M/S Indian Farmers Fertilizer ... vs The Commissioner Of Commercial ...
2022 Latest Caselaw 5765 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

Reserve Judgment
 
Court No. - 8                            AFR
 

 
Case :- SALES/TRADE TAX REVISION No. - 7 of 2011
 

 
Revisionist :- M/S Indian Farmers Fertilizer Cooperative Limited Aonla
 
Opposite Party :- The Commissioner Of Commercial Taxes U.P. Lucknow
 
Counsel for Revisionist :- Rahul Srivastava,Arvind Saran Das,Piyush Agarwal,Pooja Tawar,Yogesh Chandra Srivastava
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble Alok Mathur,J.

1. Heard Ms. Pooja Talwar, learned counsel for the revisionist as well as Sri Rohit Nandan Shukla, learned counsel appearing for the revenue.

2. The revisionist have assailed the order of the Trade Tax Tribunal dated 13.10.2010 whereby the second appeals preferred by them has been partly allowed, and certain goods have been held to be validly purchased utilizing Form C and were held to be entitled for the concessional rate of tax, while with regard to the purchase of Locomotives and Railway siding and spares, transmitters and computer stationery were held to have been unauthorisedly purchased against Form C, for which penalty of Rs. 56,19,991.00 has been imposed.

3. The revisionist is a Cooperative Society under the administrative control of Ministry of Fertilizer and Chemical, Department of Fertilizers, Government of India and a registered dealer both under the UP Trade Tax Act as well as the Central Sales Tax Act (hereinafter referred to as "the Act") and is engaged in the business of manufacture and sale of chemical fertilizers [urea] .

4. The controversy in the present case relates to the assessment year 1989-90 arising out of penalty proceedings initiated under Section 10A of the Act, where, by means of order dated 22/02/1993, penalty was imposed on purchase of Iron Steel, cement and other various items to the tune of Rs.1,60,00,000/-. The first appeal was preferred before Joint Commissioner (Appeals), Bareilly which was dismissed on 29/01/1994. The order of the passed by the Joint Commissioner (Appeals), Bareilly was assailed before the Commercial Tax Tribunal (hereinafter referred to as "the Tribunal"), in Second Appeal No. 148 of 1994, which was partly allowed by means of order dated 27.10.2006, and sustained the penalty imposed on purchase of cement and iron & steel. Aggrieved by the order of the Tribunal, Revision preferred before this Court being Trade Tax Revision No. 04 of 2007, which was allowed on 04/07/2007, and the order of the Tribunal was set aside and the matter was remanded to the Tribunal to decide the case on merits afresh expeditiously.

5. It is in the remand proceedings that the present impugned order dated 13.10.2010 has been passed which has been assailed before this court in the instant revision. It has been submitted by Ms. Pooja Talwar appearing on behalf of the revisionist that he had moved an application under Section 7(2) of the Act for registration in Form A on 31/01/1985 for grant of registration certificate with regard to the material used in manufacture of fertilizer, for permitting them to purchase the same at concessional rate of tax. It has been submitted that the applications for purchase of certain items including Steel Pipes and Pipe Fittings as material which is used in manufacture was allowed. Another application was submitted on 16/09/1985 for adding more items on the list and the authorities after being satisfied noticed that Iron and Steel in all forms and shapes has been included in Item 4, cement and another compounding material is already included in Item 5 and pipes of all kinds and pipe fittings including valves and bracket is already registered with the previous registration certificate and proceeded to include all the other items as requested by the revisionist.

6. It has further been submitted that against Form C the revisionist continued to purchase and utilize Iron and Steel, Cement, Pipe Fittings etc. after declaration and submission of his return in this regard before the Assessing authority and no objection was taken by them for the assessment year 1985-86, 1986-87, 1987-88 and 1988-89. For the assessment year 1989-90 after giving a show cause notice, penalty was imposed upon the revisionist holding that the Cement and Iron and Steel purchased on Form C was not used for the purpose of manufacture of goods rather than they were used unauthorisedly for construction of factory building, electrification and building township and road and hence violated the provisions of Section 10 (d) of the Act. The revisionist was also penalized for the utilization of Form C for the purchase of locomotives, as locomotives was not included in the registration certificate and utilizing Form C for purchasing the same on concessional rate of tax constituted an offence under Section 10 (b) of the Act.

