Super Fine Processors Pvt. Ltd. vs State of U.P. and Others

Writ Petition No. 1683 of 2007 has been filed by M/s. Super Fine Processors Pvt. Ltd. through its director Shri Surendra Lal Wassan seeking a writ, order or direction in the nature of certiorari quashing the orders dated September 29, 2007 passed by the Assistant Commissioner, Trade Tax, Sector-2, Noida, district Gautam Budh Nagar, respondent No. 3 under rule 41(8) of the U.P. Trade Tax Rules 1948 (hereinafter referred to as "the Rules") for the assessment years 2000-01, 2001-02 and 2002-03 filed as annexure 10 to the writ petition and a writ order or direction in the nature of mandamus commanding respondent No. 3 not to proceed against the petitioner for any realization of assessed amount of tax in pursuance of the aforesaid orders dated September 29, 2007. Writ Petition Nos. 1683 and 296 of 2008 have been filed by M/s. Vinayak Fibers Ltd. and M/s. Urvasi Synthetic Processors Pvt. Ltd., through its director Shri V.N. Gupta seeking a writ, order or direction in the nature of mandamus commanding the Deputy Commissioner (Assessment)-II, Commercial Tax, Orai, District Jalaun, respondent No. 4, to issue the requisite form of declaration of import (form. 38) to the petitioners.

Writ Petition No. 1437 of 2008 has been filed by M/s. Super Fine Processors Pvt. Ltd. through its director Shri Surendra Lal Wassan seeking a writ, order or direction in the nature of certiorari quashing the orders dated March 31, 2008 passed by the Assistant Commissioner, Trade Tax/ Commercial Tax, Sector 2, Noida, district Gautam Budh Nagar, respondent No. 3, u/s 9(2) of the Central Sales Tax Act, 1956 read with section 21 of the U.P. Trade Tax Act (hereinafter referred to as, "the U.P. Act") for the assessment year 2002-03 filed as annexure 8 to the writ petition and a writ order or direction in the nature of mandamus commanding respondent No. 3 not to proceed against the petitioner for any realization of assessed amount of tax in pursuance of the aforesaid orders dated March 31, 2008.

Writ Petition No. 454 of 2009 has been filed by M/s. Super Fine Processors Pvt. Ltd. through its director Shri Surendra Lal Wassan seeking a writ, order or direction in the nature of certiorari quashing the orders dated December 11, 2008 passed by the Assistant Commissioner, Commercial Tax, Sector 4, Noida, district Gautam Budh Nagar, respondent No. 3, under rule 41(8) of the Rules for the assessment year 2005-06 filed as annexure 12 to the writ petition and a writ order or direction in the nature of mandamus commanding respondent No. 3 not to proceed against the petitioner for any realization of assessed amount of tax in pursuance of the aforesaid orders dated December 11, 2008 and;

Writ Petition No. 455 of 2009 has been filed by M/s. Super Fine Processors Pvt. Ltd. through its director Shri Surendra Lal Wassan seeking a writ, order or direction in the nature of certiorari quashing the orders dated December 18, 2008 passed by the Assistant Commissioner, Commercial Tax, Sector 4, Noida, district Gautam Budh Nagar, respondent No. 3, under rule 41(8) of the Rules and u/s 9(2) of the Central Sales Tax Act for the assessment year 2006-07 filed as annexure 12 to the writ petition and a writ order or direction in the nature of mandamus commanding respondent No. 3 not to proceed against the petitioner for any realization of assessed amount of tax in pursuance of the aforesaid orders dated December 18, 2008.

As all the writ petitions involve/similar controversy they have been heard together and are being decided by a common judgment. Writ Petition No. 1683 of 2007 is being treated as the leading writ petition and its facts are given below:

