M/S. Odisha Forest Development vs State Of Odisha
2022 Latest Caselaw 1920 Ori

     IN THE HIGH COURT OF ORISSA AT CUTTACK

                       STREV No. 74 of 2004


M/s. Odisha Forest Development ....                        Petitioner
Corporation Ltd.
                      -versus-
State of Odisha, represented by the ....              Opposite Party
Commissioner of Sales Tax, Odisha,
Cuttack

Advocates, appeared in this case:

For Petitioner              :               Mr. R.P. Kar, Advocate

For Opposite Party          :                      Mr. S.S. Padhy
                                      Additional Standing Counsel

 CORAM:
 THE CHIEF JUSTICE
 JUSTICE R.K. PATTANAIK
                           JUDGMENT

22.03.2022 Dr. S. Muralidhar, CJ.

1. The present revision petition was admitted by an order dated 17th August, 2017 passed by this Court and the following substantial questions of law were framed for consideration:

"(i) Whether in the facts and circumstances of the case, the Tribunal was correct in rejecting the declarations in Form-IV, which were furnished by the purchasing dealers to the Petitioner, for purchase of logs, as manufacturers?

(ii) Whether in the facts and circumstances of the case, the Petitioner has contravened either the 5th

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proviso to section 5(1) of the Act or entry 48 of the list 'C' of the Rate Chart?"

2. The background facts are that the Petitioner carries on business in the sale of timber, sal seeds, firewood and bamboo at Deogarh. It is registered as a dealer under the Orissa Sales Tax Act, 1947 (OST Act).

3. For the assessment year (AY) 1989-90 i.e., ending on 31st March, 1990 the Petitioner appeared before the Sales Tax Officer (STO) and produced its books of accounts. The STO accepted the gross turnover as declared by the Petitioner and took note of tax- free sales amounting to Rs.47,968.75 made to registered dealers against Form XXXIV. A sum of Rs. 11,28,194.79 was allowed on this score as sales to registered dealers.

4. Insofar as the sale of logs for the period from 1st January, 1990 to 31st March, 1990 in the sum of Rs.14,43,700/-, it was found to have been made by the Petitioner to different saw mill owners, who furnished to the Petitioner Form-IV. Going by the law explained by the Supreme Court of India in State of Orissa v. Titaghur Paper Mills Company Ltd. 1985 (60) STC 213, the STO disallowed the said sales at a concessional rate of tax i.e., 4% on the ground that the said saw mill owners were not engaged in any manufacturing or processing activities.

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Secondly, the STO held that timber has been subjected to levy of tax at the first point of sale with effect from 1st January, 1990 and therefore, cannot be sold with levy of tax at a concessional rate of 4% against Form IV. Consequently, the sale value of the timber was made exigible to 8% tax. As a result, in the assessment order dated 19th December, 1991 the STO raised an extra demand against the Petitioner of Rs.58,736/-.

5. As regards Issue (i), it is submitted by Mr. Kar, learned counsel appearing for the Petitioner, that the decision in Titaghur Paper Mills Company Ltd.(supra) is distinguishable on facts. The said case did not concern sale of timber to saw mill manufacturers and proceeded on the basis that the timber whether sold as logs of wood or as rafters and beams etc. continued to remain as timber and that conversion of such timber into rafters and beams would not amount to 'manufacture'. The Supreme Court, therefore, held that the same timber which has already suffered purchase tax as a single point taxable goods will not again attract tax at the point of subsequent sale after conversion into rafters and beams.

6. As regards issue (ii), Mr. Kar submitted that the Petitioner was not in a position to refuse the Form IV declarations furnished by the purchasers i.e., the saw mill manufacturers and had the Petitioner not extended to them the concessional rate of tax as a result of their furnishing Form IV, the Petitioner would

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have been in violation of Section 9B (3) of the OST Act which prevents the registered dealer from collecting more tax than permissible.

7. Mr. Kar placed reliance on the decisions of this Court in Tilakraj Mediratta v. State of Odisha (1992) 86 STC 453 and State of Odisha v. M/s. Bharat Petroleum Corporation Ltd. 93 (2002) CLT 364 to urge that the burden cannot be placed on the Petitioner to ascertain whether the purchasing saw mill manufacturers are in fact manufacturing or processing the logs of wood purchased by them. According to him, they were also registered dealers if the Department was of the view that they had to pay a greater amount of tax than 4% then the Department should proceed against those purchasing dealers.

