http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil)  2064 of 1984

PETITIONER: ASSISTANT COMMISSIONER (INTELLIGENCE)

RESPONDENT: NANDANAM CONSTRUCTION COMPANY

DATE OF JUDGMENT: 21/09/1999

BENCH: S.P.BHARUCHA & B.N.KIRPAL & S.RAJENDRA BABU & S.S.M.QUADRI & M.B.SHAH

JUDGMENT: JUDGMENT

DELIVERED BY: S.RAJENDRA BABU, J.

RAJENDRA BABU, J.

     The  respondents are engaged in building of flats  and houses  for  which purpose they buy materials such as  sand, bricks  and  granite  from  persons  other  than  registered dealers.   These items have not suffered any sales tax.  The Assistant  Commissioner  of Commercial  Taxes,  Enforcement, called  upon  the respondents by a notice dated January  19, 1982  to  appear before him with their accounts relating  to purchase  of raw materials effected by them commencing  from April  1, 1977.  The respondents sent a reply to him stating that  they  do not trade in any goods;  that they  construct and sell flats;  that they are not registered dealers;  that said  purchases do not attract tax under Section 6-A of  the Andhra  Pradesh  General  Sales Tax Act,  1957  (hereinafter referred  to  as the Act).  Not being satisfied  with  the reply  filed by the respondents, the Assistant  Commissioner of  Commercial Taxes issued a notice on March 22, 1982 under Section  28  of  the  Act calling upon  the  respondents  to produce books of accounts and purchase bills and to file the details  relating to the purchase of raw materials  effected by  them  for  the  period commencing from  April  1,  1977. Aggrieved  by  the  said notice the respondents  filed  writ petitions  under  Article 226 of the Constitution  of  India questioning  the  jurisdiction of the appellants  to  assess them under the Act.

     Several  contentions  had been raised before the  High Court   such  as  discrimination   between  registered   and unregistered  dealers  and  that  the  respondents  are  not dealers  and  that in order to attract Section 6-A a  dealer must  have  purchased  goods from unregistered  dealers  and consumed  such  goods in the manufacture of other goods  for sale  or disposed of such goods either within or outside the State.   The  first two contentions stood rejected and  that part  of the order is not challenged before us.   Therefore, we  have  to confine ourselves to the question  whether  the respondents  who  purchased  goods from persons  other  than registered  dealers fall within the scope of Section 6-A  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

the  Act.  Section 6-A of the Act reads as follows :-  6-A. Levy  of  tax  on turnover relating to purchase  of  certain goods:   Every dealers, who in the course of business--  (i) purchases any goods (the sale of purchase of which is liable to  tax  under  this  Act)   from  a  registered  dealer  in circumstances  in which no tax is payable under section 5 or under  section 6, as the case may be, or (ii) purchases  any goods  (the sale or purchase of which is liable to tax under this  Act) from a person other than a registered dealer, and (a)  either consumes such goods in the manufacture of  other goods  for sale or otherwise, or (b) disposes of such  goods in any manner other than by way of sale in the State, or (c) despatches  them  to a place outside the State except  as  a direct  result  of  sale  or   purchase  in  the  course  of inter-state trade or commerce, shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for  the existence of the aforementioned circumstances,  the tax  would have been leviable on such goods under section  5 or section 6.

     The  respondents contention is that the goods such as sand  and  bricks purchased by them are not consumed in  the manufacture of other goods for sale inasmuch as they deal in the  construction  of  flats  which are  in  the  nature  of immovable   property.    The  respondents   are   also   not manufacturing  any  other  goods  for   sale  or  any  other purposes.  Thus, they contend that Section 6-A of the Act is not  attracted.   The contention put forth on behalf of  the appellants is that even goods consumed for building purposes otherwise  than  in the manufacture of other goods are  also covered  by  clause (ii)(a) of Section 6-A.  The High  Court found  that  there  is a conflict between the  decisions  in Ganesh  Prasad  Dixit v.  Commissioner of Sales Tax,  Madhya Pradesh,  1969  (3) SCR 490, and Deputy Commissioner,  Sales Tax  (Law) Board of Revenue (taxes), Ernakulam v.  Pio  Food Packers,  1980 (3) SCR 1271.  The High Court is of the  view that  the  said  two  decisions   having  been  rendered  by identical  composition of Bench of three Judges, the  latter decision  was  binding upon them and held that in  order  to attract  the  provisions  of Section 6-A(ii)(a) of  the  Act there  must  be  consumption of the original goods  for  the purpose  of  manufacture  of  other goods for  sale  or  for purposes  other  than  sale  and  in  the  absence  of  such consumption  the  respondents were not liable to  tax.   The matter  is brought up before this Court by way of appeal  by special leave.

     The  matter is set down before us as a Bench of  three Judges  referred  the matter to larger bench in view of  the conflict between two decisions of this Court.