The petitioner M/s. Super Fine Processors Pvt. Ltd., is a private limited company and is engaged in doing the job-work of various textile manufacturers on gray fabrics which have been supplied to it by the manufacturer of the textiles only for the purposes of colouring, printing, bleaching washing and dyeing of the gray cloth. Gray cloth is received by the petitioner from different manufacturers or looms. The petitioner is a registered dealer both under the U.P. Trade Tax Act, 1948 and the Central Sales Tax Act, 1956. For the purpose of doing job-work and process of gray cloth requires chemical, dye, etc. According to the petitioner, textile has been exempted from tax from 1957 as the textile manufacturers, are paying additional excise duty in lieu of trade tax: The petitioner was not paying any tax on the process employed by it i.e., colouring printing bleaching washing and dyeing of the gray cloth. However, the Commissioner of Trade Tax, issued a circular dated December 26, 2002 directing that the activities of processing colouring dyeing industries are involved in the execution of works contract and therefore they are liable to pay tax. As the assessing authorities in the State of Uttar Pradesh were insisting upon payment of tax, the petitioner, through its Association, namely, Northern India Textile Processors Association made a representation to the Principal Secretary Institutional Finance, Government of Uttar Pradesh. On the said representation the Law Department, Government of U.P., sought a clarification vide letter dated June 21, 2004 as to whether the petitioner is paying the additional excise duty and whether the State Government is getting its share from the Central Government. Various meetings took place between the members of the petitioner-Association and the State Government. The Commissioner, Trade Tax, U.P., had issued letters to the Additional Commissioners, Trade Tax, Noida, Ghaziabad and Kanpur not to take any coercive steps against the members of the Association as the matter is under consideration before the Government. Thereafter the Joint Secretary, Government of Uttar Pradesh, vide letter No. 1798 dated July 13, 2005 had clarified the issue that under the provisions of the U.P. Trade Tax Act there is no liability of tax on the goods which are consumed or used and the goods which are used and consumed cannot be taxable unless and until it is transferred, meaning thereby the "transfer of property in goods" is must. It was further clarified that if the dyes and chemicals which are used for washing of cloth and for printing, colouring and dyeing consumable are used then there is no separate identity of the consumable in the said product, hence there would be no liability under the works contract. In the said letter it was also mentioned that as the additional excise duty has already been paid on the cloth and washing, printing, dyeing, etc., does not change the identity of the cloth, there is no liability of trade tax.

According to the petitioner another manufacturer, M/s. Ganga Processors approached this court by filing Writ Petition No. 1244 of 2005 (Ganga Processors v. State of U.P.) wherein this court vide order dated September 13, 2005 directed the State Government to consider the matter expeditiously and take a decision. Pursuant thereto the State Government vide order dated October 7, 2005 had taken a decision that there is no liability of trade tax on such activities. Despite the decision taken by the State Government on October 7, 2005 respondent No. 3 had passed the impugned order for the assessment years 2000-01, 2001-02 and 2002-03 imposing trade tax on dyes and chemicals consumed in the processing of gray cloth. The impugned order dated September 29, 2007 is under challenge on the ground that the decision taken by the State Government on October 7, 2005 that no tax is payable on the activities of job-work undertaken by the similar manufacturers is binding on the assessing authority and, therefore, there is no question of imposition of any tax.

In the counter-affidavit filed by Sri K.K. Verma, Assistant Commissioner, Commercial Tax, Sector 2, Noida on behalf of the respondents it has been stated that it is incorrect to state that dyes and chemical used in the process of colouring and dyeing are consumed. It is transferred to the gray cloth and the decision taken by the State Government was on the representation made by M/s. Ganga Processors Pvt. Ltd. pursuance of the order passed by this court in Writ Petition Nos. 1244 of 2005 and 1245 of 2005 and not by the Northern India Textile Processors Association. A stand has been taken that against the impugned orders the petitioner has remedy to file appeal and, therefore the writ petition be dismissed.

Coming to the preliminary objection raised by the respondents regarding availability of alternative remedy of appeal we may mention here that this court while entertaining the writ petition has considered this question. The order dated December 6, 2007 passed by a Division Bench of this court is reproduced below:

In view of annexure 6 to this Writ petition, the learned standing counsel may file a counter-affidavit within one month. List thereafter. Apparently, no disputed questions of fact are involved and only a pure question of law arises on admitted facts In such circumstances, we decline to relegate the petitioner to the alternative remedy of appeal, because that would be only postponing the decision which has been sought by us on the question of law till after the petitioner or the Department comes back after exhausting the hierarchy of trade tax authorities.

In the meantime, operation of the order dated September 29, 2007 passed by respondent No. 3 under rule 41(8) of the U.P. Trade Tax Rules for the assessment years 2000-01, 2001-02 and 2002-03 (annexure 10 to this writ petition) will remain stayed.

We have heard learned counsel for the parties.

In view of the order dated December 6, 2007 as the Division Bench had repelled the preliminary objection regarding availability of alternative remedy by way of filing an appeal, we decline to entertain this preliminary objection again.

