TaxTMI 
TaxTMI 
2017 (5) TMI 1119
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.... goods" being exempted from payment of tax, when such goods are permitted to be purchased as per the list annexed to the Certificate of Registration? BRIEF BACKGROUND OF THE CASE Appellant in STA No.154/2016 and respondent in STRP Nos.200010/2016 and 200012-15/2016 are engaged in the business of manufacture and sale of cement and are having their registered offices at Kalaburagi. They are registered under Section 64 (1) of the Karnataka Value Added Tax Act, 2003 (for short 'KVAT' Act) read with Section 9 (2) of the Central Sales Tax Act, 1956 (for short 'CST' Act). 2. On an inspection made by the officers of the enforcement a report came to be forwarded that C-Forms issued to the dealers for the purchase of goods at concessional rate from outside the State for using the same in mining of ore and manufacturing of cement, has been utilized for the purpose other than mining or manufacturing activity and dealers had purchased the goods which are neither used in the manufacture of new goods or as packing materials used in mining activity and thereby they have violated the provision of Section 10 (b) read with Section 10-A of the CST Act and thereby proposed to levy penalty on account....
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....s visited with suo moto revision proceedings by issue of notice under Section 64(1) of the KVAT Act whereunder Revisional Authority proposed to set aside the order of the First Appellate Authority and as such called upon the appellant to show-cause as to why the order of the adjudicating authority should not be restored on the ground that dealer had misrepresented facts and used the goods purchased against C-Forms which were not directly connected with the manufacturing and processing activity. After considering the detailed reply submitted by the dealer and after hearing the parties, the revisional authority by order dated 24.10.2016 set aside the order of the first appellate authority and upheld the order of levy of penalty passed by the adjudicating authority by confirming the show-cause notice. 7. In the light of the aforestated factual matrix the appellant is aggrieved by the levy of penalty and State-Revenue being aggrieved by the order of the Tribunal setting aside the order of levy of penalty are before this Court. 8. We have heard the arguments of Sri G. Shivadas learned counsel appearing for the appellant, Sri Tirumalesh, learned counsel appearing for the respondent in ....
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....11. Per contra, Sri R.V. Nadagouda, learned Additional Advocate General appearing for the State would contend that as per the registration certificate the dealer is authorized to purchase goods outside the State at concessional rate as indicated in Section 8 (2) of the CST Act of 1956, against issuance of C-Form for using such goods in the mining of ore and manufacture of cement and the interpretation adopted by the Tribunal in case of the respondent in STRP 200010/2016 and 200012-15/2016 is erroneous inasmuch as it was without considering the conditions enumerated in registration certificate with regard to use of C-Form whereunder it has been specified that misuse of C-Form would entail levy of penalty. He would also contend that enforcement authorities had visited both the companies engaged in the activity of manufacture of cement and had observed that C-Forms issued to the dealer have been used for purpose other than which they were actually meant or issued and such levy of penalty is sustainable. He would also contend that as per Section 8(3) (1) (b) a dealer can issue C-Forms for purchase of such goods which are used exclusively in mining or manufacturing activity but the deal....
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....a certificate of registration a requirement that the dealer shall furnish in the prescribed manner and within such time as may be specified in the order such security as may be so specified, for all or any of the aforesaid purposes.] (3) If the authority to whom an application under sub-section (1) or sub-section (2) is made is satisfied that the application is in conformity with the provisions of this Act and the rules made thereunder [and the condition, if any, imposed under sub-section (2-A), has been complied with], he shall register the applicant and grant to him a certificate of registration in the prescribed form which shall specify the class or classes of goods for the purposes of sub-section (1) of Section 8. [(3-A) Where it appears necessary to the authority granting a certificate of registration under this section so to do for the proper realisation of tax payable under this Act or for the proper custody and use of the forms referred to in sub-section (2-A), he may, at any time while such certificate is in force, by an order in writing and for reasons to be recorded therein, require the dealer, to whom the certificate has been granted, to furnish within such time as ma....
