2005 (1) TMI 645 - HC - VAT and Sales Tax

Issues Involved:

1. Jurisdiction of the Commissioner to issue a show cause notice under section 23(4)(a) of the Orissa Sales Tax Act, 1947.
2. Interpretation of entry 48 of List "C", declaration in form IV, and the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947.
3. Whether the petitioner contravened the fifth proviso to section 5(1) by transferring intermediate products outside the State of Orissa.

Detailed Analysis:

1. Jurisdiction of the Commissioner to Issue a Show Cause Notice:

The petitioner challenged the show cause notice issued by the Commissioner of Sales Tax, Orissa, under section 23(4)(a) of the Orissa Sales Tax Act, 1947, read with rule 80 of the Orissa Sales Tax Rules, 1947, on the grounds of jurisdiction. The petitioner argued that the Commissioner lacked jurisdiction to issue the notice as the goods purchased were used in the manufacture of intermediate products within Orissa, which were then transferred outside the state for further manufacturing.

The court referred to the principles laid down by the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs and Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, which state that a writ can be entertained if the show cause notice is issued without jurisdiction. The court concluded that if the facts in the notice are true, the Commissioner would have no jurisdiction to initiate proceedings unless it is found that the finished goods were not for sale either inside or outside Orissa.

2. Interpretation of Entry 48 of List "C", Declaration in Form IV, and the Fifth Proviso to Section 5(1) of the Act:

The petitioner contended that the goods purchased under declaration in form IV were used in the manufacture of intermediate products, which were then transferred outside the state for further manufacturing into finished goods for sale. The petitioner relied on the Supreme Court's decision in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, which interpreted similar provisions under the Central Sales Tax Act.

The court analyzed entry 48 of List "C", declaration in form IV, and the fifth proviso to section 5(1) of the Act. It concluded that the expression "use within the State of Orissa by him in the manufacture or processing of goods for sale" includes the use of goods in the manufacture of intermediate products within Orissa, which are then used to manufacture finished goods for sale either inside or outside Orissa.

3. Whether the Petitioner Contravened the Fifth Proviso to Section 5(1):

The Commissioner issued the show cause notice on the grounds that the petitioner had transferred intermediate products outside Orissa, which was allegedly a contravention of the fifth proviso to section 5(1) of the Act. The court held that as long as the intermediate products are used in the manufacture of finished goods for sale, the petitioner cannot be held liable for differential tax. The court emphasized that the test is whether the goods purchased were used in the manufacture or processing of goods within Orissa, and the finished goods were sold inside or outside Orissa.

Conclusion:

The court allowed the writ petition and quashed the show cause notice dated January 14, 2004, issued by the Commissioner of Sales Tax, Orissa, under section 23(4)(a) of the Act read with rule 80 of the Rules. The court held that the Commissioner had no jurisdiction to initiate the proceedings unless it was found that the finished goods were not for sale either inside or outside Orissa. The court emphasized that the intermediate products' transfer outside the state for further manufacturing into finished goods for sale does not contravene the provisions of the Act. The parties were directed to bear their own costs.

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