The learned counsel appearing for the petitioner submitted that the decision taken by the State Government on October 7, 2005 is binding upon the authorities as the said decision was taken pursuant to the direction given by this court in the writ petitions filed by two other manufacturers as also the association. In support of his submission he has relied upon the following decisions:

(1) Kichha Sugar Company Ltd., Nainital v. Commissioner of Sales Tax [1995] UPTC 1028;

(2) Paper Products Ltd. Vs. Commissioner of Central Excise,

(3) Commissioner of Sales Tax, U.P. Vs. M/s. Indra Industries,

(4) Raghunatyh Laxminarain Spices Pvt. Ltd. v. State of U.P. [2000] UPTC 554

(5) Sir Shadi Lal Enterprises Ltd. Vs. Union of India (UOI) and Others,

(6) Union of India v. Arviva Industries (I) Ltd. [2007] 209 ELT 5 (SC); and

(7) State of Kerala and Others Vs. Kurian Abraham Pvt. Ltd. and Another, .

The learned standing counsel however submitted that the decision was taken by the State Government vide order dated October 7, 2005 on the representation made by two manufacturers and not on the representations made by the petitioners or their association and, therefore cannot be binding on the assessing authorities of other manufacturers. He further submitted that the Bombay High Court in the case of Sau. Suvarna Prakash Patil Vs. Anil Hindurao Powar and Others, has held that under the deemed definition of word "sale" dyes and chemical get transferred to gray cloth, therefore sale is effected and is liable to tax.

We have given out thoughtful consideration to the various pleas raised by the learned counsel for the parties.

In the case of Kichha Sugar Company Ltd. [1995] UPTC 1028, a learned single judge of this court had held that Government letters/circulars issued by the Commissioner of Sales Tax are binding on authorities administering the Act.

In the case of Paper Products Ltd. Vs. Commissioner of Central Excise, the honourable Supreme Court has considered the circular issued by the Central Board of Customs and Excise and has held it to be binding upon the Department and the Department is precluded from challenging the correctness of the said circular even on the ground of same being inconsistent with the statutory provision and so far as the Department is concerned whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time.

In the case of Commissioner of Sales Tax, U.P. Vs. M/s. Indra Industries, the honourable Supreme Court has held that circular issued by the Commissioner of Sales Tax under the A.P. General Sales Tax Act, even if erroneous, is binding upon the tax authorities.

In the case of Raghunatyh Laxminarain Spices Pvt. Ltd. [2000] UPTC 554, a Division Bench of this court has held that circular issued by the Commissioner is binding on the authorities and they cannot contend that it is not binding on them.

In the case of Sir Shadi Lal Enterprises Ltd. Vs. Union of India (UOI) and Others, , another Division Bench of this court had held that circular issued by the Central Board of Direct, Taxes is binding upon the authorities under the income tax Act.

In the case of Arviva Industries (I) Ltd. [2007] 209 ELT 5 (SC), the honourable Supreme Court has held that circulars issued by the Central Board of Excise and Customs are binding upon the Department and similar view has been taken in the case of State of Kerala and Others Vs. Kurian Abraham Pvt. Ltd. and Another, wherein the honourable Supreme Court had held that the circular issued by the Board of Revenue under the Kerala General Sales Tax Act is binding on the Department.

All the decisions cited by the learned counsel for the petitioner refer to the circular and the decision taken by the State Government is binding on the authorities. In the present case we find that the State Government in its order dated October 7, 2005, while deciding the representation of M/s. Ganga Processors pursuant to the direction given by this court on September 13, 2005, had also considered the representation dated September 27, 2005 made by the Northern India Textile Processors Association. It would be evident from the following recital in the order dated October 7, 2005 passed by the Principal Secretary, Tax and Registration Department, Government of U.P.

While holding that the dyes and chemicals are consumable and lost their existence in the process of colouring, dyeing, etc., of gray cloth, the Principal Secretary has held as follows:

From a perusal of the aforesaid finding it is amply clear that the State Government had also decided the representation made by the Northern India Textile Processors Association and had come to the conclusion that dyes and chemical used in the bleaching, colouring and dyeing etc., on gray cloth are consumed in the process and not transferred. In our considered opinion the said finding is binding upon the assessing authorities as the representation made by the Northern India Textile Processors Association was also decided by the said order. The stand taken by the respondents that the State Government had not decided any other representation except the two preferred by M/s. Ganga Processors and M/s. Style Dyers is not correct.

In view of the foregoing discussions, we are of the considered opinion that respondent No. 3 was not justified in imposing tax on the dyes and chemicals used in the process of dyeing, colouring printing, bleaching washing, etc., of gray cloth by the petitioner and the impugned orders in all the writ petitions are liable to be set aside. In the result all the writ petitions succeed and are allowed. The impugned orders are hereby quashed. However, parties shall bear their own costs.