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....ng that he, in fact, may not be so liable under that law.] [(2-A) xxxxx.] (3) [The goods referred to in sub-section (1)].- [(a) xxxxxx]; (b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or [in the telecommunications network or] in mining or in the generation or distribution of electricity or any other form of power; (c) xxxxxx (d) xxxxxx (4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority: Provided that the declaration is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit." (5) xxx (6) xxx (7) xxx (8) xxx 10. Penalt....
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....may impose as a condition for issue of a certificate of registration by recording reasons and such authority on being satisfied with the application being in conformity with the provisions of the Act and the Rules made thereunder and also on being satisfied that the condition imposed under sub-section (2-A) has been complied, shall register the application and grant a certificate of registration in the prescribed Form as per sub-section (3) of Section 7 of CST Act. If it appears to the authority while granting a certificate of registration he may at any time while such certificate is in force pass an order in writing by recording reasons thereunder requiring the dealer to whom the certificate has been granted to furnish such security and additional security if the dealer has already furnished any security in pursuance of an order under sub- section (3-A) or sub-section (2-A) by specifying the same in the order. Sub-section (3-F) of Section 7 also enable the authority issuing the forms referred to in sub- section (2-A) to refuse to issue such forms to a dealer who has failed to comply with an order under that sub- section or sub-section (3-A) or with the provisions of sub-section (3....
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....les inter alia provides that the declaration referred to in section 8 (4) of CST Act shall be in Form-C. Rule 13 of CST Rules indicate that the goods referred to in Section 8(3) (b) of the CST Act shall be the goods purchased by the registered dealer which are intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in the telecommunication network or in mining, or in the generation or distribution of electricity or any other form. 20. Section 10-A would indicate the acts and omissions on the part of the dealer as indicated therein would attract the levy of penalty namely (i) false representation by a registered dealer that the goods being purchased is covered under the certificate of registration - attracting levy of penalty under Section 10(b) of CST Act. (ii) though not a registered dealer but falsely representing that he is a registered dealer would attract levy of penalty under Section 10(c). (iii) making use of goods without reasonable excuse for other than prescribed purposes after purchasing the goods at concessional rate....
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....tion. The very fact that the goods purchased by the dealers were included in the certificate of registration and those goods alone have been purchased by them against Form-C establishes the bonafides of the dealers or in other words there was no intention to suppress at the time of purchasing the goods. The respective adjudicating authorities have not disputed or rejected the contention or plea of the dealers that the goods purchased by them does not find a place in the certificate of registration. In fact, the dealers while submitting the application for registration had included these goods in their applications and the authorities have also approved, accorded their permission by including the said goods in the list certified by them as "class of goods" entitled for availment of concessional rate of tax. Hence, it has to be presumed that the authorities were satisfied the said goods are for use in the manufacturing and processing of goods for sale by the dealers. In terms of Rule 3 (5) of the CST Rules, the notified authority while granting the certificate of registration would have included the goods in the said certificate only upon satisfying itself that the said goods are ind....
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.... being used in its factory would be entitled to the concessional rate of tax which had been excluded, since High Court had opined that said goods was not intended for use in the manufacture or processing of goods for sale or in the mining operations and it was held: "11. The High Court excluded from item (i) "Locomotives and motor-vehicles" those vehicles which were used by the Corporation after the mining operations were concluded and before the manufacturing process commenced and also vehicles used in carrying finished products from the factory on the conclusion of the process of manufacture. Those excluded vehicles were, in the view of the High Court, not intended for use in the manufacture or processing of goods for sale or in the mining operations. On that view the High Court excluded also the accessories and spare parts for locomotives and motor- vehicles [item (ii)] and tyres and tubes of those motor-vehicles [item (vi)]. The High Court further held that the laboratory fittings used for sampling and analysis of ore and other raw materials in initial stages of mining operation and in the process of manufacture should be specified, but not the hospital equipment with furnishi....
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....e factory. The expression "goods intended for use in the manufacturing or processing of goods for sale" may ordinarily include such vehicles as are intended to be used for removal of processed goods from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable. We are, therefore, of the opinion that the Corporation was entitled to specification as set out in the petition and explained in annexure B-2 to the petition in respect of items (i), (ii) and (vi).The statutes relating to factories and mines impose upon the owner of the factory and the mine obligation to maintain effective health services for the benefit of the workmen. But it cannot on that account be said that the goods purchased for the hospital such as equipment, furnishings and fittings are intended for use in the manufacture or processing of goods for sale or in the mining operations. The mere fact that there is a statutory obligation imposed upon the owner of the factory or the mine to maintain hospital facilities would not supply a connection between the goods and the manuf....
