Karnataka High Court
Apotex Research Private Limited vs The Addl. Commissioner Of Commerical ... on 23 January, 2025
Author: Krishna S Dixit
Bench: Krishna S Dixit
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU R
RD
DATED THIS THE 23 DAY OF JANUARY, 2025
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE G BASAVARAJA
SALES TAX APPEAL NO. 1 OF 2021
BETWEEN:
M/S APOTEX RESEARCH PRIVATE LIMITED
SITE NO. 1, BOMMASANDRA INDUSTRIAL AREA,
4TH PHASE, JIGANI LINK ROAD,
BENGALURU - 560 099.
REP BY SHRI YOGANJANEYA REDDY, DIRECTOR.
...APPELLANT
(BY SRI.PRASHANTH S.SHIVADASS.,ADVOCATE)
AND:
THE ADDL. COMMISSIONER OF COMMERICAL TAXES
ZONE II, 6TH FLOOR, VTK 1,
GANDHINAGAR, BENGALURU - 560 009.
...RESPONDENT
(BY SRI.ADITYA VIKRAM BHAT.,AGA)
Digitally signed
by SHARADA THIS STA FILED UNDER SECTION 66(1) OF THE KVAT
VANI B ACT, 2003 AGAINST THE ORDER DATED 26.09.2019 PASSED
Location: HIGH IN NO.ADCOM/ZONE-II/APP-4/SMR/CR-17/2019-20 ON THE
COURT OF
KARNATAKA FILE OF THE ADDITIONAL COMMISSIONER OF COMMERICAL
TAXES ZONE-II, GANDHINAGAR BANGALORE SETTING ASIDE
THE ORDER DATED 12.06.2018 PASSED IN CST.AP. 59/2017-
18 BY THE JOINT COMMISSIONER OF COMMERCIAL TAXES
(APPEALS) 4 BANGALORE ALLOWING THE APPEAL AND FILED
AGAINST THE PENALTY ORDER DATED 16.11.2016 PASSED
UNDER SECTION 8(3)(b) OF THE CST ACT 1956, BY THE
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (LGSTO)
- 26 BANGALORE FOR THE TAX PERIODS FROM 2009-10 TO
2013-14.
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THIS STA, COMING ON FOR FINAL HEARING, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT
and
HON'BLE MR JUSTICE G BASAVARAJA
ORAL JUDGEMENT
(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)
This Appeal by the Assessee presented u/s.66(1) of
the Karnataka Value Added Tax Act, 2003 (hereinafter
"KVAT Act" or "2003 Act") seeks to lay a challenge to the
order dated 26.09.2019 whereby the Respondent-Addl.
Commissioner of Commercial Taxes having exercised
revisional powers vested in him u/s.9(2) of the Central
Sales Tax Act, 1956 (hereinafter "CST Act" or "1956 Act")
r/w Sec.64 of the 2003 Act having set aside Joint
Commissioner's order dated 12.06.2018 made in the
Assessee's Appeal. As a consequence, the Penalty Order
dated 16.11.2016 passed by the Asst. Commissioner of
Commercial Taxes u/s.10A r/w Sec.A3(b) of the 1956 Act
has been revived.
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2. FOUNDATIONAL FACT MATRIX:
2.1 Appellant-Assessee is a Private Limited Company.
It is registered as a dealer both under the provisions of
2003 Act and 1956 Act. It is engaged in the manufacture
and sale of pharmaceuticals. The ACCT with his team
conducted spot inspection of Assessee's business premises
and discovered that the Assessee had effected inter-State
purchases of goods not specified in the Assessee's
Registration Certificate.
2.2 On the basis of Inspection Report 31.10.2014, the
ACCT had issued notice dated 12.05.2016 u/s.10A of the
1956 Act proposing penalty at the statutorily specified
rate. The Assessee filed his reply denying the allegation
stating that a registered dealer is eligible to avail
concessional levy of CST by issuing C-Forms against the
purchases of goods that are intended for resale or for use
in the manufacturing or for processing for resale as
provided u/s.8(3)(b) of the Act. This reply was not agreed
to and the ACCT found violation of the provisions of
Sec.8(3)(b) on the ground that the very issuance of C-
Forms was illegal since the subject goods do not answer
the kind of goods enumerated in the Registration
Certificate. Therefore, he made Penalty Order dated
16.11.2016 levying a penalty of Rs.3,50,47,471-00.