7. It has been argued on behalf of the revisionist that Railway siding and locomotives are integral part of the machinery used for the manufacturing process as the raw material is carried to the manufacturing plant and also from the manufacturing site to wagons for loading the finished product, and hence no illegality has been committed by purchasing the said goods against Form C.

8. Following questions arise for consideration before this Court :-

(I) Whether in view of the judgment of Hon'ble Supreme Court in the case of Sanjiv Fabrics (supra) and in the case of Commissioner of Commercial Taxes Vs. Bombay Garage (supra), the imposition of penalty in absence of mens rea which is essential ingredient for levy of penalty under Section 10-A of the Act, the order passed by the Tribunal is justified?

(II) Whether admittedly the railway siding, locomotive and transformer and its spare parts and diesel used therein are so integrally connected without which ultimate production is not possible, still imposition of penalty on the above items is justified?

9. It has been submitted by learned counsel for the revisionist that application under Section 7(2) of the Act in Form-A were given from time to time for including goods stated therein for being purchased at the concessional rate of tax which were essential for the manufacture process and by means of orders dated 03.04.1986, 08.07.1988 and 26.11.1998, were issued permitting the revisionist to include the items as stated in the said applications.

10. It is relevant to state that it is only when an application was made under Section 7(2) of the Act by the revisionist on 26.11.1998 for including Railway Siding , Locomotives and Transmitters, that the application of the revisionist was allowed and they were entitled to purchase the said goods at the concessional rate of tax with effect from 31.03.1995.

11. The provisions of the Act indicate that every dealer has to make an application for registration under Section 7 of the Act containing the details and particulars of the goods which are to be used by the dealer in the manufacturing process and the authority on being satisfied grants approval in form of Certificate of Registration, pursuant to which the dealer purchases the said goods on Form-C issued by the authorities in this regard.

12.The allegation against the revisionist is that he purchased railway siding and locomotives and certain other goods utilizing Form-C to enable him to purchase the said goods at concessional rate of tax, whereas Railway Siding ,Locomotives and Transmitters are not listed as goods for which the revisionist had neither applied nor was he permitted to purchase the same utilizing Form-C, for which he was subjected to penalty proceedings under Section 10 of the Act.

13. The argument of the revisionist that Railway Siding ,Locomotives and Transmitters are essential for manufacture of finished goods, may be correct as for subsequent years i.e. with effect from 31.03.1995 the revisionist has been duly registered for purchase of the said goods but for the assessment year under consideration, admittedly the revisionist was not registered for purchase of the said goods against From-C.

14. Whether the revisionist had correctly utilized Form-C for purchase of said goods can be answered once we peruse the provisions contained in Section 10 of the Act. As per Sub Clause (b) of section 10 of the Act, penalty can be imposed upon registered dealer who falsely purchase any class of goods that goods are covered by certificate of registration. Thus, Section 10(b) of the Act clearly indicates that in case any dealer has not obtained registration certificate for purchase of any product or any class of goods or the same are not covered by the certificate of registration then penalty can be levied upon the dealer in case he purchases the said goods utilizing Form-C. In the present case, admittedly, the revisionist did not have Certificate of Registration for purchase of Railway Siding, Locomotives and Transmitters and hence he could not have utilized Form-C for purchase of said goods and his case is covered under Section 10(b) of the Act and therefore penalty proceedings were initiated by the Assessing Authority.

