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2021 (2) TMI 835 - HC - VAT / Sales TaxLevy of penalty under Section 10-A of the Central Sales Tax Act, 1956 - alleged offence committed by the petitioner under Section 10(b) and Section 10(d) of the said Act - concessional rate of tax against Form C under Section 8(3)(b) of the Central Sales Tax Act, 1956 - it was alleged that the dyeing units were dyeing the yarn or fabric supplied by their customers. It was therefore stated that the dyeing units were not engaged in any manufacturing activity - job work/works contract or not - HELD THAT - In the present case, the endorsement in certificate of registration given to the petitioner in Form B under Central Sales Tax Act, 1956 is confined for re-sale and/or for manufacture or processing of goods sale. Admittedly, there was no re-sale of the goods purchased by the petitioner. The petitioner was also not engaged in mining or in the generation or distribution of electricity or any other form of power - Therefore, to justify the use of Form C, the activity of the petitioner should come within the purview of the expression manufacture or processing of goods for sale in Section 8(3)(b) of the Central Sales Tax Act, 1956. In Union of India Vs. J.G. Glass Industries Ltd., 1997 (12) TMI 110 - SUPREME COURT , the Hon ble Supreme Court laid down the test as to when an activity amounts to manufacture and when an activity amounts to processing of goods. If the test laid therein is applied, the activity undertaken by the petitioner would amount to processing of goods. The petitioner has provided a taxable service within the meaning of Finance Act, 1994. The service provided as a Common Effluent Treatment Plant Operator for treatment of effluent was exempted from Service Tax w.e.f. 01.04.2015 vide Notification No.6/2015-ST dated 01.03.2015. The exemption was added to entry mega exemption Notification No. 25/2012-ST dated 20.06.2012 . Prior to this exemption, services provided by an association of dyeing units in relation to common effluent treatment plants was exempted from payment of Service Tax vide Notification No. 42/2011- ST dated 25.07.2011. The scope of the exemption was expanded with retrospective effect from 16.06.2005 vide Section 145 of the Finance Act, 2012. It validated exemption given to clubs or association including co-operative societies engaged in provision of service in relation to projects, i.e., common facility set up for treatment and recycling of effluents and solid wastes, with financial assistance from the Central Government or State Government. Today, the presence of Common Effluent Treatment Plant is a must in areas where there are clusters of industries which have the propensity to discharge effluents and pollute environments and water bodies and land - It is not only propagated and encouraged under various laws to protect the environment but also assiduously encouraged by the Government and the Courts to deal with the menace of water pollution due to rampant discharge of effluent into water bodies by polluting industries and local bodies. In Paryavaran Suraksha Samiti Vs. Union of India , 2017 (2) TMI 1476 - SUPREME COURT , the Hon ble Supreme Court recognised the importance of Common effluent Treatment Plant and the duty cast on the local bodies to preserve the environment. Coming to the facts of the case, the activity undertaken by dyeing unit is a part of the manufacturing activity for textile units. It is one of the intermediate stage process, whereby, grey yarn or grey fabrics as the case may be are sent for dyeing to such units before they are sent back for being used in the further manufacturing process of textile products. The business model followed by textile units appears to be outsource the dyeing process to dyeing units. However, dyeing units are mostly small units and are rarely endowed with the capital to install Common Effluent Treatment Plants. This is where the demand for persons like petitioner had arisen in absence of Common Effluent Treatment Plants. Independent Common Effluent Treatment Plants are neither manufacturer nor processors of goods for sale. They are merely service provider. If a liberalized interpretation is given in the light of the above decisions, they will be entitled to the benefit of Section 8(3)(b) of the Central Sales Tax Act, 1956 as was claimed by the petitioner - However, the scheme of the concession is specific under Section 8(3)(b) of the Central Sales Tax Act, 1956. Therefore, the Courts cannot aid evasion of tax by reading down the express language of Section 8(3)(b) of the Central Sales Tax Act, 1956. The petitioner obtained registration under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and later under Tamil Nadu Value Added Tax Act, 2006 and under the provisions of the Central Sales Tax Act, 1956 only for the purpose of taking unfair advantage of concession available under these enactments by making it seem as if the petitioner was engaged in processing of goods for sale