Assessee's rectification application dated 18.12.2017 filed
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u/s.69(1) of 2003 Act came to be negatived vide
Endorsement dated 16.01.2018.
2.3 Aggrieved by the Penalty Order and the
Endorsement, the Assessee preferred an Appeal before the
JCCT (Appeals)-4 u/s.9(2) of the 1956 Act r/w Sec.62 of
2003 Act. The Appeal came to be allowed vide order
dated 12.06.2018 recording a finding that the category of
goods purchased by the Assessee as per the
Reassessment Orders were found to be in the nature of
capital goods utilized by him in the business activity and
they match with the category of goods vide B-53 Code
enlisted in the Registration Certificate since 2009 till the
period of assessment.
2.4 The Addl. Commissioner of Commercial Taxes,
Zone-II, Bangalore took up the matter in exercise of suo
moto revisionary powers u/s.9(2) of 1956 Act r/w Sec.64
of 2003 Act. Having issued a proposition notice and having
heard the Assessee, he set aside the order dated
12.06.2018 of JCCT Appeals by his order dated
26.09.2019. Now this appeal from the revisionary order is
at our hand.
2.5 A Co-ordinate Bench of this Court had admitted
the Appeal vide order dated 10.01.2023 on the following
questions of law:
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"1. Whether the impugned order passed by the
respondent is correct when the FAA has passed
order in favour of the appellant on the same set of
facts and documents?
2. Whether the impugned order passed by the
respondent amounts to a re-assessment and not a
revision?
3. Whether, penalty can be levied under Section
10-A of the CST Act, in the absence of 'mens rea'
on the part of the appellant?"
3. Learned counsel appearing for the Assessee
vehemently argues that the original Certificate of
Registration as a dealer was obtained by his client on
01.04.2005; subsequently, amended Certificate of
Registration was obtained on 24.02.2009 which has been
in force till the relevant period; the goods in question
answer the description of sub-category 'B', Code 53.01 as
mentioned in the amended Certificate. The ACCT had
committed an error which he refused to rectify his
reassessment order despite a request; the JCCT in the first
Appeal having rightly considered the matter held that the
goods in question fall within the sub-category of the goods
described in the amended certificate and therefore, had
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set aside the Penalty Order; this order could not have
been set at naught by the Addl. CCT for no reason or
rhyme. In support of his contention, he banks upon a Co-
ordinate Bench decision in M/S.KALABURAGI CEMENTS
PVT LTD., vs. ADDL. COMMISSIONER COMMERCIAL
TAXES1.
4. Learned AGA Mr.Aditya Vikram Bhat appearing for
the Revenue resists the appeal with equal vehemence
making submission in justification of the impugned order
and the reasons on which it has been constructed. The
thrust of his submission is that the subject goods which
the Assessee admittedly had bought do not fit into the
class of goods enumerated in the amended Registration
Certificate; and further, the Assessee has not used these
goods for the manufacture, resale or for processing for the
purpose of resale; there is a wealth of material which the
Addl. Commissioner has rightly considered to come to a
conclusion that these goods have been utilized for the
1
2017 SCC OnLine KAR 4412
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construction of Assessee's building. He adds that in
interpreting the class of goods mentioned in the amended
Registration Certificate, the rule of ejusdem generis; the
goods enlisted have a genus & species. He also argues
that the question of mens rea has to stay away from
consideration. He disputes invokability of Co-ordinate
Bench decision in the fact matrix of this case, arguing that
it essentially related to mining, where different
considerations figure. So contending, he seeks dismissal
of the Appeal.
