Sri Balaji Chemical Company vs State of Tamil Nadu

F.M. Ibrahim Kalifulla, J.—The assessee has come forward with this revision wherein the following substantial question of law has been raised, viz.

Whether the Tribunal was correct in sustaining the higher rate of tax on the sales of sulphate alumina made by the petitioner against form XVII for the manufacture of benzoin which is not falling under the First Schedule and is liable to tax u/s 3(1) of the Act ?

The brief facts are that the petitioner is a dealer in chemicals, viz., sulphate of alumina. The petitioner sold sulphate of alumina to the purchasers for the alleged manufacture of benzoin (sambirani) against form XVII. The petitioner was originally assessed to tax on a total taxable turnover of Rs. 10,95,130 by the proceedings of the respondent dated November 26, 1993. The respondent subsequently revised the turnover and levied the tax at a higher rate, viz., at eight per cent on the sales turnover of Rs. 1,03,600 and also levied a penalty of Rs. 8,936 u/s 23 of the TNGST Act. The said revision came to be made on the footing that the petitioner produced an invalid form XVII.

The petitioner went before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner while confirming the revision of tax as ordered by the assessing authority, deleted the penalty of Rs. 8,936. By the impugned order, the Tribunal also upheld the orders of the assessing authority as confirmed by the Appellate Assistant Commissioner. It is in the above-stated background, the petitioner has come forward with this revision.

Assailing the orders of the lower authorities, Mr. S. Ramanathan, learned Counsel appearing for the petitioner by relying upon the decision in State of Tamil Nadu v. Madras Petro Chem Ltd. reported in [1993] 89 STC 438 (Mad) which was subsequently affirmed by a recent decision of this Court in Sree Murugan Engineering Products v. Commercial Tax Officer, Coimbatore [2006] 148 STC 419 contended that even for the contravention of conditions of form XVII, tax and penalty can be imposed only against the purchasing dealer and not against the seller as per Section 3(3) of the Act.

The learned Counsel''s other contention was that in the case on hand, the petitioner produced form XVII as furnished by the purchaser, that it was not the responsibility of the petitioner to verify whether the materials supplied by the petitioner was really used or usable by the purchaser and in the event of the authorities finding that the materials were not really usable for the manufacture of benzoin, at best the respondent can proceed against the petitioner and the revision ought not to have been made.

On the other hand, Mr. Haja Nazaruddin, learned Special Government Pleader, in his submissions contended that though the position in law viz., that for any violation of the condition of form XVII, the tax and penalty can be imposed only against the purchasing dealer and not against the seller. When once it is found that the so called form XVII produced by the petitioner was not a valid form XVII in the sense that it does not satisfy the statutorily prescribed format for a duly filed in form XVII, the said settled principle will have no application.

Having heard the respective counsel, we find force in the submission of the learned Special Government Pleader. In this context, we refer to the recent decision of this Court Sree Murugan Engineering Products v. Commercial Tax Officer, Coimbatore reported in [2006] 148 STC 419 wherein all the earlier decisions have been duly followed. We cull out the principles which are to be followed while examining the correctness of the order like the one impugned in this revision.

In the said decision, two earlier decisions of this Court and a decision of the honourable Supreme Court have been referred to. In paragraph No. 6, the Division Bench has relied upon the earlier decision of this Court in Premier Electro Mechanical Fabricators, Madras-2 v. State of Madras reported in [1968] 22 STC 269. The principle set out in the said decision has been stated as under (at page 424 of 148 STC):

...The requisites are three fold : (1) The goods, which are the subject-matter of sale, should be those mentioned in the First Schedule, (2) the sale must be to another dealer, and (3) the goods sold should be for the use by the purchaser as component parts of any other goods mentioned in the First Schedule, which he intends to manufacture inside the State for sale. The manner in which the seller has to satisfy the third requisite is as provided in the proviso to the sub-section, namely, production of the declaration in the prescribed form. Once that is done, there is no further obligation on the part of the selling dealer and he will automatically be entitled to the concessional rate....

Similarly, in another unreported decision rendered in State of Tamil Nadu v. Seema Udyog W.P. No. 10610 of 2000, decided on December 4, 2001, it has been quoted in paragraph 8 as under (at page 425 of 148 STC):

This issue was again considered in State of Tamil Nadu v. Seema Udyog Writ Petition No. 10610 of 2000, decided on December 4, 2001-Madras High Court in the context of the amended provisions of Section 3(3) of the Act by the Bench comprising of Justice R. Jayasimha Babu and Justice A. K. Rajan and the Bench, following the decision of a three-Judge Bench of the Supreme Court in State of Madras v. Radio and Electricals Ltd. [1966] 18 STC 222, held that the duty of the seller who received such a declaration, therefore, is confined to make sure that the declaration has been duly filed in and signed by the purchaser/dealer and that the form given to the seller is the one prescribed and obtained from the prescribed authority. The duty of the seller ends there. He is under no further obligation to enquire into whether the buyer is engaged in a process or manufacture and if so, whether the articles purchased from the seller are to be put to use as the component part of the product manufactured by the buyer.

