TMI Blog2011 (4) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... D ANTANI H.B. JJ. K.H. Kaji for the petitioner Ms. Maithili Mehta, Assistant Government Pleader, for the respondents JUDGMENT By this petition under article 226 of the Constitution of India, the petitioner has challenged four assessment orders under section 50 of the Gujarat Sales Tax Act, 1969 (the Act) for the period 1997-98 to 2000-01 levying purchase tax including interest of ₹ 14,05,07,434 and reducing the exemption limit by four per cent on the value of goods consigned to its branch within the State of Gujarat. The petitioner also seeks a direction that the first respondent be permanently restrained from levying purchase tax and interest and reducing exemption limit treating the said transactions as violative of conditions of exemption under entry 255. The facts of the case, as stated in the petition, are that the petitioner is established as a pioneer industry in a backward area of Zaghadia for the manufacture of caustic soda and other related speciality chemicals and for setting up a captive power plant for the purpose. Under the incentive schemes promulgated by the State Government for the year 1995-2000, the petitioner was eligible for various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioner, its finished products produced by the plant were sold and no sales tax was payable thereon as provided by entry 255(3). The captive power plant was mentioned as one of the items of investment in the petitioner's application to the Industries Commissioner for the eligibility certificate and it was shown as one of the items in the certificate of permanent pioneer registration dated March 5, 1999. The captive power plant was installed of requisite capacity keeping in view the requirement of electricity in future years with the expansion of the manufacturing plant of the petitioner. According to the petitioner, in the initial stages, the electricity plant produced more electricity than that which could be used by the petitioner in its captive power plant. According to the petitioner, the State Government had issued a list of ineligible industries which could not get the benefit of sales tax incentives under the scheme, one of which was electricity generation (except captive electricity generation) . It is the case of the petitioner that as the petitioner had installed the captive power plant for use in its own industry, the production of electricity was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us it has been decided to reduce the ceiling of tax exemption considering the sale price of sales effected to Vapi unit. 4. The dealer has been issued a notice under sub-section (2) of section 50 to assess the tax liability and therefore it has been decided to finalise the assessment proceedings under section 50 of the GST Act. 5. Now so far assessment of taxes is considered local Act provides section 41 and section 50 for assessment both the section are independent section. Section 50 of the Act provides charging section and machinery section both. I have therefore decided to pass order under section 50 of the Act. 6. The order shall be incorporated in form 39 and demand notice shall be issued in form 35. 7. Penalty under section 45(6) shall be levied at the time of assessment of complete year. Being aggrieved, the petitioner has filed the present petition challenging the aforesaid order. Mr. K.H. Kaji, learned advocate for the petitioner, invited attention to the provisions of the Scheme to submit that to the extent of raw material used by an eligible unit in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat, the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as sales tax incentive schemes and there was no contradiction between the two schemes. Insofar as the second issue is concerned, the learned advocate submitted that the first respondent had erred in treating the branch transfer of caustic soda to the branch of the petitioner within the State of Gujarat as being in violation of condition No. 19(iii) of entry 255. Inviting attention to condition No. 19(iii), it was submitted that the said condition shows that the limit of tax exemption is to be reduced only when the goods are transported to the branch of the agent outside the State of Gujarat for sale there.In this case, admittedly, the branch transfer was within the State of Gujarat and, therefore, it was a total misreading on the part of the first respondent to treat it as violation of condition No. 19(iii) of the Scheme resulting in reduction of the exemption limit by four per cent of the value of goods so transferred. On the other hand, Ms. Maithili Mehta, learned Assistant Government Pleader opposed the petition. It was submitted that under the scheme, the petitioner is entitled to the benefit of exemption from payment of sales tax to the extent indicated in the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, if it considers it necessary so to do in public interest, by notification in the official gazette, to exempt any specified class of sales or of specified sales or of purchases from payment of the whole or any part of the tax payable under the provisions of the Act, subject to such conditions as it may impose. In exercise of powers under section 49(2) of the Act, the State Government has, by notification in the Official Gazette, inserted entry 255 exempting the following classes of goods from payment of tax to the extent specified thereunder. Entry 255 to the extent the same is relevant for the present purpose reads thus: (2) Sales of raw materials, processing materials, consumable stores or packing materials by a registered dealer, to an eligible unit. To the extent to which the amount of sales tax exceeds one fourth of one per cent and to the extent to which the amount of general sales tax exceeds one fourth of one per cent: Provided that if on the same goods sales tax is leviable no general sales tax be levied. (1)If the eligible unit furnishes to the selling dealer a certificate in form 26 appended hereto, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, the eligible unit is required to furnish to the selling dealer certificate in form 26, declaring, inter alia, that the goods are required for use by him within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat. In the present case, the petitioner has furnished to the selling dealer a certificate in form 26 declaring, inter alia, that the naphtha purchased by it is required for use by it within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale as contemplated under the Scheme. However, to the extent of naphtha used for generating electricity which was not used in the manufacture of caustic soda, the eligible unit could not have furnished to the selling dealer a certificate in form 26. In the circumstances, respondent No. 1 was justified in holding that the petitioner had committed breach under section 50(1) of the Act and was, therefore, liable to pay tax on its purchase of naphtha to the tune of the amount saved by effecting purchase at a reduced rate of tax in form 26. Entry 255 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A perusal of condition No. 6 of entry 255 makes it apparent that the same mandates that for the purpose of availing of the benefit under the said entry, the eligible unit is required to actually use the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. Clause (2) of entry 255 which is relevant for the present purpose, lays down that an eligible unit shall be entitled to avail of exemption from payment of sales tax on raw materials, processing materials, consumable stores or packing materials as provided under column No. 3 and A purchased by it from a registered dealer if the conditions specified in column No. 4 are satisfied by it. The condition subject to which the benefit under entry 255 can be availed of is that the eligible unit shall furnish to the selling dealer, a certificate in form 26 declaring, inter alia, that the goods are required for use by him within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner shall, after considering all the evidence which may be produced, assess to the best of his judgment, the amount of tax due from him within a period of not more than four years from the date on which the breach concerned has come to the notice of the Commissioner. Examining the first issue in the light of the aforesaid statutory conditions, in the facts of the present case, it is an admitted position that naphtha has been used as a raw material for generating electricity which in turn is used in the manufacture of caustic soda which is manufactured for sale within the State of Gujarat or outside the State of Gujarat. Thus, under the scheme, the petitioner is entitled to exemption in relation to the raw material used by it in the manufacture of caustic soda. Hence, to the extent of naphtha used for generating electricity, for manufacture of caustic soda, the petitioner would be entitled to exemption under the scheme. However, to the extent of electricity, which is sold to the GEB or supplied to the group concerns, the same cannot be said to have been used in the manufacture of caustic soda. Hence, to the extent the naphtha used in generating electricity was not used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said entry in relation to goods manufactured by it for sale within the State of Gujarat or outside the State of Gujarat. As to what is the sale outside the State of Gujarat , is defined under the Explanation to condition 6 of entry 255, to mean transportation of goods by the eligible unit to his own place of business or to the place of business of his agent, at any place within India but outside the State of Gujarat for sale there. Thus, sale under entry 255 is either an actual sale within the State of Gujarat or transportation of goods by the eligible unit to its own place of business or to the place of business of its agent or any place within India but outside the State of Gujarat for sale there. In the facts of the present case, the petitioner has transferred goods to its branch at Vapi. Under entry 255, the eligible unit is entitled to the benefit thereunder in respect of goods manufactured for sale within the State of Gujarat or outside State of Gujarat. Evidently, transfer of goods so manufactured to a branch within the State of Gujarat would not be a sale of the goods so manufactured. In the circumstances, to the extent of goods which are transferred to the branch, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable. In the circumstances, to the extent of the goods which are not sold within the State of Gujarat or outside the State of Gujarat, the petitioner would not be entitled to the benefit of entry 255(2). The respondent, therefore, was justified in invoking the provisions of section 50 of the Act in respect of the said breach. However, the first respondent while passing the impugned order has misdirected himself by placing reliance upon condition No. 19(iii) of the conditions and in reducing the ceiling of tax exemption considering the sale price of sales effected at Vapi unit. The first respondent is not empowered to reduce the ceiling limit of exemption in case of breach of any condition of exemption. By virtue of the provision of sub-section (2) of section 50 of the Act, the commissioner after serving on the seller or purchaser, as the case may be, a notice as specified thereunder and considering all evidence which may be produced, assess to the best of his judgment, the amount of tax due from him within the period specified thereunder. In the present case, it appears that the assessing officer instead of making best judgment assessment in respect of the breach committed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh notice in respect of the second issue setting out all facts in detail and thereafter pass a fresh order in accordance with law. It shall be open for the petitioner to produce evidence to indicate how the goods transferred to the branch had been dealt with subsequent to such transfer in support of its case that it is entitled to the benefit of the scheme in respect of the said goods. The petition, therefore, succeeds to the aforesaid extent and is accordingly partly allowed. The impugned order to the extent the same holds that that the petitioner has committed breach of section 50(1) and is, therefore, liable to pay tax on its purchases of naphtha to the extent the same has been used for generating electricity which was sold to GEB/UPL is confirmed. However, to the extent the same reduces the ceiling of tax exemption considering the sale price of sales effected at Vapi unit is hereby quashed and set aside. The matter is remitted to the first respondent to decide the second issue afresh after giving an opportunity to the petitioner to produce evidence in support of its case and after affording an opportunity of hearing as stated hereinabove. Rule is made absolute accordingly i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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