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TMI Blog1977 (6) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... fected on the strength of form XVII declarations made by the purchasers, namely, Indian Oil Corporation, who had purchased these base oils and blended them to make lubricants. The said lubricants were sold to Esso Eastern Inc., Caltex India Limited and Burmah Shell Oil Storage and Distributing Company of India Limited. The lubricants were manufactured by the Indian Oil Corporation as per formulae given to them from the lubricating base oils (lube base stocks) obtained from the assessee. It was represented in that connection that the Indian Oil Corporation as well as the three oil companies utilised the said stocks for blending them to form lubricants of specified viscosity according to certain formulae. The assessing authority as well as the appellate authority took the view that though the purchaser had filed form XVII, the purpose for which it was purchased would not qualify for the concessional rate, as, according to the said authorities, the lube base stocks would not form "component parts" of the lubricants manufactured by it. The assessee appealed to the Sales Tax Appellate Tribunal and the Tribunal after elaborately examining the facts and contentions, came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 3(1) provides that every dealer whose total turnover for a year exceeds certain specified amount should pay tax for each year at the rate specified on his taxable turnover. Sub-section (2) of section 3 provides that notwithstanding anything contained in sub-section (1) in the case of goods mentioned in the First Schedule, the tax under this Act shall be payable by a dealer at the rate and only at the point specified therein on the turnover in each year relating to such goods whatever be the quantum of turnover in that year. Sub-section (3) of section 3, which is material for our present purpose, runs as follows: "Notwithstanding anything contained in sub-section (1) or subsection (2), the tax payable by a dealer in respect of any sale of goods mentioned in the First Schedule by such dealer to another for use by the latter as component part of any other goods mentioned in that schedule, which he intends to manufacture inside the State for sale shall be at the rate of only three per cent on the turnover relating to such sale Provided that the provisions of this sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject-matter of an appeal to the Supreme Court and the Supreme Court's decision is reported in State of Madras v. R.M. Krishnaswami Naidu[1970] 26 S.T.C. 42 (S.C.). In the course of its judgment, the Supreme Court observed: "It was, however, urged on behalf of the State that an article is a component part within the meaning of the explanation to section 3(3) of the Act only if it is capable of being identified visually in the final product. We are unable to accept that contention. The legislature has not provided that before a component part may qualify for the concessional rate of tax, it must be capable of visual identification in the finished product. A reference to the entries in the First Schedule clearly indicates that the benefit of section 3(3) may not be obtained in respect of any raw material supplied for manufacture of finished products, if the test of visual identification be adopted. In our judgment, if the component is capable of identification by a chemical or other test as a component of a finished product falling within the schedule, it would be an identifiable constituent within the meaning of section 3(3), explanation, and the sale of the component would qualify f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax under sub-section (3) will apply............ The misapprehension of the department is particularly in respect of the third requisite. The assessee satisfied the requisite, if he complies with the proviso, and he is not called upon, beyond production of a declaration in form XVII, to show that the declaration has been given effect to. It is true that, in order to satisfy the third requisite, the goods sold should be for use by a purchasing dealer as component parts of some other goods to be manufactured. But the manner in which the seller has to satisfy the requisite is as provided in the proviso to the sub-section, namely, the production of the declaration in the prescribed form. Once that is done, there is no further obligation on the part of the selling dealer and he will automatically be entitled to the concessional rate. If the declaration turns out to be false, in the sense that the goods purchased have not been used as declared in the prescribed form, the purchaser is exposed to the penalties provided by section 23 and section 45(2)(e). If the purchaser will make a false declaration or a declaration which he does not comply with he would do so under peril of meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present nor was he represented in this court and, in the course of the judgment, this court pointed out that the effect of retrospective operation given to the amended explanation resulted in the assessee not getting the benefit of section 3(3) as the groundnut oil is not a visually identifiable constituent of the finished product. The attention of the court was not drawn to the decision of the Bench in Premier Electro-Mechanical Fabricators v. State of Madras[1968] 22 S.T.C. 269.and no argument was advanced on behalf of the assessee before it, because the assessee was not represented in that case. We do not therefore understand this decision as in any manner justifying the stand taken by the learned Additional Government Pleader before us, as if even after furnishing the declaration form, the assessee had to establish that the goods actually went into the manufacture of the product finally sold by the purchaser. Apart from producing a certificate, it is not clear how an assessee could be expected to prove that the component has actually gone into the manufacture by the purchaser. In fact with reference to a similar production of a certificate, the Supreme Court had occasion to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purchaser. He has to rely upon the representations made to him. He must satisfy himself that the purchaser is a registered dealer, and the goods purchased are specified in his certificate: but his duty extends no further. If he is satisfied on these two matters, on a representation made to him in the manner prescribed by the Rules and the representation is recorded in the certificate in form C, the selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misapplies the goods, he incurs a penalty under section 10. That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer......There is nothing in the Act or the Rules that for infraction of the law committed by the purchasing dealer by misapplication of the goods after he purchased them, or for any fraudulent misrepresentation by him, penalty may be visited upon the selling dealer." The position under the Tamil Nadu General Sales Tax Act is more or less identical; in the case of any false representation made by the purchasing dealer, there are penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X
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