2013 (9) TMI 715 - HC - VAT and Sales Tax

Contravention of Section 4(2)(e) - Manufacturing Process carried partly outside Delhi - Finishing Process within Delhi Goods Exported out of India - Delhi Sales Tax Act, 1975 - Held that - where a registered dealer purchases goods without payment of sales tax, on furnishing a declaration that the goods were for the purpose of manufacture and manufactured goods would be sold in Delhi or sold in course of intra-State sale or in course of export, but there was violation of the said declaration, then the price of the goods so purchased would be included in the turnover of the purchasing dealer. The third proviso had been inserted to the Section in order to penalise mis-utilization of the declaration form. By furnishing the declaration form, the purchasing dealer gave an undertaking to the seller and in turn to the Government of Delhi to the effect that raw material purchased by him would be used for manufacture in Delhi and goods would be subjected to sale in Delhi, in course of intra-State trade or in course of export outside India. Movement of such goods from Delhi should be occasioned by the sale and not for/by any other purpose. Therefore, when a purchasing dealer did not adhere to the declaration, which he had furnished, the State was wrongfully deprived of revenue i.e. sales tax. Accordingly, the turnover of the purchasing dealer would include the goods covered by the mis-declaration. The taxable event was mis-utilisation of the declaration form, which took place when the goods were transferred for manufacturing outside Delhi. But for the declaration form, the purchasing dealer was liable to pay sales tax at the time of the purchase made by him. Thus, the taxable event and the tax, which was due and payable but not paid in view of the declaration, became payable as there was mis-utilisation and false or wrong declaration Decision in Seagull Laboratories (I.) Private Limited versus Delhi Administration and Others 1990 (12) TMI 300 - DELHI HIGH COURT followed - Decided against the assessee.

Summary

Issues Involved:

1. Whether the Tribunal was justified in holding that the appellants contravened the third proviso to Section 4(2)(a) of the Delhi Sales Tax Act, 1975.
2. Whether the Tribunal was correct in ignoring the fact that manufacturing includes multiple processes and whether part-manufacturing outside Delhi violates Section 4(2)(a).
3. Whether the Tribunal's conclusion that movement of raw material outside Delhi is permissible only for processes not amounting to manufacture is valid.

Detailed Analysis:

Issue 1: Contravention of the Third Proviso to Section 4(2)(a)

The Tribunal held that the appellants violated the third proviso to Section 4(2)(a) of the Delhi Sales Tax Act, 1975. The petitioner, a registered dealer engaged in the sale of gold and silver ornaments, had purchased standard gold/bullion/biscuits against statutory forms and sent them to Meerut and Coimbatore for making jewelry according to specific designs. The adjudicating authority found that the goods were manufactured outside Delhi, violating the third proviso to Section 4(2)(a)(v) of the Act. This proviso stipulates that goods purchased for manufacturing in Delhi should not be transferred out of Delhi for manufacturing purposes. The petitioner argued that finishing and polishing done in Delhi constituted the final manufacturing process. However, the Tribunal upheld the findings that the primary manufacturing occurred outside Delhi, thus contravening the proviso.

Issue 2: Manufacturing as Multiple Processes

The Tribunal was also tasked with determining whether the manufacturing process could be considered as multiple processes, some of which could occur outside Delhi without violating Section 4(2)(a). The petitioner contended that manufacturing includes various processes, and the law does not prohibit part-manufacturing outside Delhi. The Tribunal, however, did not accept this argument, stating that the manufacturing of gold ornaments was primarily done outside Delhi, and merely finishing or polishing in Delhi did not constitute manufacturing within the meaning of the Act. The Tribunal emphasized that the goods should be manufactured entirely in Delhi to comply with the statutory requirements.

Issue 3: Movement of Raw Material Outside Delhi

The Tribunal examined whether the movement of raw material outside Delhi for processes not amounting to manufacture was permissible. The adjudicating authority and the Tribunal concluded that the raw material, i.e., standard gold, was sent outside Delhi for conversion into ornaments, which constituted manufacturing. The Tribunal held that the third proviso to Section 4(2)(a)(v) was violated as the primary manufacturing process occurred outside Delhi. The petitioner argued that the final manufacturing activity, including finishing and polishing, was done in Delhi. However, the Tribunal found that the transformation of 24 Carat gold into 22 Carat gold ornaments outside Delhi was a substantial manufacturing process, and the subsequent activities in Delhi did not amount to manufacturing as defined under the Act.

Conclusion:

The High Court upheld the Tribunal's findings, agreeing that there was a violation of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975. The court emphasized that the declaration made by the petitioner when submitting the ST-1 form was violated as the primary manufacturing occurred outside Delhi. The court rejected the petitioner's argument that finishing and polishing in Delhi constituted manufacturing, stating that the substantial transformation of gold into ornaments happened outside Delhi. Consequently, the court answered the questions of law against the petitioner, affirming that there was a violation of the statutory provisions, and disposed of the reference without costs.