2025 (9) TMI 120 - HC - VAT / Sales Tax

Entry tax arises on entry of scheduled goods; s.4A notified manufacturing inputs taxed at notified rates; explosives at 6%/10%

M/s Balajee Minerals, M/s Starex Minerals Versus Commissioner of Commercial Tax, Raipur.

M/s Balajee Minerals, M/s Starex Minerals Versus Commissioner of Commercial Tax, Raipur. - 2025:CGHC:43947 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal was justified in holding that the dealer is a 'manufacturer' within meaning of Section 2(n) of the CG VAT Act thereby attracting Section 4A of the Entry Tax Act. 2. Whether the Tribunal was justified in relying on precedent treating mining/collection of minerals as 'manufacture' (notably the Rewa Coal Fields decision) given differing statutory definitions. 3. Whether the Tribunal was justified in applying a definition of 'raw material' in determining 'manufacture' where the CG VAT Act does not define 'raw material'. 4. Whether the Tribunal was justified in treating an entry in the assessee's balance sheet described as 'blasting expenses' as purchase of explosives for purposes of entry tax liability, despite absence of an explosives licence and contention that payment was to a contractor. 5. Whether the Tribunal was justified in concluding that the assessee failed to produce receipts and expenditure details of the contract with a telecommunications company. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Applicability of Section 4A where goods are notified as mainly used in manufacture Legal framework: Sections 3, 4 and 4A of the Entry Tax Act determine incidence and rate of entry tax; Section 3 levies tax on entry in the course of business of goods specified in Schedules II and III; Section 4 prescribes rates in the Schedules; Section 4A empowers the State Government by notification to specify local areas and goods used mainly for manufacture and to prescribe an enhanced rate (ceiling 10%) which operates notwithstanding Section 4. Precedent treatment: The Supreme Court in Fr. William Fernandez held the charging event arises on entry of scheduled goods into a local area irrespective of origin. M.P. High Court decisions (Associated Cement Companies; Mysore Cement; Godfrey Philips) have treated Sections 3/4 and 4A as alternative schemes and upheld notifications under Section 4A, including that Section 4A overrides Schedule rates for notified goods. Interpretation and reasoning: The Court construed Sections 3, 4 and 4A as creating two legislative schemes - a normal scheme under Sections 3/4 and an alternate scheme under Section 4A - and held that once a State notification under Section 4A identifies goods as mainly used for manufacture in specified local areas, the rates fixed by that notification govern and exclude application of Schedule rates under Section 4. The State notification dated 27-7-2006 specifically fixed entry tax on 'explosives' at 6% (intra-State registered dealer) and 10% (others) for all local areas; absence of challenge to that notification means authorities are bound to apply it. Ratio vs. Obiter: Ratio - Section 4A notifications, when validly issued, displace Schedule rates and govern entry tax rates for notified goods used mainly for manufacture in the specified areas; the charging event remains entry into local area but rate is set by Section 4A notification. Obiter - observations distinguishing unrelated manufacturing jurisprudence (e.g., washing ash) were explanatory. Conclusion: The Tribunal and tax authorities were justified in applying the rates specified in the Section 4A notification (6%/10%) on entry of explosives; tax cannot be charged at other Schedule rates where a valid Section 4A notification operates. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Whether mining/explosives constitute 'manufacture' under VAT law and reliance on Rewa Coal Fields precedent Legal framework: 'Manufacture' definition under the CG VAT Act (Section 2(n) of VAT Act) is central where Section 4A is triggered by goods 'used or consumed... mainly for the manufacture of other goods'. Section 4A's applicability depends on the notification identifying goods used mainly for manufacture. Precedent treatment: Rewa Coal Fields (M.P. High Court/Supreme Court referenced by parties) treated certain mineral extraction activities as manufacture in a wide definition context. Other cited authorities (Mahalaxmi Stores; Aman Marble; Pio Food Packers; Bheraghat Mineral Industries; Tata Iron & Steel; Spectrum Coal & Power) address the scope of 'manufacture' in differing factual matrices. Interpretation and reasoning: The Court held authorities correctly relied on the Section 4A notification rather than engaging in a granular adjudication of whether the particular activity amounted to 'manufacture' under the VAT Act for the purpose of applying the Schedule concession; once the legislature (via notification) designates a good as mainly used in manufacture in notified areas, the enhanced rates apply irrespective of contested characterizations of the purchaser's activity. The decisions on whether mining per se is 'manufacture' are distinguishable on facts and irrelevant to the operative question of notification-driven taxation. Ratio vs. Obiter: Ratio - Reliance on Section 4A notification supersedes the need to establish 'manufacture' at the dealer-level for rate determination; therefore, precedents about manufacturing classification are not determinative where notification operates. Obiter - distinctions drawn between various manufacturing jurisprudence are explanatory. Conclusion: Tribunal's reliance on precedent categorizing mining as manufacture was unnecessary for the tax-rate question; the notification under Section 4A controls and makes classification debates collateral to the obligation to apply the notified rates. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Use of 'raw material' concept where CG VAT Act lacks definition Legal framework: Section 4A refers to goods 'used or consumed... mainly for the manufacture of other goods or as packing materials'; the VAT Act may not define 'raw material' but Section 4A's focus is use in manufacture as determined by State notification. Precedent treatment: Authorities interpreting Section 4A and Schedule concessions (Associated Cement Companies) considered the policy reasons for distinguishing certain raw materials (e.g., limestone) and upheld classification and notifications even without statutory definitions of 'raw material'. Interpretation and reasoning: The Court observed that absence of a statutory definition of 'raw material' in the VAT Act does not prevent the State from identifying goods for the purposes of Section 4A notifications; the practical test is legislative classification via notification rather than judicially supplied definitional exactitude. Hence application of notions like 'raw material' by tribunals or authorities in construing notifications is acceptable where notification itself targets goods commonly used in manufacture. Ratio vs. Obiter: Ratio - Section 4A permits the State to identify goods used mainly for manufacture irrespective of absence of a statutory definition of 'raw material'; judicial assessment of manufacture need not pivot on a statutory raw-material definition when a notification is operative. Obiter - comments on preferable approaches to defining 'raw material' in other contexts. Conclusion: Tribunal's reference to 'raw material' concepts does not undermine the primacy of an unchallenged Section 4A notification; lack of a statutory definition in the VAT Act is not fatal to application of the notification. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Characterisation of 'blasting expenses' in accounts as purchase of explosives absent licence and where payments were to contractor Legal framework: Incidence of entry tax attaches on entry into local area in course of business; taxable quantum includes purchases. Evidence in assessment (returns, balance sheet entries) informs whether entry/purchase occurred. Precedent treatment: No controlling precedent was applied by the Court to require an explosives licence as a precondition for taxing entry; the Court treated documentary disclosures and returns as primary evidence of purchase/entry. Interpretation and reasoning: The record showed the assessee declared Rs. 13,10,772 as purchase of explosives and paid entry tax at 1% initially; Assessing Officer and later revisional/tribunal proceedings treated the declared amount as entry of explosives for mining use and thus subject to Section 4A rates. The Court's disposal turned on the existence and effect of the Section 4A notification rather than re-characterising the accounting entry; absence of a licence and contention payment was to a contractor did not negate that the declared entry indicated purchase/entry for tax purposes, especially where no successful challenge to the notification rate or contrary documentary proof prevailed. Ratio vs. Obiter: Ratio - A dealer's own financial entries and returns indicating purchase may ground entry-tax assessment under the Entry Tax Act; absence of a licence does not preclude taxation where entry of goods is otherwise evidenced. Obiter - remarks on evidentiary sufficiency and potential relevance of contractual arrangements for distinguishing purchase from service payments. Conclusion: The authorities were justified in treating the declared blasting expenses as purchase/entry of explosives for entry-tax purposes in light of the returns and absence of convincing contrary documentary proof; the Section 4A rates therefore applied. ISSUE-WISE DETAILED ANALYSIS - Issue 5: Failure to produce receipts/expenditure of the contract Legal framework: Assessment and appeals depend on documentary proof; non-production may sustain adverse factual findings by tax authorities. Precedent treatment: The Court referenced adjudicatory practice where factual non-production of records supports authority conclusions; no novel precedent was required. Interpretation and reasoning: The Tribunal found that receipts and expenditure details of the contract with the telecommunications contractor were not produced; this factual conclusion supported the authorities' inference about the nature of payments and entry of goods. The Court did not disturb the tribunal's factual finding, focusing instead on legal questions about rate applicability under Section 4A. Ratio vs. Obiter: Ratio - Tribunal's adverse inference from non-production of records is a permissible factual conclusion; such findings underpin assessment outcomes absent compelling contrary evidence. Obiter - none significant. Conclusion: The Tribunal was justified in concluding non-production of contract receipts/expenditure, and that factual finding supports the assessment and applicability of the Section 4A notification rates. OVERALL CONCLUSION Once the State validly notifies goods as being used mainly for manufacture in specified local areas under Section 4A, the notification's rates (subject to statutory ceiling) govern entry tax and displace Schedule rates under Section 4; therefore, absent successful challenge to the notification, authorities were correct to apply the 6%/10% rates on entry of explosives and the Tribunal's reliance on the notification and its factual findings are upheld. Precedents concerning the characterisation of 'manufacture' do not negate the primacy of an operative Section 4A notification for rate determination.