9911796707
TMI Blog1996 (10) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... any (in short, the company ) under the Companies Act, 1956, and the second one is its managing director and shareholder. Their case in RN-81 is that the company manufactures bright bars, shaftings and fabricated structural made of both ferrous and non-ferrous iron and steel, namely, rounds and wire-rods, MS plates, MS channels, RS joists, MS angles, tor steel, HR sheet/coil, CR sheet/coil, MS billet, MS sloom, MS slab, GS/OC sheet, MS skelp, etc., which are purchased mainly from Government undertakings like SAIL, Rashtriya Ispat Nigam Ltd. and the Indian Iron and Steel Co. Ltd., and only a small quantity from private dealers. Under the incentive scheme introduced by the State Legislature, the company is entitled to get an eligibility certificate (EC) to avail of tax-holiday for three years and it should apply for EC within thirty days from date of issuance of RC. Hence the company applied for RC which was ultimately granted in a manner unknown to law. The company, however, started manufacturing activity in December, 1995, the first sale of manufactured product having been made on February 9, 1996. For purchasing goods exempt from sales tax for manufacturing purpose, the company ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quashed by this Tribunal on April 8, 1996 in RN-45 of 1996. 4.. The case of Revenue-respondents in RN-81 is that under rule 98(2) of 1995 Rules, the company cannot avail of exemption from sales tax on its sales unless it obtains RC. After applying for RC on February 13, 1996, the company repeatedly took adjournments, for which the RC had to be granted on March 29, 1996 ex parte. As such, the registering authority was unable to specify the class or classes of goods for the purposes of section 17(2)(a), (b) and (d) and 17(3)(a)(ii) of the 1994 Act, because the information furnished in form I and declaration A could not be verified. But RC was granted, as the company became compulsorily liable to pay tax under section 9 of the 1994 Act and became entitled to compulsory registration under section 26(1). It is pointed out that until EC is granted on fulfilment of conditions, the company could not claim exemption from sales tax. The PC was, however, granted in anticipation that it would start manufacturing goods for sale in West Bengal. Information was received that the company purchased free from sales tax iron and steel of the value of Rs. 29,68,85,658.78 for use directly in manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of RC had been made as a manufacturer, it could be granted only in that capacity or it could be rejected. The RC was granted here otherwise on the basis of information received from Special Cell, Central Section, Investigation Wing, but that was not made available to the company before grant of RC. It is claimed that the company produced books of account, registers and documents before CTO, Central Section, Investigation Wing, on June 5, 1996. Allegedly, the raw materials purchased tax-free on the basis of PC have either been used directly in manufacture or kept in stock for manufacture. There is nothing to show that the company sold away the goods purchased on the strength of PC. 6.. By an interim order dated May 23, 1996 the first respondent was given the liberty to proceed with assessment in terms of the notices dated May 6, 1996, but he was directed not to communicate the final order of assessment or to make demand of assessed dues, if any, till final disposal of RN-81 of 1996. It may be noted that SAIL and Rashtriya Ispat Nigam Ltd. (RINL) and their assessing authorities were made party respondents in this case in order to do complete justice. RN-32 of 1996: 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h no sales tax was payable on purchases on the strength of PC under rule 27, as a measure of coercion and persecution the Commercial Tax Directorate directed respondents Nos. 7 to 12, being RINL, SAIL, IISCO, and Navraj Enterprises (Pvt.) Ltd., not to supply raw materials to the company without charging sales tax at the rate of four per cent. Hence, those suppliers are refusing to supply raw materials without charging sales tax at the rate of four per cent. The company contends that no such direction could be given lawfully until expiry of validity of the P.C. It is claimed that as a result of this, the company is bound to close down its business and suffer financial hardship. The seizure at the residence is challenged on the ground that no seizure receipt was granted and the reasons for the seizure were not recorded. The notice to the banks requiring information is also challenged as without jurisdiction. The notice under section 65 to the company is also challenged. 