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CASE NO.: Appeal (civil)  1215 of 2007

PETITIONER: Commnr.of Sales Tax, Orissa & Ors

RESPONDENT: Crown Re-roller (P) Ltd. & Ors.

DATE OF JUDGMENT: 08/03/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No. 7300 of 2004)  WITH CIVIL APPEAL NOS. 1216 /2007 @ S.L.P.(C)Nos. 14707-14708/2005

S.B. SINHA, J.

Leave granted.

       Respondent herein, a company registered under the Indian Companies  Act, known as M/s. Crown Re-rolling (P) Ltd., is the owner of a Re-rolling  mill.  It is a re-rolling mill manufacturing M.S. rounds and flats, out of iron  and steel scrap materials.  Indisputably, the State of Orissa made an  industrial policy wherefor a resolution was adopted on 13.5.1986, pursuant  whereto and in furtherance whereof, exemption was granted from payment  of sales tax on raw materials sold to or purchased by a registered dealer and  certified by the General Manager, District Industrial Corporation to be a  small scale industry set up on or after 1.4.1986 and commencing commercial  production thereafter.  It is furthermore not in dispute that by reason of a  notification dated 22.12.1989, the State Government in exercise of its  powers conferred upon it under Section 8 of the Orissa Sales Tax Act, 1947,  notified ’Iron and steel’ to be taxable at the first point of sale, in a series of  sale by successive dealers, when such sale is effected by a dealer liable to  pay tax under the Act.  It is also not in dispute that prior to issuance of the  said notification the taxable event was the last purchase.  It has not been  denied or disputed before us that the exemption notification dated 13.5.1986  is applicable in the case of the assessee.  It is also not in dispute that the said  exemption relates to transaction of purchase or sale of raw material which go  into the composition of the finished product manufactured by the assessee in  the State.

       Respondent had been making purchases from the Rourkela Steel Plant  of the Steel Authority of India Ltd.  Admittedly, the benefit of the exemption  notification in respect of such purchases have been granted to the  respondent-assessee.  Admittedly, Respondent had made purchases also  from the registered dealers of iron scrap.  However, the problem arose in  obtaining the said exemption as on and from 1.1.1990 steel was made  taxable at the first sale point by reason of the said notification dated  22.12.1989 issued under Section 8 of the Act.  The mechanism for availing  of exemption was by way of statutory declaration by the buyer/manufacturer  to the taxable seller, thereby purchasing the raw material free of tax.

       It is furthermore not in dispute that the respondent had purchased tax  paid raw materials.  He filed an application for refund of the sales tax  purported to be in terms of Section 14 of the Orissa Sales Tax Act, 1947 (for  short, ’the Act) which  reads as under :-

"14.  Refunds -

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       The Commissioner shall, in the prescribed manner,  refund to a dealer applying in this behalf any amount of  tax penalty or interest paid by such dealer in excess of the  amount due from him under this Act, either by cash  payment or by deduction of such excess from the amount  of tax, penalty or interest due in respect of any other  period :

       Provided that no claim to refund of any tax,  penalty or interest paid under this Act, shall be allowed  unless it is made within twenty-four months from the  date on which the order of assessment or order imposing  penalty, as the case may be, was passed or from the date  of the final order passed on appeal, revision or reference  in respect of the order earlier mentioned, whichever  period is later:

       Provided further that no claim to refund of any tax,  penalty or interest paid under this Act shall be allowed in  cases where there is an order for re-assessment, until the  re-assessment is finalized."

       As the said prayer of the respondent was denied, he filed a writ  petition before Orissa High Court praying inter alia for the following reliefs-

       "Further direct the Opposite Party No.5 & 6 to refund the  entire amount of Sales Tax collected from the petitioner  amounting to Rs. 15 lacs approximately pursuant to the  notification vide Annexure-5."   

       The said writ petition was allowed holding :

               "6. In view of the aforesaid undisputed position,  since the petitioner has already lodged representation for  refund and no decision has been taken on it, we dispose  of the writ application by directing that on the petitioner  filing application in the prescribed form, opposite parties  5 and 6 without taking any objection of limitation will  consider the question of the exact amount of refund to  which the petitioner is entitled to under the Industrial  Policy Resolution, 1986 and the Finance Department  Notification No 5389 dated 13.2.1987 and communicate  their decision within a period of three months of receipt  of the application in the prescribed form."

       However, the assessing officer in its order dated 18.12.1997 upon  examining the matter opined that :-

"...Being asked whether the sellers from whom he  purchased the "Iron and Steel" are the first or subsequent  sellers, Sri Agarwal expressed his inability to say  whether they were first or subsequent sellers.  His only  submission was that they have purchased "tax paid"  materials.