5. Having heard the learned counsel for the parties
and having perused the Appeal papers, we decline
indulgence in the matter answering the framed questions
of law against the Assessee and in favour of the Revenue
for the following reasons:
5.1 The first submission of the learned counsel appearing
for the Assessee that goods in question bought by his
client during the relevant period answer the description of
those specified in the amended Registration Certificate
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issued on 04.02.2009 is difficult to agree with. The said
Certificate on its blurb, has the following contents:
CST COMMODITIES-ANNEXURE
TIN:29510220067
CST Act, 1956: COMMODITIES LIST
Sub Code Commodity Description
Category
B 53.01 PHARMA PRODUCTS INCLUDING CAPTIAL GOODS
{10/02/2004}
B 62.01 CARTON BOXES {10/02/2004}
5.2 Section 8 of the 1956 Act, in so far as it is relevant to
this matter, reads as follows:
"8. Rates of tax on sales in the course of inter-
State trade or commerce.--
(1) Every dealer, who in the course of inter-State
trade or commerce, sells to a registered dealer
goods of the description referred to in sub-section
(3), shall be liable to pay tax under this Act, which
shall be three percent, of his turnover or at the
rate applicable to the sale or purchase of such
goods inside the appropriate State under the sales
tax law of that State, whichever is lower:
Provided that the Central Government may, by
notification in the Official Gazette, reduce the rate
of tax under this sub-section.
...
(3) The goods referred to in sub-section (1)are
goods of the class or classes specified in the
certificate of registration of the registered dealer
purchasing the goods as being intended for re-sale
by him or subject to any rules made by the Central
Government in this behalf, for use by him in the
manufacture or processing of goods for sale or in
the tele-communications network or in mining or in
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the generation or distribution of electricity or any
other form of power;
(4) The provisions of sub-section (1) shall not
apply to any sale in the course of inter-State trade
or commerce unless the dealer selling the goods
furnishes to the prescribed authority in the
prescribed manner a declaration duly filled and
signed by the registered dealer to whom the goods
are sold containing the prescribed particulars in a
prescribed form obtained from the prescribed
authority:
Provided that the declaration is furnished within the
prescribed time or within such further time as that
authority may, for sufficient cause, permit."
5.3 The relevant form, namely Form-C is prescribed
pursuant to Rule 12 of the CST (Registration & Turnover)
Rules 1957. Thus, a Registered dealer purchasing the
goods is eligible to avail concessional levy of CST by
issuing C-Forms against the purchases of goods which are
included in its Certificate of Registration and are intended
for resale, for use in the manufacture or processing of
goods for sale. The legislative intent is very clear. Such
a concession cannot be availed if the goods bought by the
Assessee are not included in its Certificate of Registration
and are not used in the manner prescribed in Section 8 (3)
(b). In the current context, the purchased goods ought to
have been used in the manufacture or processing of goods
for sale and not utilized in the construction of building or
for office interiors of the Assessee.
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5.4 From a reading of the order of the assessing officer
as well as the order in suo moto revision, it becomes clear
that the Assessee has issued C Forms in respect of the
following items:
"• Clean room accessories and room accessories
including pre-fabricated clean rooms.
• Glass-ware for factory doors housing raw
materials and components.
• Room accessories and clean room accessories
including the following items; Hi Pharma walkable
False Ceiling (Nicomac Clean Rooms), Hi Pharma
Double Skin Walls, Glasses, Grills, Aluminium
Coving, 90 Degree Corners, Single sliding doors,
Double doors View Glasses on doors, Change
Lockers, Apron Cup Boards."
By no stretch of imagination, it can be assumed that these
goods answer the description found in the Certificate of
Registration. Mr. Aditya Vikram Bhat is right in his
submission that the description at Sub-Category (b) Code
53.01 is "PHARMA PRODUCTS INCLUDING CAPITAL
GOODS". The expression "Pharma Products" is genus and
the expression "including Capital Goods" that follows it is,
species. In other words, the goods should have the
characteristics of genus i.e., Pharma products. Otherwise,
any goods would fit into the inclusive category and that
would defeat the very legislative purpose.
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5.7 The meaning of the expression "in the manufacture
of goods" was considered by the Apex Court in JK
COTTON SPINNING AND WEAVING MILLS LTD2.
The Supreme Court held that:
"This expression would normally encompass the
entire process carried on by the dealer of
converting raw materials into finished goods.
