2022 (7) TMI 348 - HC - VAT and Sales Tax

Levy of Penalty - manufacture of Sugar - purchase of 'paint' against Form-3B on concessional rate of tax at the rate 2.5% - covered under the definition of consumable stores or not - whether the revisionist was entitled to purchase 'paint' at concessional rate of tax under Section 3(b) of the Act, treating it to be consumable store , which is utilized in the manufacture of sugar? - HELD THAT - The provisions of Section 4-B(2) of the Act, 1948 provide that where a dealer requires any goods, referred to in sub-section (1) for use in the manufacture by him in the State, of any notified goods, or in the packing of such notified goods manufactured or processed by him, and such notified goods manufactured or processed by him, and such notified goods are intended to be sold by him in the State or in the course of inter-State trade or commerce or in the course of export out of India, he may apply to the assessing authority in such form and manner and within such period as may be prescribed, for the grant of a recognition certificate in respect thereof, and if the applicant satisfied such requirements including requirement of depositing lat fee, and conditions as may be prescribed, the assessing authority shall grant to him in respect of such goods a recognition certificate in such form and subject to such conditions, as may be prescribed. The Apex Court in the case of Coastal Chemicals Ltd. Etc. 1999 (10) TMI 599 - SUPREME COURT has clearly stated that word 'consumables' refers only to material which are utilized as an input in the manufacturing process namely 'raw material', 'component part', 'sub-assembly part' and 'intermediate part' etc. Thus, in the present case, it is noticed that 'Paints' are not utilized either as raw material or processing material such as raw material, plant, machinery, equipments, spare parts, but as per the revisionist 'paints' are utilized only for maintenance of plant and machinery - It is also clear that 'Paints' are not used as input in the manufacturing process of sugar and hence clearly they are not consumed in the process of manufacture of sugar and are also not involved in making of end product and hence it cannot be said that they are 'consumables'. Similar controversy was determined by this Court in the case of Kisan Sahkari Chini Mills Vs. Commissioner of Sales Tax, 2002 2000 (10) TMI 951 - ALLAHABAD HIGH COURT , where cement, steel and paints were sought to be included as goods which are directly involved in the manufacture of sugar - The High Court rejected the contention of the revisionist and held that cement, steel and paints were included in the definition of consumable stores . This Court is of the considered view that Paints are not utilized either as raw material utilized for manufacture of sugar nor is so closely connected with the manufacturing process so as to be included as consumable stores and therefore the revisionist was not entitled to purchase the same utilizing Form - 3B, and there are no infirmity in the judgment of the Tribunal and hence the revisions are dismissed.

Summary

Issues Involved:
1. Entitlement to purchase 'paint' at concessional rate of tax under Section 3(b) of the U.P. Trade Tax Act, 1948.
2. Definition and scope of "consumable stores" under the U.P. Trade Tax Act, 1948.
3. Validity of the penalty imposed by the Assessing Authority for misuse of Form-3B.

Issue-wise Detailed Analysis:

1. Entitlement to Purchase 'Paint' at Concessional Rate of Tax:
The revisionist firm, a registered dealer under the U.P. Trade Tax Act, 1948, engaged in the manufacture and sale of sugar, applied for and was granted a recognition certificate under Section 4-B of the Act. This certificate allowed the purchase of certain goods at a concessional tax rate for use in manufacturing notified goods. During assessment, it was found that the revisionist purchased 'paint' at a concessional rate using Form-3B. The Assessing Authority contended that paint is not a raw material used in sugar manufacturing and thus does not qualify for the concessional rate, leading to a notice for tax difference recovery.

2. Definition and Scope of "Consumable Stores":
The revisionist argued that paint falls under "consumable stores" as per their recognition certificate, which included items necessary for maintenance of machinery used in sugar manufacturing. However, the Assessing Authority rejected this, stating that paint is used for machinery maintenance and not directly in manufacturing sugar, thus not fitting the definition of "consumable stores." The Tribunal upheld this view, referencing the Supreme Court's interpretation in Coastal Chemicals Ltd. Vs. Commercial Tax Officer, which clarified that "consumables" must be materials utilized as inputs in the manufacturing process and not merely for maintenance.

3. Validity of the Penalty Imposed by the Assessing Authority:
The revisionist contested the penalty imposed under Section 3(b) of the Act for purchasing paint using Form-3B. The Tribunal and the High Court found that the revisionist's use of Form-3B to purchase paint was in clear violation of the provisions of Section 4(b) of the Act. The High Court cited previous judgments, including Kisan Sahkari Chini Mills Vs. Commissioner of Sales Tax and Ballarpur Industries Ltd. Vs. State of Karnataka, which supported the view that materials like paint, used for machinery maintenance, do not qualify as "consumable stores" used in manufacturing the end product.

Conclusion:
The High Court concluded that 'paint' does not qualify as a raw material or consumable store directly involved in the manufacturing process of sugar. The revisionist's purchase of paint at a concessional tax rate using Form-3B was deemed improper, and the penalty imposed by the Assessing Authority was upheld. The judgment of the Tribunal in the case of Awadh Sugar Mills Hargaon was distinguished and not approved. The revisions were dismissed, and the question of law was answered in favor of the Revenue and against the revisionist.