       On scrutiny of the refund applications with  reference to relevant purchase bills of "Iron & Steel" and  other connected documents furnished by the dealer and  after giving him reasonable opportunity of being heard, it  is found that :-

       Firstly, the dealer M/s. Crown Re-rollers (P) Ltd.  has not paid any amount of Orissa Sales Tax on purchase

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of any goods which are declared U/s. 14 of the Central  Sales Tax Act, 1956.  He has purchased "first point tax  paid" Iron & Steel from registered dealers of Orissa who  are the subsequent sellers.  The sellers have not collected  any sales tax from the instant dealer which is evident  from the purchase bills furnished by him.  The dealer  himself has simply calculated 4% tax on such purchase of  "Iron & Steel" and claimed refund.

       Therefore, the claim of the dealer vide Col.2 and 5  of his refund applications relating to date of payment of  tax and the amount of tax paid U/s. 5 of the O.S.T. Act  respectively is not based on any documentary evidence  and as such found to be incorrect. In fact, the amount of  tax paid by the dealer U/s. 5 of the O.S.T. Act is found to  be "Nil"."

                Questioning the legality or validity of the said order, another writ  petition was filed by the respondent herein before the High Court which by  reason of the impugned judgment  dated 21.11.2003 was allowed holding :-

       "13.  Hence, the applications of the petitioner should not  have been made in Form XII-A under rule 42-A.  The  petitioner will have to make fresh applications for refund  in Form XII under Rule 39 of the Orissa Sales Tax Rules,  1947 for refund of tax under Section 14 of the Orissa  Sales Tax Act, 1947.  Since the petitioner himself had not  submitted the applications in the correct form and under  the correct rule, the petitioner will not be entitled to  interest from the date of the applications as claimed by  him in this writ petition.

       14.  For the aforesaid reasons, we quash the impugned  order dated 18.12.1997 of the Sales Tax Officer,  Rourkela Circle-II, Panposh in Annexure-1 to the writ  petition and direct that the petitioner will submit fresh  applications for the periods in question in Form XII  under Rule 39 of the Orissa Sales Tax Rules, 1947 and  the Sales Tax Officer, Rourkela Circle-II, Panposh will  compute the amount of tax paid by the petitioner on the  tax paid goods purchased by it as raw materials for its  industry on the basis of the copies of the purchase bills  produced before him by the petitioner and determine  such amount to be refunded and refund the same to the  petitioner within 90 (ninety) days from the date of such  application failing which the petitioner will be entitled to  interest at the rate mentioned in Section 14-C of the  Orissa Sales Tax Act, 1947 with effect from the date of  expiry of the said period of ninety days."

The High Court, however, did not grant any interest in favour of the  respondent-assessee.  Both the parties are, thus, before us.

       Mr. Joseph Vellapally, the learned senior counsel appearing on behalf  of the appellant,  in support of this appeal raised the following contentions :-

       1.      The High Court committed a manifest error in passing the impugned  judgments insofar as it failed to take into consideration that the taxable event  in sales tax law being the transaction of sale, exemption to pay tax, if any,  would be available only where a transaction is taxable.         2.      Exemption notification would apply only when the manufacturer  establishes that he had purchased raw material from a registered dealer  which had gone into the composition of the finished product manufactured  by it in the State.  

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       3.      The order of the High Court passed in OJC No. 8052/1992 did not  confer any right on the assessee to get any specific amount by way of refund  and, thus, the High Court misdirected itself in assuming that it was so  entitled.         4.       Exemption notification read with the Industrial policy does not give  any right to claim refund from the State as the Sales Tax Officer being a  creature of Statute can grant refund only in the event the conditions therefor  are fulfilled and not otherwise.           5.      The problem had arisen on account of the taxable seller having sold  the goods to another dealer of steel from whom the assessee have purchased  the scrap and the application for grant could have been allowed subject to  the proof of the respondent that the raw material used by it for  manufacturing purposes was the goods in respect whereof the tax was paid  by the first seller.           6.      There is no practical way in which either the assessee or the  department can ascertain as to whether any tax has been paid in the State of  Orissa on the precise quantity of steel purchased by the assessee from non- taxable dealer; nor there is any practical way to quantify and determine the  exact amount of tax paid by the first seller on the steel in question as the  identity or the quantum of sales turn over is not known to the department.

