1981 (11) TMI 194 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the petitioner to pay entry tax on sugar used for preparation of Bura.
2. Applicable rate of entry tax: 2% or 0.50%.

Issue-wise Detailed Analysis:

1. Liability of the Petitioner to Pay Entry Tax on Sugar Used for Preparation of Bura:
The primary question addressed in this petition is whether the petitioner is liable to pay entry tax on sugar used for the preparation of Bura. Entry tax is levied by the Madhya Pradesh Sthaniya Kshetra me Mal Ke Pravesh Par Kar Adhiniyam, 1976. The relevant periods of concern are from 11th November 1977 to 31st October 1978 and 18th January 1980 to 10th August 1980. Section 2(b) of the Act defines entry tax as "a tax on entry of goods into a local area for consumption, use or sale therein levied and payable in accordance with the provisions of the Act and includes composition money payable under section 7-A." Section 3 is the charging provision, and Section 4 deals with the rate of tax. The relevant entry in Schedule II is Entry No. II, which reads: "Sugar as defined in item No. I of the First Schedule to the Central Excises and Salt Act, 1944." The rate of tax mentioned against Entry No. 11 is 2%.

The petitioner describes the process of preparation of Bura from sugar, which involves dissolving sugar in water, boiling the mixture, adding chemicals and milk, removing impurities, and finally converting the solution into amorphous powder called Bura. The standards for cane sugar, refined sugar, and Bura as given in Appendix B to the Prevention of Food Adulteration Rules, 1955, are considered. Both cane sugar and Bura contain not less than 96.5% of sugar as sucrose, with the primary difference being that cane sugar is crystallized and Bura is amorphous.

2. Applicable Rate of Entry Tax: 2% or 0.50%:
The petitioner contends that since sugar is brought into the local area for the manufacture of Bura, the case falls within the proviso to Section 4, and he is liable to pay entry tax at the rate of 0.50%. Section 4(1) and clause (i) of the first proviso to that section state that the entry tax payable in respect of goods specified in Schedule II or Schedule III, which are consumed or used as raw material for the manufacture of other goods, shall be half per cent if the rate of tax specified in Schedule II or Schedule III exceeds half per cent.

The court examines whether the sugar used to make Bura undergoes such a transformation that it becomes a new and different article. The definition of "manufacture" as contained in Section 2(j) of the M.P. General Sales Tax Act includes any process of producing, collecting, extracting, preparing, or making any goods. However, for the concessional rate of tax to apply, it must be shown that the original article used as raw material has undergone a transformation resulting in a new and different article.

The court references several Supreme Court cases to illustrate the principle of transformation and manufacture, including cases where different commodities were held to be manufactured from raw materials. However, the court concludes that sugar retains a "continuing substantial identity" after being processed into Bura and does not become a different commercial commodity. This conclusion is supported by the consistent treatment of all forms of sugar as one category of goods by Parliament and the State Legislature in various legislations.

The court also refers to the judgment of the Delhi High Court in Mangoo Mai Ram Kishore and the decision of the Allahabad High Court in Commr. of Sales Tax v. Damodar Dass, which support the view that Bura is only a form of sugar and not a different commodity.

Conclusion:
The court concludes that the petitioner's case does not fall under the proviso to Section 4(1) of the Entry Tax Act. The sales tax authorities were correct in charging entry tax at the rate of 2% in accordance with Section 4(1) and Entry No. II in Schedule II. The petition is dismissed without any order as to costs, and the security amount is to be refunded to the petitioner.