15. Assailing the said penalty, the learned counsel for the revisionist submitted that Railway Siding, Locomotives and Transmitters are essential for manufacture process and in support of his contention the revisionist has relied upon the judgment of Hon'ble Supreme Court in the case of Indian Copper Corporation Ltd. Vs. Commissioner of Commercial Taxes, Bihar and Others, AIR 1965 SC 891, where the petitioner had applied to the Superintendent of Sales Tax, Jamshedpur for registration as dealer under the Central Sales Tax setting out a list of goods for specification in the certificate of registration under Section 8 of he Act. The Superintendent of Sales Tax issued the certificate of registration to the Corporation without specifying certain categories of goods which the Corporation claimed should be specified under Section 8(3)(b) of the Act. The Corporation then petitioned the High Court under Articles 226 and 227 of the Constitution of India for an order that the Superintendent of Sales Tax be directed to specify the goods mentioned in paragraph 4 of the petition in the certificate of registration granted to the petitioner, and to forbear from levying or realizing tax under the Act from the Corporation in excess of one per cent under Section 8(1) of the Act.

16. The Court in the aforesaid facts was of the considered view that locomotives and vehicles used to carry finished products from factory are included in the expression "goods" intended for use in the manufacturing or processing of goods for "sale", and hence directed the authorities to include certain goods used in the manufacture of final products.

17. The facts of the aforesaid case are clearly distinguishable from the facts of the present case inasmuch as admittedly for the assessment year under consideration there was no application made by the revisionist for including Railway Siding, Locomotives and Transmitters for grant of Registration Certificate and also it is not the case of the Revisionist that authorities have rejected the said application. In fact as stated hereinabove, the application was subsequently made some time in March, 1995 and was allowed on 26.11.1998 with effect from 31.03.1995. The revisionist was fully aware of the all the facts and the requirement of the Railway Siding ,Locomotives and Transmitters , but did not make any application under Section 7 of the Act, but on the other hand continued to purchase the said goods utilizing Form-C, which is not permissible under the scheme of the Act, knowing fully well that the said purchase on Form C was unauthorized.

18. It is also noticed that railway siding, locomotives and transmitters are not such goods as can be included in any other class of goods for which certificate of registration had already been obtained by the revisionist and hence neither it has been argued nor it is established that railway siding, locomotives and transmitters are such goods which can be included in any other class or category of goods for which registration certificate has already been granted to the revisionist.

19. Lastly it has been submitted by the revisionist that unless there is element of 'mens rea' which is essential for imposing penalty under Section 10 of the Act is missing and therefore the penalty order is illegal and arbitrary relying upon the judgment of Supreme Court rendered in the case of Commissioner of Sales Tax, U.P. Vs. M/s Sanjeev Fabrics (alongwith another connected case), reported in 2010 NTN (Vol. 44) - 69.

20. In the aforesaid case, the applicant therein had applied for registration of 'cotton' and had claimed exemption on 'cotton' waste' and he was under bona fide belief that 'cotton' includes 'cotton waste' and he had purchased the goods in question and furnished Form-C for the said goods and in the aforesaid circumstances it was canvassed that there was no mens rea which is essential ingredient prior to levying penalty under Section 10 of the Act.

21. In the present case, the revisionist had never applied for registration of Railway Siding, Locomotives and Transmitters and in absence of registration of such goods Form-C was issued to him for purchase of the said items and it could not be demonstrated by the revisionist that he had done this under any bona fide belief or under mistake of fact. Apart from the above, clearly Railway Siding, Locomotives and Transmitters cannot be related to any other goods or class of goods for which registration had already been obtained by the revisionist, so as to show that he was under some bona fide belief that the said goods are included in the class of goods for which Registration Certificate had already been issued. In absence of any such bona fide belief, or any other circumstance indicating that revisionist could have validly purchased the said goods against Form-C, it cannot be said that the same had been obtained in a bona fide manner and hence leads to inevitable conclusion that Form-C had been utilized malafidely and unauthorizedly only with intention to evade tax.

22. From the aforesaid facts it cannot be demonstrated that purchase of goods against Form-C was done in bona fide manner nor had the revisionist moved any application for inclusion of said goods for registration under Section 7 of the Act.

23. In the above circumstances it cannot be said that there is any infirmity in imposition of penalty by the revenue under Section 10 of the Act. Hence this Court is of the considered view that there is no infirmity in the order of Tribunal and hence no interference is required by this Court.

24. The revisionist is dismissed. The questions of law are answered against the assessee and in favour of the revenue.

Order Date :- 04.07.2022

A. Verma

(Alok Mathur, J.)