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CASE NO.: Appeal (civil)  1193-1194 of 2002

PETITIONER: ICI India Ltd. & Anr

RESPONDENT: State of Orissa & Ors

DATE OF JUDGMENT: 28/09/2007

BENCH: Dr. ARIJIT PASAYAT & TARUN CHATTERJEE

JUDGMENT: J U D G M E N T

CIVIL APPEAL NOs.1193-1194 OF 2002

Dr. ARIJIT PASAYAT, J.  

1.      These two appeals assail correctness of the judgment  rendered by a Division Bench of the Orissa High Court  dismissing the writ petitions filed by the appellants.  The two  writ petitions i.e. OJC 16928 of 1998 and 1500 of 2000 were  filed questioning correctness of the views expressed by the  Sales Tax Authorities that the appellants had contravened the  declaration given in Form IV to avail concessional rate as  provided in the Orissa Sales Tax Act, 1947 (in short the ’Act’)  and the Orissa Sales Tax Rules, 1947 (in short the ’Rules’).  In  the first writ petition challenge was to the appellate order  passed by the Assistant Commissioner of Sales Tax confirming  the assessment made by the assessing officer for the  assessment year 1997-98, whereas in the second writ petition  challenge was to the assessment order passed by the Sales  Tax Officer for the assessment year 1998-99.          2.      Background facts sans unnecessary details are as  follows:-

       The ICI India Ltd. (hereinafter referred to as ’’the  assessee") is a company incorporated under the Companies  Act, 1956 having its registered office at ICI House, 34,  Chowranghee Road, Calcutta.  It is engaged, inter-alia, in the  business of manufacture and sale of "Bulk Explosives".  For  the purpose of carrying on business at Rourkela in the State of  Orissa, the appellant has set up an industry on Plot No. 77,  Industrial Estate, Kalunga, and is registered as a dealer with  the Sales Tax officer, Rourkela \026II Circle, Panposh (Respondent  No.3).  The certificate of registration granted under Section 9  of the Act indicates that the appellant requires, amongst  others, "Ammonium Nitrate" to be used for  manufacture/processing of "Bulk Premix" for sale.  The  appellant had set up and commissioned its third bulk  emulsion premix manufacture unit at Rourkela in April, 1997.   The principal raw material for manufacture of "Bulk Premix" is  "Ammonium Nitrate Liquor".  The principal supplier of the said  raw material is the Rourkela Steel Plant of the Steel Authority  of India (in short the ’SAIL’) from whom the appellant  purchases the same. The other raw materials are either  purchased locally or purchased centrally at Gomia in Bihar  and the stock is transferred to its Rourkela Plant.  At the  Rourkela Plant, all the raw materials are utilized for

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manufacture of Emulsion Premix or Bulk Premix, which is an  excisable product. For purchase of raw material from the  Rourkela Steel Plant, the appellant gives declaration in Form  No.IV to avail the concessional rate of tax @ 4%.  It is an  admitted case of the parties that the "Bulk Premix" so  manufactured at Rourkela is not sold as such because it is an  intermediary product which is used for manufacture of "Bulk  Explosive".  This "Bulk Explosive" is not manufactured in the  Rourkela plant of the appellant.  So the "Bulk Premix" is sent  to its other branches at Angul (Talcher) and Belpahar in the  State of Orissa, for which the appellant has obtained Sales Tax  Registration, wherein the raw material has been mentioned as  "Bulk Premix", while the finished product is mentioned as  "Bulk Explosive".  Apart from sending the "Bulk Premix" to its  different branches in the State of Orissa, the appellant also  transfers/sells the goods outside the State.

3.      For manufacture of "Bulk Explosive", the "Bulk Premix"  is carried in special tankers dedicated for such purpose to the  actual blasting site from the onsite support plants where the  ingredient i.e. "Bulk Premix" and other chemicals are mixed in  proportion commensurate with the character of the rock  and/or other substances to be blasted.  Such mixing in right  proportion takes places at the site of blasting and the  resultant manufacture being explosive is discharged into the  bore holes at the mine bench. It is at this stage that the "Bulk  Premix" when mixed with the other chemicals and discharged  into bore holes becomes explosives and at that stage the sale  of explosives takes place and the sales tax and excise duty are  paid on such sale of "Bulk Explosive".

