Strict construction of sales tax penalty provisions prevents punishment where declared packing material was used for its intended purpose.

Penalty under section 5-B(2)(i) of the Andhra Pradesh General Sales Tax Act was not attracted where a manufacturer purchased craft paper on declaration for use as packing material and got it converted into boxes through job work before using it for that declared purpose. The Court held that there was no statutory prohibition against such conversion, the goods were in fact used as declared, and no mala fide intention or contumacious conduct was shown. As penal provisions must be construed strictly, the penalty orders were unsustainable and were cancelled in favour of the assessee.

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Issues: Whether penalty under section 5-B(2)(i) of the Andhra Pradesh General Sales Tax Act, 1957 could be sustained where craft paper was purchased on declaration for use as packing material and was converted into boxes through job work before being used for packing; and whether such conduct amounted to misuse of the declaration forms attracting penal consequences.

Analysis: Section 5-B(1) grants concessional treatment to purchases by a manufacturer for use as raw material, component part, sub-assembly part, intermediate part, consumables and packing material. Section 5-B(2)(i) penalises purchase by declaration where the purchaser has no manufacturing unit, while clause (ii) applies where goods are sold contrary to declaration. The Court found that the assessee was a manufacturer of chemicals, that the craft paper was purchased only for packing material, and that there was no statutory prohibition against getting the paper made into boxes through job work before using it as packing material. The material was actually used for the declared purpose, and the case disclosed no mala fide intention or contumacious conduct. Penal provisions were required to be construed strictly, and in the absence of clear language prohibiting such use, the penalty could not be justified.

Conclusion: Penalty under section 5-B(2)(i) was not attracted and the cancellation of the penalties was upheld in favour of the assessee.

Final Conclusion: The revision failed because the assessee's purchase of craft paper on declaration for packing purposes did not constitute a punishable misuse of the concessional form, and the penalty orders were unsustainable.

Ratio Decidendi: A penalty provision governing purchases on declaration cannot be invoked where the goods were in fact used for the declared purpose, merely in a converted form, unless the statute clearly prohibits such use.

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