8.. The case of respondent No. 3, D. Majumdar, in his affidavit-in-opposition is that on February 7, 1996 applicant No. 2 met him at his office, when he said that a huge quantity of iron and steel had been purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 658.78, but it has failed to disclose how the purchased goods were disposed of. Upon inspection of the company s factory on February 16, 1996, the stock of goods, more or less only 66 M.T., could be found. Under sections 62 and 65, the company is obliged to maintain and produce books of account, registers and documents in respect of purchased goods, manufactured goods, goods sold and goods held in stock. As those documents were never produced, officers visited the registered office on February 7, 1996 with the object of verifying the purchases from RINL and SAIL, but even then no books of account, registers and documents were produced. On February 16, 1996 a search was conducted under section 67 for tracing out the accounts, registers and documents, but those were not found. Only a few loose sheets belonging to another concern, M/s. Enfield Industries, were wrongly taken into custody with the consent of the person present at the place of seizure, but were neither seized nor intended to be seized. The mistake was due to the similarity in the name of business. In terms of the interim order of this Tribunal dated March 6, 1996 the said loose sheets of paper were to be returned to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at 4 per cent on their sales to the company with effect from November 25, 1995. 11.. An application was filed on June 25, 1996 on behalf of three branches of SAIL, respondent Nos. 8 to 10. It is their case that the company has been purchasing substantial quantities of iron and steel from them, but no sales tax was being charged on the strength of PC No. SC/PC/211 of 1995 dated November 16, 1995. Their G.T. Road office (respondent No. 8) received verbal instruction from Assistant Commissioner of Commercial Taxes, Assessment Wing, being its assessing authority, for charging sales tax at 4 per cent on all sales of iron and steel to the company. Along with a letter dated February 28, 1996 SAIL received a notice and copy of application to be moved before this Tribunal from the company. On March 12, 1996 SAIL received a copy of order dated March 6, 1996, passed by this Tribunal, from the company s counsel. It appeared therefrom that on the basis of the submission of the counsel for the Revenue to the effect that no direction was given to respondent Nos. 7 to 12 not to supply goods without charging sales tax, this Tribunal directed those respondents including SAIL that they should d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deponent) in the usual course in December, 1995 and sought advice by producing a photo copy of the company s PC as to whether sales tax should be charged or not. At that time he said that sales tax was not to be charged during the period of validity of the PC. Again, on or about February 16, 1996 he had a routine discussion with the said S. Sarkar over telephone when the same question arose and the deponent advised that if the PC was cancelled or stood revoked on the company being registered, SAIL would have to pay tax on sales to the company. In this connection reference is made to the second proviso added to rule 28 by Notification No. 1719 F.T. dated July 12, 1996. On February 20, 1996 when S. Sarkar met the deponent, he repeated the advice. Later, he was surprised to see that the contents of SAIL s letter dated February 28, 1996. No reply was given thereto in the fear of legal complications. He of course informed SAIL by letter dated April 8, 1996 of the fact of registration of the company, and again by letter dated May 10, 1996 of the correct date of the company s liability to pay tax, as decided by the registering authority. It is contended that sales tax is chargeable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat plant, machinery, equipment and raw materials can be purchased without paying sales tax. When its turnover reaches rupees ten thousand only he is obliged to obtain RC. The challenges thrown against the amendment are all denied and opposed. 17.. As already noticed, an interim order was made by this Tribunal on March 6, 1996 in RN-32. On June 28, 1996 upon SAIL s prayer that order was modified by directing applicants to furnish adequate bank guarantee in favour of SAIL covering the amounts of sales tax at 4 per cent on future purchases after June 28, 1996, so that SAIL may not charge any sales tax on sales. Directions were given regarding filing of returns by SAIL during the interim period. Protection was given to SAIL against demand of interest on unpaid sales tax by the taxing authorities for the transactions with applicants after the date of the order. Directions were also given for addition of branches of SAIL as respondents in RN-81 and for addition of their assessing authorities in both RN-32 and RN-81. SAIL s application for modification of interim order dated March 6, 1996 was slated for final disposal along with the main application in RN-32. On August 8, 1996 the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for the purpose of ascertainment of facts prior to grant of RC. He also argued that due to the company s intransigence in not appearing before the registering authority, the adverse information on which respondent No. 1 relied, could not be conveyed to it. Mr. R.N. Bajoria, the learned counsel for SAIL, indicated that the company itself admitted that it had become liable to pay tax and liable to obtain registration. According to him, even if the RC has some clerical mistakes or errors, it does not become void. In fact, in his opinion, grant of RC is a mere clerical or official act, while the liability to be registered depends upon certain contingencies, which are undisputed in this case. The mistakes or errors, if any, are not very material. 