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TMI Blog2021 (2) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of power - Therefore, to justify the use of Form C, the activity of the petitioner should come within the purview of the expression manufacture or processing of goods for sale in Section 8(3)(b) of the Central Sales Tax Act, 1956. In Union of India Vs. J.G. Glass Industries Ltd., [ 1997 (12) TMI 110 - SUPREME COURT ] , the Hon ble Supreme Court laid down the test as to when an activity amounts to manufacture and when an activity amounts to processing of goods. If the test laid therein is applied, the activity undertaken by the petitioner would amount to processing of goods. The petitioner has provided a taxable service within the meaning of Finance Act, 1994. The service provided as a Common Effluent Treatment Plant Operator for treatment of effluent was exempted from Service Tax w.e.f. 01.04.2015 vide Notification No.6/2015-ST dated 01.03.2015. The exemption was added to entry mega exemption Notification No. 25/2012-ST dated 20.06.2012 . Prior to this exemption, services provided by an association of dyeing units in relation to common effluent treatment plants was exempted from payment of Service Tax vide Notification No. 42/2011- ST dated 25.07.2011. The scope of the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Section 8(3)(b) of the Central Sales Tax Act, 1956. The petitioner obtained registration under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and later under Tamil Nadu Value Added Tax Act, 2006 and under the provisions of the Central Sales Tax Act, 1956 only for the purpose of taking unfair advantage of concession available under these enactments by making it seem as if the petitioner was engaged in processing of goods for sale when indeed it was not engaged in such activity of sale - Even otherwise, it was also not open for the petitioner to transfer the goods procured at concessional rate of tax against Form C to its sister concerns contrary to the requirements of Certificate. If the goods cleared against invoices in Annexure II(A),( B) and (C) were exempted, the petitioner was not required to issue Form-C. There is no proper explanation forthcoming either in the reply or in the affidavit filed in support of the present writ petition as to why the petitioner issued Form-C No.TN-2006-C-BB-728640 (Annexure I) to the supplier. It shows complicity on the part of the petitioner to facilitate evasion of Central Sales Tax - As the petitioner was not entitled to issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procure goods for re-sale and for manufacture and processing of goods for sale against Form C. 7. The petitioner had procured goods from a dealer outside the State of Tamil Nadu and gave Form C to the said dealer, thereby, enabling the dealer to pay CST at concessional rate of tax under Section 8(3)(b) of the Central Sales Tax Act, 1956. 8. The petitioner transferred some of the goods procured at concessional rate of CST against Form C to some of its sister units which were also engaged in provision of similar services to dyeing units in and around Noyyal River, where, the directors of the petitioners were the directors. 9. Under these circumstances, a notice was issued to the petitioner to levy penalty and to prosecute the petitioner under Section 10(b) and (d) of the Central Sales Tax Act, 1956 and in lieu of the penalty and prosecution, the petitioner was called upon to show cause why penalty under Section 10-A of the Act should not be levied on the petitioner. 10. It is the case of the petitioner that the petitioner was entitled to procure panel board, pollution - control equipment and accessories thereof, machinery parts and accessories thereof and electrical goods for use in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed the penalty on the petitioner under Section 10-A of the Central Sales Tax Act, 1956. 17. It is further submitted that not only the petitioner but also its sister companies were organised under the provisions of the Companies Act, 1956 and therefore they cannot feign ignorance of law and therefore, the impugned order passed by the respondent cannot be interfered with. 18. I have heard the learned counsel for the petitioner and the learned counsel for respondent. I have also perused the impugned order passed by the respondent and the notice issued to the petitioner. 19. A notice dated 23.7.2010 was issued to the petitioner, wherein, it was alleged that the dyeing units were dyeing the yarn or fabric supplied by their customers. It was therefore stated that the dyeing units were not engaged in any manufacturing activity. It also stated that the activity undertaken by them were purely works contract and the activity undertaken by the petitioner falls under the category of job work/works contract. 