9911796707
TMI Blog1995 (10) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are manufacturers and dealers in electrical conductors. For the assessment year 1980-81 the assessee reported a total and taxable turnover of Rs. 2,31,49,526 and Rs. 1,70,28,796 respectively under the Act. On verification of the relevant accounts and documents, the Deputy Commercial Tax Officer-II, Back Year Assessment, Zone VII, Madras, noticed the following two features, among other things: (i) The assessee purchased from the M.M.T.C., Madras, aluminium ingots for Rs. 3,47,294 by furnishing declarations in form XVII as a consequence of which in respect of the said sale, the M.M.T.C. has collected only the concessional single point tax at 3 per cent on the sale value of those goods. Aluminium ingots are only raw materials to the aluminium conductors manufactured and sold by the assessee and cannot be claimed to be component parts to the goods manufactured and, therefore, neither the assessee was eligible to the benefit of concessional rate of tax under section 3(3) of the Act nor are they entitled to use the form XVII for the purpose and the action of the assessee entails violation of section 3(3) read with section 45(2)(e) and consequent liability to pay penalty under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, it was held that this Court held in [1977] 40 STC 310 [Elgi Equipments (Private) Limited v. State of Tamil Nadu] that the levy of penalty under section 23 could be made only when the goods purchased by issuing form XVII were sold as spare parts and not when they are consumed in the manufacturing the goods not specified in the First Schedule. Aggrieved, the Joint Commissioner-II, Madras, invoked his suo motu powers of revision under section 34 of the Act, and issued a show cause notice dated March 13, 1985, calling upon the assessee to show cause as to why the order of the appellate authority be not set aside and that of the assessing authority restored. The assessee submitted their objections dated April 10, 1985 and thereafter the Joint Commissioner, by his proceedings dated October 28, 1985, overruled the objections and while setting aside the order of the appellate authority, restored the order of the assessing authority. Hence, the assessee filed the above appeal before this Court. 4.. Before the learned judges of the Division Bench as also before us, the sheet anchor of the claim of the assessee was, the decision reported in [1977] 40 STC 310 (Mad.) [Elgi Equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy at 6 per cent under entry 41 of the First Schedule. The same was the position in respect of the year 1968-69. While matters stood thus, the assessing authority issued a notice under section 23 of the Act, in respect of the years 1964-65 and 1968-69 proposing to levy penalty on the ground that the assessee had used the motors and pistons which were purchased by them on issuing form XVII declaration in the manufacture of goods which did not fall under any of the items mentioned in the First Schedule. (b) The Division Bench, while rejecting the plea of the Revenue and sustaining the claim of the assessee held as hereunder: "It is the argument of the learned counsel for the petitioners that form XVII, set out above, contains two declarations or undertakings, one to the effect that the dealer who issued the declaration and purchased goods would use the goods purchased as component part of another goods specified in the First Schedule, which he manufactures inside the State for sale, and the other undertaking is that he shall not sell the goods purchased under the cover of that form as spare parts. According to the learned counsel, prosecution might be possible, under section 45(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irstly, he referred to the words 'sale of such goods' as not necessarily sale of the goods purchased in the form in which it was purchased, but even in a case where it forms part of a component of another article, it amounted to a sale of such goods. This argument is not acceptable, because when it forms a component part of another article, the turnover could relate only to the item of which these goods form part and not these goods themselves. Therefore, the use of the expression 'turnover' clearly shows that it should be with reference to the identical goods which were purchased and sold and not as component part of some other articles. Alternatively, the learned Government Pleader argued that the words 'turnover relating to the sale of such goods' in section 23 have a reference to the turnover of the sale made by the third party. In other words, it related to the purchase turnover of the assessee. We are unable to accept this contention also. If really, the words 'turnover relating to the sale of such goods' related to the turnover of the seller of the goods, then it could not be applied to a case where the purchaser, after having given the declaration, sells the same goods as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (Private) Limited v State of Tamil Nadu] and the Division Bench, while dealing with the issue in the decision reported in [1992] 85 STC 245 (Mad.) (State of Tamil Nadu v. Tube Investments of India Ltd.) held as follows: "7. However, the Tribunal has relied on Elgi Equipments (Private) Limited v. State of Tamil Nadu [1977] 40 STC 310 (Mad.) and holds that only if the dynamo lamps had been sold as such that the penalty under section 23 of the Act, will be attracted. Inasmuch as the assessees had sold the dynamo lamps along with the cycles the Tribunal was of the opinion that the penalty had to be deleted. In the said decision of the High Court, the assessees had used motors and pistons in the manufacture of air-compressors and car washers. They purchased motors and pistons by issuing form XVII declaration to their sellers and paid a concessional rate of sales tax. The sale of air-compressors and car washers in which the assessees had used motors and pistons, purchased by issuing form XVII declarations, were taxed by the assessing officer. It was held that the said articles would fall under item 41 of the First Schedule. But the Tribunal, on appeal, held that the sale of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of the issues raised before us, it is necessary to set out the relevant provisions of the Act, particularly sections 3(3), 23 and 45(2)(e) of the Act since the very purport, scope and effect of those provisions only looms large for our consideration. Section 3(3) of the Act, at the relevant point of time read as follows: "3(3).?Notwithstanding anything contained in sub-section (1) or sub section?