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TMI Blog2001 (11) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacturer of the manufactured goods would be exempted wholly. To give effect to the said incentive scheme, the State Government exercising its powers under section 49(2) of the Act issued various notifications from time to time incorporating various entries under which various units were entitled to exemptions as per the terms and conditions of the said entries. The present petition is concerned with entry 255 for earlier period and entry 69 for the subsequent period. Under entry 255(2) sales of raw materials, etc., by a registered dealer to an eligible unit like the petitioner is subjected to nominal sales tax only being 1/4th of 1 per cent, provided that eligible unit gives a certificate in form No. 26 which contains the declaration that the goods are required by him for use within the State of Gujarat as raw materials, in the manufacture of goods for sale within the State or outside the State. Thus, only nominal sales tax is levied on the registered dealer selling to the manufacturer which nominal sales tax he will recover from the manufacturer against form No. 26. It may be noted that form No. 26 permits the manufacturer not only to sell the goods within the State b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n whether the petitioner is liable to pay additional purchase tax under section 15B of the Act when the taxable raw materials purchased by it are used in manufacture of goods which are ultimately exempted from sales tax as per notifications under sec- tion 49(2) of the Act and in view of the fact that this controversy has arisen in case of all the industrial units exempted under section 49(2) of the Act pursuant to various notifications issued by the State Government, at the joint request of the learned counsel for the parties, the Court proceeded to hear the elaborate submissions of the learned counsel on the merits of the controversy about applicability of section 15B, that is, the very basic question about liability of the petitioner to pay additional purchase tax under section 15B of the Act when the taxable raw materials purchased by it are used in manufacturing finished goods which are ultimately exempted from sales tax pursuant to the notifications under section 49(2) of the Act. 4.. Before enumerating the rival submissions, it is necessary to set out the main provisions of the Act which are relevant for the purposes of this petition. Section 15B reads as under: "15B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Armed Forces and various agencies of the United Nations Organizations. Sub-section (2) of section 49 reads as under: "Subject to such conditions as it may impose, the State Govern- ment may, if it considers it necessary so to do in the public interest, by notification in the Official Gazette, exempt any specified class of sales or of specified sales or of purchases from payment of the whole or any part of the tax payable under the provisions of this Act." Sub-section (3) of section 49 provides for laying of notifications before the State Legislature. Rule 42E reads as under: "42E. Drawback, set-off or refund of purchase tax under section 15B.-In assessing the purchase tax levied under section 15B and payable by dealer (hereinafter referred to as "the assessee") the Commissioner shall subject to conditions of rule 47 in so far as they apply, and further conditions specified below, grant him a drawback, set-off or as the case may be, refund of the whole of the purchase tax paid in respect of purchase of goods effected on and from the 1st April, 1986 used by him, as raw materials, processing materials, or consumable stores, in the manufacture of taxable goods. Conditions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able event takes place earlier, the levy only materialises or becomes active on manufacture of taxable goods or in other words the dormant charge becomes alive only when the goods are manufactured and are sold as taxable goods which event can only be ascertained at a later stage when the finished goods are sold. 5.4. When the State Government has already granted exemption to the petitioner's manufacturing unit under section 49(2) from payment of sales tax on sale of the finished goods, there is no rationale in the department interpreting section 15B to mean that additional purchase tax is payable by the petitioner under section 15B (over and above the tax reimbursed by the petitioner to the dealer of the taxable raw materials) on the use of such raw materials in manufacture of goods which are ultimately not to be subjected to sales tax on account of the aforesaid exemption under section 49(2) of the Act. 6.. In the alternative, even if the department is right in law in contending that the petitioner is liable to pay purchase tax under section 15B, the petitioner has been bona fide believing that the petitioner is not liable to pay the said tax because for the financial years 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 15B of the Act in addition to any other levy under the Act. In the instant case, there is no dispute that conditions Nos. (i) to (iii) are fulfilled. The controversy is whether condition No. (iv) is complied with or not. According to the petitioner-assessee, since it uses the raw materials in question in manufacturing goods which are exempted from sales tax pursuant to notifications under section 49(2) of the Act, they fall outside the defi- nition of "taxable goods" as contained in section 2(33) of the Act and, therefore, condition No. (iv) is not complied with. For the sake of convenience, definition of "taxable goods" in section 2(33) of the Act is again set out hereinbelow: "Taxable goods" means goods other than those on the sale or purchase of which no tax is payable under section 5 or section 49 or a notification issued thereunder." There is no dispute about the fact that the sales by the peti- tioner of the goods manufactured by it are exempted under entry 255(3) and entry 69(3) being part of the notification issued by the State Government under section 49(2) of the Act. 9.. The bone of contention between the parties is about the interpretation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Hindustan Brown Boveri Ltd. v. State of Gujarat [1981] 47 STC 376. 