20. The notice further stated that copies of Form C issued to the petitioner against which procurements were made at concessional rate of tax from their suppliers from outside the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Noyyal CFT Co. Ltd., 33092403702 Tirupur Murugampalayam CETP Co. Pvt. Ltd., 33752394027 3205000 Total 9325000 C FORM NO. TN - 2006 - C - BB 728640 Sl. No. Invoice No. Date Invoice to Consumed by Value (Rs.) Name TIN Name TIN 1 As per enclosure Tvl. Noyyal CFT Co. Ltd., 33092403702 Arulpuram CETP Co. Pvt. Ltd., 33036246196 35407265 2 Tvl. Noyyal CFT Co. Ltd., 33092403702 Kallikadu CETP Co. Pvt. Ltd., 33912325651 29976431 3 Tvl. Noyyal CFT Co. Ltd., 33092403702 Rayapuram CETP Co. Pvt. Ltd., 33202467419 35896584 4 Tvl. Noyyal CFT Co. Ltd., 33092403702 Tirupur Murugampalayam CETP Co. Pvt. Ltd., 33752394027 60925020 Total 162205300 28. From a reading of the documents and the submissions of the learned counsel for the petitioner and respondent, it emerges that Annexure I invoice though were raised in the name of the petitioner and the goods were directly consigned to petitioner s above 3 sister companies which were also engaged in similar activity as that of the petitioner. 29. The petitioner s TNGST No. 2403702 under the Tamil Nadu General Sales Tax was used at the time of purchase of the goods covered by Annexure-I. Later, the petitioner procured C FORM No. TN-2006-CBB 728639 with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d) in the generation; or (e) distribution of electricity or any other form of power. 36. For the purpose of procurement under Section 8(3)(b) of the Central Sales Act, 1956, Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957 has been provided. It reads as under:- Rule 13: Prescription of goods for certain purposes .-The goods referred to in clause (b) of sub-section (3) of section 8 which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, [machinery, plant,] equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale, or in mining, or in the generation or distribution of electricity or any other form of power.] 37. Therefore, procurement against Form C at concessional rate of tax could be for: i. re-sale; or ii. use in the manufacture or processing of goods for sale; or iii. use in mining, or in the generation or distribution of electricity or any other form of power. 38. In the present case, the endorsement in certificate of registration given to the petitioner in Form B under Central Sales Tax Act, 1956 is confined for re-sale and/or f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Service Tax vide Notification No. 42/2011- ST dated 25.07.2011. 44. The scope of the exemption was expanded with retrospective effect from 16.06.2005 vide Section 145 of the Finance Act, 2012. It validated exemption given to clubs or association including co-operative societies engaged in provision of service in relation to projects, i.e., common facility set up for treatment and recycling of effluents and solid wastes, with financial assistance from the Central Government or State Government. 45. For exemption, following three conditions were to be satisfied (a) Services should be provided by operator of plant, (b)Plant should be common effluent treatment plant, and (c) Services should be of/in relation to/by way of effluent treatment. 46. Similar exemption has not issued in the context of Central Sales Tax Act, 1956. As the petitioner was neither engaged in the sale of the goods procured against Form-C nor such goods were used by it for manufacture or processing of goods for sale, procurement against Form-C was clearly in violation of Section 8(3)(b) of the Central Sales Tax Act, 1956. 47. On a plain reading of the provisions of the Central Sales Tax Act, 1956, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an urgent mission. With reference to common effluent treatment plants, which are already under implementation, we hope and expect that they would be completed within the timelines already postulated. With reference to common effluent treatment plants, which are yet to be set up, we consider it just and appropriate to direct the State Governments concerned (including the Union Territories concerned) to complete the same within a period of three years, from today. We are also of the view that while acquiring land for the common effluent treatment plants , the State Governments concerned (including the Union Territories concerned) will acquire such additional land, as may be required for setting up zero liquid discharge plants , if and when required in the future. 9. During the course of hearing, we were informed by the learned counsel that the running of common effluent treatment plants , which are in place, is also a matter of serious concern. In this behalf, it was submitted that some of the common effluent treatment plants are dysfunctional, because of lack of finances, whilst some others are dysfunctional, because of the requirement of repairs, which have not been carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Common Effluent Treatment Plants. The polluters are required to pay on the principle Polluter Pays [see M.C.Mehta (Calcutta Tanneries Matter) Vs. Union of India and Others , (1997) 2 SCC 411]. 