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TMI Blog2006 (11) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 8(1) of the CST Act and this was done to the knowledge of opposite party No. 2 who was issuing blank "C" forms. The further case of the petitioner is that for manufacturing of paper and paper boards, both steam and electricity are essential and without which paper cannot be manufactured. The main raw materials for manufacturing paper and paper boards being bamboos and wood, the same are to be processed with the help of steam and chemicals. The plant and machinery, which are utilised for processing such raw materials, can be operated only with electricity. Therefore, steam and electricity are indispensable for manufacturing of paper. In view of the acute power shortage and continuous restriction on supply, the production of petitioner's mill was adversely affected and it was impossible for the petitioner to run the paper mill economically without power being continuously made available to it. As such, the petitioner applied to the Orissa State Electricity Board for permitting it to install a new power generation complex. The Board after considering all the aspects permitted the petitioner to install the new power generation complex. The petitioner's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice, the petitioner gave a detailed reply denying the allegations and praying for dropping the said show cause proceeding. Ultimately, hearing took place before the Sales Tax Officer and in the said hearing, the Sales Tax Officer by a detailed order rejected the explanation given by the petitioner and came to a finding that the petitioner violated the provision of section 10(d) read with the provision of section 8(3)(b) of the CST Act and a penalty of Rs. 1,05,78,000 was imposed on the petitioner. Being aggrieved, the petitioner by the aforesaid order filed a revision against the said order. The revision was also dismissed by an order dated January 10, 1989 passed by the Additional Commissioner, Sales Tax, Northern Zone, Orissa, Cuttack. In the revisional order, the penalty was merely reduced by deducting four per cent tax which was paid by the petitioner on those goods but otherwise the findings of the Sales Tax Officer were upheld. The writ petition has been filed by the petitioner challenging both these orders. Most of the contentions of the petitioner, noted above, were put forward as grounds of challenge. It was also urged that generation of power by the capt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctricity is a process which is prior to the manufacture and processing of paper and paper board. So it cannot be included within the expression of "manufacture and processing of goods for sale of paper and paper boards". The learned counsel further submitted that from the facts and circumstances it is clear that the plant and machinery have been handed over to the contractors in furtherance of execution of the contract and this is in violation of section 10(d) of the Act as the dealer himself has not utilised the goods. The learned counsel also submitted that in the facts and circumstances of the case, the default in complying with the statute is sufficient and the infraction of law is complete for invoking the penal clauses and to show the existence of mens rea is not necessary. The learned counsel submitted that there has been no limitation in the facts of the case. These are the rival contentions of the parties. Having regard to the aforesaid contentions of the parties, in my judgment, the question which really falls for determination by this court are whether the petitioner is entitled to purchase machinery and equipment for erection of a new captive power plant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1965] 16 STC 563 (SC), the expression "in the manufacture or processing of goods for sale" in section 8(3)(b) of the CST Act came up for consideration. The learned Judges held that the expression "in the manufacture" takes in its fold processes, which are directly related to the actual production of the goods. The learned Judges further held that the expression, "in the manufacture of goods" in section 8(3)(b) of the CST Act covers the entire process carried on by the dealer for converting raw materials into finished goods. It is nobody's case that electricity is a raw material for paper which are the finished goods manufactured by the petitioner. The learned Judges in J.K. Cotton Spinning & Weaving Mills Co. Ltd. [1965] 16 STC 563 (SC) on a combined reading of rule 13 read with section 8(3)(b) of the CST Act further clarified the position as under: ". . . mere intention to use the goods in the manufacture or processing of goods for sale, will not be a sufficient ground for specification: the intention must be to use the goods as raw materials, as processing materials, as machinery, as plant, as equipment, as tools, as stores, as spare pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and tubes, furniture and motor trucks. The court held that furniture and sanitary fittings are not to be included in the registration certificate since they are not to be used in mining though they may facilitate the business of mining. Here also the new captive power plant might facilitate the manufacturing of paper, but the erection of such a plant is not integrally connected with the manufacturing process of paper. Learned counsel for the petitioner has relied on several decisions in support of his contention that the plant and machinery purchased for erection of a captive power plant were rightly purchased under "C" form. He has first relied on a judgment of the Gujarat High Court in the case of Industrial Machinery Manufacturers Pvt. Ltd. v. State of Gujarat reported in [1965] 16 STC 380. In that case, the question was whether humidifiers fell within entry 15 or entry 20 of Schedule C of the Bombay Sales Tax Act, 1959. From the facts of that case it appears even though the Deputy Commissioner of Sales Tax negatived the assessee's claim that humidifiers are to be covered by concessional rate, but accepted that "humidifiers are used in various departments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(3)(b) of the CST Act to exclude the use of a generator as a standby measure and the court directed amendment of the certificate of registration of the petitioner by inclusion of generator in the registration certificate. This court, finds that the said decision was peculiar to the facts of that case, but the said decision cannot be treated as a binding precedent on construction of section 8(3)(b) of the CST Act since the said decision was rendered without at all adverting to the decisions of