2022 (4) TMI 6 - HC - VAT and Sales Tax

Rejection of declarations in Form-IV, which were furnished by the purchasing dealers to the Petitioner, for purchase of logs, as manufacturers - contravention of either the 5th proviso to section 5(1) of the Act or entry 48 of the list C of the Rate Chart - HELD THAT - It must be noted that the declaration contained in Form IV, which is set out under Entry 81 (which at the relevant time was Entry 48) of List C of the Rate Chart appended to the OST Act is to the effect that the goods purchased shall be used in the manufacturing/processing of goods for sale/in mining/generation or distribution of electricity or any form of power . It is reasonable to expect that the Petitioner as a selling dealer would go by the above declaration instead of undertaking an investigation into whether such declaration has rightly made. The Department has no answer to the plea of the Petitioner that if it had declined to accept the Form IV furnished to it by the saw mill manufacturers, it may have been in violation of Section 9-B (3) of the OST Act. The Court enquired from Mr. Padhy whether any instructions were issued by the Department to the selling dealers in general asking them not to accept Form IV if it was either furnished by a saw mill manufacturer or anyone else whom the Department has ascertained not to be engaging in any activity of manufacturing or processing or even where the sale of goods is a first point sale? The answer was in the negative. The Tribunal was in error in rejecting the declaration in Form IV furnished by the purchasing dealers to the Petitioner for the purchase of logs. Contravention of either the 5th proviso to section 5(1) of the Act or entry 48 of the list C of the Rate Chart - HELD THAT - In terms of 5th proviso to Section 5(1) of the OST Act, and in terms of the declaration made, the purchasing registered dealer is located within the State of Odisha and he has undertaken to use such goods in the manufacture or processing thereof for sale within the State of Odisha. The proviso makes it clear that if such purchasing dealer utilizes the goods for any other purposes outside the State of Odisha, such purchasing dealer shall pay the difference in tax. In other words, if there is a contravention of the 5th proviso to Section 5 (1) of the OST Act by the purchasing dealer, the Department ought to go after the purchasing dealer for such violation and not the selling dealer - the Petitioner in the present case has not contravened either the 5th proviso to Section 5 (1) of the OST Act nor Entry 48 (now Entry 81) of List C of the Rate Chart appended to the OST Act. The revision petition is disposed of.

Summary

Issues:
1. Rejection of declarations in Form-IV by the Tribunal.
2. Alleged contravention of the 5th proviso to Section 5(1) of the OST Act and Entry 48 of List 'C' of the Rate Chart.

Analysis:

Issue 1: Rejection of Form-IV Declarations
The petitioner, a dealer in timber and related products, faced an extra tax demand due to the disallowance of sales at a concessional rate by the Sales Tax Officer (STO). The STO contended that the saw mill owners purchasing logs from the petitioner were not engaged in manufacturing activities, thus not eligible for the concessional tax rate. The petitioner argued that it was not obligated to verify the manufacturing activities of the purchasers as per legal precedents. The court held that the selling dealer cannot be burdened with verifying the utilization of purchased goods by the buyers. The court referred to previous judgments to support this stance. It was concluded that the STO should have conducted an inquiry into the manufacturing activities of the purchasers rather than penalizing the selling dealer for accepting Form-IV declarations.

Issue 2: Alleged Contravention of Provisions
Regarding the alleged contravention of the 5th proviso to Section 5(1) of the OST Act and Entry 48 of List 'C' of the Rate Chart, the court clarified that if there was any violation by the purchasing dealer in using the goods for purposes outside Odisha, the responsibility lies with the purchasing dealer to pay the difference in tax. The court emphasized that the department should pursue the purchasing dealer for any such violations and not hold the selling dealer accountable. The court ruled in favor of the petitioner, stating that no contravention had occurred during the specified period. Consequently, the impugned orders were set aside, and any potential refund due to the petitioner would be processed promptly.

In conclusion, the High Court ruled in favor of the petitioner, highlighting the importance of proper investigation by tax authorities into the activities of purchasing dealers rather than penalizing the selling dealer for accepting Form-IV declarations. The judgment provides clarity on the responsibilities of selling and purchasing dealers under the relevant tax provisions, ensuring accountability and fair treatment in tax assessments.