IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. G.S.T.R. No. 4 of 2002 Date of Decision: November 4, 2009 M/s New Egerton Woollen Mills …Petitioner Versus State of Punjab …Respondent CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE H.S. BHALLA Present: Mr. G.R. Sethi, Advocate, for the petitioner. Mr. Piyush Kant Jain, Addl. AG, Punjab, for the respondent. 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? M.M. KUMAR, J. On an application filed by the dealer-petitioner under Section 22(1) of the Punjab General Sales Tax Act, 1948 (for brevity, ‘the Punjab Act’), the Sales Tax Tribunal-I, Punjab, Chandigarh (for brevity, ‘the Tribunal) has referred the following question of law for determination of this Court:- “On the facts and in the circumstances of the case and on true and legal interpretation of section 4-B, is the GSTR No. 4 of 2002 Tribunal correct in law in holding that purchases of coal worth Rs. 11,23,723.23 used as fuel were clearly taxable as per provisions of section 4-B(i), although the same was not transformed as the end product of textiles, after noting 60 STC 320 etc?” 2. Before discussing the aforesaid legal issue, we deem it apposite first to notice the facts briefly. The petitioner is a dealer registered under the Sales Tax laws and has been running a woollen mill at Dhariwal, District Gurdaspur in the State of Punjab. The dealer filed all its returns disclosing the gross turn over at Rs. 12,22,04,323/- in respect of Assessment Year 1985-86. The Assessing Authority did not feel satisfy with the return filed and issued a notice in Form ST-XIV under Section 11(2). After due contest the Assessing Authority framed assessment creating additional demand of Rs. 10,432/-, vide order dated 18.9.1995, which was challenged in appeal before the Deputy Excise and Taxation Commissioner (Appeals), Jalandhar. The Appellate Authority remanded the matter to the Assessing Authority for re-framing of assessment by keeping in view the judgment of Madhya Pradesh High Court rendered in the case of Commissioner of Sales Tax, Madhya Pradesh v. Hukumchand Mills Ltd., [1996] 101 STC 141. However, the dealer still preferred an appeal before the Tribunal. The Tribunal had considered two questions. However, we are concerned with the second question, namely, whether the purchase tax/additional tax on coal used in manufacture of tax-free goods 2 GSTR No. 4 of 2002 under Section 4-B was leviable. The Tribunal noticed a judgment of this Court rendered in the case of Jagdambay Engineering Works, Jalandhar v. State of Punjab, 1995 (1) PHT 476, holding that the coal is not a raw material consumed in the manufacture of end product and, therefore, would not attract charging of any purchase tax/additional tax. In that judgment reliance was placed on a judgment of Hon’ble the Supreme Court rendered in the case of Deputy Commissioner of Sales Tax (Law) v. Thomas Stephen & Co. Ltd., [1988] 69 STC 63 (SC), which had held that cashew shells had been used only as fuel. It did not get transformed into the end- product and were not used as raw material in the manufacture of other goods, they did not fall within the charging Section 5A(1)(a) of the Kerala General Sales Tax Act. Therefore, it did not attract the payment of tax. It is further pertinent to mention that the judgment of Hon’ble the Supreme Court in Thomas Stephen & Co. Ltd. (supra) has followed the view expressed by the Supreme Court in earlier judgment, namely, Deputy Commissioner of Sales Tax v. Pio Food Packers, [1980] 46 STC 63 (SC). However, the Tribunal preferred the contrary view by distinguishing the judgment of this Court in Jagdambay Engineering Works (supra) by observing as under:- “6. Though this issue had been decided in the Jagdambay case by my predecessor, I am inclined to take a different view in the facts and circumstances of this case. In the first place various pronouncements of the Supreme Court in the rulings also cited in Jagdambay 3 GSTR No. 4 of 2002 case have established beyond doubt the issue of what constitute use/consumption in manufacture. In J.K. Spinning Mills Vs Sales Tax Officer, Kanpur-16-STC- 563, even the activity of designing was included in the process of manufacture. The basic philosophy of manufacture is that the process should result in an output which is commercially different from the inputs and therefore by implication, would create value addition over the total cost of all the inputs used in manufacture. This is also logical as for example in the case of Steel Rolling Mills, fuel/energy may be major part of the inputs costs unlike the case at (1988) 69-STC-320 where the issue was of marginal cost cashew shells being consumed in manufacture. In the second place the Kerala judgement can be easily distinguished from the present case. The provisions of Section 5(a)(i) of the Kerala Act are not identical to that of Punjab Act, as in Kerala Act, reference is to consumption of goods in the manufacture of other goods etc. whereas, Punjab Act refers to use of these goods in the manufacture of goods etc. In my view even the word ‘consumption’ needs to be more broadly construed than was done in the Kerala High Court Judgement. In