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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 ..... l-cakes (produced from cotton seeds purchased within the State of Punjab) were sold within the State of Punjab? (ii) In case the reply to question No. 1 is in affirmative; Is tax under section 4B not leviable in respect of oil-cakes valuing Rs. 48,30,399 sent for sale outside the State on the proportion between Rs. 48,30,399 and rest of the sales or on the proportionate price of cotton seeds based on yield percentage of oil and oil-cakes produced from cotton seeds instead of Rs. 48,88,879? Brief facts of the case as set out in the order of reference dated May 12, 1997 are that the assessee-dealer is a registered dealer under the sales tax laws and is engaged in the business of procuring cotton seeds and extracting oil from it. A bye-product, namely, oil-cakes (khal) is also produced in the process of extracting oil from cotton seed. The assessee-dealer sold oil cakes amounting to Rs. 48,30,399 on consignment basis, i.e., oil-cake was sent for sale to the dealers outside the State of Punjab. The dealer filed all his returns showing his gross turnover at Rs. 4,99,90,886.77. The Assessing Authority expressed dissatisfaction with the returns and issued a notice in form ST-XIV. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Representative. For the determination of purchase for tax under section 4B the ratio of consignment sales to total sales will not be the correct solution as there is quite difference in the rates of khal and oil. The Assessing Authority has rightly determined these purchases by deducting the profit of the appellant taken from the account books of the appellant out of the total consignment sales. I am, therefore, satisfied to hold that there are no merits in the appeal." Eventually an appeal was filed before the Tribunal which was dismissed on March 26, 1996. The Tribunal while dismissing the appeal has expressed its view which reads thus: "7. I have considered the above arguments tendered by the learned counsel and seen the record. I have seen the definitions of 'dealer', 'goods' and 'purchase' under section 2 of the Punjab General Sales Tax Act. The word 'by-product' does not occur in any of the definitions. The purchase is of any goods 'goods' mean all kinds of moveable property. I have also seen the definition of term 'trade' and still I am not convinced why a sale of any goods, may be in nature of main product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat cotton seed was purchased from within the State of Punjab. The whole oil extracted therefrom and some part of the by-product like oil-cakes was sold within the State of Punjab. He has, however, argued that some part of oil-cakes valuing Rs. 48,30,399 was sent outside the State of Punjab for sale on consignment basis. According to the learned counsel in such a situation the provisions of section 4B of the Act would not be applicable. In that regard, learned counsel has placed reliance on a judgment of this court rendered in the case of Jagraon Co-operative Sugar Mills Ltd. v. State of Punjab [1994] 94 STC 98 and argued that the main business of the petitioner is to extract oil from the cotton seeds. He has emphasized that if any by-product comes into existence by the manufacturing process then the same is not liable to any tax because the petitioner had paid tax on the sale of oil extracted from the cotton seed crushed by him. The argument seems to be that the State is not deprived of any tax and no purchase tax could be levied on the basis of by-product, i.e., oil-cakes especially when it is sold by way of consignment sale to the dealers of other States. Mr. Sethi has placed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the State in any manner other than by way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, or (iii) uses such goods for a purpose other than that of resale within the State or sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, or (iv) sends them outside the State other than by the way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, and no tax is payable on the purchase of such goods under any other provision of this Act, there shall be levied a tax on the purchase of such goods at such rate not exceeding the rate specified under sub-section (1) of section 5 as the State Government may direct." A close analysis of section 4B of the Act would show that it has following ingredients: (a) a dealer liable to pay tax under the Act when purchases goods (other than those specified in Schedule B) from any source in the State and (b) uses such goods in the State in the manufacture of any other goods and (c) either disposes of the manufactured goods in any manner otherwise than by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by any of the clauses of section 5(2)(a)(ii) of the Act. Therefore, the event of tax would come into existence on such purchases of the cotton seed to the extent the by-product oil-cakes has been sold outside the State of Punjab. The aforesaid view is fully supported by the judgment of the honourable Supreme Court in the case of Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98; [1993] Suppl 4 SCC 536. The honourable Supreme Court was considering section 9 of the Haryana General Sales Tax Act, 1973 (as it stood then). The honourable Supreme Court has also opined that provisions of section 4B of the Act are similar in material particulars to that of the provisions of section 9 of the Haryana Act and therefore we are of the view that the views expressed in Hotel Balaji's case [1993] 88 STC 98 would apply to the provisions of the Punjab Act as well. While overruling the view taken by it in the earlier judgment in the case of Goodyear India Ltd. v. State of Haryana [1990] 76 STC 71 (SC); [1990] 2 SCC 71, it has been held that taxable event is the purchase of raw material which is subjected to manufacturing process in the hands of the last purchaser. The aforesaid view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles . . ." It is further appropriate to mention that the object of charging section is to tax the purchase of goods by the manufacturer. The observations completely answers the argument raised by the counsel for the petitioner that the disposal of oil-cakes (khal) outside the State of Punjab on consignment basis would not attract the levy of purchase tax as it is a consignment sale. In that regard the observations made in para 91 are extracted in extenso which reads thus (at page 143 of STC): ". . . The object is to tax the purchase of goods by a manufacturer whose existence as such goods is put an end to by him by using them in the manufacture of different goods in certain circumstances. The tax is levied upon the purchase price of raw material, not upon the sale price-or consignment value-of manufactured goods. Would it be right to say that the levy is upon consignment of manufactured goods in such a case? True it is that the levy materialises only when the purchased goods (raw material) is consumed in the manufacture of different goods and those goods are disposed of within the State otherwise than by way of sale or are consigned to the manufacturingdealer's depots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has adopted the same reasoning as adopted in Hotel Balaji case [1993] 88 STC 98. The argument that the levy created by the purchase tax levied by section 4B (or any other similar section in respect of other States) has really been on manufacture of goods and therefore not a tax referable to entry 54 of List II of the Seventh Schedule to the Constitution was rejected and the contrary argument that such provision 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. Re: Question No. 2 The second question concerning the application of principles of proportionality in calculating the purchase tax on the oil-cakes disposed of by the dealer otherwise than in inter-State ..... X X X X Extracts X X X X X X X X Extracts X X X X
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