Northern India Iron and Steel Ltd. vs State of Haryana and Others

M.M. Kumar, J.—The instant petition filed under article 226 of the Constitution prays for quashing order dated June 26, 1991 (P4), passed by the Joint Excise and Taxation Commissioner, Karnal, and the subsequent order in appeal, dated May 8, 1992 (P5) passed by the Sales Tax Tribunal, Haryana. The petitioner is engaged in the manufacture of stainless steel, alloy steel and alloy castings. The petitioner purchases raw material like ferro cilicon, ferro mangnize, charge chrome, nickel, silver nitrates, etc., from within the State of Haryana as well as from outside the State of Haryana and uses them for the manufacturing of above products. The petitioner is registered under the Haryana General Sales Tax Act, 1973 (for brevity, "the 1973 Act") as well as under the Central Sales Tax Act, 1956 (for brevity, "the CST Act").

The petitioner filed its quarterly returns in respect of the assessment years 1983-84, 1984-85 and 1986-87 in form ST IX, and also deposited the sales tax. The Assessing Authority-respondent No. 4, issued statutory notices u/s 28(2) on August 12, 1988, December 30, 1988 and April 11, 1990 (P1 to P3). Thereafter while finalising the assessment, the Assessing Authority levied purchase tax u/s 9 read with section 24(3) on the job-work done by the petitioner on stock transfer of goods to other States by working out the purchases of goods utilised in manufacture including the consumable stores. It also levied interest u/s 25(5) of the 1973 Act and penalty u/s 47 for failure to deposit the tax along with the return. In this manner, an additional demand of Rs. 3,65,702 for the assessment year 1983-84; Rs. 1,04,444 for the assessment year 1984-85 and Rs. 15,296 for the assessment year 1986-87 was raised.

The assessee-petitioner preferred appeals against the said assessment orders (P1 to P3). The Joint Excise and Taxation Commissioner, vide common order dated June 26, 1991, partly allowed the appeals and remanded the matter back to the Assessing Authority for de novo assessment (P4). Feeling aggrieved, the assessee-petitioner challenged the order dated June 26, 1991 (P4) before the Sales Tax Tribunal, Haryana. The Tribunal rejected the appeals vide order dated May 8, 1992 (P5), holding that the first appellate authority was fully justified in remanding the cases for de novo assessment in the light of the amended provisions of the Act. However, the Tribunal accepted the plea of the assessee-petitioner against levy of interest and imposition of penalty.

We have heard Learned Counsel for the parties at length and perused the paper book with their able assistance. A perusal of sections 6 and 17 of the 1973 Act shows that every dealer is liable to pay tax on the sale or purchase of goods by him in the State at the stage provided by section 17 in respect of declared goods. The expression "declared goods'''' has been defined by section 2(d) of the 1973 Act to have the same meaning as has been assigned to it by section 2(c) of the CST Act. On a reference to section 2(c) of the CST Act we find that the "declared goods" would be such goods which are listed in section 14 of the CST Act. Section 17 of the 1973 Act in terms defines that the tax on declared goods is leviable and payable at the stage of sale or purchase and under the circumstances specified against such goods in Schedule D. The taxable event would come into play when the purchase has been made being the last purchaser.

The question concerning taxable event in such circumstances have been subject-matter of consideration of the honourable Supreme Court in the case of Goodyear India Ltd., Gedore (India) Pvt. Ltd., Kelvinator of India Ltd. and the Food Corporation of India and Another Vs. State of Haryana and Another, , which took the view that taxable event would not be the stage when the goods have been purchased by a taxable person being the last purchaser. However, the view taken in the case of Goodyear India Ltd., Gedore (India) Pvt. Ltd., Kelvinator of India Ltd. and the Food Corporation of India and Another Vs. State of Haryana and Another, did not find approval of the 3-Judge Bench of the honourable Supreme Court in the case of Hotel Balaji and others, Vs. State of Andhra Pradesh and others, etc. etc., Supp 4 SCC 536. The rationale for doing so is discernible from para 91 and the relevant extracts reads as under (page 142 in 88 STC) :

91..... Goodyear India Ltd., Gedore (India) Pvt. Ltd., Kelvinator of India Ltd. and the Food Corporation of India and Another Vs. State of Haryana and Another, 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 honourable Supreme Court also opined on the State policy of taxation, namely, when the manufactured goods are not sold within the State but are yet disposed of or where the manufactured goods are sent outside the State otherwise than by way of inter-State sale or export sale, the tax has to be paid on the purchase value of the raw material. In the event of non-payment of purchase tax, the Revenue is likely to suffer because it would neither be paid sales tax nor the purchase tax in respect of manufactured goods which are disposed of otherwise than by sale within the State or are sent out of State like consigned to dealers own depots or agents. In such like situation, law does not permit bearing of purchase tax. Giving detailed reasoning to conclude that the taxing event is the purchase of raw material like paddy in the present case, the honourable Supreme Court has observed as under (page 143 in 88 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 manufacturing-dealer''s depots/agents outside the State of Haryana. But does that change the nature and character 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...

It is worthwhile to mention here that the honourable Supreme Court in Hotel Balaji and others, Vs. State of Andhra Pradesh and others, etc. etc., has also affirmed the view taken by a Full Bench of this Court in the case of Des Raj Pushap Kumar Gulati Vs. The State of Punjab and Another, that the taxing event is the act of purchase of goods which are used in the manufacture of end-products and not the act of despatch or consignment.

Once the aforesaid principles are clear then there is no escape from the conclusion that the petitioner becomes liable to pay purchase tax when it purchase the raw material being the last purchaser. It is a different matter that the payment of purchase tax is deferred till it is found that the manufactured goods are not to be subjected to sales tax. Therefore, the petitioner cannot escape the liability to pay purchase tax. It is on the basis of sound taxation policy of the State in respect of the declared goods that if sales tax is paid on the manufactured goods then the purchase tax on the raw material would not be payable but if sales tax is not paid then the liability to pay purchase tax is to continue. The aforesaid policy has been incorporated by the legislation in order to avoid double taxation. As a sequel to the above discussion, the instant petition is devoid of merit and accordingly dismissed.