53. However, owing to financial constraints and reluctance on the part of the Government and local bodies to invest in Common Effluent Treatment Plant which highly capital intensive, private operators like petitioner have mushroomed and have started providing such service to industrial units discharging effluents. 54. Since these service contribute to the GDP, the service tax was also being levied under the Finance Act, 1994 as has been mentioned above. 55. In I ndian Farmers Fertiliser Coop. Ltd. Vs. CCE, (1996) 5 SCC 488, the Hon ble Supreme Court observed as follows:- It is too late in the day to take the view that the treatment of effluents from a plant is not an essential and integral part of the process of manufacture in the plant. The emphasis that has rightly been laid in recent years upon the environment and pollution control requires that all plants which emit effluents should be so equipped as to rid the effluents of dangerous properties. The apparatus used for such treatment of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the process of manufacturing urea, must, therefore, be held to be used in the manufacture of ammonia and the raw naphtha used for the manufacture thereof is entitled to the duty exemption. 59. Coming to the facts of the case, the activity undertaken by dyeing unit is a part of the manufacturing activity for textile units. It is one of the intermediate stage process, whereby, grey yarn or grey fabrics as the case may be are sent for dyeing to such units before they are sent back for being used in the further manufacturing process of textile products. 60. The business model followed by textile units appears to be outsource the dyeing process to dyeing units. However, dyeing units are mostly small units and are rarely endowed with the capital to install Common Effluent Treatment Plants. This is where the demand for persons like petitioner had arisen in absence of Common Effluent Treatment Plants. Independent Common Effluent Treatment Plants are neither manufacturer nor processors of goods for sale. They are merely service provider. If a liberalized interpretation is given in the light of the above decisions, they will be entitled to the benefit of Section 8(3)(b) of the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offence is a continuing offence, with a daily fine, which may extend to ₹ 50/- for every day during which the offence continues. 69. In State of Tamil Nadu Vs. Kodaikanal Motor Union (P) Ltd., (1986) 3 SCC 91 : 1986 SCC (Tax) 461, the Hon ble Supreme Court held that The Section 10-A as it reads after amendment in 1973 permits imposition by way of penalty for a sum not exceeding one-and-a- half times the tax which would have been levied under Sub-Section (2) of Section 8. The Hon ble Supreme Court held as follows:- In our opinion sub-section (1) of Section 10-A makes it clear that penalty should be worked out at the rate of tax which would have been levied if the offence had not been committed. In other words the question is what tax would have been levied under the Act if the offence had not been committed. The assessee would not have committed any offence only if he had carried out the undertaking given by it in its declaration in Form C or if he purchased the goods without giving any declaration thereby incurring liability to pay normal rate of tax as contemplated by sub-section (2) of Section 8. One who commits default cannot be said to have carried out the undertaking gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Gujarat , (1976) 37 STC 129 (Guj) and disagreed with the view of this Court in State of Madras Vs. Prem Industrial Corpn. , (1969) 24 STC 507 (Mad) and the other decisions of the Madras High Court in Dy. Commr. of Commercial Taxes, Madurai Division Vs. Kodaikanal Motor Union Private Limited , (1973) 31 STC 1 (Mad) : 1972 SCC OnLine Mad 334. 72. In State of Madras Vs. Prem Industrial Corpn., (1969) 24 STC 507 (Mad), it was held that for an offence committed within the scope of Section 10(b) of the Act by the misuse of C Forms, the penalty at one-and-a-half times should be calculated on the concessional rate of tax that would have been applicable if the offence had not been committed, that is, if the C forms had been properly used, and not on the basis of the rate for sales not covered by the C forms has been set aside. 73. As mentioned above, the petitioner was not entitled to procure goods at concessional rate of tax under Section 8(3)(b) of the Central Sales Tax Act, 1956. The respondent has however not proposed to impose penalty on the petitioner for facilitating evasion of tax on the entire value of goods procured against Form C. The imposition of penalty is confined to d ..... 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