TMI Blog2010 (6) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... s revision petition is filed by the petitioner, which is a public limited company, by challenging the order dated August 6, 2007 passed in S.T.A. No. 2582 of 2004 for the assessment year 2001-02. The petitioner-company is a manufacturing unit engaged in the business of manufacture and sale of computer peripherals, i.e., printers, ribbons, UPS, etc. For the assessment year 2001-02 the petitioner declared his gross as well as net turnover under the Karnataka Sales Tax Act, 1957 (hereinafter, referred to as, the KST Act ) as well as under the Central Sales Tax Act, 1956 (hereinafter referred to as, the CST Act ) and also filed revised form No. 4 on December 1, 2003 by declaring the gross and net turnover under the KST and the CST Act. The respondent passed an order under section 12(3) of the KST Act read with rule 18(3) of the Rules and under section 9(2) of the CST Act and also issued notice in form No. 6 under rules 17A(2), 37 and 38 of the KST Rules on March 3, 2004. The respondent assessed the total taxable turnover and disallowed reimbursement of Rs. 19,36,999 claimed under section 5A of the KST Act by his order dated March 3, 2004. The petitioner also filed a rectificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not made out a case within the provisions of section 5A of the KST Act by holding that in the instant case there was no sale of the manufactured goods within the State and that there was only stock transfer which is not a sale. He has also submitted that the petitioner had fulfilled the conditions stipulated under section 5A of the KST Act and that what is relevant is manufacture of goods inside the State for sale and it does not require that the sale should take place inside the State. According to counsel for the petitioner, in the instant case there was a sale by the petitioner/ company and the said sale is not restricted within the State, but the goods were transferred to another branch in other States only for the purpose of sale. Therefore, the authorities concerned ought to have given the benefit under section 5A of the Act as the intention of the Legislature was to extend certain benefits with regard to component parts and consumables. Per contra, the learned Government Advocate has contended that in the instant case, the manufactured goods were sold not within the State but to the purchasers outside the State and that as between the petitioner/ company in Karnataka an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x payable by him for any month or year as the case may be, under the Act or the Central Sales Tax Act, 1956 (Central Act 74 of 1956), or the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), in such manner and subject to such condition as may be prescribed; (ii) by refund in such manner and subject to such condition as may be prescribed: Provided further that such reimbursement shall be made only against a bill or cash memorandum issued by the seller showing separately the amount collected by way of tax: Provided also that if any dealer, after claiming reimbursement of tax on purchase of any inputs under the first proviso to this subsection fails to make use of the whole or part of such inputs in the manufacture of other goods before the expiry of the accounting year immediately succeeding the one in which such inputs are purchased, either due to cessation of his manufacturing activity or for any other reason, but has not sold away such inputs, he shall be liable to pay the difference between the tax payable at the rate specified under section 5 and the tax computed at the rate of two or three per cent, as the case may be, on the turnover relating to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his discretion, permit such dealer to claim reimbursement on purchase of inputs in the State. Explanation I. (1) For the purpose of this section, the expressions 'industrial inputs', mean either a 'component part' of 'raw material', or 'packing materials' but do not include cement, wood, bamboo, timber other than veneer, casuarina, eucalyptus, pulpwood and packing shooks and inputs falling under serial number 12 of Part S and serial number 10 of Part M of the Second Schedule. (2) The expression 'component part' means an article which forms an identifiable constituent of the finished product and which, along with others, goes to make up the finished product. (3) The expression 'raw material' means any material, (a) from which another product can be made, through the process of manufacture, either by itself or in combination with other raw materials; or (b) a processing or any other chemical solvent (including chemicals used for testing, analysis or research) used in the solvent extraction process or a catalyst required in the manufacturing process, but it does not include fuels and consumable stores of similar type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said provision came up for consideration before a Division Bench of this court in the case of Sipani Fibres v. State of Karnataka reported in [1993] 91 STC 261, wherein the Division Bench held that the manufacture must be held inside the State and the said goods have to be manufactured for the purpose of sale. According to the Division Bench, if taxable goods are manufactured inside the State, though the said goods are not sold inside the State, but meant for sale anywhere, the benefit of section 5A(1) can be availed of by the dealer. If the purchaser of the industrial input had no intention at all to manufacture taxable goods for sale , the furnishing of declaration in form No. 37 by him would amount to circumventing the provisions of section 5A(1). In the said case it was held that the buyer of the industrial input had no intention to manufacture HDPE tapes for sale as the buyer never sold any HDPE tapes and the manufacture of tapes by the buyer (dealer) was not meant for sale to anyone as HDPE tapes were at the most an intermediate product captively consumed in the manufacture of the fabric. The Division Bench further held as follows (page 266 in 91 STC): . . . Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other form) involved in the execution of a works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. Explanation 1. A transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association to its members, for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation 2. . . . Explanation 3. (a) The sale or purchase of goods (other than in the course of inter-State trade or commerce or in the course of import or export) shall be deemed, for the purposes of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within the State, (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds to his principal at another rate, or (ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate, or (iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal, or (iv) to have acted for a fictitious or non-existent principal . . . A reading of the said definition makes it clear that in a sale, the following components are essential: (i) Transfer of property in goods by one person to another person; (ii) To whom supply or delivery of goods is made in the course of trade or business; (iii) For cash or for deferred payment or other valuable consideration. The apex court in a series of decisions has held that to constitute a transaction of sale of goods, there must be a consensus ad idem with regard to the identity of goods; a transfer of title in the goods and followed by delivery of goods by transferor to the transferee. Consequently, the transferor would lose all right, title and interest in the goods. Therefore, there has to be a delivery of goods by the seller to the purchaser pursuant to the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been transferred to other branches of the assessee situated inside as well outside the State and that the word transfer fell within the expression any other purpose in fifth proviso to section 5(1) of the said Act. As the goods had not been sold but had been transferred there was a violation of the terms of the declaration and the assessee was held liable to pay the differential sales tax on the raw materials purchased at the concessional rate. In this context, it is apposite to cite the case of B.V. Aswathaiah Bros. (S.T.R.P. Nos. 56 and 57 of 2007) to which one of us is a party, disposed of on February 15, 2010 by a Division Bench of this court(1) wherein it is held that the revision petitioner therein cannot be said to have sold by consignment sales unto himself inasmuch as if the consignment sales were to be 'sale' within the definition of section 2(1)(t) of the Act the same would have constituted a part of the total turnover . In the said decision, the judgment of the apex court in Hotel Balaji's case [1993] 88 STC 98 is cited as follows (pages 142 and 143 in 88 STC): . . . The levy created by the said provision is a levy on the purchase of raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured goods. Would it be right to say that the levy is upon consignment of manufactured goods in such a case? True it is that the levy materialises only when the purchased goods (raw material) is consumed in the manufacture of different goods and those goods are disposed of within the State otherwise than by way of sale or are consigned to the manufacturing dealer's depots/agents outside the State of Haryana. . . In Balaji's case [1993] 88 STC 98 the apex court was, inter alia, dealing with section 42E of the Gujarat Sales Tax Rules and went on to opine as follows (page 121 in 88 STC): Even if we agree with the appellants and read rule 42E along with section 15B, they cannot succeed. Rule 42E provides for set-off, etc., in case the manufactured goods are sold within the State of Gujarat. It no doubt means the set-off, etc., is not available if the manufactured goods are disposed of otherwise than by way of sale or are consigned to manufacturer's own depots (or to the depots of his agents) outside the State of Gujarat. What in effect the State says is this: 'Raw material when purchased is taxable but I won't tax the raw material if you sell the goods m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could collect tax only in respect of purchases made within the State. So far as sales tax was concerned, with regard to the sale of the goods manufactured by the dealer of State of Maharashtra could levy sales tax in respect of sales made within the said State. It could not levy or collect tax in respect of tax which was despatched by the dealer to its branches and agents outside the State of Maharashtra and sold there. The apex court held that the right to claim set-off of the purchase tax paid by him was on his purchases within the State from out of the sales tax payable by him on the sale of the goods manufactured by him. It is only by virtue of the said Rules which as stated above, are conceived mainly in the interest of public that he is entitled to such set-off. It is really a concession and an indulgence shown by the State and that when the manufactured goods were not sold within the State of Maharashtra, but were despatched to out-State branches and agents and sold there, no sales tax can be or is levied by the State of Maharashtra. The State of Maharashtra gets nothing in respect of such sales effected outside the State. In respect of such sales, the rule-making author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is leviable. It is only under the aforesaid circumstances that reimbursement of tax paid on the raw materials or industrial inputs can be claimed under section 5A of the Act. Hence, any disposal of goods otherwise than by way of sale within the State, namely, by way of stock transfer which do not amount to sale cannot be reckoned for the purpose of section 5A of the Act with regard to reimbursement. In fact, section 6A of the CST Act regulates transaction outside the State, in the context of inter-State sale when they do not amount to a sale or purchase. Further, inter-State sale of finished products also cannot be taken into consideration for the purpose of section 5A of the Act. The reason being that in order to obtain reimbursement of tax under section 5A of the Act vis-a-vis, the industrial inputs utilised in the manufacture of goods sold within the State, a necessary sine qua non is that the said finished goods should have been a subject-matter of levy of tax under section 5 of the KST Act, i.e., sold within the State. It is only then, the reimbursement under section 5A of the Act arises. From the aforesaid discussion what becomes apparent is that stock transfer or a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