4.      In the assessment order for the year 1998-99, the  assessing officer did not find any violation of the declaration  given by the appellant while purchasing "Ammonium Nitrate",  though the "Bulk Premix" has been transferred from Rourkela  plant to Talcher and Belpahar, i.e., inside the State of Orissa,  and did not make any addition for the same.   But, for goods  sent outside the State of Orissa, the assessing officer was of  the view that the appellant had contravened the provisions of  the 5th proviso to Section 5(1) of the Act by furnishing wrong  declaration as the goods manufactured were not sold.  For the  year 1997-98, however, all transfers of "Bulk Premix", whether   inside or outside the State of Orissa, were disallowed and it  was held that the appellant has contravened the declaration  given in Form IV while purchasing the raw material.  This  order was confirmed by the Assistant Commissioner of Sales  Tax. 5.      Considering the rival stands taken before it, the High  Court noted that the only question that arose for consideration  was whether the appellant who purchased raw materials for  manufacture/processing of "Bulk Premix" for sale on the  strength of declaration can be said to have violated the  declaration when the "Bulk Premix" was transferred to its  different branches for manufacture of "Bulk Explosive". The  High Court held that the Sales Tax Authorities were justified  in demanding differential tax as provided in the 5th Proviso to  Section 5(1) of the Act on the raw material (Ammonium  Nitrate) purchased by furnishing declaration in Form IV by  paying concessional tax at the rate of 4%.  The writ  applications were accordingly dismissed.

6.      In support of the appeals it is stated by Dr. D.P. Pal,  learned Senior Advocate that the only question that arises for  consideration is whether the raw material i.e. "Ammonium  Nitrate Liquor" was used for the purpose of manufacturing

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"Bulk Premix" in the Rourkela factory?  Such "Bulk Premix" is  undisputedly the raw material for manufacturing used in the  manufacture of "Bulk explosive".  Such products were for sale  and were actually sold. Even if the "Bulk Premix" gets  transferred outside the State of Orissa for being further used  in the manufacture of a final product i.e. "Bulk Explosive",   there is no contravention of the 5th proviso to Section 5(1) of  the Act.  Raw materials purchased at concessional rate of tax  would be liable to tax at the full rate prevailing on the  following conditions satisfied :

(1)     The dealer must be a registered dealer. (2)     The goods or class of goods must be specified in its  certificate of registration as being intended for use  within the State of Orissa by him in the  manufacture/processing of goods for sale. (3)     The goods so manufactured must be sold. (4)     The purchasing dealer must furnish a declaration in  Form IV.                 In case the goods so purchased are used for  any other purpose or utilized outside the State of  Orissa, the dealer shall pay the differential tax on  the goods.

7.      It was pointed out that there is no dispute or controversy  that the raw material i.e. "Ammonium Nitrate Liquor" has been  used within the State of Orissa by the appellant in the  manufacture of goods namely "Bulk Premix".  But the "Bulk  Premix" so manufactured gets further processed for the  manufacture of the final product i.e. "Bulk Explosives" which   undisputedly was for  sale and is actually sold.  It is submitted  that law does not require that the final products which are for  sale should to be sold within the State of Orissa. Reliance is  placed on Paragraphs 11 and 18 of M/s. Polestar  Electronic  (Pvt.) Ltd.  v. Additional Commissioner, Sales Tax and Another  (1978(1) SCC 636) to support the argument.  Reference is also  made to J.K. Cotton Spinning & Weaving Mills Co. Ltd. v.  S.T.O., Kanpur, and another (1965 (16) STC 563) which  related to meaning of expression "in  manufacture of goods"  appearing in Section 8(3) (b) of the Central Sales Tax Act, 1956  (in short the ’Central Act’)  which, according to appellant is in  pari materia with the 5th proviso to Section 5 (1) of the Act.   Reference is also made to decision of the Orissa High Court in  Indian Aluminium Co. Ltd. v. S.T.O.  (1993) 90 STC 410) for  this purpose. It is, therefore, submitted that so long as the  goods, that is, the intermediary products are manufactured  within the State of Orissa but are used in the manufacture of  final product either in the State of Orissa or outside, the raw  materials have been used for manufacture of goods for sale,  and there is no contravention of the 5th proviso to Section 5 (1)  of the Act.   

8.      Per contra, learned counsel for the respondent-State and  its functionaries submitted that the factual position as noticed  by the Authorities and the High Court clearly shows that the  5th proviso to Section 5(1) is clearly attracted. The said  provision pertains to tax concession. When the claim  concessions are under consideration, these provisions have to  be construed strictly. The appellant is in the business of  manufacture and sale of "Bulk Explosive", which has several  uses in Orissa. "Bulk Premix" is used as raw material for  manufacture and sale of "Bulk Explosive" as per the Certificate  of Registration. However, so far as the Rourkela unit is  concerned, the company has different Certificate of  Registration and it is admitted that the appellant

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manufactures only "Bulk Premix" in this unit. In the  Certificate of Registration it is mentioned that raw materials  purchased would be used in the manufacture of "Bulk  Premix". Though certificate also mentioned about "machineries  for explosives" before the High Court it was conceded that it is  a mistake and assessee does not manufacture "Bulk  Explosives" in the Rourkela Unit. Thus the appellant  purchases raw materials mainly from SAIL in Orissa and other  raw materials in Bihar and had manufactured "Bulk Premix"  in their Rourkela Unit.  Undisputedly, appellant gave  declaration in Form IV for concessional rate of tax i.e. 4%.   Admittedly, the appellant did not sell "Bulk Premix"  manufactured by it and the same is used after stock transfer  for manufacture of "Bulk Explosive" in other units in Orissa  and places outside the State.   

