2012 (11) TMI 696 - HC - VAT and Sales Tax

Concessional levy of entry tax on Raw materials used in Manufacturing Process As per Rule 3(4) of Rules 1999 If the scheduled goods are used as raw material by a manufacturer and a declaration in Form E-15 is furnished by such manufacturer to the seller he is entitled to Concessional levy of entry tax. Regarding Sale of finished goods outside the state - held that - There is nothing in Rule 3(4) or declaration given in Form E-15 that in order to avail the concessional rate in terms of Rule 3(4) manufacturer is required to sell the finished products inside the State and he will be disentitled to avail the concessional levy of tax in terms of Rule 3(4) if the goods are dispatched/transferred to outside the State. - party no.2 has no authority/power to import any condition into the Rule 3(4) of Rules 1999 as the same results in legislation which is clearly impermissible under law. Regarding stock transfer / branch transfer - held that - the benefit of concessional levy under Rule 3(4) cannot be denied to the petitioner on the ground of transfer of manufactured goods to the branches situated outside the State. Regarding use of coal as raw material in manufacturing of electricity - held that - the coal is not a raw material of end product i.e. sponge iron billets and H.R. coil.14 - Petitioner is not entitled to avail concessional levy of entry tax on purchase of coal which is used to generate electricity in the captive plant. - Decision in the case of Union of India v. Ahmedabad Electricity Co.Ltd. and others, 2003 (10) TMI 47 - SUPREME COURT OF INDIA followed. Return of goods sold outside state - held that - It is the duty of the petitioner to show how the petitioner dealt with those finished products returned to its plant. If the petitioner could establish that entry tax has been collected on sale of those goods inside the State no further entry tax is leviable. Otherwise it is always open to opposite party no.2 to complete the assessment in accordance with law - matter is remanded back to the Assessing Officer to redo the assessment in terms of the observations/direction - In result writ petition is allowed in part.

Issues Involved:

1. Concessional rate of tax on transfer of finished products to branches outside the State.
2. Conditions stipulated in Rule 3(4) and Form E-15 for availing concessional tax.
3. Denial of concessional tax benefits based on Section 26 and Rule 19.
4. Concessional levy of entry tax on coal used in captive power plants.
5. Levy of entry tax on returned finished goods from branches outside the State.

Issue-Wise Detailed Analysis:

Issue 1 & 2: Concessional Rate of Tax on Transfer of Finished Products to Branches Outside the State

The court examined whether the transfer of finished products to branches outside the State disqualified the petitioner from availing the concessional rate of tax under Rule 3(4) of the O.E.T. Rules, 1999. It was determined that Rule 3(4) and Form E-15 only require the scheduled goods to be used as raw materials for manufacturing finished products. There is no stipulation that the finished products must be sold within the State. The court emphasized that opposite party no.2 cannot import non-existent conditions into Rule 3(4), as this would amount to unauthorized legislation.

Issue 3: Denial of Concessional Tax Benefits Based on Section 26 and Rule 19

The court analyzed whether the denial of concessional tax benefits under Rule 3(4) based on Section 26 of the Act and Rule 19 of the Rules was justified. It was found that Section 26 and Rule 19 pertain to the collection of tax on the sale of finished products and do not address the purchase of raw materials. Therefore, these provisions cannot be used to deny the benefits of concessional levy under Rule 3(4).

Issue 4: Concessional Levy of Entry Tax on Coal Used in Captive Power Plants

The court addressed whether coal used in captive power plants for electricity generation could be treated as a raw material for manufacturing sponge iron, billets, and HR coils. It was concluded that coal used for generating electricity does not qualify as a raw material for the finished products. The court referred to the Supreme Court's judgment in Ahmedabad Electricity Co., which held that coal used as fuel for producing steam is not transformed into the end product and is used only for ancillary purposes.

Issue 5: Levy of Entry Tax on Returned Finished Goods from Branches Outside the State

The court considered the validity of levying entry tax on finished goods returned to the petitioner's plant from branches outside the State. It was noted that if the petitioner could establish that entry tax had already been collected on the sale of these goods inside the State, no further entry tax would be levied. Otherwise, the assessing officer is entitled to complete the assessment in accordance with the law.

Conclusion:

The court set aside the impugned orders (Annexures-1, 6, and 8) and remanded the matter back to the assessing officer to redo the assessment in line with the observations and directions provided. The writ petition was allowed in part.

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