Concessional purchase misuse and inter-unit transfers can create taxable liability when goods are diverted from declared use.

Transfers of cement to separately registered sister units were treated as taxable sales because the units maintained distinct accounts, the movement was not shown to be a mere stock transfer, and the cement was issued onward for construction work. Use of cement purchased on form IV for construction or other self-consumption also violated the declared user condition in the fifth proviso to section 5(1), since concessional purchase was permitted only for specified manufacturing or power-related purposes. The taxable turnover for that contravention was the value of the materials purchased on form IV. Both issues were decided in favour of the Revenue.

---

---

Issues: (i) Whether transfer or supply of cement by the dealer to different units within the State, which were separately registered, amounted to sale. (ii) Whether use of cement purchased on the strength of form IV for construction and other self-consumption, or supply of finished goods for such use, amounted to contravention of the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947, and what should be the basis of turnover for such contravention.

Issue (i): Whether transfer or supply of cement by the dealer to different units within the State, which were separately registered, amounted to sale.

Analysis: The units receiving the cement were separately registered under the Act and maintained separate trading accounts, balance-sheets and personal accounts. The transfers were not shown to be mere internal movements of stock, but were treated as transactions made for sale. The transferee-units also did not engage in commercial dealings in cement and issued the stock free of cost to contractors for construction work. On these facts, the movement of goods to the sister units was not a branch transfer immune from tax.

Conclusion: The transfer or supply to the sister units amounted to sale and was taxable, in favour of the Revenue.

Issue (ii): Whether use of cement purchased on the strength of form IV for construction and other self-consumption, or supply of finished goods for such use, amounted to contravention of the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947, and what should be the basis of turnover for such contravention.

Analysis: The fifth proviso to section 5(1) allowed concessional or free purchase only where the goods were intended for manufacture or processing of goods for sale, mining, or generation or distribution of electricity or other power. Where the goods, or the manufactured articles, were instead used for construction or other purposes, the declared user condition stood violated. The manufactured articles were not sold as such; they were otherwise dealt with, and the statutory condition was therefore contravened. The turnover was taken to be the value of the materials utilised on the strength of form IV.

Conclusion: The self-consumption and related use constituted contravention of the proviso, and the taxable turnover was the value of the materials purchased on form IV, in favour of the Revenue.

Final Conclusion: The reference was answered against the dealer, and the taxability of both the inter-unit transfers and the diverted use of cement was upheld.

Ratio Decidendi: Goods purchased at concessional rate on a declaration for use in manufacture for sale attract tax when diverted to other purposes, and transfers to separately registered units may constitute taxable sales where the transactions are treated as sales rather than mere stock transfers.

---