IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 2267 OF 2007

Malayala Manorama Co. Ltd.         …Appellant

Versus

Asstt. Commissioner, Commercial Taxes & Anr. …Respondents

JUDGMENT

Swatanter Kumar, J.

1. M/s. Malayala Manorama Co. Ltd., Kottayam, purchased printing  

ink  for  Rs.  1,00,03,050/-  from  M/s.  Quality  Ink  Manufacturing,  

Kottayam during the year 2001-2002.  The ink so purchased was  

to be used for printing newspapers by the said firm.  This firm filed  

Form No. 18 under the Kerala General Sales Tax Act, 1963 (for  

short  ‘the  Act’)  for  purchase  of  raw  material  for  use  in  the  

manufacture  of  ‘finished goods’  i.e.  newspaper  and in  terms of  

Section 5 (3) of the Act they were liable to pay only concessional  

tax at the rate of 3%  for that period.   

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2. There was no dispute at any point of time that this concern was  

engaged in printing of newspapers.  However, the Department felt  

that no manufacturing was involved in the process of printing of  

newspapers  and,  as  such,  purchase  of  printing  ink  effected  by  

issuing Form No. 18 was not the correct statement in terms of the  

statutory provisions of the Act.  The case of the Department was  

that the declarations thus furnished by the firm were not accurate,  

according to law and there was misuse of statutory forms.  This  

resulted in  issuance of  a  notice for  imposition of  penalty under  

Section 45 (A) of the Act providing an opportunity to the firm to  

respond thereto and file its objections, if any.  It was proposed to  

impose a penalty of Rs. 18,19,208/- on the said assessee, being  

double the amount of tax due on the purchase turnover.   

3. The reply to the notice was filed by the assessee firm admitting  

that printing ink was purchased and that sub-section 3 of Section 5  

does not  stipulate  that  there  should  be manufacture  of  taxable  

goods.  It was specifically pleaded that the provisions of Section 5  

(3) of the Act were amended by the Finance Act, 2000 with effect  

from  01.04.2000  deleting  the  provision  that  manufacture  items  

shall  be taxable.  The impact of the amendment was such that,  

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according to the assessee firm,  the issuance of  notice was not  

proper.   It  was  also  stated  that  amended  section  does  not  

contemplate any ‘manufacturing’ activity and the word used was  

‘production’ and there is a clear distinction between the two.  The  

assessee relied upon the judgment of  this Court  in the case of  

Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam  

[(2001)  7  SCC  525  :  (2002)  125  Sales  Tax  Cases  101  (SC)]  

wherein it was held that ‘manufacture’ means use of raw materials  

for production of goods commercially different from raw materials  

used.  When the end product is a commercially different product, it  

amounts to manufacturing.   

4. The Assistant  Commissioner,  Commercial  Tax,  who had issued  

the notice, came to the conclusion that the concession has been  

extended to non-taxable goods also and formed an opinion that  

the concession is applicable only to ‘goods’ and newspaper was  

not a ‘goods’ within the meaning of Section 2 of the Act.  While  

referring to another judgment of this Court in Collector of Central  

Excise v. Ballarpur Industries Ltd. [(1989) 4 SCC 566 : (1990) 77  

Sales  Tax  Cases  282],  the  said  Assistant  Commissioner  

concluded that newspaper was not a ‘goods’ and, therefore, the  

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declaration  was  not  appropriate  and  imposed  a  penalty  of  Rs.  

14,66,256 for the year 2000-2001.   

5. The assessee firm did not take recourse to the statutory remedies  

available under the Act but questioned the very correctness and  

legality of the issuance of the notice as well as the order passed  

by the Assistant Commissioner before the High Court of Kerala at  

Ernakulam,  by  filing  a  writ  petition  under  Article  226  of  the  

Constitution of India.   

6. This  writ  petition  was  contested  by  the  Department  which filed  

detailed  counter  affidavit.   It  was  specifically  pleaded  by  the  

Department that for availability of statutory alternative remedy as  

well  as for  other reasons and facts stated in the reply,  the writ  

petition itself  was not  maintainable.   The Division Bench of  the  

High Court while considering this primary objection raised by the  

Department before the High Court, came to the conclusion that as  

the facts  were  not  in  dispute and questions raised were purely  

legal and are to be tested in view of the judgment of this Court in  

the case of Printers (Mysore) Ltd.  v. Assistant Commercial Tax  

Officer  [(1994)  93  Sales  Tax  Cases  95  :  (1994)  2  SCC  434],  

Whirlpool Corporation v. Registrar of Trade Marks [(1998) 8 SCC  

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1] as well as the judgment in the case of State of H.P. & Ors. v.  