     The  appellants contend that Section 6-A(ii)(a) of the Act  is  attracted to consumption of original goods  in  the manufacture  of  the other goods for sale or consumption  of original  goods  otherwise  and  placed  reliance  upon  the decision  in  Ganesh  Prasad  Dixit  (supra).   The  learned counsel also referred to the decision in Hotel Balaji & Ors. v.  State of Andhra Pradesh & Ors., 1992 Supp.  (2) SCR 182, to  contend  that the object of the provision under  Section 6-A  of  the Act is to levy purchase tax on the purchase  of raw  material  used by a consumer be that a manufacturer  or otherwise.   He  also  sought  to   place  reliance  on  the amendment made in the enactment in 1985 as clarificatory and covering the present case also.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

     The learned counsel for the respondents submitted that the  view  taken in Pio Food Packers (supra) which has  been followed in Deputy Commissioner of Sales Tax (Law), Board of Revenue(Taxes),  Ernakulam  v.   M/s Thomas  Stephen  &  Co. Ltd.,  1988 (2) SCC 264, must be accepted and at any rate if two  views are possible, the assessee should get the benefit of  doubt  and  tax ought not be  imposed.   The  subsequent amendment  to  the enactment would make the  position  clear and, therefore, the expression otherwise cannot be read as in any other manner.

     Construing  identical  provisions  in  Madhya  Pradesh Sales  Tax Act, this Court in the decision in Ganesh  Prasad Dixit (supra) stated as follows :-

     Mr.   Chagla,  for  the  appellants  urged  that  the expression   or   otherwise  is   intended  to  denote   a conjunctive  introducing a specific alternative to the words for  sale  immediately preceding.  The clause in which  it occurs  means, says Mr.  Chagla, that by section 7 the price paid  for buying goods consumed in the manufacture of  other goods,  intended to be sold or otherwise disposed of,  alone is  taxable.   We  do not think that that  is  a  reasonable interpretation of the expression either consumes such goods in  the  manufacture of other goods for sale or  otherwise. It  is intended by the Legislature that consumption of goods renders  the  price paid for their purchase taxable, if  the goods are used in the manufacture of other goods for sale or if the goods are consumed otherwise.

     Subsequently  this  Court in Pio Food Packers  (supra) considered  identical words in Kerala General Sales Tax  Act in another manner as follows :-

     Learned counsel for the Revenue contends that even if no  manufacturing process is involved, the case still  falls within section 5A(1)(a) of the Kerala General Sales Tax Act, because  the  statutory provision speaks not only  of  goods consumed in the manufacture of other goods for sale but also goods  consumed  otherwise.   There  is  a  fallacy  in  the submission.   The  clause,  truly   read,  speaks  of  goods consumed in the manufacture of other goods for sale or goods consumed  in  the  manufacture of other goods  for  purposes other than sale.

     We  are concerned in this case only with clause (a) of sub-section (ii) of Section 6-A, that is, either consumption of  such goods in the manufacture of other goods for sale or otherwise.  Clause (ii) of Section 6-A of the Act postulates levy  of tax on purchase of goods from a person other than a registered dealer for consumption or disposal or despatch of goods  outside  the State.  So the scheme of clause (ii)  of Section 6-A of the Act is that when the goods cease to exist in  the original form or cease to be available in the  State for sale or purchase, the purchasing dealer of such goods is liable  to tax if the seller is not or cannot be taxed.   To our  mind, it appears that the object of Section 6- A(ii)(a) of  the Act is to levy purchase tax on goods consumed either for  the  purpose of manufacture of other goods for sale  or consumed otherwise.  If the view in Pio Food Packers (supra) is  accepted  the  result  would   be  that  the  expression otherwise  will qualify the expression sale and not  the expression   manufacture,  which  appears  to  us  to   be erroneous  on  a plain construction of the  provision.   The intention  of the legislature, it appears to us, is to bring

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

to  purchase tax in either event of consumption of goods  in the manufacture of goods for sale or consumption of goods in any  other  manner.   Once  the goods are  utilised  in  the construction  of buildings the goods cease to exist or cease to  be available in that form for sale or purchase so as  to attract  the  tax and, therefore, the correct meaning to  be attributed  to the said provision would be that tax will  be attracted when such goods are consumed in the manufacture of other  goods  or are consumed otherwise.   Therefore,  while agreeing  with  the view in Ganesh Prasad Dixit  (supra)  on this  aspect, we overrule to this extent the view  expressed in Pio Food Packers (supra).  Consequently, we set aside the impugned  order made by the High Court and dismiss the  writ petitions.   It is now up to the department to proceed  with the   assessment  after  giving   due  opportunity  to   the respondents  to  file  their  objections.   Considering  the nature  and  circumstances  of the case, there shall  be  no order as to costs.