any case the word “used’ rather than ‘consumed’ in the Punjab Act makes it quite clear that all inputs are covered including fuel/energy etc. 4 GSTR No. 4 of 2002 and not simply physical raw materials. A close reading of the Kerala High Court judgement also brings out an other point of difference. There is reference to a notification SRO 722/73 that was referred by the assessee in that case to claim exemption from tax on the purchase of cashew shells. The same has not been discussed in detail in the judgement and possibly that also had some bearing on the issue decided. This is not applicable for the present case. In the third place and most important provisions of law under the Punjab Act make the intention of the Legislature very clear. ……” (emphasis added) 3. After opining in the aforesaid manner, the Tribunal held that the coal is clearly taxable as per Section 4-B(i) of the Punjab Act as goods manufactured were tax-free. However, the Tribunal held that the total tax was not to exceed 4% and directed the Assessing Authority to re-calculate the demand keeping in view the aforesaid observations. The dealer then sought a reference to this Court on the aforesaid question of law under Section 22(1) of the Punjab Act. 4. In order to appreciate the controversy it would first be profitable to read Section 4-B of the Punjab Act, which is as under:- “4-B. Levy of purchase tax on certain goods. - Where a dealer who is liable to pay tax under this Act purchases any goods other than those specified in Schedule B from any source and – 5 GSTR No. 4 of 2002 i) Uses them within the State in the manufacture of goods specified in Schedule B, or ii) Uses them within State in the manufacture of any goods, other than those specified in Schedule B, and sends the goods so manufactured outside the State in any manner other than by way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India, or iii) Uses such goods for a purpose other than that of resale within the State or sale in the course of in- ter-State trade or commerce in the course of export out of the territory of India, or iv) Sends them out side the State other than by the way of sale in the course of inter-State trade or commerce or in the course of export out of the ter- ritory of India, and no tax is payable on the purchase of such goods un- der any other provision of this Act, there shall be levied a tax on the purchase of such goods at such rate not ex- ceeding the rate specified under sub-section (1) of sec- tion 5 as the State Government may direct". 5. A perusal of the above extracted provision shows that no tax is payable if a dealer has purchased any goods from any source and used them within the State in the manufacture of tax free goods which are specified in Schedule B or uses them in the manufacture of 6 GSTR No. 4 of 2002 even other goods and send the manufactured goods outside the State in any manner other than by way of sale in the course of inter-state trade/commerce or export sale or even uses them for purposes other than that of re-sale within the State or sale in the course of inter-state trade or commerce in the course of export etc. 6. The issue is no longer res integra and has been debated before a Constitution Bench of Hon’ble the Supreme Court in the case of Assistant Commissioner (Intelligence) v. Nandanam Construction Company, [1999] 115 STC 427 (SC). The controversy was referred to the Constitution Bench by a 3-Judge Bench after noticing a direct conflict between the decisions of two Benches of the Supreme Court of co-ordinate strength rendered in the cases of Ganesh Prasad Dixit v. Commisisoner of Sales Tax, [1969] 24 STC 343 (SC) as well as Pio Food Packers (supra). The Constitution Bench had considered the provisions of Section 6A of the Andhra Pradesh General Sales Tax Act, 1957 (for brevity, ‘the Andhra Act’). The provision of the Andhra Act as cited by the Constitution Bench reads thus:- “6-A. Levy of tax on turnover relating to purchase of certain goods. Every dealer, who in the course of business - (i) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a registered dealer in circumstances in which no tax is payable under section 5 or under section 6, as the case may be, or 7 GSTR No. 4 of 2002 (ii) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a person other than a registered dealer, and (a) either consumes such goods in the manufacture of other goods for sale or otherwise, or (b) disposes of such goods in any manner other than by way of sale in the State, or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 6.” 