19.. It may be recalled that in course of making the interim order dated March 6, 1996 in RN-32, we had directed that the company s application for registration should be disposed of within four weeks, and pursuant to that, respondent No. 1 passed the order dated March 29, 1996 and issued the RC. These had to be done ex parte, because the company s advocate repeatedly wanted adjournments, and the company failed to produce accounts, registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration dated February 13, 1996. Otherwise, it would suffice to send the RC back for rectification. We, therefore, hereby set aside the impugned order of respondent No. 1 dated March 29, 1996 and also the RC of that date, and direct respondent No. 1 to dispose of the company s application dated February 13, 1996 afresh and issue fresh RC according to law as expeditiously as possible. The RC, when issued, should have validity with effect from the date of application, as agreed by learned counsel for the company and the Revenue, having regard to section 26(6) of 1994 Act. If the applicants again play truant in the fresh proceeding before the registering authority, he will issue RC ex parte according to his best judgment. 20.. There are certain other prayers in RN-81, which we are now dealing with. In variation of the interim order made by us on May 23, 1996 in RN-81, we direct that respondents can proceed with assessment of tax according to law in respect of applicant No. 1, i.e., the company, for the period from November 25, 1995 to February 12, 1996 on the basis of notice dated May 6, 1996, and steps may be taken to realise assessed tax, etc., if any, according to law, or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious business activities. We have no hesitation to say that the learned Member, Board of Revenue, was clearly wrong. Such narrow meaning cannot be attributed to the words in order . Even Mr. Ghosh himself conceded during his arguments before us that the registering authority was certainly within his jurisdiction to verify whether the particulars furnished in the application are true or not. The registering authority, in our opinion, is a quasi-judicial authority who must find out whether all the needed particulars have been furnished, and then whether the particulars are true and correct. For that purpose, he may, if necessary, make or cause enquiry. Mr. Ghosh then referred to [1987] 67 STC 87 (Cal) (Sukumar Chandra Roy v. Commissioner of Commercial Taxes, West Bengal). In this case, the dealer applied on September 13, 1976 for registration as a reseller. On December 8, 1976 he was granted RC as a manufacturer of roller path; there was no finding whether the dealer did not do any resale. But penalty was levied for carrying on business as a reseller, and obtaining declaration forms for both resale and manufacturing business. The penalty order was challenged. The court observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Tax Act, 1956 and its Rules, it was held that before issuing RC the registering authority has to be satisfied after making necessary enquiry that the particulars furnished in the application are correct and complete. Satisfaction contemplated in rule 5 is objective, and may be arrived at upon a quasi-judicial enquiry. In [1979] 44 STC 412 (Cal) (Jagadish Prosad Agarwalla v. State of West Bengal) the court rejected the contention that RC will be invalid where it fails to specify class or classes of goods for the purposes of section 5(1)(aa) of the Bengal Finance (Sales Tax) Act, 1941. 23.. Having considered the rival contentions of applicants, SAIL and the Revenue, we are of the opinion that section 26(5) or rule 7 cannot be read in isolation. The statutory requirement of registration is a part of the scheme of taxation under 1994 Act. Under the scheme, a registered dealer is entitled to certain benefits and also is subjected to certain obligations. For our present purpose, section 9 (and not 10, 12 and 15) is material. Registration is compulsory under section 26(1) when one becomes liable to pay tax under section 9. Section 27 is for voluntary registration when gross turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that as a matter of fact he is only a reseller, and not a manufacturer, in our opinion, he may register the applicant as a reseller, and certainly not as a manufacturer. On the other hand, if the registering authority finds upon verification that the same applicant s nature of business is both manufacturing and resale, he may register him in both the characters. In other words, the character or status or nature of business in which RC will be granted to a particular applicant will depend upon findings arrived at by the registering authority; and for this purpose the latter will be well within his jurisdiction to make or cause to be made appropriate enquiries. The word satisfied used in section 26(5) and rule 7 is sufficiently indicative of this. It may be noted that in Sukumar Chandra Roy v. Commissioner of Commercial Taxes [1987] 67 STC 87 (Cal), the applicant wanted registration as a reseller, but was registered as a manufacturer. No adverse observation was made by the court for doing this. But the registering authority had failed to give his finding on the nature of business of resale, for which application had been made. That invited some comment. RN-32 of 1996: 24.. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wly inserted proviso in rule 28 as merely clarificatory and as an abundant measure. 26.. Mr. Pradip Ghosh, the company s counsel, submitted that the incentive scheme comprises PC at the outset, then RC, and finally eligibility certificate for tax exemption (EC). While he contended that PC and RC both may validly co-exist and remain in force, he conceded that PC becomes inoperative from the date of validity of EC. In the written submission filed on October 4, 1996 the same argument is advanced. He argued that the eligibility for PC is valid only at the time of issuing PC and not thereafter. He also submitted that if it is held that PC became inoperative from the date of validity of RC, selling dealers would face uncertainty as to the date up to which PC will be valid, and PC holder will like to defer his manufacture so as not to cross the target of rupees ten thousand or rupees fifty thousand for the purpose of postponing the liability to be registered. Moreover, according to Mr. Ghosh, such a conclusion will be unreasonable for a person who had applied for PC before the impugned amendment of rule 28 which he terms as a new provision and not merely clarificatory. He pleads the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued for twelve months validity initially. But, he argued, the intention has never been to keep the PC alive when RC comes into force. He said that RC gives several benefits to a dealer. As regards EC, he submitted, it is a special document for a special benefit for only small-scale units. It has no comparison with RC or PC. He also pointed out that PC and RC are not confined to only small-scale units. Those are meant for even medium and large scale units. 28.. In our opinion, Mr. Ghosh unnecessarily drew the analogy of EC. In this respect, we agree with Mr. Saha s submission. During discussion in course of arguments it was discovered that form 6 in which PC is applied for and form 7 in which PC is issued are not in conformity with rule 27. Form 7, as it were, declares that the applicant has already established his unit, but rule 27 under which PC is issued lays down that the applicant should prove that he has a bona fide intention to establish a manufacturing business. But the applicant-company cannot take advantage of this defect in the forms. In fact, the PC granted to the company carried two lists with it, one, of the goods required for manufacture, and the other, a long one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that word which was never intended. The word is used like this: .......where he finds that the provisional certificate holder has already become compulsorily liable for obtaining registration under the section 26. ......or his gross turnover of sales has exceeded ten thousand rupees . Thus, it is not at all stated that PC holder has already got RC. We should note that rule 30(2) relates to renewal of PC. So, at that stage the question before the authority naturally should be: whether the PC holder has already attracted the disqualification laid down in rule 26(2). No further deeper meaning can be logically attributed to it. It cannot be held that the word already permits the PC holder to enjoy the benefit of PC after applying for or obtaining RC. These contentions of Mr. Ghosh cannot but be rejected. 29.. Mr. Ghosh s argument regarding selling dealer s inconvenience due to a sense of uncertainty about period of validity of PC is also unfounded. Firstly, it is for a selling dealer to raise that plea. Secondly, SAIL and RINL, who are selling dealers, have not raised that question for holding that PC and RC can both remain valid at the same time till validity of PC expires. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of its legislative power. The same principle should apply to a subordinate legislative authority. Accordingly, we hold that the following amendment of rule 28 with retrospective effect made by Notification No. 1719-FT dated July 12, 1996 by inserting a new proviso is valid and constitutional, and it is merely clarificatory: Provided further that the provisional certificate shall stand revoked with effect from the date of validity of his certificate of registration issued under section 26 or section 27, as the case may be. We further hold that though PC was granted to the company for twelve months up to November 15, 1996, it became inoperative and stood revoked with effect from February 13, 1996, the date of validity of its registration certificate. This is the correct legal position which obtained before the aforesaid amendment of rule 28, and which obtains after that amendment. 