2016 (10) TMI 1002 - SC - VAT and Sales Tax

Recognition certificate holder u/s 8-A of the U.P. Trade Tax Act, 1948 - Section 4-B of the Act - purchases of raw material at the concessional rate of tax against Form III-B - purchases of natural gas against Form III-B at the concessional rate of tax, and manufacture of the notified goods, fertilizers, transferred outside the State of Uttar Pradesh - Whether under the facts and circumstances of the case, the Commercial Tax Tribunal were legally justified in granting the exemption on purchase of raw material against Form III-B whereas the dealer has made a stock transfer of finished goods which is not permissible under law? Held that - Sub-section (2) to Section 4-B requires that the notified goods should be intended to be sold by the dealer within the State or in the course of inter-State trade or commerce or in the course of exports out of India. The expression intended is significant and important. It refers to the intention of the dealer after the goods are manufactured and packed. The expression in the course inter-State trade or commerce is quite broad and wide. An issue may arise as to whether the stock transfer outside the State in terms of directions issued by the Central Government can be considered as sale or transaction in the course of inter-State trade or commerce. Sub-section (6) is a specific provision which deals with the case of the dealer who has been issued the recognition certificate and has purchased goods without payment of tax or at concessional rates, but has sold the manufactured goods or packaged goods otherwise than by way of sale in the State, or in the course of inter-State trade or commerce or export out of India. The provision specifically deals with cases where the dealer manufactures or packs the notified goods and has taken benefit of lower/concessional or nil rate of tax on the raw material but is unable to fulfill the intendment, i.e., he has not been able to sell the notified goods by way of sale within the State or in course of inter-State state or commerce or by way of export. In such cases, the dealer is liable to pay the amount of difference on the amount of sale or purchase of such goods on which concession or nil rate of tax was paid on account of issue of the requirement certificate and the amount of tax calculated @ 4%. The sub-section is a particular and a specific section which deals with and specifies the consequences when the dealer is unable to meet and comply with intendment. The sub-section (6) would, thus, be applicable. Section 3-B undoubtedly commences with a non-obstante clause, but the provision has to be read harmoniously with sub-section (6) to Section 4-B. Any other interpretation would make sub-section (6) a dead letter, for if we accept the plea of the Revenue whenever there is violation or failure to abide with the intendment , Section 3-B would be invoked and applied, not sub-section(6) to Section 4-B. Section 3-B would apply when a false and wrong certificate or declaration is made. Sub-section (6) on the other hand, deals with cases where the dealer is unable to comply with the intendment, i.e., for some reason he is unable to sell the goods within the State, export them or sell them in the course of inter-State trade or commerce. Intendment of the said nature has not been treated as false or wrong declaration as consequences have been prescribed in sub-section (6). It is essential to be stated that consistency and certainty in tax matters is necessary. In cases relating to Indirect Taxation , this principle is even more important. Clarity in this regard is a necessity and the interpretative vision should be same. Appeal dismissed - decided against Appellant.

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 3-B of the U.P. Trade Tax Act, 1948.
2. Interpretation of Sections 4-B(2) and 4-B(6) of the U.P. Trade Tax Act, 1948.
3. Applicability and relevance of the precedent set by Camphor and Allied Products Ltd. v. State of U.P.

Detailed Analysis:

1. Validity of the penalty imposed under Section 3-B of the U.P. Trade Tax Act, 1948:

The respondent, a dealer registered under Section 8-A of the U.P. Trade Tax Act, 1948, had made purchases of natural gas at a concessional rate of tax against Form III-B. The assessing authority noticed that the respondent transferred some of the finished goods (fertilizers) outside the State of Uttar Pradesh, which led to the imposition of a penalty of ?10,46,98,335/- for the assessment year 2005-06. The penalty was imposed on the grounds that the respondent violated Section 4-B(2) of the Act by making stock transfers instead of selling the goods within the State or in the course of inter-State trade and commerce or export out of India.

The appellate authority and the High Court both upheld the tribunal's decision, which annulled the penalty imposed by the assessing officer. The tribunal reasoned that the trader had utilized the natural gas purchased against Form III-B in the production of urea and that the provisions of Section 3-B were not applicable to the case since there was no false or wrong declaration made by the respondent.

2. Interpretation of Sections 4-B(2) and 4-B(6) of the U.P. Trade Tax Act, 1948:

Section 4-B(2) allows a dealer to purchase goods at a concessional rate for use in the manufacture of notified goods, provided that these goods are intended to be sold within the State, in the course of inter-State trade and commerce, or exported out of India. The term "intended" refers to the dealer's intention to sell the goods after manufacturing and packaging.

Section 4-B(6) specifies that if a dealer, who has been granted a recognition certificate, purchases goods at a concessional rate but disposes of the manufactured goods otherwise than by way of sale in the State, inter-State trade, or export, the dealer is liable to pay the difference between the concessional tax rate and the standard tax rate.

The Supreme Court emphasized that Section 3-B, which deals with issuing false or wrong certificates, should be read harmoniously with Section 4-B(6). Section 3-B applies when a false or wrong certificate is issued, while Section 4-B(6) addresses situations where the dealer fails to comply with the intended use of the goods. The Court concluded that the dealer's failure to sell the goods within the prescribed channels does not constitute issuing a false or wrong certificate, as specific consequences are already prescribed under Section 4-B(6).

3. Applicability and relevance of the precedent set by Camphor and Allied Products Ltd. v. State of U.P.:

The tribunal and the High Court relied on the precedent set by Camphor and Allied Products Ltd. v. State of U.P., where it was held that the use of goods purchased against Form III-B for manufacturing the final product does not constitute issuing a false or wrong certificate, even if the finished goods are transferred outside the State. The High Court in Camphor and Allied Products Ltd. emphasized that it is the use of the goods for manufacturing that is relevant, not how the finished product is sold.

The Supreme Court agreed with this interpretation, stating that the view expressed in Camphor and Allied Products Ltd. is correct and applicable to the present case. The Court noted that the decisions in Camphor and Allied Products Ltd., Bareilly v. State of U.P., and CTT v. Manoharlal Heeralal Pvt. Ltd. were not challenged before the Supreme Court and thus remain binding precedents.

Conclusion:

The Supreme Court upheld the decision of the tribunal and the High Court, stating that the penalty imposed under Section 3-B was not justified as the dealer had not issued a false or wrong certificate. The Court emphasized the need for consistency and certainty in tax matters, particularly in indirect taxation, and dismissed the appeal filed by the Revenue.