Concessional raw materials and canteen subsidy were treated differently: differential tax applied, but subsidy was excluded from sale price.

Concessional raw materials purchased on declaration in form IV attracted the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947 where the finished goods were not sold within the State but transferred to branches outside the State; the declared manufacturing-for-sale condition was therefore not fulfilled, and differential tax on the concessional purchases was payable. Subsidy received to meet the deficit of running a canteen was not additional consideration for food sold, because it was not directly relatable to any specific sale; it did not form part of the sale price or taxable turnover.

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Issues: (i) Whether raw materials purchased at concessional rate on declaration in form IV and used in manufacturing finished goods could attract the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947 when the finished goods were transferred outside the State by branch transfer; (ii) Whether subsidy received for running a canteen formed part of the sale price liable to sales tax.

Issue (i): Whether raw materials purchased at concessional rate on declaration in form IV and used in manufacturing finished goods could attract the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947 when the finished goods were transferred outside the State by branch transfer.

Analysis: The proviso was construed to require that goods purchased on the strength of the declaration be used in the manufacture or processing of goods for sale within the State. The declared purpose was not satisfied where the manufactured goods were not sold but were transferred to branches outside the State. The use of the raw materials in manufacturing did not, by itself, prevent the proviso from operating when the finished goods were ultimately diverted by stock transfer and not sold as contemplated by the declaration.

Conclusion: The fifth proviso to section 5(1) was attracted and the differential tax on the concessional purchases was payable. This issue was answered in favour of the Revenue.

Issue (ii): Whether subsidy received for running a canteen formed part of the sale price liable to sales tax.

Analysis: The subsidy was received to meet the overall deficit in running the canteen and was not directly relatable to any particular item of food sold. The valuable consideration for the food supplied was the price fixed for the items sold to employees, and the subsidy merely made good the excess expenditure over income. It could not be treated as additional consideration for sales of foodstuffs in the canteen.

Conclusion: The subsidy did not form part of the sale price and was not taxable as turnover. This issue was answered in favour of the assessee.

Final Conclusion: The revision succeeded only on the canteen-subsidy issue, while the levy of differential tax on concessional raw-material purchases was upheld.

Ratio Decidendi: A tax concession on raw materials can be withdrawn where the declared use is not fulfilled by sale of the manufactured goods in the manner contemplated by the declaration, and a canteen subsidy not directly referable to specific sales does not constitute sale consideration.

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