       Mr. B.A. Mohanty, learned senior counsel appearing on behalf of the  respondent, on the other hand, would submit that admittedly the respondent  had purchased goods from the registered dealers and the goods in question  are tax paid goods.  Drawing our attention to the earlier judgment of the  High Court dated 23.6.1997, the learned counsel contended that the  application filed by the respondent for refund of tax should have been  considered in terms of the observations made by the High Court and in that  view of the matter the assessing authority could not have sat in appeal over  the judgment of the High Court on the following grounds :

a)      The Finance Department Notification provides for exemption from  payment of tax on purchase of raw material and not refund.

b)      The respondent has not paid any tax on purchase of raw material  from subsequent dealers as such raw material had already suffered  first point tax an earlier event of sale and therefore the respondent is  not entitled to any refund. c)      The application of the respondent for refund was in the wrong form  i.e. form no. XII A and Rule 42-A of the Orissa Sales Tax Rules,  which are applicable to refund of tax paid on declared goods sold in  the course of inter state trade and commerce under Section 14-B of  the Orissa Sales Tax Act, which was therefore not applicable to the  respondents.

       Applicability of the exemption notification, in the instant case, is not  in dispute. The fact that the dealers, from whom the respondent had made  purchases of raw material are registered, is also not in dispute. The goods  purchased by the respondent are tax paid goods.  Taxable event, however,  under sales tax laws is the transaction of sale.  Exemption, thus, would be  available only where such a transaction takes place.  So long as the taxable  event was the last purchase, no problem arose.  The State, however, altered  the taxable event. The validity of the notification altering the taxable event at  the first sale point by notification dated 22.12.1989 with effect from  1.1.1990 cannot also be disputed.   

       In Re. The Bill to Amend S. 20 of the Sea Customs Act, 1878, and S.  3 of the Central Excises and Salt Act, 1944 [(1964) 3 SCR 787] this Court  held :

       "This will show that the taxable event in the case  of duties of excise is the manufacture of goods and the  duty is not directly on the goods but on the manufacture

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thereof.  We may in this connection contrast Sales Tax  which is also imposed with reference to goods sold,  where the taxable event is the act of sale.  Therefore,  though both excise duty and Sales Tax are levied with  reference to goods, the two are very different imposts; in  one case the imposition is on the act of manufacture or  production while in the other it is on the act of sale.  In  neither case therefore can it be said that the excise duty  or Sales Tax is a tax directly on the goods for in that  event they will really become the same tax.  It would thus  appear that duties of excise partake of the nature of  indirect taxes as known to standard works on economics  and are to be distinguished from direct taxes like taxes on  property and income."                          We will assume that the application for refund of tax, filed by the  respondent, was maintainable. The question, however, is what should be the  methodology therefor.  The dealer effecting the first sale point may have  sold the raw materials at a price ’A’.  The subsequent dealer might have sold  at a price to ’B’.  Respondent might have purchased from ’C’ who had in  turn purchased the raw material from ’B’.  In terms of Section 14 of the  Central Sales Tax Act, the rate of tax is 4%.  The tax was paid on the value  of goods sold by the dealer effecting first point sale. The amount of tax  realized for the purpose of refund thus must be on the said basis. The value  of the goods of substantive transactions, upon which no tax was paid, thus  could not have been taken into consideration for the purpose of grant of  exemption.  If that be so, the respondent for the purpose of establishing its  claim for refund was required to establish : (1) what is the quantum of tax  paid to the Department by the dealer effecting first point of sale and; and (2)  whether the tax paid goods have been utilized for the purpose of  manufacture of its product by the respondent.   

       The question of refund could arise provided tax has been paid, the  logical corollary whereof would be that the claim for the refund of the tax  must be calculated on the basis of the value of the goods at the first point of  sale and not thereafter.   

       The respondent had claimed the amount of refund being a sum of  Rs.15 lacs only on the basis that as the goods purchased by it are the tax paid  once, 4% thereof should be directed to be refunded as if the actual tax paid  was on the price paid by it.  It is not so.  It is no doubt true that as the point  of levy of tax was the first point of sale which being exempted from the  notification, none of the subsequent sales thereof could be subjected to levy  of sales tax.  

