Concessional raw material use must match the notified purpose, or diversion can attract statutory penalty.

A recognition certificate holder who purchases paddy at concessional rate or without tax under section 4B must use it only for the notified purpose for which the concession was granted. Where the admitted facts showed purchase against form IIIB followed by diversion of the paddy to other rice millers instead of manufacture of rice, the statutory condition attached to the concession was breached and penalty under section 4B(5) was attracted. The relied-upon notifications did not protect the dealer, because the later notification applied to dealers without a recognition certificate and the earlier notification had been superseded. The penalty was therefore upheld.

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Issues: Whether penalty under section 4B(5) of the U.P. Trade Tax Act, 1948 was validly imposed for purchasing paddy at concessional rate or without tax as a recognition certificate holder and diverting it otherwise than for manufacture of rice; and whether the notifications relied upon protected the applicant from penalty.

Analysis: A recognition certificate holder purchasing raw material under section 4B is bound to use it only for the notified goods for which the concession was granted. The finding recorded was that the applicant purchased paddy against form IIIB but did not use it in the manufacture of rice and instead sold it to other rice millers. The later notification dated 28 February 1994 was held inapplicable because it concerned a dealer not holding a recognition certificate, and the earlier notification stood superseded by Notification No. 4519 dated 29 August 1987. On the admitted facts, the statutory condition attached to the concession was violated, attracting the penal provision.

Conclusion: The levy of penalty was upheld and the challenge to the penalty failed.

Ratio Decidendi: Raw material purchased at concessional rate or without tax by a recognition certificate holder under section 4B must be utilised only for the notified purpose, and diversion of such material for any other use renders the dealer liable to penalty under section 4B(5).

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