when indeed it was not engaged in such activity of sale - Even otherwise, it was also not open for the petitioner to transfer the goods procured at concessional rate of tax against Form C to its sister concerns contrary to the requirements of Certificate. If the goods cleared against invoices in Annexure II(A),( B) and (C) were exempted, the petitioner was not required to issue Form-C. There is no proper explanation forthcoming either in the reply or in the affidavit filed in support of the present writ petition as to why the petitioner issued Form-C No.TN-2006-C-BB-728640 (Annexure I) to the supplier. It shows complicity on the part of the petitioner to facilitate evasion of Central Sales Tax - As the petitioner was not entitled to issue Form C to the supplier, there is no error in the impugned order seeking to impose penalty under Section 10-A of the Central Sales Tax Act, 1956. The petitioner was not entitled to procure goods at concessional rate of tax under Section 8(3)(b) of the Central Sales Tax Act, 1956. The respondent has however not proposed to impose penalty on the petitioner for facilitating evasion of tax on the entire value of goods procured against Form C. The imposition of penalty is confined to diversion of the goods to the petitioner s sister concerns alone in the impugned order. The imposed penalty is upheld and is not required to be increased - In so far as the imposition of penalty under Section 10-A of the Central Sales Tax Act, 1956 on the proportionate tax on the goods cleared to its sister companies is concerned, there are no infirmity in the impugned order imposing penalty on the petitioner on proportionate value of goods diverted. Petition dismissed.
Issues Involved:
1. Validity of penalty imposed under Section 10-A of the Central Sales Tax Act, 1956. 2. Whether the petitioner was entitled to procure goods at concessional rate against Form C. 3. Requirement of mens-rea for imposing penalty under Section 10-A. 4. Whether the petitioner’s activities amounted to "manufacture or processing of goods for sale." 5. Legality of transferring goods procured at concessional rate to sister concerns. Detailed Analysis: 1. Validity of Penalty Imposed Under Section 10-A of the Central Sales Tax Act, 1956: The petitioner challenged the penalty of ?2,52,99,413/- imposed by the respondent for alleged offences under Section 10(b) and Section 10(d) of the Central Sales Tax Act, 1956. The respondent contended that the petitioner violated the terms of the registration by transferring goods procured at a concessional rate to sister concerns. The court upheld the penalty, finding no infirmity in the respondent's order. 2. Entitlement to Procure Goods at Concessional Rate Against Form C: The petitioner argued that it was entitled to procure goods for use in treating effluents, a process it claimed fell under "manufacture or processing of goods for sale." However, the court concluded that the petitioner’s activities did not amount to manufacturing or processing for sale, as the treated effluent was not sold. Therefore, the petitioner was not entitled to procure goods at a concessional rate against Form C. 3. Requirement of Mens-Rea for Imposing Penalty: The petitioner asserted that mens-rea (guilty mind) was necessary for imposing a penalty under Section 10-A, relying on the decision in State of Tamil Nadu Vs. New Tread Tyers. However, the respondent argued that mens-rea was not an ingredient under Section 10-A. The court did not explicitly address this issue in detail but upheld the penalty, indicating that the petitioner’s actions were sufficient to attract the penalty provisions. 4. Whether the Petitioner’s Activities Amounted to "Manufacture or Processing of Goods for Sale": The court analyzed whether the petitioner’s treatment of effluents constituted manufacturing or processing of goods for sale. Citing Union of India Vs. J.G. Glass Industries Ltd., the court determined that the petitioner’s activities amounted to processing but not for sale, as the treated effluent was not sold. Therefore, the petitioner’s use of Form C was unjustified. 5. Legality of Transferring Goods Procured at Concessional Rate to Sister Concerns: The petitioner transferred goods procured at a concessional rate to its sister concerns, which was against the terms of the registration. The court found that this transfer violated the declarations in Form C and the registration certificate. Consequently, the petitioner’s actions constituted misuse of Form C, justifying the penalty imposed. Conclusion: The court upheld the penalty imposed by the respondent, finding that the petitioner was not entitled to procure goods at a concessional rate for the activities it was engaged in. The petitioner’s transfer of goods to sister concerns further violated the terms of the registration, warranting the penalty under Section 10-A of the Central Sales Tax Act, 1956. The writ petition was dismissed, and the penalty was confirmed.
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