Where any particular process is so integrally
connected with the ultimate production of goods
that but for that process, manufacture or
processing of goods would be commercially
inexpedient, goods required in that process
would, in our judgment, fall within the expression
in the manufacture of goods.
(emphasis supplied)"
The same judgment has expressly considered the case of
materials that go into a building that may house a
manufacturing unit by observing:
"Building materials including lime and cement
not required in the manufacture of tiles for sale
cannot, however, be regarded within the
meaning of Rule 13, as raw materials in the
manufacture or processing of goods or even as
"plant". It is true that buildings must be
constructed for housing the factory in which
machinery is installed. Whether a building is a
"plant" within the meaning of Rule 13, is a difficult
question on which no opinion need be expressed.
But to qualify for specification under s. 8 (3) (b)
goods must be intended for use of the nature
mentioned in Rule 13, in the manufacture of goods.
Building materials used as raw materials for
construction of "plant" cannot be said to be
used as plant in the manufacture of goods.
The Legislature has contemplated that the goods to
AIR 1965 SC 1310
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qualify under s. 8 (3)(b) must be intended for use
as raw materials or as plant, or as equipment in
the manufacture or processing of goods, and it
cannot be said that building materials fall within
this description"
In this background, the vehement submission of learned
counsel for the Assessee that the subject goods even if
utilized for the building of the structure, his client will be
entitled to concessional benefits, runs counter to the
statutory policy enacted in Rule 13 of Central Sales Tax
(Reign and turnover) Rules, 1957, which has the following
text:
"The goods referred to in clause (b) of sub-section
(3) of Section 8 which a registered dealer may
purchase, shall be goods intended for use by him
as raw materials, processing materials, machinery,
plant, equipment, tolls, stores, spare parts,
accessories, fuel, or lubricants in the manufacture
or processing of goods for sales or in mining, or in
the generation or distribution of electricity or any
other form of power."
The above Rule has to be construed in the light of Section
8(3)(b) of the 1956 Act which we have already extracted
above.
5.6 There is one more aspect of the matter that Mr Bhat,
AGA draws our attention to. The record before us does not
show any effort on part of the Appellant Assessee to
actually demonstrate that his purchases meet the test of
"integral connection" to the ultimate production of goods.
It is one thing to say so repeatedly and it is another to
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prove the integral connection. The test of integral
connection, we note is laid down by the Hon'ble Supreme
Court in JK COTTON supra. We also note that this
judgment is placed before us by the Appellant Assessee
himself in his compilation filed across the Bar. When the
Apex Court has dealt with building material specifically in
JK COTTON and held it to be ineligible for the purposes of
Section 8 (3) (b) of the 1956 Act, there is very little room
for the Appellant to maneuver. However, Mr. Bhat is right.
In telling us that it was for the Appellant-Assessee to
demonstrate the integral connection since those are facts
exclusively within his knowledge. When the Revenue asks
an Assessee to "show cause" and makes a proposition
notice, that is exactly what the Assessee is expected to do.
The appellant Assessee ought to have placed
unimpeachable literature and other evidence of sterling
quality before the Assessing Officer to make out his case
of "integral connection" of the purchased material to the
manufacture of his goods.
5.7 The impugned order is justifiably structured and
rightly has set aside the order of the Joint Commissioner
of Commercial Taxes. The reliance of the learned counsel
appearing for the Assessee that a Coordinate Bench of this
Court having construed the very same provisions has
granted relief to a similarly circumstanced dealer and
therefore, his client cannot be discriminated against, does
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not impress us vide M/S.KALABURAGI CEMENTS,
supra. Obviously, as Mr. Aditya Vikram Bhat points out, it
was a case relating to mining industry; secondly, the
Certification of Registration had enlisted the class of goods
into which the ones involved in a case had answered the
description of. Essential facts of that case are
demonstrably lacking in this. It hardly needs to be stated
that a decision is an authority for the proposition
articulately laid down in the fact matrix of the case, as
observed by Lord Halsbury in QUINN vs. LEATHEM3.
In the above circumstances, this Appeal fails, costs
having been made easy.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(G BASAVARAJA)
JUDGE
Snb/Bsv/cbc
(1901) AC 495, 506.
