2014 (1) TMI 1619 - HC - VAT and Sales Tax

Whether user of diesel purchased by the assessee against form C for cane procurement, i.e., from sugarcane purchasing centre to factory would amount to violation of purpose for which the said diesel was purchased so as to amount violation of section 10(d), attracting penalty under section 10A of the Act, 1956 - Held that - Sugarcane in its entirety cannot be purchased by sugar factory at its factory premises and under law, it is bound to purchase from the farmers at cane purchase centres. For manufacturing of sugar, crushing of surgarcane is an integral part and for that purpose, sugarcane has to be transported from its place of storage or where it has been purchased to the point of crushing pit where it has to be off-loaded for crushing. To my mind, this is integrally connected part of process of manufacturing of sugar and therefore diesel purchased against form C if used for cane procurement from centres to factory, it would not amount to violation of purpose for which the said diesel was purchased. Whether user of diesel purchased by the assessee against form C for farm equipments' maintenance and repair would amount to violation of purpose for which the said diesel was purchased so as to amount violation of section 10(d), attracting penalty under section 10A of the Act, 1956 - Held that - Farm equipments' maintenance and repair are also part of activities with respect to research and development so as to maintain a good quality of sugar and also to find out maximum quantity of sugar from per quintal sugarcane. Research, development, etc., is also integral part of manufacture - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of the purpose of diesel purchase against form C under the Central Sales Tax Act, 1956 for specific activities.
2. Whether the use of diesel for cane procurement and farm equipment maintenance constitutes a violation of the purpose for which it was purchased, leading to penalties under section 10A of the Act, 1956.

Issue 1 - Interpretation of Diesel Purchase Purpose:
The case involved M/s. Triveni Engineering & Industries Ltd., engaged in sugar manufacturing, challenging penalties imposed for diesel use in activities beyond authorized purposes. The court analyzed the definition of "manufacture" under the Act, 1956, emphasizing the relevance of activities authorized for diesel purchase against form C. The court examined the process of sugar manufacturing, highlighting the regulated purchase of sugarcane and transportation to the factory as integral to the manufacturing process. Citing legal precedents, the court clarified that activities essential for manufacturing, including transportation of raw materials, are considered part of the manufacturing process. The court concluded that diesel use for cane procurement from centers to the factory did not violate the purpose of purchase, thus ruling in favor of the assessee.

Issue 2 - Use of Diesel for Farm Equipment Maintenance:
The court further deliberated on whether diesel use for farm equipment maintenance and repair constituted a violation of the authorized purpose for purchase. It recognized research and development activities as integral to maintaining sugar quality and maximizing production efficiency, essential aspects of the manufacturing process. Drawing from legal precedents, the court emphasized the interdependence of activities contributing to the manufacturing process. Consequently, the court ruled in favor of the assessee, considering farm equipment maintenance as a legitimate part of the manufacturing process. The court allowed the revisions, setting aside the Tribunal's order and directing appropriate action in accordance with the law.

In summary, the judgment addressed the interpretation of diesel purchase purposes under the Central Sales Tax Act, 1956 for specific activities related to sugar manufacturing. By analyzing the integral nature of activities essential for the manufacturing process, the court ruled in favor of the assessee, emphasizing the legitimacy of diesel use for cane procurement and farm equipment maintenance within the authorized scope of purchase.