        In State of Bihar & Others v. Suprabhat Steel Ltd. and Others, (1999)  1 SCC 31  this Court has held :- "7. Coming to the second question, namely, the issuance  of notification by the State Government in exercise of  power under Section 7 of the Bihar Finance Act, it is true  that issuance of such notifications entitles the industrial  units to avail of the incentives and benefits declared by  the State Government in its own industrial incentive  policy. But in exercise of such power, it would not be  permissible for the State Government to deny any benefit  which is otherwise available to an industrial unit under  the incentive policy itself. The industrial incentive policy  is issued by the State Government after such policy is  approved by the Cabinet itself. The issuance of the  notification under Section 7 of the Bihar Finance Act is  by the State Government in the Finance Department  which notification is issued to carry out the objectives  and the policy decisions taken in the industrial policy  itself. In this view of the matter, any notification issued  by government order in exercise of power under Section

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7 of the Bihar Finance Act, if is found to be repugnant to  the industrial policy declared in a government resolution,  then the said notification must be held to be bad to that  extent. In the case in hand, the notification issued by the  State Government on 4-4-1994 has been examined by the  High Court and has been found, rightly, to be contrary to  the Industrial Incentive Policy, more particularly, the  policy engrafted in clause 10.4(i)(b). Consequently, the  High Court was fully justified in striking down that part  of the notification which is repugnant to sub-clause (b) of  clause 10.4(i) and we do not find any error committed by  the High Court in striking down the said notification. We  are not persuaded to accept the contention of Mr Dwivedi  that it would be open for the Government to issue a  notification in exercise of power under Section 7 of the  Bihar Finance Act, which may override the incentive  policy itself. In our considered opinion, the expression  "such conditions and restrictions as it may impose" in  sub-section (3) of Section 7 of the Bihar Finance Act will  not authorise the State Government to negate the  incentives and benefits which any industrial unit would  be otherwise entitled to under the general policy  resolution itself. In this view of the matter, we see no  illegality with the impugned judgment of the High Court  in striking down a part of the notification dated 4-4- 1994."           But, we have no doubt in our mind that the exemption could be  granted on the basis of the price of the goods on first sale thereof.  We,  however, do not accept the submissions of Mr. Vellapally based on the  decision of this Court in Amrit Banaspati Co.Ltd. & Anr. vs. State of Punjab  & Anr. (1992) 2 SCC 411 that although the respondent was entitled to  exemption from payment of tax, it was not entitled to any refund.   In Amrit  Banaspati (supra),  this Court held :-

       "11.    Exemption from tax to encourage  industrialization should not be confused with refund of  tax.  They are two different legal and distinct concepts.   An exemption is a concession allowed to a class or  individual from general burden for valid and justifiable  reason. For instance tax holiday or concession to new or  expanding industries is well known to be one of the  methods to grant incentive to encourage  industrialization.  Avowed objective is to enable the  industry to stand up and compete in the market.  Sales  tax is an indirect tax which is ultimately passed on to  the consumer.  If an industry is exempt from tax the  ultimate beneficiary is the consumer.  The industry is  allowed to overcome its teething period by selling its  products at comparatively cheaper rate as compared to  others.  Therefore, both the manufacturer and consumer  gain, one by concession of non-levy and other by non- payment.  Such provisions in an Act or Notification or  orders issued by Government are neither illegal nor  against public policy.

12.  But the refund of tax is made in consequence of  excess payment of it or its realization illegally or contrary  to the provisions of law.  A provision or agreement to  refund tax due or realized in accordance with law cannot  be comprehended.  No law can be made to refund tax to a  manufacturer realized under a statute.  It would be  invalid and ultra vires. .."

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       In that case, the issue was as to whether the manufacturer of Banaspati  had set up an industry in the State of Punjab, on the assurance that the sales  tax amount actually collected by it from the ultimate purchasers, would be  refunded to it by way of incentive, can be enforced by a court of law.  Such a  prayer was declined on the ground that refund of tax is made in consequence  of excess payment of it.  This case, however, deals with completely different  situation as despite the exemption notification issued in terms of a statute,  the respondent was compelled to pay tax through its purchase price when it  purchased the scrap material from subsequent sellers.  The State cannot  resile itself from the statutory provisions of exemption made by it. In our  opinion, in equity, the State in a situation of this nature, must act in letters  and spirit of the Act.  However, State can only refund what it actually  collected and not any amount which it had not collected.  We, therefore, are  of the opinion that the interest of justice would be subserved if an  opportunity is given to the respondent to produce evidence before the  assessing authority in regard to existence of the legal requirements, as  noticed hereinbefore, for maintaining its claim of refund.  The assessing  authority shall give an opportunity to the respondent to place all materials in  connection therewith or in relation thereto.  It would also be open to the  assessing authority, if any situation arises therefor, to call for any record  from the Rourkela Steel Plant or any other ’dealer’.  We, furthermore, are of  the opinion that the respondent would not be entitled to any interest on the  refund amount for the present as the quantum thereof is yet to be  determined.      

       These appeals are accordingly allowed to the extent mentioned  hereinbefore and with the above directions.  However, in the facts and  circumstances of the case, there shall be no order as to costs.