TMI Blog2017 (5) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... tself that the said goods are indeed eligible for inclusion in terms of the end use and as such a presumption has to be raised in favor of the dealers. Hence, it cannot be gainsaid by the authorities that the dealers had misrepresented or gave a wrong impression regarding the usage of goods to attract levy of penalty. It was not the case of the adjudicating authorities that the goods in question which have been purchased by the appellant/dealer had not been purchased by them on inter state basis. But on the other hand it was their specific case that appellant / respondent had misused Form-C as these goods are not integrally connected with the manufacturing process. Under Rule 3(5) of the CST Rules the notified authority at the time of granting registration certificate is required to conduct an enquiry as it deems fit and then issues the registration certificate containing list of goods upon being fully satisfied that the particulars contained in the application are correct. Once the goods are included in the certificate of registration which in terms of Rule 5 of the CST Rules is done, an enquiry regarding the feasibility of use of such goods in the manufacturing process or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 10 (b) of CST Act can be levied even in respect of class of goods being exempted from payment of tax, when such goods are permitted to be purchased as per the list annexed to the Certificate of Registration? BRIEF BACKGROUND OF THE CASE Appellant in STA No.154/2016 and respondent in STRP Nos.200010/2016 and 200012-15/2016 are engaged in the business of manufacture and sale of cement and are having their registered offices at Kalaburagi. They are registered under Section 64 (1) of the Karnataka Value Added Tax Act, 2003 (for short KVAT Act) read with Section 9 (2) of the Central Sales Tax Act, 1956 (for short CST Act). 2. On an inspection made by the officers of the enforcement a report came to be forwarded that C-Forms issued to the dealers for the purchase of goods at concessional rate from outside the State for using the same in mining of ore and manufacturing of cement, has been utilized for the purpose other than mining or manufacturing activity and dealers had purchased the goods which are neither used in the manufacture of new goods or as packing materials used in mining activity and thereby they have violated the provision of Section 10 (b) rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant in STA No.154/2016 who was successful before the first appellate authority was visited with suo moto revision proceedings by issue of notice under Section 64(1) of the KVAT Act whereunder Revisional Authority proposed to set aside the order of the First Appellate Authority and as such called upon the appellant to show-cause as to why the order of the adjudicating authority should not be restored on the ground that dealer had misrepresented facts and used the goods purchased against C-Forms which were not directly connected with the manufacturing and processing activity. After considering the detailed reply submitted by the dealer and after hearing the parties, the revisional authority by order dated 24.10.2016 set aside the order of the first appellate authority and upheld the order of levy of penalty passed by the adjudicating authority by confirming the show-cause notice. 7. In the light of the aforestated factual matrix the appellant is aggrieved by the levy of penalty and State-Revenue being aggrieved by the order of the Tribunal setting aside the order of levy of penalty are before this Court. 8. We have heard the arguments of Sri G. Shivadas learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 374 (Rajasthan) 10. Hence, they are seeking for allowing the appeal and dismissal of the revision petitions filed by the State. 11. Per contra, Sri R.V. Nadagouda, learned Additional Advocate General appearing for the State would contend that as per the registration certificate the dealer is authorized to purchase goods outside the State at concessional rate as indicated in Section 8 (2) of the CST Act of 1956, against issuance of C-Form for using such goods in the mining of ore and manufacture of cement and the interpretation adopted by the Tribunal in case of the respondent in STRP 200010/2016 and 200012-15/2016 is erroneous inasmuch as it was without considering the conditions enumerated in registration certificate with regard to use of C-Form whereunder it has been specified that misuse of C-Form would entail levy of penalty. He would also contend that enforcement authorities had visited both the companies engaged in the activity of manufacture of cement and had observed that C-Forms issued to the dealer have been used for purpose other than which they were actually meant or issued and such levy of penalty is sustainable. He would also contend that as per Section 8(3) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 6 or sub- section (1) of Section 6-A or [sub-section (4) of section 8], he may, by an order in writing and for reasons to be recorded therein, impose as a condition for the issue of a certificate of registration a requirement that the dealer shall furnish in the prescribed manner and within such time as may be specified in the order such security as may be so specified, for all or any of the aforesaid purposes.] (3) If the authority to whom an application under sub-section (1) or sub-section (2) is made is satisfied that the application is in conformity with the provisions of this Act and the rules made thereunder [and the condition, if any, imposed under sub-section (2-A), has been complied with], he shall register the applicant and grant to him a certificate of registration in the prescribed form which shall specify the class or classes of goods for the purposes of sub-section (1) of Section 8. [(3-A) Where it appears necessary to the authority granting a certificate of registration under this section so to do for the proper realisation of tax payable under this Act or for the proper custody and use of the forms referred to in sub-section (2-A), he may, at any time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or purchase of such goods inside the appropriate State under the sales tax law of that State. Explanation - For the purposes of this sub- section, a dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.] [(2-A) xxxxx.] (3) [The goods referred to in sub-section (1)].