8. Mr. S.S. Padhy, learned Additional Standing Counsel appearing for the Opposite Party (Department) on the other hand submits that the decision of the Supreme Court of India in Titaghur Paper Mills Company Ltd.(supra) holds the field and if the saw mill manufacturer do not either manufacture or process the logs of wood purchased by them from the Petitioner, then there would be no justification in their furnishing the Form IV declaration to avail of the concessional rate of sales tax. According to him, knowing that the sale of timber was a first point sale, the Petitioner ought not to have accepted the Form IV from the saw mills manufacturers. He

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accordingly, supported the view taken by the Tribunal in the instant case.

9. The above submissions have been considered. As far as issue

(i) is concerned, the Court notes that in the present case nothing has been brought on record to enable either the Tribunal or this Court to come to a conclusion that the saw mill manufacturers who purchased the logs of wood from the Petitioner did not subject the logs to manufacturing or processing. That was an enquiry that could have been undertaken by the Assessing Officer (AO)/Sales Tax Officer (STO). It was not incumbent on the selling dealer to enquire whether the saw mill manufacturer furnishing a declaration in Form IV was or was not entitled to avail of the concessional rate of sales tax.

10. At this juncture, it must be noted that the declaration contained in Form IV, which is set out under Entry 81 (which at the relevant time was Entry 48) of List 'C' of the Rate Chart appended to the OST Act is to the effect that the goods purchased "shall be used in the manufacturing/processing of goods for sale/in mining/generation or distribution of electricity or any form of power". It is reasonable to expect that the Petitioner as a selling dealer would go by the above declaration instead of undertaking an investigation into whether such declaration has rightly made. As explained by this Court in Tilakraj Mediratta (supra) "It is not for the selling dealer to go

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after the purchasing dealer to find out as to in what manner the latter utilizes the goods which it has purchased on the strength of the declaration form in order to be entitled to deduction. Such requirement would place on an impossible burden on the selling dealer". To the same effect is the decision in M/s. Bharat Petroleum Corporation Ltd. (supra).

11. Both the aforementioned decisions are a complete answer to the case of the Department that on account of the law explained by the Supreme Court in Titaghur Paper Mills Company Ltd.(supra) the selling dealer ought to have proceeded on the basis that the saw mill manufacturers who had furnished the Form IV declaration, should be understood to have not undertaken any activities of manufacturing or processing of the purchased goods. The Petitioner as a selling dealer was in no position to come to such conclusion.

12. Further, the Department has no answer to the plea of the Petitioner that if it had declined to accept the Form IV furnished to it by the saw mill manufacturers, it may have been in violation of Section 9-B (3) of the OST Act. The Court enquired from Mr. Padhy whether any instructions were issued by the Department to the selling dealers in general asking them not to accept Form IV if it was either furnished by a saw mill manufacturer or anyone else whom the Department has ascertained not to be engaging in any activity of manufacturing

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or processing or even where the sale of goods is a first point sale? The answer was in the negative.

13. In the circumstances, the Court answers question (i) in the negative by holding that the Tribunal was in error in rejecting the declaration in Form IV furnished by the purchasing dealers to the Petitioner for the purchase of logs. The question is thus answered in favour of the Petitioner Assessee and against the Department.

14. As regards question (ii), in terms of 5th proviso to Section 5(1) of the OST Act, and in terms of the declaration made, the purchasing registered dealer is located within the State of Odisha and he has undertaken to use such goods in the manufacture or processing thereof for sale within the State of Odisha. The proviso makes it clear that if such purchasing dealer utilizes the goods for any other purposes outside the State of Odisha, such purchasing dealer shall pay the difference in tax. In other words, if there is a contravention of the 5th proviso to Section 5 (1) of the OST Act by the purchasing dealer, the Department ought to go after the purchasing dealer for such violation and not the selling dealer. Consequently, question (ii) is answered in the negative by holding that the Petitioner in the present case has not contravened either the 5th proviso to Section 5 (1) of the OST Act nor Entry 48 (now Entry 81) of List 'C' of the Rate Chart appended to the OST

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Act. It is clarified that question (ii) is confined to the period between 1st January, 1990 and 31st March, 1990 when timber was declared as a first point sale item.

15. The impugned order of the Tribunal and the corresponding orders of the STO/AO and the Appellate Authority are accordingly set aside.

16. Mr. Kar, learned counsel for the Petitioner that the entire tax demanded has already been paid by the Petitioner. If as a result of giving tax effect to the present judgment any refund is payable to the Petitioner it shall be done so within a period of eight weeks in accordance with the Rules.

17. The revision petition is disposed of in the above terms.

(S. Muralidhar) Chief Justice

(R.K. Pattanaik) Judge S.K. Jena/PA

STREV No. 74 of 2004