State of A.P. vs Hyderabad Chemicals Supplies Ltd.

T.N.C. Rangarajan, J.—This Revision is filed against the order of the Sales Tax Appellate Tribunal deleting the penalty imposed u/s 5-B(2) of the Andhra Pradesh Genera! Sales Tax Act, 1957 (for short "the Act"). The facts found by the Tribunal are that the assessee was manufacturing pesticides, and for the purpose of packing those pesticides corrugated boxes are required. In order to get the corrugated boxes, it issued declaration forms in Form G2 to the sellers of craft paper and purchased the same. The paper so purchased was given to a unit which was making boxes on job work to whom only labour charges were paid and the boxes so made were actually utilised by the assessee for packing the chemicals manufactured by the assessee. The Assessing Authority was of the opinion that the issue of G-forms for the purchase of paper was an improper utilisation of the concession allowed u/s 5(B) because the paper was not used in the assessee''s industry/ manufacturing unit, but was actually used by another manufacturing unit The underlying assumption was that if the other manufacturing unit had purchased the paper directly and manufactured the boxes, there would have been two incidents of sales tax while by the process adopted by the assessee, there was a loss of such revenue. In this view, the Assistant Commissioner (CT) (Intt) imposed penalty of Rs.8,55,505/- for the year 1994-95 and Rs.8,24,965/- for the assessment year 1995-96. The appeals filed by the assessee were dismissed by the Appellate Deputy Commissioner. On further appeal, the Appellate Tribunal found that Section 5(B) (2)(i) provides a penalty for having purchased goods by furnishing a declaration and selling such goods contrary to such declaration and the situation in the present case did not fit the provisions of Section 5(B(2)(i). The Appellate Tribunal also found that there was no prohibition against the purchase of craft paper and getting the boxes made through job work and if at all there was any impropriety in the use of the ''G'' forms, the assessee was not guilty of any contumacious conduct because there was no mala fide intention, but only a genuine bonafide mistake with reference to category in which the goods fall for the purpose of concessional tax. The Appellate Tribunal therefore cancelled the penalties imposed.

The learned Government Pleader for Sales Tax submitted that there was a clear loss of revenue because if the assessee required only corrugated box as packing material and had purchased the same directly from the manufacturer of corrugated boxes, he would have paid tax thereon, while the manufacturer of corrugated boxes would have also paid the tax for the purchase of craft paper with the result that there will be two incidents of tax, though both had a concessional rate, aggregating to receipt of revenue more than what had actually accrued in this case. He submitted that if the assessee is not manufacturing corrugated boxes, he is not entitled to issue a ''G'' form and thereby it must be considered to be a misuse of form for which penalty can be imposed u/s 5(B)(2). That Section reads as under:

(5)(B)(2) if any dealer,-

(i) not having his manufacturing unit within the State purchases any goods by furnishing a declaration under the proviso to sub-section (1); or

(ii) having his manufacturing unit within the State and having purchased goods by furnishing a declaration under the proviso to sub-section (1) sells such goods contrary to such declaration, the assessing authority, may after giving such dealer a reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum which shall not be less than three times but which may extend to five times the amount of tax leviable on the sale of such goods so purchased.''''

Clearly, Item (2) does not apply to this case because it is not the case of the department that the assessee has sold the goods. Item (1) refers to a case where a dealer purchased the goods by furnishing declaration though he does not have the manufacturing unit. This entry has to be read along with the main provisions of sub-section (1) which is as follows:

5-B(l) Notwithstanding anything in this Act, every dealer shall pay, in respect of any sale of goods to another dealer for use by the latter as raw material, component part, sub-assembly part, intermediate part, consumables and packing material of any other goods which he intends to manufacture inside the State, a tax at the rate of four paise in the rupee or the rates specified in Sections 5, 5A and 6B in respect of goods other than declared goods or Sections 6, 5A and 6B in respect of declared goods, whichever is lower on the rum-over relating to such sale;"

A reading of that Section shows that the purchasing dealer has to be a manufacturer of other goods in respect of which he needs to purchase raw material, component part, sub-assemble part, intermediate part, consumables and packing material. Except the packing material all other items are inputs in the manufacturing activity of the purchasing dealer. Obviously, packing material cannot be an input in the item manufactured by the purchasing dealer

Rule 30(A) provides that, "every manufacturer who intends to purchase raw materials etc., for use in the manufacture of goods inside the State shall submit an application for registration as manufacturer." Sub-rule (2) provides that only if the assessing authority receiving the application is satisfied after making such enquiry as he considers necessary that the application is bona fide and the particulars furnished are correct, then registration will be made and G-2 Form will be furnished for being issued in respect of purchase of such raw-material, component parts etc. At the time of being registered, the assessee in this case has admittedly declared that he is having a manufacturing unit for manufacture of chemicals. He is not a manufacturer of corrugated boxes.-The craft paper purchased is to be used as packing material not as an input in the manufacture of chemicals. The Form ''B'' contain a declaration that the purchase are covered by the Registration Certificate. Clause (4) states nature of the goods purchased for use in the manufacture of other goods intended to be manufactured as (c) packing material. In other words, the craft paper is for use as packing material and it is not the case of the department that the craft paper purchased was not used as packing material. The argument of the department is that by purchasing craft paper and getting it made into boxes through job work, the assessee had purchased the craft paper for manufacture into boxes without having a manufacturing unit and thus falling within 5(B)(2)(i). This argument ignores the fact that the craft paper was taken not as raw-material for purchase or manufacture of boxes, but only as packing material for the goods mainly chemicals manufactured by the assessee. Hence the real objection is that it was not used in the same form in which it was purchased, but was used after making into boxes through job work done in another manufacturing unit We find no prohibition either in the Act or Rules or even in the declaration that the assessee who purchased the craft paper for use as packing material cannot make it into boxes before using it as packing material. There can be no denial of the fact that the craft paper was actually used as packing material only and hence clearly there was no misuse of the goods purchased. The assumption of the department is that if the assessee could have followed a different process viz., buying the boxes instead of buying the paper having made into boxes it would have generated more revenue. But as long as there is no prohibition against the assessee arranging its affairs in such a way as to have the boxes made through job work and using the material for the same stated purpose though in different form, there cannot be any penalty. Penal provisions have to be strictly construed and in the absence of clear language u/s 5-B(i) that the goods purchased as packing material cannot be used in a different shape, the penalty imposed cannot be sustained. The Appellate Tribunal also, in the well written order compared the provisions of Sections 10 and 10A of CST Act and pointed out that there is no specific requirement in the law in respect of which violation is alleged for the purpose of imposing penalty. The Order of the Appellate Tribunal cancelling the penalty is therefore correct and is upheld. The Tax Revision Case is dismissed. No costs.