- [(a) xxxxxx]; (b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or [in the telecommunications network or] in mining or in the generation or distribution of electricity or any other form of power; (c) xxxxxx (d) xxxxxx (4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mining, or in the generation or distribution of electricity or any other form of power. 15. Every dealer who is liable to pay tax under the CST Act is required to make an application for registration under the Act as indicated under Section 7(1) of CST Act. Such application should contain the particulars as may be prescribed. Sub-section (2-A) of Section 7 of CST Act indicate that the authority may impose as a condition for issue of a certificate of registration by recording reasons and such authority on being satisfied with the application being in conformity with the provisions of the Act and the Rules made thereunder and also on being satisfied that the condition imposed under sub-section (2-A) has been complied, shall register the application and grant a certificate of registration in the prescribed Form as per sub-section (3) of Section 7 of CST Act. If it appears to the authority while granting a certificate of registration he may at any time while such certificate is in force pass an order in writing by recording reasons thereunder requiring the dealer to whom the certificate has been granted to furnish such security and additional security if the dealer has already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of power. 18. Section 8(4) of the Act provides that provisions of Section 8(1) shall apply to any sale in the course of inter state trade or commerce only if the dealer selling such goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form. 19. Rule 12 (1) of CST Rules inter alia provides that the declaration referred to in section 8 (4) of CST Act shall be in Form-C. Rule 13 of CST Rules indicate that the goods referred to in Section 8(3) (b) of the CST Act shall be the goods purchased by the registered dealer which are intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in the telecommunication network or in mining, or in the generation or distribution of electricity or any other form. 20. Section 10-A would indicate the acts and omissions on the part of the dealer as indicated therein would attract the levy of penalty namely (i) false representation by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed on appellant and respondent are perused it would indicate that authorities have held that the goods are not directly connected with the manufacturing or processing activity carried out by dealers and therefore they were not eligible for purchasing the goods at a concessional rate against Form-C. 23. In the instant case the goods which have been purchased by the dealer against Form-C were undisputedly included in the certificate of registration. The very fact that the goods purchased by the dealers were included in the certificate of registration and those goods alone have been purchased by them against Form-C establishes the bonafides of the dealers or in other words there was no intention to suppress at the time of purchasing the goods. The respective adjudicating authorities have not disputed or rejected the contention or plea of the dealers that the goods purchased by them does not find a place in the certificate of registration. In fact, the dealers while submitting the application for registration had included these goods in their applications and the authorities have also approved, accorded their permission by including the said goods in the list certified by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased by them on inter state basis. But on the other hand it was their specific case that appellant / respondent had misused Form-C as these goods are not integrally connected with the manufacturing process. 26. The Hon ble Apex Court in the case of Indian Copper Corporation Ltd. vs. Commissioner of Commercial.. reported in AIR 1965 SC 891 was examining as to whether locomotives and motor vehicles which came to be purchased by the Indian Copper Corporation for being used in its factory would be entitled to the concessional rate of tax which had been excluded, since High Court had opined that said goods was not intended for use in the manufacture or processing of goods for sale or in the mining operations and it was held: 11. The High Court excluded from item (i) Locomotives and motor-vehicles those vehicles which were used by the Corporation after the mining operations were concluded and before the manufacturing process commenced and also vehicles used in carrying finished products from the factory on the conclusion of the process of manufacture. Those excluded vehicles were, in the view of the High Court, not intended for use in the manufacture or processing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the mining operations are concluded to the factory where the manufacturing process starts. It appears that the process of mining ore and manufacture with the aid of ore copper goods is an integrated process and there would be no ground for exclusion from the vehicles those which are used for removing goods to the factory after the mining operations are concluded. Nor is there any ground for excluding locomotives and motor-vehicles used in carrying finished products from the factory. The expression goods intended for use in the manufacturing or processing of goods for sale may ordinarily include such vehicles as are intended to be used for removal of processed goods from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable. We are, therefore, of the opinion that the Corporation was entitled to specification as set out in the petition and explained in annexure B-2 to the petition in respect of items (i), (ii) and (vi).The statutes relating to factories and mines impose upon the owner of the factory and the mine obligation to maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court as not to be equated with the expression likely to facilitate and the said opinion expressed by the Hon ble Apex Court is squarely applicable