2014 (1) TMI 1381 - HC - VAT and Sales Tax

Geographical restriction on sale of goods upheld for revenue protection

The court upheld the geographical restriction that goods manufactured using raw materials purchased at a concessional rate must be sold within Jharkhand ... Denial of benefit of concessional rate of tax on purchase - geographical restriction - AO denied the benefit of concessional rate of tax on purchase of raw materials by the Petitioner used for manufacturing the goods which has been transferred by way of stock transfer outside the State in terms of Section 13(1)(b) - Demand of differential duty - Held that:- State is free to impose the condition that for earning the concessional rate of tax, the sale must take place within the State of Jharkhand or in the course of inter-state sale. One of the considerations while granting concessional rate of tax would be its effect on the revenue of the State. While so granting concessional rate of tax, the loss of revenue to the State is an important factor to be borne in mind. Language of the Second proviso inserted by the amendment is to be interpreted bringing it in harmony with the other provisions of the Act. Giving a purposeful interpretation of the language in the Second proviso it will be reasonable to hold that Second proviso, inserted by amendment, stipulates that 'the goods manufactured using the goods purchased at the concessional rate of tax under Section 13(1)(b) has to be sold within the State of Jharkhand or in the course of inter-state trade and commerce. This interpretation of the Second proviso advances the legislative purpose and object which the Second proviso intended to serve - Decided against the petitioner. Contention & Reliance upon Polestar Case [1978 (2) TMI 186 - SUPREME COURT OF INDIA] - geographical restriction - Held that:- Under Section 5(2)(a)(ii) of Bengal Finance (Sales Tax) Act, 1941 as applied in the Union Territory of Delhi, the prescribed form was to be filed by the purchasing dealer. In the light of the provisions of the said Act and that the declaration form to be filed by the purchasing dealer, the Hon'ble Supreme Court held that the intention of the assesse was evidenced by the declarations given by them to the selling dealers at the time of purchase and therefore in the absence of consequential amendment in the Form of declaration, the purchasing dealer cannot be said to have committed breach of the statement made in the declaration. Therefore, the ratio of the decision in Polestar Case cannot be applied to the case in hand. Following the decision in the case of M/s. ICI India Ltd. & Anr. versus State of Orissa &Ors. [2007 (9) TMI 380 - SUPREME COURT OF INDIA] held that:- transfer of the manufactured goods by the Petitioner to the other depots situated outside the State of Jharkhand is 'used for any other purpose' within the meaning of Section 13(3) for imposing the differential rate of tax. - Decided against the assessee. Escaped assessment - held that:- Since the Petitioner had chosen to challenge the demand notice and also the order of assessment for the assessment years 2004-05 and 2005-06, the Department was perhaps waiting for the matter to reach finality. In such facts and circumstances, the Petitioner cannot contend that in respect of the assessment years 2002-03 and 2003-04 the Department has not invoked Section 13(3) and thus acquiesced the returns filed by the Petitioner claiming stock transfer. - Decided against the assessee. Issues Involved:1. Whether a registered dealer purchasing goods at a concessional rate for manufacturing must sell the manufactured goods within the State of Jharkhand or in inter-state trade originating from Jharkhand.2. Validity of the new proviso inserted in Section 13(1)(b) by notification dated 02.01.2002.3. Whether the amendment imposes geographical limitations on the sale of manufactured goods.4. Whether the absence of corresponding amendments to the rules and declaration forms affects the enforceability of the amended provision.5. The applicability of differential tax under Section 13(3) for violations of the amended provision.Detailed Analysis:1. Geographical Restriction on Sale of Manufactured Goods:The court examined whether the new proviso to Section 13(1)(b) mandates that goods manufactured using raw materials purchased at a concessional rate must be sold within Jharkhand or in inter-state trade originating from Jharkhand. The court concluded that the language of the amended proviso clearly indicates the legislative intent that the goods manufactured out of the raw materials purchased at a concessional rate must be sold within Jharkhand or in the course of inter-state trade and commerce originating from Jharkhand. This interpretation is necessary to ensure that the state does not lose revenue.2. Validity of the New Proviso:The court upheld the validity of the new proviso inserted by the notification dated 02.01.2002. It was determined that the state legislature has the competence to impose such conditions to ensure that the state's revenue is not adversely affected by the concessional rate of tax.3. Geographical Limitations:The petitioner argued that the amendment does not impose geographical restrictions on the sale of manufactured goods. However, the court rejected this argument, stating that the intention of the legislature, as evident from the language of the proviso, is to restrict the benefit of concessional tax to goods sold within Jharkhand or in inter-state trade originating from Jharkhand. The court emphasized that the expression 'BHI' (also) used in the proviso does not imply that sales outside Jharkhand are included.4. Absence of Corresponding Amendments:The petitioner contended that the absence of amendments to the rules and declaration forms (Form IX) renders the amended provision unenforceable. The court refuted this argument, stating that the substantive provision (Section 13(3)) is independent and does not rely on procedural forms. The court cited the Supreme Court's decision in Indian Carbon Ltd. & Others versus State of Assam, which held that substantive provisions prevail over procedural provisions.5. Applicability of Differential Tax:The court examined the applicability of differential tax under Section 13(3) for violations of the amended provision. It was determined that if the goods purchased at a concessional rate are not used for manufacturing within Jharkhand or are not sold within Jharkhand or in inter-state trade originating from Jharkhand, the dealer is liable to pay the differential tax. The court found that the petitioner had stock transferred a significant portion of the manufactured goods outside Jharkhand, violating the conditions of the amended proviso, and thus, the imposition of differential tax was justified.Conclusion:The court concluded that the second proviso to Section 13(1)(b) mandates that goods manufactured using raw materials purchased at a concessional rate must be sold within Jharkhand or in inter-state trade originating from Jharkhand. The absence of corresponding amendments to the rules and declaration forms does not affect the enforceability of the amended provision. The petitioner's actions of stock transferring goods outside Jharkhand violated the conditions of the concessional rate, justifying the imposition of differential tax under Section 13(3). The writ petitions were dismissed.