(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 a 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 in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority. Explanation.-For the purposes of this sub-section, 'component part'means a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose declared in form XVII, there is no scope or warrant for imposing the penalty under section 23 which according to the learned senior counsel would be attracted only if the goods purchased by issuing form XVII are sold as such. Per contra, Mrs. Chitra Venkataraman, the learned Additional Government Pleader (Taxes) contends the ratio laid down in the later decision of the Division Bench reported in [1992] 85 STC 245 (Mad.) (State of Tamil Nadu v. Tube Investments of India Ltd.) accords with the language, purpose and object of sections 3(3), 23 and 45(2)(e) of the Act and that the construction sought to be placed on behalf of the assessee, if accepted, would defeat the very object of the Legislature in enacting section 23 of the Act. Argued the learned counsel for the Revenue further that the second proviso to section 3(3) introduced by the Tamil Nadu Act 44 of 1986 with effect from 1986, would also go to lend support to such construction as countenanced in [1992] 85 STC 245 (Mad.) (State of Tamil Nadu v. Tube Investments of India Ltd.) and that, therefore, the decision in [1977] 40 STC 310 (Mad.) [Elgi Equipments (Private) Limited v. State of Tamil Nadu] must be declared to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipments (Private) Limited v. State of Tamil Nadu] not only whittles down the efficacy of section 23 of the Act but also mutilates and renders otiose the specific stipulations contained in section 45(2)(e) and also section 23 of the Act. Per contra, the decision reported in [1992] 85 STC 245 (Mad.) (State of Tamil Nadu v. Tube Investments of India Ltd.) accords more with the language, aim and object and subserves the purpose of section 23 of the Act as an effective anti-avoidance measure too without doing violence or damage to the stipulations and mandate contained in these satellite of statutory provisions. If the construction of the scope of section 23 as countenanced in [1977] 40 STC 310 (Mad.) [Elgi Equipments (Private) Limited v. State of Tamil Nadu] is to be accepted, it would amount to an evader of lakhs or even crores of rupees of tax being allowed to escape with a pittance of fine or and imprisonment with no scope for recouping the exchequer with the loss suffered on account of evasion and in our view a construction fraught with such incongruities and tending to defeat the object of the statute cannot have the approval of courts of law and justice. Consequently, there is ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same facts no prosecution for an offence under section 45 shall be instituted. Thus it could be seen that the scheme underlying sections 3(3), 23 and 45(2)(e) is to see that a person who abused and misused a privilege and concession, is made to repent and the State is enabled to recover from him not only the legitimate tax due to the State on a transaction which came to be lost to the State by the misconduct and abuse committed by the purchaser/defaulter, but also the penalty. That such is the aim, purpose and object of these provisions is also made clear by the judicial pronouncements that if the declaration given in form XVII turns out to be false in the sense that the goods purchased have not been used as declared in the prescribed form the purchaser alone is exposed to the penalties under sections 23 and 45(2)(e) and not the seller who has been held to be automatically entitled to the concessional rate of tax on the production to his assessing authority the declaration in form XVII furnished by the purchaser to the seller vide [1968] 22 STC 269 (Mad.) (Premier Electro-Mechanical Fabricators v. State of Madras) and [1993] 89 STC 438 (Mad.) (State of Tamil Nadu v. Madras Petro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions which have a definite and particular avowed object the words "tax payable on the turnover relating to the sale of such goods at a rate which is equal to the rate prescribed in the First Schedule less three per cent", mean and inevitably refers to the sale effected to the purchaser under a concessional rate of tax on obtaining form XVII from the purchaser/ defaulter. This is placed beyond the pale of any genuine controversy by the stipulation "less three per cent", since the three per cent concessional rate of tax only has been already collected on the turnover relating to the sale of the goods effected, on obtaining form XVII, to the purchaser/defaulter who alone is rendered liable on account of his default only to pay the penalty under section 23 of the Act. In view of the above, the apprehension and doubts expressed on behalf of the appellant that it is not clear as to whose sale is to be taxed and with reference to what point of time and at what rate of tax are nothing but mere speculative and purely hypothetical exercises wholly made more in despair and which in our view are also irrelevant in the context of our conclusions referred to above. 11.. After concluding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m ingots have been used as raw materials in the manufacture of aluminium conductors. By the very nature of things and the condition of the goods manufactured taken together with the manner of the use of the aluminium ingots it would be futile for the appellant to claim that the aluminium ingots purchased by the assessee by furnishing form XVII declaration really was used as a component part of the aluminium conductors either in the etymological sense of the word "component part" or as explained in the Explanation to section 3(3) of the Act, to justify the issue of form XVII for purchasing by the assessee the aluminium ingots at the concessional rate of tax. The claim of the appellant, even otherwise, on merits also does not deserve our acceptance. 12.. For all the reasons stated above, we answer the question referred to the Full Bench by holding that the decision reported in [1992] 85 STC 245 (Mad.) (State of Tamil Nadu v. Tube Investments of India Ltd.) has been correctly decided and we further hold that the decision reported in [1977] 40 STC 310 (Mad.) [Elgi Equipments (Private) Limited v. State of Tamil Nadu] does not lay down the correct position of law and shall stand overru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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