7. In that case the dealer was engaged in construction and sale of flats and, as such, were not registered dealer. According to the assertion made by the dealer in that case, they were not traders of any goods, which was to attract the levy of purchase tax under Andhra Act. Therefore, the question was whether the goods such as sand and bricks purchased by that dealer had not been consumed in the manufacture of other goods for sale, inasmuch as, they were dealing in the construction of flats which are in nature of immovable property. Hon’ble the Supreme Court after noticing Section 6A(ii)(a) of the Andhra Act highlighted that the scheme of clause (ii) of 8 GSTR No. 4 of 2002 Section 6A is when the goods ceased to exist in the original form or ceased to be available in the State for sale or purchase, the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. It also noted the object of the aforesaid section and held that it is to levy purchase tax on goods consumed either for the purpose of manufacture of other goods for sale or consumed otherwise. The view of the Constitution Bench is discernible from para 10 of the judgment, which reads as under:- “10. We are concerned in this case only with clause (a) of sub-section (ii) of Section 6-A, that is, either consumption of such goods in the manufacture of other goods for sale or otherwise. Clause (ii) of Section 6-A of the Act postulates levy of tax on purchase of goods from a person other than a registered dealer for consumption or disposal or despatch of goods outside the State. So the scheme of clause (ii) of Section 6-A of the Act is that when the goods cease to exist in the original form or cease to be available in the State for sale or purchase, the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. To our mind, it appears that the object of Section 6-A(ii)(a) of the Act is to levy purchase tax on goods consumed either for the purpose of manufacture of other goods for sale or consumed otherwise. If the view in Pio Food Packers [1980] 46 STC 63 (SC); [1980] 3 SCR 1271, is accepted the result 9 GSTR No. 4 of 2002 would be that the expression "otherwise" will qualify the expression "sale" and not the expression "manufacture", which appears to us to be erroneous on a plain construction of the provision. The intention of the legislature, it appears to us, is to bring to purchase tax in either event of consumption of goods in the manufacture of goods for sale or consumption of goods in any other manner. Once the goods are utilised in the construction of buildings the goods cease to exist or cease to be available in that form for sale or purchase so as to attract the tax and, therefore, the correct meaning to be attributed to the said provision would be that tax will be attracted when such goods are consumed in the manufacture of other goods or are consumed otherwise. Therefore, while agreeing with the view in Genesh Prasad Dixit [1969] 24 STC 343 (SC); [1969] 3 SCR 490, on this aspect, we overrule to this extent the view expressed in Pio Food Packers [1980] 46 STC 63 (SC); [1980] 3 SCR 1271.” 8. It is, thus, obvious that the judgment of Hon’ble the Supreme Court in the case of Pio Food Packers (supra) has been overruled and the view taken in the case of Ganesh Prasad Dixit (supra) has been reiterated. 9. In Ganesh Prasad Dixit’s case (supra), Section 7 of the Madhya Pradesh General Sales Tax Act, 1958 (for brevity, ‘the MP 10 GSTR No. 4 of 2002 Act’) fell for consideration of 3-Judge Bench of Hon’ble the Supreme Court. It is pertinent to notice that Section 6 of the MP Act provided that tax payable by dealer under the MP Act was to be levied on his taxable turnover relating to the goods specified in Schedule II. Section 7 of the MP Act, which fell for consideration of the Apex Court, provided as under:- “ 'Every dealer who in the course of his business purchases any taxable goods, in circumstances in which no tax under Section 6 is payable on the sale price of such goods and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State or despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under Section 6……….. ” (emphasis added) 10. Hon’ble the Supreme Court held that Ganesh Prasad Dixit, who was appellant, was registered as a dealer and they purchased building material in the course of their business. The building material was taxable under the MP Act, which had been consumed otherwise than in the manufacture of goods for sale. In the facts and circumstances it was found that the dealers were liable to 11 GSTR No. 4 of 2002 tax on the purchase price of the goods. Interpreting the provisions of Section 7 of the MP Act, their Lordships’ held as under:- “……The phraseology used in that Section is somewhat involved, but the meaning of the Section is fairly plain. Where no sales tax is payable under Section 6 on the sale, price of the goods, purchase-tax is payable by a dealer who buys taxable goods in the course of his business, and (1) either consumes such goods in the manufacture of other goods for sale, or (2) ‘consumes’ such goods otherwise; or (3) disposes of such goods in any manner other than by way of sale in the State, or (4) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter- State trade or commerce. The assessees are registered as dealers and they have purchased building materials in the course of their business: the building materials are taxable under the Act, and the appellants have consumed the materials otherwise than in the manufacture of goods for sale and for a profit motive. On the plain words of Section 7 the purchase price is taxable.” (emphasis added) 11. It is pertinent to notice that the judgment rendered in the case of Thomas Stephen & Co. Ltd. (supra) had followed the earlier judgment of Hon’ble the Supreme Court in the case of Pio Food Packers (supra). The