9.      It is submitted by the revenue that the stress is on use of  the goods purchased in the manufacture/process of "goods for  sale".  By not selling "Bulk Premix" and instead effecting stock  transfer for manufacturing of "Bulk Explosives" for sale, there  is clear violation of the first limb of the 5th proviso to Section  5(1) and therefore second limb of the proviso is attracted  making the assessee liable to pay the differential tax on goods.  

10.     The First proviso to Section 5(1) is conceptually different  from Section 8(3) of the Central Act. While the Act used the  expression "within the State of Orissa" the Central Act does  not have any such restriction.  This is inevitable because in  respect of the Central Act, the sale has to be outside the State.   The use of the expression "within the State of Orissa" in 5th  proviso makes the position clear that the raw materials  purchased must be used for manufacture of goods in the State  of Orissa for sale.

11.     Entry serial No. 48 of List \026C, is quoted below :-

"Goods of the class or classes specified in  the certificates of registration of the registered  dealer purchasing the goods as being intended  for use by him in the manufacture or  processing or packing of goods for sale or in  mining or in the generation or distribution of  electricity or any other form of power subject  to the production of true declaration by the  purchasing registered dealer or his authorized  agent in Form IV."

12.     The 5th proviso to section 5(1) of the Act reads as under :-

"5. Rate of tax \026 (1) The tax payable by a  dealer under this Act shall be levied on his  taxable turnover at such rate, not exceeding  twenty five percent, and subject to such  conditions as the State Government may, from  time to time, by notification specify:

xx              xx                                      xx Provided further that where a registered  dealer purchases goods of the class or classes  specified in his Certificate of  Registration as  being intended for use within the State of  Orissa by him in the manufacture or  processing of goods for sale or in mining or in  generation or distribution of electricity or any  other form of power at concessional rate of tax

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or free of tax after furnishing a declaration in  the prescribed form, but utilizes the same for  any other purpose or outside the State of  Orissa, he shall pay the difference in tax or the  tax, as the case may be, payable had he not  furnished the declaration."

13.     Form IV, which is appended to the list of taxable goods,  is in the following language :-

"I/we\005\005\005\005hereby declare that the goods  purchased by me/us in ash Memo/Bill No\005\005\005dated  the \005\005\005from\005\005\005shall be used in the  manufacture/processing or packing of goods for sale in  mining/generation or distribution of electricity or any  other form of power.                                         Dealer/Auhorised Agent."

14.     The 5th proviso to Section 5(1) indicates the purpose for  which the goods are intended to be used i.e. for  manufacture/processing of goods for sale.  In the instant case  the raw material purchased for manufacture of "Bulk Premix",  has not been used for any other purpose.  But the  manufactured product i.e. "Bulk Premix" has not been sold  but has been transferred to other branches of the appellant  situated inside as well as outside the State of Orissa.

15.     As noted above the Certificate of Registration indicates  that the raw materials purchased would be utilized in the  manufacture of "Bulk Premix".  There is also a mention about  "machinery for explosive". Though it was contended by the  appellant that the same is the mistake of fact and the only  thing which is intended to be produced at Rourkela is "Bulk  Premix", it is conceded that the "Bulk Premix" manufactured  had not been sold but has been sent to different places for  manufacture of other goods i.e. "Bulk Explosive".  The position  is factually different from that under consideration in Indian  Aluminum’s case (supra) as the appellants instead of selling  the manufactured goods transferred it to other places for  further manufacture of "Bulk Explosive". The transfer clearly  falls within the expression "any other purpose" mentioned in  the 5th proviso to Section 5(1) of the Act. As the goods  manufactured have not been sold but have been transferred,   there is a violation of the terms of the declaration and the  assessee has been rightly held to be liable for payment of the  differential tax payable on the  raw materials purchased at  concessional rate of tax by 4% paid by furnishing Form IV.   High Court’s impugned judgment, therefore, does not warrant  any interference. It may be noted that the High Court made  some observation about what would have been the  consequence had there been mention of final product in the  Certificate of Registration of the appellant.

16.     Learned counsel for the respondent-State submitted that  the observations of High Court are erroneous. Though learned  counsel for the appellants also referred to the observation to  support their stand, we make it clear, that we have not  expressed any opinion about the correctness of the said view  as that does not really fall for determination in the present  case.

17.     The appeals fail and are accordingly dismissed.