TMI Blog1993 (4) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... s exempted from tax under the Act and therefore, petitioner made use of the inputs purchased by it (i.e., the HDPE granules) against the declaration under form No. 37, in the manufacture of goods which are exempted from tax; this attracted the penalty under section 5-A(2)(iii). The learned counsel for the petitioner advanced two contentions: (i) HDPE tape was the immediate product manufactured out of the inputs, purchased by the petitioner which was a taxable goods and hence the penal provision is not attracted; and (ii) "HDPE sacks" are not exempted from any tax under the Act and therefore to the extent of the turnover relating to "HDPE sacks", levy of penalty was illegal. To appreciate the rival contentions, it is necessary to refer to the following provisions of the Act, as it then stood during the relevant period. Section 5-A to the extent it is relevant, reads thus: "Taxation of industrial inputs.-(1) Notwithstanding anything contained in section 5 the tax payable by a registered dealer in respect of the sale of any industrial input liable to tax under the Act to another registered dealer for use by the latter as a component part or raw material of any other goods ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of "purchase order", details of selling dealers' cash memos/invoices, etc., are to be stated. A further certification under clause 2 is to be given as follows: "2. Certified further that- (i) I/We am/are manufacturers in Karnataka, of the goods detailed below, which are taxable under the provisions of the Karnataka Sales Tax Act, 1957: ........................... (ii) I/We am/are liable to pay the tax in respect of the above goods and have not been exempted by any authority from the payment of tax; and (iii) The goods described in the table above are for use by me/us as inputs in the manufacture of other taxable goods inside the State for sale." Thus the declaration, inter alia, requires the purchaser to certify that the purchaser is a manufacturer in Karnataka of the taxable goods, details of which are given in the said declaration; it is also necessary to certify that the inputs purchased are for use by the purchaser as inputs in the manufacture of other taxable goods inside the State for sale. Exempted goods are enumerated in the Fifth Schedule. Petitioner relies on entry 8-A of the said Schedule, which reads: "All varieties of textiles, namely, cotton, wooll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. But where as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon tax-payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made." Section 5-A(2) is a provision made for imposing a liability for penalty upon the dealer guilty of misusing the beneficial provisions of section 5-A(I) the object is to impose penalty on the person who purchases an industrial input by furnishing a declaration in form No. 37, certifying that, the input is for use by him as a component part of raw material of any other goods taxable under the Act which he intends to manufacture inside the State for sale. The idea is to give the benefit of section 5-A(1) to the industrial input meant to be used in the manufacture of goods in the State; the manufacture is to be inside the State; but said goods are to be manufactured for sale. If the manufacture is not for sale then section 5-A(1) cannot be availed of, at all by the purchaser of the inputs. If taxable goods are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5-A(1) and 5-A(2)(iii) are read together, it will be clear that manufactured goods, referred to in section 5-A(2)(iii) would mean the "manufactured goods" referred to in section 5-A(1). The intention of the buyer of the industrial input at the time of the purchase of the input, in the instant case, was to use the industrial input in the manufacture of fabrics for sale; petitioner had no intention to manufacture the tapes for sale. Actually the petitioner never sold any "HDPE tapes" and manufacture of "tapes" by the petitioner was not meant for sale by anyone. A technical and literal reading of section 5-A(2)(iii) would enable the dealer to take advantage of section 5-A(1) in a situation for which the said beneficial provision was not enacted. Machinery of section 5-A(2) cannot be and should not be worked in a manner, to destroy or mutilate the substantive provisions of section 5-A(1). It was said in Motibhai Fulabhai Patel and Co. v. R. Prasad, Collector of Central Excise AIR 1970 SC 829 at page 832 "No rule of law should be so interpreted as to permit or encourage its circumvention." Mr. Prasad relied on Joint Commercial Tax Officer v. Young Men's Indian Association, Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r product, section 5-A(2)(iii) cannot be attracted. The State of Haryana v. Dalmia Dadri Cement Ltd. [1988] 68 STC 173 (SC); AIR 1988 SC 342 was relied. The relevant section of the Punjab Sales Tax Act stated that "taxable turnover" would not include the sales of goods, to any undertaking supplying electrical energy to the public, for use by it in the generation or distribution of electrical energy. The crucial words were "goods for use........ in the generation or distribution" of electrical energy. The State contended that the goods To get the benefit of this provision are those which are directly used to generate or distribute the energy. Question was, whether cement sold to the Electricity Board, was actually used in the generation or distribution of electrical energy. The Supreme Court observed: ".........It must be noted that the important words used in the relevant provisions are 'goods for use by it in the generation or distribution of such energy' (emphasis supplied by us). On a plain reading of the relevant clause it is clear that the expression 'for use' must mean 'intended for use'. If the intention of the Legislature was to limit the exemption only to such goods so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a [1990] 79 STC 383 (Kar)]. To the extent the plastic granules were made use of in the process of manufacturing this ultimate product called "HDPE sacks", the petitioner cannot be penalised by invoking section 5-A(2)(iii), because to that extent HDPE fabrics are manufactured in the process of manufacturing the sacks, which are manufactured in the State for sale. Penalty imposed on the petitioner ignoring the turnover relating to HDPE sacks, therefore, has to be modified. From the order of the Deputy Commissioner of Commercial Taxes it is clear that the turnover relating to the sale of sacks is Rs. 18,90,180.45. The turnover relating to the sale of fabrics, which are exempted goods, is Rs. 42,63,351.12. While imposing penalty he has held that the penalty should be only one time of the tax leviable and consequently he directed the assessing authority to issue revised demand notice. In view of our finding that HDPE sacks are taxable goods and therefore penalty under section 5-A is not attracted to that extent, the assessing authority is directed to further reduce the penalty proportionately. Assessing Authority-cum-Excise and Taxation Officer v. East India Cotton Mfg. Co. Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule. 'Felt washers' manufactured by the assessee are not component parts of motor vehicles. Component parts of the articles falling under serial No. 72 of the Second Schedule do not come either under serial No. 72 or under any other item in the Second Schedule. They cannot be brought under serial No. 72 because they cannot, be identified as parts of a motor vehicle at that stage of manufacture. Sri Sarangan, learned counsel for the assessee, contended that 'felt washers' come under serial No. 73 of the Second Schedule. This Court in A.K. Swamy and Brothers v. State of Mysore [1970] 25 STC 227 has held that 'from the language of serial No. 73 of the Second Schedule, it appears to us that the Legislature had in mind the case of articles which are ordinarily used for one purpose, but by alteration made or used for a different purpose, viz., as parts and accessories of motor vehicles, and it is to such articles that serial No. 73 of the Second Schedule applies'. In view of the said decision, the said contention of the learned counsel has to be rejected. From the scheme of the Act it appears to us that the Act does not contemplate the grant of the benefit of section 5(3A) to a d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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