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2016 (10) TMI 1002 - SUPREME COURT

2016 (10) TMI 1002 - SUPREME COURT - TMI - Recognition certificate holder u/s 8-A of the U.P. Trade Tax Act, 1948 - Section 4-B of the Act - purchases of raw material at the concessional rate of tax against Form III-B - purchases of natural gas against Form III-B at the concessional rate of tax, and manufacture of the notified goods, fertilizers, transferred outside the State of Uttar Pradesh - Whether under the facts and circumstances of the case, the Commercial Tax Tribunal were legally justif .....

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the dealer after the goods are manufactured and packed. The expression “in the course inter-State trade or commerce” is quite broad and wide. An issue may arise as to whether the stock transfer outside the State in terms of directions issued by the Central Government can be considered as sale or transaction in the course of inter-State trade or commerce. - Sub-section (6) is a specific provision which deals with the case of the dealer who has been issued the recognition certificate and has .....

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e notified goods by way of sale within the State or in course of inter-State state or commerce or by way of export. In such cases, the dealer is liable to pay the amount of difference on the amount of sale or purchase of such goods on which concession or nil rate of tax was paid on account of issue of the requirement certificate and the amount of tax calculated @ 4%. The sub-section is a particular and a specific section which deals with and specifies the consequences when the dealer is unable t .....

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B would apply when a false and wrong certificate or declaration is made. Sub-section (6) on the other hand, deals with cases where the dealer is unable to comply with the intendment, i.e., for some reason he is unable to sell the goods within the State, export them or sell them in the course of inter-State trade or commerce. Intendment of the said nature has not been treated as false or wrong declaration as consequences have been prescribed in sub-section (6). It is essential to be stated that c .....

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of the U.P. Trade Tax Act, 1948 (for brevity, the Act ), is a holder of a recognition certificate as per provisions contained in Section 4-B of the Act. The respondent used to make purchases of raw material at the concessional rate of tax against Form III-B obtained by it from the office of the Trade Tax Officer. As per conditions prescribed under Section 4-B(2) of the Act, the notified goods manufactured out of the raw material produced at the concessional rate of tax against Form III-B is requ .....

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id dealer on purchase made against Form III-B. 3. At the time of scrutiny, the assessing authority noticed that the respondent had made purchases of natural gas against Form III-B at the concessional rate of tax, and after manufacture of the notified goods, that is, fertilizers, out of the said purchases of natural gas purchased against Form III-B, some of the finished goods were transferred outside the State of Uttar Pradesh. The Revenue issued show cause notice to the respondent for the assess .....

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. The dismissal of appeal constrained the respondent to file a second appeal (Appeal No. 237 of 2009) before the Tribunal, Trade Tax, U.P. (for short, tribunal ). Since there was difference of opinion in the Division Bench of the tribunal, the case was referred to the Chairman of the tribunal who nominated another Judicial Member for his opinion. The learned Judicial Member gave his opinion in favour of the respondent. On the basis of the opinion expressed by the nominated Judicial Member, the a .....

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III-B whereas the dealer has made a stock transfer of finished goods which is not permissible under law? 6. The learned Single Judge took note of the fact that the tribunal had relied on a Division Bench decision of the High Court in Camphor and Allied Products Ltd. v. State of U.P. & Ors. (2005 ) 139 STC 380 (All) and on that basis had come to the conclusion that the assessee had purchased the material and used it in manufacture and there was no violation of Section 3-B of the Act and acco .....

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.P. or in the course of inter-State trade and commerce or can be exported out of country, but stock transfer is not permissible. According to the assessing officer, the trader had purchased natural gas at a concessional rate against Form III-B i.e. 20% minus 15% = 5%, availing the benefit at the rate of 15% and paying tax at the rate of 5%. The production of urea has been done by using the natural gas obtained at a concessional rate and the manufactured product, that is, urea has been sent by wa .....

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ions of the Section 3B and 4B(2) of the Uttar Pradesh Trade Tax Act, had caused loss of revenue to the State. The State had lost revenue at the rate of 15% on the purchase of raw material used in the produced goods sent as stock transfer, which could have received had these were not purchased against Form 3B. Because the tax has been paid at the rate of 5% against form 3B. Had the trader not declared false declaration against Form 3B, and had acted as per the provision of Section 4B(2), then the .....

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the State) and without exporting those outside the country, had made stock transfers, thereby had violated Section 4B(2) of the Act. By making false declaration u/s 3B of the Act, the trader had only deposited tax on the purchase of raw material (Natural Gas) at the rate of 5% only and availed the benefit of 15%. On the other hand without taking any action u/s 4B (2) of the Act, had made stock transfer outside the State, as a result of which had saved tax @ 7.5% apart from the development tax o .....

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llied Products Ltd. (supra), Bareilly v. State of U.P. 2004 UPTC 331, CTT v. Manoharlal Heeralal Pvt. Ltd. 2006 NTN, Vol. 29 page 223 are different and not applicable to the facts of the case. 10. The opinion of the tribunal, as expressed by the judicial member, which is the final view of the tribunal, is that the trader was authorized to purchase the natural gas for the manufacture of urea and it is undisputed that it had manufactured urea by utilizing the natural gas purchased against the issu .....

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oods are to be disposed of because the provision of Section 3-B is not applicable in case the raw material is used for production of the notified goods mentioned in the recognition certificate. The learned member has expressed the view that the decisions in Camphor and Allied Products Ltd. (supra) and Bareilly (supra) are fully applicable and the case of the assessee is covered by the principles stated therein. He also took note of the fact that the decisions in Camphor and Allied Products Ltd. .....