31.. The above decisions dispose of the principal grievance in the main application and the challenge made to the amended rule 28 in the company s supplementary affidavit affirmed on August 23, 1996. Regarding retroactivity of the amendment of rule 28, it may be noted that under section 104(1) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not, it has spent its force, and if necessary, a fresh notice must be issued. Hence the above interim order in this respect is made absolute. In view of the finding on the main point, the prayer for directing respondents 1 to 6 not to restrain respondents 7 to 12 (including SAIL and RINL) from supplying raw materials to the company without charging sales tax at 4 per cent is dismissed. The interim order dated March 6, 1996 in this regard stands vacated. When the interim order was made directing respondents 7 to 12 to disregard any instruction to that effect, the Revenue could not properly present its case and underline the intricacy of the problem before us, and rather took the stand that no such instruction had been given to the suppliers. Despite being respondents and being served with copies of the application, respondents 7 to 12 also did not appear and present their predicament before us as selling dealers responsible for payment of sales tax. In those circumstances that interim order was made. The prayer of refund of rupees ten lakhs deposited by the company allegedly under orders of the Deputy Commissioner has not been argued, and in the facts of this case that prayer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 6, and the Assistant Commissioner of Commercial Taxes who is the assessing authority of respondents 8, 9 and 10, shall not demand any interest on the unpaid sales tax in so far as that relates to the transactions with the applicants after this day. In the circumstances of this case it would, in our opinion, have been proper to direct applicants to pay also the amount of interest that might ordinarily be payable by SAIL for the period covered by the order dated June 28. But we do not make such an order and we hereby make the order dated June 28, absolute till the date of this judgment only, because both SAIL and Revenue agreed to that order, as also the company. However, after this day for sales to the company the law as settled will govern the field. We also direct that SAIL will be at liberty to encash the bank guarantees furnished in terms of the order dated June 28 and pay tax to the Revenue according to law immediately. Any excess amount out of the bank guarantees, and any amount receivable by the applicant-company from SAIL can be adjusted by SAIL for any tax not collected from the company (and interest thereon), but which ought to have been collected from it according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r challenge, and hence no further tax-free sale should be made to the company. Then it made a reference to the Assistant Commissioner in writing with copy to the company and also suspended sales to the company. In paragraph 3(2) at page 13A of the opposition it is said that for the first time on February 22, RINL came to know that PC was under challenge. In paragraph 3(5) at page 15 it was stated by RINL that in case the company is unsuccessful in RN-32, i.e., if it is held that PC stands revoked from February 13, the date of validity of RC (we have precisely held so), RINL is entitled to protection in regard to consequential sales tax liability as also liability for interest, penalty, etc........ during the period on and from November 24, 1995 to June 28, 1996 . It is also stated that RINL secured its sales to the company regarding tax liability for a certain period. Mr. Shivaji Sen, RINL s counsel made oral arguments and also filed Law Notes on the question of protection from tax liability of RINL as a selling dealer who is to collect and pay tax according to law. It was, inter alia, contended that the PC was a representation and the Revenue could not question its validity. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at period will be governed by law as found applicable on that date. In other words, RINL cannot get any protection, since the PC stood revoked from February 13, the date of validity of RC. It must be clearly stated by us that even if the PC amounted to a representation by the taxing authorities for tax-free sales to the company, that representation stood withdrawn and spent its force with effect from February 13, 1996, i.e., the date of validity of RC. 35.. In the above circumstances, we are making the same order as we have made in respect of SAIL. We hereby make the order dated 8th August, 1996 absolute till the date of this judgment only, since both the Revenue and RINL agreed to it, as also the company. Otherwise, it was a fit case for directing applicants to pay also the amount of interest that might ordinarily be payable by RINL for the period covered by the order dated August 8. However, after this day, for sales to the company, the law as settled will govern the field. We direct that RINL will be at liberty to encash the bank guarantees furnished in terms of the order dated August 8, and pay tax to the Revenue according to law immediately. Any excess amount out of the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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