Concessional raw material diverted from notified manufacture attracts penalty when sold or otherwise disposed of outside the permitted use.

Raw material purchased at a concessional rate under a recognition certificate must be used only for manufacturing the notified goods. Where the unused raw material was sold outside the State on consignment basis without departmental permission, it was treated as diversion and disposal for a purpose other than that permitted by the certificate. Section 4B(5) of the U.P. Trade Tax Act, 1948 covers such misuse and authorises penalty to protect revenue and make good the tax loss. On that basis, penalty was leviable on the unused glass-sheet raw material, and the Tribunal was not justified in setting aside the penalty.

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Issues: Whether penalty under section 4B(5) of the U.P. Trade Tax Act, 1948 could be levied where raw material purchased at concessional rate against a recognition certificate was not used in the manufacture of notified goods and was instead sold outside the State.

Analysis: Section 4B grants relief for purchase of raw material at concessional rate only for use in the manufacture of specified goods. The unused portion of the raw material was disposed of by sale on consignment basis without permission from the Department. The statutory language of section 4B(5) covers raw material utilised for a purpose other than that mentioned in the recognition certificate and raw material otherwise disposed of, and makes the dealer liable to penalty. The provision is intended to protect the revenue by ensuring that at least the tax loss is made good through the minimum penalty where concessional raw material is diverted or disposed of otherwise than for the permitted manufacture.

Conclusion: Penalty under section 4B(5) was leviable on the unused glass-sheet raw material, and the Tribunal was not justified in setting aside the penalty.

Ratio Decidendi: Raw material purchased at concessional rate under a recognition certificate must be used for the notified manufacture, and any unused or otherwise disposed portion attracts penalty under section 4B(5) of the U.P. Trade Tax Act, 1948.

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