CST Form C use for processing goods for sale does not require ownership of the processed fabrics

The phrase "for use by him in the manufacture or processing of goods for sale" in section 8(3)(b) of the Central Sales Tax Act, 1956 was construed according to its plain language. Goods purchased on Form C and used to process cotton fabrics belonging to others were still treated as used for the declared statutory purpose, because the provision did not require the processed goods to belong to the purchasing dealer or to be sold only by him. On that construction, there was no failure to use the goods for the declared purpose. Even otherwise, the existence of conflicting High Court views supplied reasonable excuse, so penalty under section 10(d) read with section 10A was not attracted.

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Issues: (i) Whether using materials purchased on Form C for processing cotton fabrics belonging to others, though such fabrics were sold by their owners, amounted to failure to use the goods for the purpose stated in the declaration under section 8(3)(b) of the Central Sales Tax Act, 1956. (ii) If so, whether the purchasers had reasonable excuse for such use so as to avoid penalty under section 10(d) read with section 10A of the Central Sales Tax Act, 1956.

Issue (i): Whether using materials purchased on Form C for processing cotton fabrics belonging to others, though such fabrics were sold by their owners, amounted to failure to use the goods for the purpose stated in the declaration under section 8(3)(b) of the Central Sales Tax Act, 1956.

Analysis: The phrase "for use by him in the manufacture or processing of goods for sale" was held to permit use by the purchasing dealer in processing goods meant for sale, whether the processed goods were sold by the dealer himself or by others. The omission of the words "by him" after "for sale" was treated as deliberate and significant. The provision was construed according to its plain language, without reading in a restriction that the processed goods must belong to the purchaser. The lower rate under section 8 was viewed as designed to maintain price structure, and the rule against intendment in taxing statutes was applied.

Conclusion: The use of the materials in processing fabrics belonging to others did not amount to a failure to make use of the goods for the purpose specified in Form C.

Issue (ii): If so, whether the purchasers had reasonable excuse for such use so as to avoid penalty under section 10(d) read with section 10A of the Central Sales Tax Act, 1956.

Analysis: Even assuming a contrary interpretation of section 8(3)(b), the provision had been judicially construed differently by different High Courts. In that state of uncertainty, the purchasers could not be said to have acted without reasonable excuse when they used the goods on the footing that the statutory purpose was satisfied if the processed goods were for sale.

Conclusion: The purchasers had reasonable excuse, and penalty was not attracted.

Final Conclusion: The reference was answered in a manner that denied the alleged contravention and negatived the penalty, leaving the applicants entitled to succeed on the substantive questions referred.

Ratio Decidendi: The words "for use by him in the manufacture or processing of goods for sale" in section 8(3)(b) of the Central Sales Tax Act, 1956 do not require that the goods processed must belong to the purchasing dealer or that the sale of the processed goods must be by him personally.

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