the Supreme Court, referred to above, on construction of section 8(3)(b) of the CST Act. Therefore, the decision in Mohavir Prasad Jain [1987] 67 STC 376 (Orissa) must be confined to the facts of that case and cannot be treated as a binding precedent. The next decision cited on this point was rendered in the case of Micro Abressive India Limited v. Commissioner of Sales Tax, U.P., Lucknow reported in [1996] 102 STC 19 (All). In that case, the petitioner was a dealer registered under the Central Sales Tax Act and was engaged in the business of manufacture and sale of lapping abrasive powder. In its certificate of registration, "diesel engine and alternator set" was an item mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the certificate of registration were improved electric motors, generators, switches, cable, etc. These parts are essentially required for running the mill in question for which the petitioner was carrying on his business. In the instant case, as noted above, the purchase of plant and machinery for erection of a new power plant does not come within the manufacturing process of paper. The decision cited by the learned counsel for the Revenue on this aspect has some application to the present case. In the case of Koodal Industries Limited v. State of Tamil Nadu reported in [1994] 93 STC 446, the High Court of Madras has held that a generator cannot be said to be a machinery particularly connected with a flour milling even though generally a generator may be used in any industry for generation of electricity for running its machinery. In that case, the petitioner's certificate of registration under the CST entitled the petitioner to purchase "machinery connected with flour milling" and on the strength thereof the petitioner had purchased the generator. The court held that even though the generator may be used for generation of electricity and running the machinery, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is a registered dealer; or (d) after purchasing any goods for any of the purposes specified in clause (b) or clause (c) or clause (d) of sub-section (3) or sub-section (6) of section 8 fails, without reasonable excuse, to make use of the goods for any such purpose; or (e) has in his possession any form prescribed for the purpose of sub-section (4) or sub-section (8) of section 8 which has not been obtained by him or by his principal or by his agent in accordance with the provisions of this Act or any rules made thereunder; (f) collects any amount by way of tax in contravention of the provisions contained in section 9A; he shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues." On a comparison of various sub-clauses of section 10 of the CST Act, it would be clear that they cover different situations. Section 10A of the CST Act, on the other hand, gives an option to the authority to impose penalty for an offence under section 10(b) or (c) or (d) in lieu of prosecution. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the petitioner before the authorities is that in the facts of the case, "mens rea" is a necessary ingredient before imposing penalty on the petitioner and secondly that in the facts of the case mens rea on the part of the petitioner has not been established. So far as the first defence is concerned, the same appears to have been concluded in view of the decision of this court in the case of NALCO [1994] 93 STC 529 referred to before in connection with another point. In NALCO's case [1994] 93 STC 529 (Orissa), dealing with similar provision of the CST Act, a Division Bench of this court held that in a penalty proceeding, being quasi-criminal in nature, unless it is proved that the dealer acted deliberately in defiance of law or was guilty of conduct which is dishonest or acted in conscious disregard of its obligation, penalty cannot be imposed. In NALCO [1994] 93 STC 529 (Orissa), the learned Judges clarified the position by saying that where a breach flows from a bona fide belief of the dealer that he had acted in accordance with the registration certificate, the assessing officer should refuse to impose penalty. Similarly, it has been stated that when a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer, he collects tax in excess of the tax payable by him, or if he collects tax in contravention of the provisions of section 46, he shall be liable to pay, in addition to any tax for which he may be liable, a penalty and in addition, any sum collected by the person by way of tax in contravention of section 46, shall be forfeited to the State Government. But in the instant case, the text of the relevant law is different. Section 10(d) of the CST Act under which the petitioner has been charged uses the expression "without reasonable excuse". This expression is absent either in section 37 or 46 of the Bombay Sales Tax Act. So this ratio in R.S. Joshi [1977] 40 STC 497 (SC) is not relevant here. Therefore, before imposing penalty under section 10(d) of the CST Act, Revenue has to consider reasonable excuse shown by the person proceeded against. So mere technical violation on a bona fide belief will not expose the person to the penal provision. R.S. Joshi [1977] 40 STC 497 (SC) is not attracted to the facts of the present case. The other two decisions which have been cited by the learned counsel for the Revenue, namely, the decision in the case of Jayshree Chemicals Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "reasonable excuse" has a very major significance. In NALCO [1994] 93 STC 529 (Orissa), section 10(d) of the CST Act has been held to contain the element of mens rea and that decision on interpretation of section 10(d) is holding the field. So the decision in I.M. Patel [1992] 86 STC 185 (SC); [1992] 196 ITR 297 (SC) against a different statutory context does not help the Revenue. For the reasons aforesaid, this court is of the view that even though purchase of plant and machinery by the petitioner for erection of the power plant by using "C" form was not permissible in view of its registration certificate both under the OST and CST, there was to certain extent reasonable excuse on their part inasmuch as all these items were purchased with the knowledge of the Revenue and the Revenue never took exceptions at the time of purchase. Nothing has been concealed from the Revenue at the time of purchase but there was ample reason for the petitioner to have bona fide belief that such goods which are utilised for erection of power plant are integrally connected with manufacturing process of paper and pulp since for the manufacture of paper and pulp electricity is a nece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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