1997 (5) TMI 396 - HC - VAT and Sales Tax

Summary

Issues:
Levy of purchase tax on industrial alcohol consumed captively by the petitioner in its chemical factory under the United Provinces Sales of Motor Spirit, Diesel Oil and Alcohol Taxation Act, 1939.

Detailed Analysis:

1. Captive Consumption and Purchase Tax:
The petitioners sought a writ of mandamus challenging the levy of purchase tax on industrial alcohol manufactured and consumed captively in their chemical factory. The petitioner owned both the distillery and the chemical unit, with all alcohol produced being used in-house. The key contention was that since there was no sale involved, purchase tax should not be levied under the Act of 1939.

2. Legal Definition of Sale:
The definition of "sale" under Section 2(d) of the Act was crucial in determining the applicability of purchase tax. The petitioners argued that as there was no transfer of goods due to captive consumption, no sale occurred, and hence, no purchase tax should be imposed.

3. Judicial Precedents:
The judgment referred to various legal precedents to support the contention that captive consumption does not constitute a sale. Cases like U.P. State Cement Corporation Ltd. and Bhopal Sugar Industries Ltd. highlighted that for a transaction to be considered a sale, there must be a transfer of goods between two entities, which was absent in the present scenario.

4. Constitutional Amendment and Interpretation:
The judgment discussed the impact of the 46th Amendment to the Constitution of India, specifically Clause 29A, on the definition of sale. It was argued that the transfer of industrial alcohol within the petitioner's own units did not align with the amended definition of sale, thereby negating the imposition of purchase tax.

5. Conclusion and Relief Granted:
Ultimately, the court ruled in favor of the petitioners, holding that no purchase tax could be levied on the transfer of alcohol within the petitioner's premises. The judgment directed the concerned authority to consider the refund of the tax paid under protest promptly, in line with the observations made in the judgment.

In conclusion, the judgment emphasized the legal principle that captive consumption without a transfer of goods does not amount to a sale, thereby exempting the petitioners from the imposition of purchase tax under the Act of 1939.