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TMI Blog2009 (1) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... vision merely levies pure and simple purchase tax on the raw material, like cotton seed in the present case, was accepted.Therefore, the legislative competence of the State Legislature to levy purchase tax under section 4B of the Act has been upheld. Once the aforesaid position is clear from the various judgments of the honourable Supreme Court then the first question of law deserves to be answered against the dealer-assessee and in favour of the Revenue especially when taxable event is the purchase of cotton seed which in the hands of oil-mill is the last stage of purchase.Question No. 1 is decided against dealer-assessee. If section 4B of the Act is to operate within the parameters of legislative competence postulated by article 246 and various Lists then it has to conform to the State taxes alone which could be achieved by assessing the tax on the purchases. Therefore, it has been rightly submitted by Mr. Sethi that the consignment sale in respect of oil-cake (khal) is only 9.66 per cent. of the total sale and, therefore, 9.66 per cent. of the total purchase of cotton seed should have been taken for tax purpose under section 4B of the Act. Accordingly, the answer of the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated May 27, 1993 creating an additional demand of Rs. 1,83,993 by concluding that the dealer was liable to pay purchase tax under section 4B of the Act in respect of cotton seed that was used as raw material by the dealer for manufacturing the by-product oil-cakes. In other words the Assessing Authority levied purchase tax under section 4B on the purchase of cotton seed corresponding to oil-cake sold on consignment basis determined by her excluding the profit and expenses of Rs. 2,41,520 out of the total consignment sales. The observations of the Assessing Authority read thus: Total consignment amounts to Rs. 45,30,399. The dealer is engaged in the manufacturing of khal from the raw material of cotton seed. Thus taxable goods manufactured at Hoshiarpur are despatched to third parties for sale. Therefore, the dealer is also liable to pay tax under section 4B in respect of goods and raw material used by him for the manufacturing of taxable goods which are later on sent to third parties situated out of the State of Punjab. Thus purchase tax under section 4B of the State Act will be leviable on the purchases of goods made within the State of Punjab that have been used in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is made and subject to provisions of sections 4 and 5 of the Act, the manufacturer shall be liable to pay tax. The exemptions as provided in above-mentioned sections shall, however, be applicable. In the present appeal before me, I do not find any illegality in the order of the Assessing Authority. He has correctly applied section 4B in the present case relying on the Balaji judgment [1993] 88 STC 98 of the Supreme Court. The counsel for the appellant has cited two judgments which are not applicable in the present case. Jagraon Co-operative Sugar Mills Ltd. v. State of Punjab [1994] 94 STC 98 (P H) only provides the scope of RC and dominant purpose of a sugar mill being sugar and molasses and bagasse as by-products. All are treated as part of same RC. This is not the issue in the present appeal. Similar is the other citing VIR Co. v. State of Punjab [1982] STI 129 (P H-Tri.). This is also not applicable. 8.. The second contention is that tax on khal is applicable but it is excessive. The entire purchase of cotton seed should be proportionately applied to manufacture of oil and sale of khal. This issue has been dealt by the Assessing Authority and DETC. Both have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02] 127 STC 313. He has also placed reliance on another Division Bench judgment of the Bombay High Court in the case of Commissioner of Sales Tax v. Saravagi Industries [1985] 59 STC 259. On the second question, learned counsel has submitted that if answer to the first question is against the assessee in the sense that purchase tax is leviable on the oil-cakes sold on consignment basis outside the State of Punjab then the tax is to be levied under section 4B of the Act on the purchase of cotton seed by applying the ratio of consignment sale and gross sales to the total purchase of cotton seed. According to the learned counsel the consignment sale in respect of oil-cake is only 9.66 per cent. of the total sale and therefore 9.66 per cent. of the total purchase of cotton seed (which are of value of Rs. 3,65,53,639), i.e., purchase of Rs. 35,31,082 should have been taken for tax purposes under section 4B of the Act. He has pleaded that at the time of purchase of cotton seed by deducting profit out of the total consignment of sale is not a correct method to determine the taxable purchase. The learned counsel has maintained that the reasoning adopted by the Deputy Excise and Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r otherwise than by way of sale in the course of a inter-State trade or commerce or in the course of export outside the territory of India within the meaning of sub-section (1) of section 5 of the Central Sales Tax Act, 1956. When all the aforesaid ingredients are specified then the dealer becomes liable to pay tax on the purchase of such goods at such rates, as specified by section 5(1) of the Act. It is thus evident that section 4B applies only on those cases where (i) the goods are purchased like raw material by a dealer liable to pay tax under the Act in the State, (ii) the goods so purchased cease to exist as such goods for the reason they are consumed in the manufacture of different commodities and (iii) such manufactured commodities are either disposed of within the State otherwise than by way of sale or despatched to a place outside the State otherwise than by way of an inter-State sale or export sale. In other words, if such manufactured goods are not sold within the State of Punjab, but yet disposed of within the State then no tax is payable on such disposition. Likewise where manufactured goods are despatched out of State as a result of an inter-State sale or export s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C): . . . Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71 takes only the last eventuality and holds that the taxable event is the removal of goods from the State and since such removal is to dealers' own depots/agents outside the State, it is consignment, which cannot be taxed by the State Legislature. With the greatest respect at our command, we beg to disagree. The levy created by the said provision is a levy on the purchase of raw material purchased within the State which is consumed in the manufacture of other goods within the State. If, however, the manufactured goods are sold within the State, no purchase tax is collected on the raw material, evidently because the State gets larger revenue by taxing the sale of such goods. (The value of manufactured goods is bound to be higher than the value of the raw material). The State Legislature does not wish to in the interest of trade and general public tax both the raw material and the finished (manufactured) product. . . The aforesaid reasoning has been found to be based on a sound policy in the filed of taxation. Explaining the policy, their Lordships have observed as under: . . . This is a well-known policy in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cter of the levy? Does such postponement if one can call it as such convert what is avowedly a purchase tax what is on raw material (levied on the purchase price of such raw material) to a consignment tax on the manufactured goods? We think not. Saying otherwise would defeat the very object and purpose of section 9 and amount to its nullification in effect. The most that can perhaps be said is that it is plausible (as pointed out by Ranganathan, J. in his separate opinion) to characterise the said tax both as purchase tax as well as consignment tax. But where two interpretations are possible, one which sustains the constitutionality and/or effectuates its purpose and intendment and the other which effectively nullifies the provision, the former must be preferred, according to all known canons of interpretation . . . The provisions of section 4B of the Act fell for consideration before a three judge Bench of the honourable Supreme Court in the case of Devi Dass Gopal Krishan Pvt. Ltd. v. State of Punjab [1994] 95 STC 170; [1994] Supp 2 SCC 59. After considering the provisions of various other Acts and noticing the judgment of the honourable Supreme Court rendered in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner has not been able to cite any judgment to support the aforesaid view. However, on the first principle we find that if cotton seed results into manufacturing of oil-cakes in addition to oil then the cotton seed to the extent it produced oil-cakes would be liable to purchase tax. We find merit in the contention of the counsel for the petitioner when he says that percentage of oil-cakes which are sent outside the State otherwise than by inter-State sale would be liable to tax and calculated accordingly. It has already become clear from the answer given to question No. 1 that the tax has to be imposed on the raw material purchased by the dealer. In other words, for the purposes of making assessment value of the manufactured goods from the raw material would not be on rational basis for assessing the tax. Accordingly, the purchase tax has to be levied on the purchases of raw material. If the purchase tax is calculated on the value of the end-product then it would be imposition of tax on manufacturing of goods which would fall outside the competence of the State Legislature. It is pertinent to mention that entry 84 of List I of the Seventh Schedule postulates itself of exc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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