Penalty for misuse of recognised raw material fails where finished goods fall within the recognition certificate's scope.

Penalty under section 4-B(5) of the U.P. Sales Tax Act, 1948 is attracted only where raw material purchased under a recognition certificate is used to manufacture goods outside the scope of that certificate. The certificate here covered rubber products, and rubber tubes for animal-driven vehicles were treated as falling within that description, so the statutory basis for penalty was absent. Their possible exemption from turnover assessment did not alter the penalty inquiry, because the decisive question was conformity with the certificate terms. On that basis, penalty was not leviable and the challenge to the notice succeeded in favour of the assessee.

---

---

Issues: Whether penalty under section 4-B(5) of the U.P. Sales Tax Act, 1948 could be imposed for use of raw material purchased under a recognition certificate when the finished goods manufactured were rubber tubes for animal-driven vehicles.

Analysis: Penalty under section 4-B(5) is attracted only when raw material obtained under a recognition certificate is used in the manufacture of goods not covered by that certificate. The recognition certificate in this case covered rubber products, and the tubes manufactured for animal-driven vehicles were held to be rubber products within that description. The fact that the turnover of such goods may be exempt for assessment purposes did not control the question of penalty, because the decisive inquiry was whether the raw material had been used contrary to the terms of the recognition certificate. Since it had not been so used, the statutory basis for penalty was absent.

Conclusion: Penalty was not leviable, and the challenge to the notice succeeded in favour of the assessee.

Ratio Decidendi: Penalty under section 4-B(5) cannot be imposed unless the raw material purchased under a recognition certificate is used to manufacture goods outside the scope of that certificate.

---