In another decision of the honourable Supreme Court in Chunni Lal Parshadi Lal v. Commissioner of Sales Tax, U.P., Lucknow [1986] 62 STC 112, it was held as under at page 120 and 121:

...This Court observed that indisputably the seller could have in these transactions no control over the purchaser. He had to rely upon the representation made to him. He must satisfy himself that the purchaser was a registered dealer, and the goods purchased were specified in his certificates but his duty extended no further. If he was satisfied on these two matters on a representation made to him in the manner prescribed by the rules and the representation was recorded in the certificate in form C, the selling dealer was under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used...

In so far as the case on hand is concerned, at the relevant point of time, the requirement of Section 3(3) was that the tax payable by any dealer in respect of sale of any goods other than consumer goods to another for use by the latter in the manufacture inside the State, for sale by him of any goods mentioned in the First Schedule other than those falling under items 70(c) and 107 of the First Schedule could be taxed at three per cent. The said situation was prevailing up to the and of March 11, 1993.

A conspectus consideration of the above provision which was existing and the decisions referred to above makes it abundantly clear that in order to avail the concessional rate of tax prescribed u/s 3(3) of the Act, the assessee is bound to produce form XVII duly filled in the prescribed format. Such form XVII should satisfy the requirements, viz., that the goods sold should be for the use by the purchaser as component part of any other goods mentioned in the First Schedule which the purchaser intends to manufacture inside the State for sale.

When we perused the required form XVII as prescribed under the Act, we find that there is a specific column in "column b" which is required to be filled in and the requirement is "description of the goods to be manufactured with serial number of First Schedule". In so far as the petitioner is concerned, admittedly the said column was not filled in either by the purchaser or by the assessee at the time when the same was produced for availing of the benefit u/s 3(3) of the Act. It was in those circumstances, the assessing authority was forced to revise the turnover and make the assessment for a sum of Rs. 1,03,600. In fact it is also not in dispute that the ultimate product manufactured by the purchaser who supplied form XVII to the petitioner was benzoin (sambirani) which is not one of the item mentioned in the First Schedule.

When form XVII relied upon by the petitioner did not furnish the details as to whether the products to be manufactured by the purchaser was not one of the items mentioned in the First Schedule, it will have to be held that the said form XVII produced by the petitioner cannot be construed as one which will satisfy the requirement as prescribed u/s 3(3) of the Act. In other words if form XVII produced by the petitioner did not satisfy the requirement prescribed u/s 3(3), as rightly held by the Appellate Assistant Commissioner it can only be construed as an invalid form XVII and in such circumstances there is no question of applying the ratio decidendi of the decisions relied upon by the learned Counsel for the petitioner. The ratio of the decision in State of Tamil Nadu v. Madras Petro Chem Ltd. reported in [1993] 89 STC 438 (Mad) as well as in Sree Murugan Engineering Products Vs. The Commercial Tax Officer, can be validly applied, if at all, the petitioner had produced a valid form XVII and in which event if the purchaser had committed any misfeasance in either using or not using the materials purchased from the assessee, it would be of no consequence in so far as the petitioner-assessee is concerned.

Inasmuch as form XVII relied upon by the petitioner having not satisfied the statutory prescription of fulfilling all the required particulars to be filled-in in the said format, the assessee cannot be heard to say irrespective of such defects in the production of form XVII, the assessee should be conferred with the concessional rate of tax as prescribed u/s 3(3) of the Act and that any other consequential liability should be fastened only on the purchaser.

The various principles set out in the decisions referred to above, can have no application to the case of the petitioner since the form XVII produced by the petitioner does not confirm to the one statutorily prescribed under the Act. We are not therefore in a position to countenance the stand of the petitioner in seeking to apply the principles that the contravention of the condition of form XVII, tax and penalty can only be levied against the purchasing dealer and not against the seller as per Section 3(3) of the Act.

In our considered opinion, since the alleged form XVII cannot be construed as form XVII at all, the said principle will have no application to the facts of this case. The revision therefore fails and the same is dismissed. The substantial question of law is answered against the petitioner.