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ficer u/s 3B of the Act and which has been confirmed by the first appellate court, are not justified. 11. To appreciate the controversy in proper perspective and to scrutinize the analysis of the departmental authorities on one hand and the tribunal and the High Court on the other, it is necessary to scan the statutory scheme and its real import. Section 3-B of the Act reads as follows:- "Section 3-B. Liability on issuing false certificate, etc.-Notwithstanding anything to the contrary cont .....

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would have been payable as tax on such transaction had such certificate or declaration not been issued : Provided that before taking any action under this section, the person concerned shall be given an opportunity of being heard. Explanation.-Where a person issuing a certificate or declaration discloses therein his intention to use the goods purchased by him for such purpose as will make the tax not leviable or leviable at a concessional rate but uses the same for a purpose other than such purp .....

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ssed by him, and such notified goods are intended to be sold by him in the State or in the course of inter-State trade or commerce or in the course of export out of India, he may apply to the assessing authority in such form and manner and within such period as may be prescribed, for the grant of a recognition certificate in respect thereof, and if the applicant satisfies such requirements including requirement of depositing late fee and conditions as may be prescribed, the assessing authority s .....

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ernment in that behalf. xxxx xxxxx (6) Where a dealer in whose favour a recognition certificate has been granted under sub-section (2) has purchased any goods after payment of tax at concessional rate under this section, or as the case may be, without payment of tax and the goods manufactured out of such raw materials or processing materials or manufactured goods after being packed with such packing material are sold or disposed of otherwise than by way of sale in the State or in the course of i .....

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material) in the manufacture of notified goods by him in the State or in the course of inter-State trade and commerce or in the course of export outside India and the fulfillment of aforesaid two conditions is a pre-requisite for claiming exemption, but in the case at hand, the assessee though has purchased the goods at concessional rate by furnishing Form III-B under Rule 25-B(1) has engaged itself in stock transfer and, therefore, the penal provisions gets fully attracted. Relying on sub-secti .....

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ferred by way of stock transfer outside the State of U.P. on which the differential tax was paid in accordance with Section 4-B(6) of the Act, but in the present case, no differential tax has been paid by the respondent, and such violation as a natural corollary leads to the inevitable conclusion that the certificate in Form III-B continues to be a false or wrong certificate. Lastly, it is contended by him that the Division Bench of the High Court has not correctly laid down the law in Camphor a .....

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and as per the recognition certificate, it is entitled to procure natural gas at a concessional rate and the respondent has procured natural gas from two sources (1) from GAIL at a concessional rate against Form III-B and (2) from outside the State from BPCL/GAIL at normal tax. Learned counsel would submit that the respondent has disposed of urea by local sale and has also transferred the stock to various States which have been pursuant to and in compliance of Movement Orders issued by the Gove .....

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puted the stock transfers made under Fertilizer (Movement Control) Order, 1973. Learned counsel would further propone that show cause notice was issued under Section 3-B for alleged violation of Form III-B and it cannot change the foundation to raise a fresh plea under Section 4-B(6) of the Act. It is further urged by Mr. Tyagi that the pronouncement in Camphor and Allied Products Ltd. (supra) is absolutely correct and, in fact, it has been holding the field for considerable length of time as fa .....

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and in support of the same has cited certain authorities, we need not enter into the said arena, for what we are going to hold. 15. In Camphor and Allied Products Ltd. (supra) the High Court took note of the fact that the RFO and furnace oil was purchased against Form III-B and the same was used in the manufacture of camphor and other goods mentioned in the recognition certificate granted under Section 4-B of the Act. It took note of the two earlier decisions in Commissioner of Trade Tax v. Spo .....

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ineering Works v. Commissioner of Sales Tax 1994 UPTC 70, Commissioner of Sales Tax v. B.K. & Co. Engineering Works, Agra 1995 UPTC 502 and S.G. Industries v. State of Uttar Pradesh [1998] 108 STC 328; 1997 UPTC 616 of this Court. Therefore, unless it was shown that the form III-B issued by the revisionist were false or wrong, or the declarations made therein was false or wrong, no proceedings under Section 3-B of the Act could have been initiated. It is also not the case of the department t .....

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t, namely, camphor and other allied products. Section 3-B clearly shows that it is the user of the goods which is relevant for the purpose for which form III-B was given and not how the finished product or manufactured goods are sold. Admittedly form III-B was issued for use in manufacture of camphor and other allied products and RFO/furnace oil for which the recognition certificate was granted. Hence in our opinion the petitioner cannot be deemed to have issued any wrong or false certificate an .....

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used for the same purpose, namely, in the process of manufacture of goods, i.e., camphor, and another allied products. 16. We have already analysed the statutory scheme and what has been dwelt with by the High Court in Camphor and Allied Products Ltd. (supra) and what has been pressed into service by Mr. Tyagi. Presently, text and context in detail. Section 4-B(2) is applicable to the dealer who manufactures notified goods in the State or engaged in packaging of such notified goods manufactured .....

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Notified Goods means such goods as notified by the State government from time to time. 17. Sub-section (2) to Section 4-B also requires that the notified goods should be intended to be sold by the dealer within the State or in the course of inter-State trade or commerce or in the course of exports out of India. The expression intended is significant and important. It refers to the intention of the dealer after the goods are manufactured and packed. The expression in the course inter-State trade .....

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which deals with the case of the dealer who has been issued the recognition certificate and has purchased goods without payment of tax or at concessional rates, but has sold the manufactured goods or packaged goods otherwise than by way of sale in the State, or in the course of inter-State trade or commerce or export out of India. The provision specifically deals with cases where the dealer manufactures or packs the notified goods and has taken benefit of lower/concessional or nil rate of tax o .....

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