Gujarat  Ambuja Cements Ltd.  [(2005)  6 SCC 499 :  (2005) 142  

Sales Tax Cases 1], the writ petition was maintainable.  However,  

while laying emphasis that the newspaper would not fall within the  

expression ‘goods’ under sub-section 3 of Section 5 of the Act, the  

High Court held that the notice issued was proper as Form No. 18  

which gives benefit of concessional rate of tax was factually not  

correct.   While dismissing the writ  petition,  however,  the Bench  

issued a direction to the assessing authority to examine whether  

the imposition of penalty at double the rate is justified in the facts  

and circumstances of the case, within a period of two months from  

the date of receipt of the copy of the judgment.  It is this judgment  

of the High Court which has been assailed in the present appeal  

under Article 136 of the Constitution of India.

7. Learned  counsel  appearing  for  the  appellant  with  some  

vehemence argued that the High Court had specifically noticed the  

contention  of  the  assessee  firm  that  the  initiation  of  the  

proceedings is  based on a provision which had been repealed,  

non-existent and inapplicable, as such, the entire proceedings and  

imposition of penalty was unjustified, still  the High Court did not  

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deal with this contention at all.  It was a pure question of law and  

would even otherwise have effect on the merits of the case.  Non-

consideration of the contention and non-recording of any reasons  

in that regard on merit, would entirely vitiate the order.  It is further  

argued  that  even  the  alternative  submission  as  to  whether  the  

newspaper was covered under the definition of ‘goods’ and as to  

what is the effect of amendment of the provisions of Section 5(3)  

and particularly, the substitution of the word ‘manufacture’ by the  

word  ‘production’  have  not  been  correctly  examined.   The  

discussion of the High Court on the matter in issue had primarily  

proceeded with reference to the un-amended provisions and on an  

erroneous impression of law that despite amendment, the ‘goods’  

will still not include ‘newspapers’.   

8. On the contra, Mr. Verma, learned senior counsel appearing for  

the Department fairly stated that the amended provisions and their  

effect have not been considered by the High Court in its judgment  

under  appeal.   Even,  according  to  him,  the  discussion  on  

amendments  with  particular  reference  to  the  word  ‘production’  

could have some impact on the alternative submission made by  

the assessee-respondent.  However, he submitted that the matter  

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at best can be remanded to the High Court and the notice cannot  

be quashed as the contentions will still have to be examined by the  

competent authority/Courts.    

9. Having heard the learned senior counsel appearing for the parties,  

we  are  of  the  considered  view that  the  order  under  challenge  

requires interference by this Court.  There is no dispute to the fact  

that the material amendments were carried out in the provisions of  

Section 5(3) of the Act with effect from 01.04.2002.  The existing  

1st proviso to Section 5(3)(i) was deleted as well as the expression  

‘or uses the same in the manufacture of any goods which are not  

liable to tax in this Act’ in Section 5(3)(i) was also deleted.  Despite  

these  amendments,  as  it  appears  from  the  record  before  the  

Court,  format  of  Form  No.  18  has  not  been  amended  

consequently.  However, the fact of the matter remains that the  

High Court has not dwelt upon these legal issues which are the  

core  issues  involved  in  the  present  case.   In  our  view,  the  

discussion on the first issue would certainly have some bearing on  

the alternative argument raised on behalf of the appellant before  

us.   Thus,  it  may not  be possible  for  this  Court  to  sustain  the  

finding recorded by the High Court in that regard.  Of course, we  

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are not ruling out all the possibilities of the High Court arriving at  

the  same  conclusion  if  it  is  of  that  view  after  examining  the  

amendments as well  as the submissions made on behalf of the  

appellant with regard to its alternative submissions.  In light of this  

discussion, we pass the following order :

(a) The impugned order dated 2nd August, 2006 passed by  

the  High Court is hereby set aside.

(b) The  matter  is  remanded  to  the  High  Court  for  

consideration afresh in accordance with law on both the  

aforesaid submissions while leaving all the contentions of  

the assessee and the Department open for the year 2000-

2001, in relation to imposition of penalty under Section 45  

(A) of the Act.

(c) The legality and validity or otherwise of the notice dated  

16.01.2006 and 17.01.2006 shall  be subject to the final  

decision of the High Court.

10. The appeal is accordingly disposed off without any order as to the  

costs.

................................J.  [ DR. B.S. CHAUHAN ]

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..............................J.       [ SWATANTER KUMAR ]

New Delhi July 8,  2010.

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