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....have been purchased by the dealers are specifically enumerated in the certificate of registration which is also admitted by the respondent authorities or in other words the goods in dispute have been specifically covered under the certificate of registration and as such it cannot be held that dealers had falsely represented and as such Section 10(b) of the CST Act is attracted. Under Rule 3(5) of the CST Rules the notified authority at the time of granting registration certificate is required to conduct an enquiry as it deems fit and then issues the registration certificate containing list of goods upon being fully satisfied that the particulars contained in the application are correct. Once the goods are included in the certificate of registration which in terms of Rule 5 of the CST Rules is done, an enquiry regarding the feasibility of use of such goods in the manufacturing process or processing of goods for sale etc. the eligibility to purchase such goods against Form-C would not be a ground available to the adjudicating authority and deprive the dealer such benefit on the ground that the goods are not used in the manufacture or processing of goods for sale. It is because of thi....
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....d authority in issuing the certificate in Form-B that the goods are likely to be required for the purpose of the business would not however be again open to challenged before another taxing authority in proceedings for assessment of tax." 29. The Hon'ble Apex Court in the case of CTO vs. Rajasthan Taxchem Limited reported in 2007 5 VST 529 (SC) while examining as to whether the specific entry of 'diesel' found in the registration certificate being purchased at a concessioanl rate of tax and used for generating electricity by DG sets by the dealer would be 'raw material' as meaning goods used as an ingredient in the manufacture of other goods and including preservatives, fuel, lubricants required for the process of manufacture and held as under: "Once the commodity is recorded in the registration certificate as raw material, then the department cannot roll back from their stand to the detriment of the assessee as the assessee has not violated any condition but acted on the belief of the department." 30. The basis on which the concessional rate of tax availed by the assessee which is sought to be staved off by the respondent is on the ground that these goods are not directly conne....
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.... are used for the intended purpose of manufacture/process of goods for sale. 34. In these circumstances what is required to be considered is the 'commercial expediency' in ascertaining as to whether the goods have been used for the intended purpose. In this background the phraseology used in Section 8(3) (b) acquires significance namely the expression 'for use by him in the manufacture or processing of goods'. The Hon'ble Apex Court in the case of G.K. Cotton Spinning and Weaving Mills Company Limited vs. Sales Tax Officer and another reported in (1956) 16 STC 563 (SC) had examined as to whether "drawing instruments, photographic materials, building materials including iron, steel, cement, lime, and coal" would qualify to be goods which were "intended for use in the manufacture or processing of goods for sale", by the assessee who was carrying on the business of manufacturing textile goods, tiles and other commodities. It came to be held that "commercial expediency" would be the tool to consider such claim and held to the following effect: "10. Section 8 (3) (b) authorises the Sales Tax Officer to specify, subject to any rules made by the Central Government, goods intended for us....
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....ustify the importation of restrictions which are not clearly expressed nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under S. 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for "turning out or the creation of goods." 11. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods "in' connection with" manufacture of or "in relation to" manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a Company (which mined ore and turned out copper....
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....ision petition the class of goods which came to be purchased by the dealer are "closed wagons, locomotives and iron and steel" against Form-C which undisputedly found their entry in the list appended to the certificate of registration. The said goods fit into entry of "other transport vehicles" and materials handling equipments, iron and steel which is part of "ferrous and non-ferrous metals and alloys" which all finds a place in the certificate of registration and they are goods which form integral part in the activity of manufacturing and sale of cement and ready mix concrete and also mining. It is in this background the appellate tribunal has held that respondent in revision petition neither had mens rea nor had deviated the use and purpose of the goods purchased against Form-C and they are all goods which are necessary in the process of manufacturing of cement and it forms integral activity of such manufacture. 38. While examining as to whether in particular goods can be considered to be eligible for purchase against Form-C, the nature of the business of the assessee-dealer will have to be taken into account as to whether the railway tracks or the closed wagons, locomotives ar....