TMI Blog1970 (11) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant made certain purchases by issuing 'C' forms under the Central Act. These purchases were made by the applicant for the manufacture of taxable goods for sale. At the time of purchasing these goods for the purpose of manufacture, the applicant is also found to have given a certificate in form No. 15 as contemplated by section 12(1)(b) of the State Act. 3.. After the manufacture, for which the goods were so purchased, the assessee-company distributed some free samples of the manufactured articles to different persons. Therefore, the question which arose before the Sales Tax Officer was whether the goods which were covered by the certificate contemplated by form No. 15 of the State Act and 'C' form of the Central Act, were the goods which were utilised in manufacturing the articles "for sale". Since these samples were distributed free of charge, the Sales Tax Officer found that the goods utilised in manufacturing these free samples were not the goods meant for use in manufacture "for sale". In order to find out what was the actual quantum of such goods, the Sales Tax Officer estimated 3 per cent. of the total turnover of the manufactured articles to be the value of the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion: "Whether under the facts and in the circumstances of the case distribution of some of the manufactured goods as samples without charging any price amounts to violation of the declaration in form 15 under section 12(1) of the Bombay Sales Tax Act, 1959, so as to attract penalty under section 38(1) of the Act." In Reference No. 22 of 1969, which relates to the penalty imposed under the Central Act, the following question is referred to this court: "Whether under the facts and in the circumstances of the case distribution of some of the manufactured goods as samples without charging any price amounts to violation of the declaration in form 'C' under section 8(4) of the Central Sales Tax Act, 1956, so as to attract penalty under section 10-A of the Central Act." The Tribunal has disposed of the matter by a common judgment and since the points of law and facts involved in both these references are the same, we also propose to dispose of both the references by a common judgment. 7.. Before touching the merits of the points involved in both these references, it would be useful to make a reference to the relevant provisions of the State Act as well as the Central Act. 8.. So ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the manufacture of taxable goods for sale. 9.. Now in cases where the goods are used contrary to the certificate given under form 15, the dealer in question incurs penalty contemplated by section 36. The relevant portion of this section 36 of the State Act says that where any dealer or commission agent purchases any taxable goods under a certificate given by him under section 11 or 12, and contrary to such certificate the goods are used for another purpose, or are not resold or despatched in the manner and within the period certified, then the Commissioner may, after giving such dealer or commission agent a reasonable opportunity of being heard, by order in writing impose on him, in addition to any tax payable, a penalty as prescribed by the different clauses of that section, to which reference is not necessary in these matters. It is thus evident from this sub-section (1) of section 36 that if the goods "are used for another purpose' contrary to the certificate given in form 15, the dealer in question would be liable to the penalty contemplated by that section. Therefore, the contention of the department in these cases is that since the applicant-assessee has used the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er selling the goods furnishes to the prescribed authority in the prescribed manner- (a) 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." The prescribed form which is referred to above is 'C' form and it contains an assurance that the goods purchased "are for use in the manufacture of goods for sale". It is thus evident from all these provisions of section 8 of the Central Act read together with 'C' form that the goods purchased should be the goods to be used in manufacturing articles "for sale". These provisions are, therefore, in pari materia with the provisions of the State Act, referred to above. 11.. It is further found that sections 10 and 10-A of the Central Act provide for penalties whenever a breach of the undertaking given in the declaration in 'C' form takes place. Section 10 says that if any person after purchasing any goods for any of the purposes specified in clause (b) of sub-section (3) of section 8 fails, without reasonable excuse, to make use of the goods for any such purpose, he shall be punishable as prescribed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which arises to be considered in both these references is whether the assessee-applicant has committed any breach of the undertaking given by it in form No. 15 of the State Act or form 'C' of the Central Act by distributing free samples of the manufactured articles to others. Can it be said that the goods covered by the free samples were not the goods used in the manufacture "for sale"? It would be obvious from the above provisions of both the statutes that the breach which invites penalty consists in using the goods, which are purchased in form No. 15 and form 'C' for any purpose other than the purpose of manufacture or for sale. It is not in dispute that the samples, which are distributed by the assessee free of charge to others, do belong to the lot of those articles in the manufacture of which, the goods purchased under form 15 and form 'C' were utilised. But the argument of the department is that since these samples were not sold for a price, it must be presumed that the goods, which were utilised in the manufacture of these articles and which were covered by the undertakings in form No. 15 and form 'C' were not the goods meant for sale. 15.. In order to appreciate this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds covered by form No. 15 and 'C' form are used in the said manufacture, then, in our opinion, the undertakings given by the certificate in form No. 15 and form 'C' are complied with irrespective of the question whether the goods are actually sold or not. 17.. The next point which now arises to be considered in view of what we have said above, is whether in cases where samples of manufactured goods are supplied free of charge, in order to effect the sale of the whole lot of manufactured articles, can it be said that the goods covered by such samples were not manufactured "for sale". While appreciating this point, one important fact which should be borne in mind is that in an economy which recognises private enterprise where sale of marketable goods is based on competition, supply of samples is inevitable in certain circumstances. In certain types of business such samples are required to be supplied free of charge in order to effect the sale. In this case we are concerned with pharmaceutical articles, which are manufactured by the assessee-applicant and, therefore, we would concentrate our attention on the nature of the said articles. In our opinion, it cannot be gainsaid that pha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not possible to say that the goods, which were utilised in manufacturing the free samples were not used for manufacturing articles "for sale". In our opinion, therefore, it is not possible to hold that by supplying some of the samples of the manufactured lot freely, the applicantassessee has committed any breach of the undertaking given by him either in form No. 15 or form 'C' so as to attract the penal provisions of section 36 of the State Act and section 10-A of the Central Act. 18.. Here we would like to add one more aspect so far as section 10-A of the Central Act is concerned. We have also noticed above that penalty under section 10-A of the Central Act can be imposed only if there is a breach contemplated by clause (d) of section 10 of that Act. Now if again a reference is made to the said clause (d) of section 10, it will be found that the penalty contemplated by that section is invited only if the concerned dealer fails to make use of the goods in accordance with the undertaking without reasonable excuse. Now, looking to the facts of these cases, can it be said that the applicant-assessee has failed to make use of the goods covered by the undertaking in form 'C' wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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