Constitution Bench had referred to its 12 GSTR No. 4 of 2002 earlier judgment rendered in Thomas Stephen & Co. Ltd. (supra) but had overruled only its earlier judgment in the case of Pio Food Packers (supra). It is pertinent to notice that the judgment of Hon’ble the Supreme Court in Thomas Stephen & Co. Ltd. (supra) has placed primary reliance upon the judgment rendered in the case of Pio Food Packers (supra). The distinction drawn is that if the purchased goods did not get transferred into end product and were merely used as fuel in the kiln (cashew shells) then it could not be regarded as raw material used in the manufacture of goods. Hon’ble the Supreme Court also held that these have been used only as an aid in the manufacture of goods by the dealer and in order to become exigible to the purchase tax consumption must be in the manufacture as raw material or of other components which go into making of the end product to come within the mischief of the section. The cashew shells did not tend to make the end product. It was categorically held that the goods used for ancillary purposes like fuel in the process of the manufacture, do not fall within Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963 (for brevity, ‘the Kerala Act’). The provisions of Section 5A along with clauses (a)(b) & (c) of the Kerala Act reads as under:- “5-A. Levy of purchase tax - (1) Every dealer who, in the course of his business, purchases from a registered dealer or from any other person any goods the sale or purchase of which is liable to tax under this Act in circumstances in which no tax is payable under Section 5, and either 13 GSTR No. 4 of 2002 (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for the year at the rates mentioned in Section 5.” 12. Hon’ble the Supreme Court noticed the issue as to whether there is any disposal of the goods in any manner otherwise than by way of sale within the State. The expression ‘dispose’ was interpreted to mean to ‘transfer or alienate’. It was further held that the expression ‘dispose’ was formerly considered an essential word in any conveyance of land. 13. When we examine the provisions of Section 4-B(i) of the Punjab Act, it becomes patent that its general feature are akin to the Andhra Act, which has been interpreted by the Constitution Bench in the case of Nandanam Construction Company (supra). The basic features of Section 6A as pointed out in para 10 of the judgment are that it postulates levy of tax on purchase of goods from a person other than a registered dealer for consumption or disposal or dispatch of goods outside the State. The scheme of clause (ii) of Section 6A of 14 GSTR No. 4 of 2002 the Andhra Act was found to be that when the goods ceased to exist in the original form or ceased to be available in the State for sale or purchase then the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. The object of Section 6A of the Andhra Act has been ascertained to be the levy of purchase tax on goods consumed either for the purpose of manufacture of other goods for sale or consumed otherwise. The approach adopted in the case of Pio Food Packers (supra) was dis-approved and the construction was found to be erroneous on a plain interpretation of the provision. The intention of the legislature was also ascertained to bring the purchase tax in either event of consumption of goods in the manufacture of goods for sale or consumption of goods in any other manner. 14. Likewise, in Section 4-B of the Punjab Act, all the aforesaid features are available. The intention of the legislature is to levy purchase tax where a dealer who is liable to pay tax under the Act purchases any goods from any source (other than those specified in Schedule B) and uses them within the State in the manufacture of goods specified in Schedule B. The section postulates levy of tax on purchase of goods from any source and if the goods are used within the State in the manufacture of goods, which are free from the levy of sales tax as specified in Schedule B then the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. The object of the section evidently is to levy purchase tax on the goods consumed either for the purpose of manufacture of either goods for 15 GSTR No. 4 of 2002 sale or used within he State. The intention of the legislature is clear which is to bring to purchase tax in the event of use of such goods within the State in the manufacture of free goods specified in Schedule B. Therefore, we find that the judgment of the Constitution Bench in Nandanam Construction Co. (supra) and in Ganesh Prasad Dixit (supra) would be applicable to the facts and circumstances of the case and that the judgment of Hon’ble the Supreme Court in the case of Thomas Stephen & Co. Ltd. (supra) would not be attracted. It would be necessary to deal with the judgment of the Division Bench of this Court rendered in the case of Partap Steel Rolling Mills Ltd. v. State of Punjab, [2007] 9 VST 629 (P&H) which has no application to the issue under consideration. The question before the Division Bench in Partap Steel Rolling Mills Ltd. (supra) was entirely different, namely, whether the dealer is entitled to the relief claimed by