to the facts on hand since the goods in question namely rail and spares for rail, closed Wagons, locomotives and Iron and Steel are not the goods integrally connected with the manufacturing or processing of the goods and as such there has been misuse of Form-C. 27. At the outset it requires to be noticed that the goods which have been purchased by the dealers are specifically enumerated in the certificate of registration which is also admitted by the respondent authorities or in other words the goods in dispute have been specifically covered under the certificate of registration and as such it cannot be held that dealers had falsely represented and as such Section 10(b) of the CST Act is attracted. Under Rule 3(5) of the CST Rules the notified authority at the time of granting registration certificate is required to conduct an enquiry as it deems fit and then issues the registration certificate containing list of goods upon being fully satisfied that the particulars contained in the application are correct. Once the goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Officer, Kanpur Another(1). On the plain words used in s. 7 and the Rules, it is contemplated that the certificate of registration may only be issued after an objective satisfaction by the notified authority that the specified goods are likely to be needed for the purpose of the business of the registered dealer, and that satisfaction is open to challenge in an appropriate proceeding before the High Court and even before this Court. Correctness or priority of satisfaction of the notified authority in issuing the certificate in Form-B that the goods are likely to be required for the purpose of the business would not however be again open to challenged before another taxing authority in proceedings for assessment of tax. 29. The Hon ble Apex Court in the case of CTO vs. Rajasthan Taxchem Limited reported in 2007 5 VST 529 (SC) while examining as to whether the specific entry of diesel found in the registration certificate being purchased at a concessioanl rate of tax and used for generating electricity by DG sets by the dealer would be raw material as meaning goods used as an ingredient in the manufacture of other goods and including preservatives, fuel, lubricants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for the purposes of laying down railway tracks for movement of goods to and from the factory and finished goods i.e. cement from factory to railway yard. It is not the case of revenue that rail tracks have been used for purpose other than transporting raw materials and finished goods to and from the dealer s factory. However, it has been held by the authorities that said rail tracks is neither covered in Section 8(3) (b) of the CST Act nor Rule 13 of the CST Rules and the dealer had misrepresented that such goods are used for the intended purpose of manufacture/process of goods for sale. 34. In these circumstances what is required to be considered is the commercial expediency in ascertaining as to whether the goods have been used for the intended purpose. In this background the phraseology used in Section 8(3) (b) acquires significance namely the expression for use by him in the manufacture or processing of goods . The Hon ble Apex Court in the case of G.K. Cotton Spinning and Weaving Mills Company Limited vs. Sales Tax Officer and another reported in (1956) 16 STC 563 (SC) had examined as to whether drawing instruments, photographic materials, building materials i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression in the manufacture of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under S. 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for turning out or the creation of goods. 11. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves bringing some kind of change to the raw material at various stages by different operations. The process in manufacture must have the effect of bringing change or transformation in the raw material and this should also lead to creation of any new or distinct and excisable product. The process in relation to manufacture means a process which is so integrally connected to the manufacturing of the end product without which, the manufacture of the end product would be impossible or commercially inexpedient. 37. In the case of the respondent in revision petition the class of goods which came to be purchased by the dealer are closed wagons, locomotives and iron and steel against Form-C which undisputedly found their entry in the list appended to the certificate of registration. The said goods fit into entry of other transport vehicles and materials handling equipments, iron and steel which is part of ferrous and non-ferrous metals and alloys which all finds a place in the certificate of registration and they are goods which form integral part in the activity of manufacturing and sale of cement and ready mix concrete and also mining. It is in this background the appellate tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious places outside the factory for sale to its customers. The movement of raw materials to the factory and the movement of finished goods from the factory for being sold has to be necessarily carried out by either road transport or by rail transport and it is the latter mode which has been adopted by the appellant. 40. The appellant is carrying the business of manufacturing of cement at its plant and for moving the raw materials to the factory or moving the finished goods from the factory, it has laid railway lines to connect main railway track of the Indian Railways. The raw materials like fly ash or coal is bought by the appellant and it comes into the factory via Indian Railways in the wagons and it is emptied using material handling equipment and then taken to the factory for manufacture of goods. The railway line laid is used for the movement of these wagons. This fact has also been verified and accepted by the adjudicating authority. This would only indicate that these rail lines have a crucial role in the activity of movement of raw materials to the factory of the appellant and without the process of such movement of raw materials the manufacturing activity will neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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