d) of the Central Sales Tax Act by dispatching aluminium ingots to other states for further processing. The court concluded that the penalty was imposed based on a misinterpretation of Section 8(3)(b) and Section 10(d) of the Act. The court found that the despatch of ingots for further manufacturing did not constitute a contravention of Section 10(d) and, therefore, the penalty under Section 10A was unjustified.

2. Interpretation of Section 8(3)(b):
The court held that Section 8(3)(b) does not restrict the manufacture of finished goods to within the state of Orissa. The provision allows the use of raw materials in the manufacture of goods for sale, irrespective of whether the manufacturing process is completed within Orissa or in other states. The court relied on the Supreme Court's interpretation in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer and Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co. Ltd., which clarified that the sale of manufactured goods need not be by the registered dealer himself.

3. Compliance with the Certificate of Registration:
The certificate of registration indicated that raw materials would be used in the manufacture of aluminium products. The court found that the petitioner's practice of dispatching ingots to other states for further processing was consistent with the certificate of registration, which included manufacturing aluminium sheets, coils, and foils. Therefore, there was no contravention of the certificate of registration.

4. Violation of Section 10(d):
The court concluded that there was no violation of Section 10(d) as the raw materials were used in the manufacture of aluminium products, which were ultimately intended for sale. The court emphasized that the finished products being manufactured outside Orissa did not constitute a contravention of Section 10(d).

5. Applicability of Principles of Natural Justice:
The court noted that the petitioner was given an opportunity to file a show cause and was heard before the penalty was imposed. Therefore, there was no violation of the principles of natural justice in the proceedings.

6. Reasonableness of the Excuse for the Alleged Contravention:
The court held that the petitioner had a reasonable excuse for dispatching ingots to other states for further processing, as this practice had been accepted by the sales tax authorities since the inception of the factory. The court cited Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax and Commissioner of Income-tax v. Gangaram Chapolia, emphasizing that penalty is not imposable in the absence of contumacious conduct and where there is a bona fide belief.

Conclusion:
The court quashed the orders of the Sales Tax Officer and the Commissioner, holding that there was no contravention of Section 10(d) and that the penalty imposed under Section 10A was unauthorized and without jurisdiction. The court directed the refund of the penalty amount with interest at 12% within three months. The writ petition was allowed with no order as to costs.