11.. It is true that the expression "taxable goods" did come up for consideration before this Court in Nowroji N. Vakil Co. v. State of Gujarat [1979] 43 STC 238 and before the Supreme Court in Hindustan Brown Boveri Ltd. v. State of Gujarat [1981] 47 STC 376. Those decisions support the petitioner's contention, but it cannot be overlooked that those decisions were rendered in 1978-1981 long prior to the introduction of section 15B in its original form which was inserted in 1986 with effect from April 1, 1986. When the constitutional validity of such provisions made by the Legislatures in other States was challenged on the ground that the tax in question was a tax on consignments which was within the exclusive domain of the Parliament, the Supreme Court upheld that challenge in Good Year India Ltd. v. State of Haryana [1990] 76 STC 71. Original section 15B as inserted in the year 1986 also came to be challenged in a group of writ petitions before this Court, but before the petitions could be heard, the Governor of Gujarat issued an Ordinance repealing the earlier section and enacting new section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as goods other than those on the sale or purchase of which no tax is payable under section 5 or section 49 or a notification issued thereunder. The learned Advocate-General was right when he contended that which types of goods are covered by section 4 or section 49 are clearly indicated by the Legislature. A manufacturer/dealer who proceeds to manufacture taxable goods knows very well at the stage the manufacturing process starts as to which goods are sought to be manufactured by utilising raw materials. Ultimately, whether the concerned goods which he produces bear full burden of tax or get partial or full exemption from payment of tax on the happening of certain contingencies will have nothing to do with the question whether raw materials, etc., were utilised for manufacturing such goods. Measure of tax or ultimate liability to pay tax either wholly or partially on manufactured goods cannot have any impact on the question whether purchased raw materials were used or utilised in the manufacturing process for producing such manu- factured goods. Reliance placed in this connection by the learned Advocate-General on the decision of the Supreme Court in [1975] 36 STC 191 (State of Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds." Thereafter, this Court dealt with the submissions of the learned advocates for the petitioners in that case based on the decision of this Court in Nowroji N. Vakil Co. v. State of Gujarat [1979] 43 STC 238 and the decision of the apex Court in Hindustan Brown Boveri Ltd. v. State of Gujarat [1981] 47 STC 376 which are also relied upon by the learned counsel for the petitioners in the instant case. After explaining those decisions, this Court observed as under: "It is difficult to appreciate how these decisions can be of any avail to the petitioners. In the present case, once raw materials are utilised in the manufacturing process for manufacturing taxable goods which are generally taxable under the Act, charge under section gets attracted. Ultimately, if the manufactured goods are found not to bear tax, then the question of refund at the stage of assessment may arise. But that by itself would not whittle down the charge or post- pone it in any manner as suggested. It is also not possible to agree with the contention of the learned advocates of the petitioners that under the present section, the charge would extend even beyond the manufacture of taxable goods till manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and user of the purchased raw material, etc., is made in the manufacturing process and they enter as inputs in the manufacture of generally taxable goods, charge under the Act gets completely settled and attracted. Such charge has nothing to do with ultimate stage of manufacture of taxable goods nor does it cover it in its sweep." 12.. The above observations leave no room for doubt that this Court specifically considered the definition of "taxable goods" as contained in section 2(33) of the Act and thereafter held that whether the concerned goods which the manufacturer produces bear full burden of tax or get partial or full exemption from payment of tax on the happening of certain contingencies will have nothing to do with the question whether raw materials, etc., were utilised for manufacturing such goods. At more than one place, this Court dealt with the definition of "taxable goods" in section 2(33) of the Act and held that section 15B levies tax on "user of such raw material in the manufacturing process for manufacturing generally taxable goods under the Act and ultimately in certain circumstances such manufactured goods may not attract tax and still they would remain taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know whether the goods in question will ultimately be taxable or not because the conditions stipulated in the notification under section 49(2) may or may not be complied with. Even when sales tax exemption is given by way of incentive for establishing new industries in backward areas, there is an outer-limit of exemption. When that limit is reached and the goods are being sold beyond that exemption limit, the manufacturer would have to pay tax in respect of the goods when that limit is reached. Even for working out those limits of tax liability, the manu- facturer would have to first proceed on the footing that the goods are taxable and then compute the benefits of exemption. We are, there- fore, inclined to agree with the division Bench in Madhu Silica's case [1992] 85 STC 258 (Guj) when it observed that by the expression "taxable goods" what was meant was the goods which are generally taxable under the Act and that the charging event was not intended to be postponed till the finished goods were finally and actually sold. As already indicated above, the object of exemption is only to forgo due duty and not to erase the levy of tax. 15.. In our view, therefore, the decision in M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax". Where the dealer has not paid tax under a bona fide belief, it would not amount to evasion of tax. 18.. Since the expression "taxable goods" under section 16 of the Act was earlier interpreted by this Court in Nowroji N. Vakil Co. [1979] 43 STC 238 in favour of the assessee in that case and that decision was confirmed by the apex Court in Hindustan Brown Boveri Ltd. [1981] 47 STC 376 the assessee interpreted the same expression as occurring in section 15B of the Act (though found on the statute book subsequently) on the same lines and since the Sales Tax Officer himself had accepted the interpretation canvassed by the petitioner for the financial years 1994-95 and 1995-96, we are of the view that the belief entertained by the petitioner for the subsequent years that it was not liable to pay tax under section 15B of the Act was a bona fide belief and non-payment of tax by the petitioner on that ground cannot amount to evasion of tax. 19.. On the aforesaid short ground only, while holding that the interpretation placed by the respondents on the expression "taxable goods" as occurring in section 15B of the Act on the basis of the decision of this Court in Madhu Silica Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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