1 CIVIL WRIT JURISDICTION CASE No.7416 OF 1999 In the matter of an application under Article 226 of the Constitution of India. M/S SAI IRON(INDIA) PVT.LTD., a company incorporated under the Indian Companies Act having its registered office at Sabalpur, Didarganj, Patna City, through its Managing Director Sita Ram Agarwal, son of Sri Devi Prasad Singhania, resident of Sabalpur, Didarganj, Patna City, Patna….Petitioner Versus 1. THE STATE OF BIHAR 2. The Commercial Taxes Tribunal, Bihar, Patna 3. The Commissioner of Commercial Taxes, Bihar, Patna 4. The Dy. Commissioner of Commercial Taxes, Patna City, East Circle, Patna City 5. The Assistant Commissioner of Commercial Taxes, Patna City, East Circle, Patna…… Respondents For the Petitioner : Mr. Ajit Sinha For the Respondents : Mr. Piyush Lal Assistant Counsel to Additional Advocate General III P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE SAMARENDRA PRATAP SINGH S K KATRIAR, J. This writ petition is directed against the judgment dated 23.6.99 (annexure 16), passed by the Commercial Taxes Tribunal, Bihar, Patna, in Revision Case No. PT 445/98 [Sai Iron (India) Pvt. Ltd. Vs. State of Bihar), whereby he has affirmed the order dated 3.9.98/10.9.98 (Annexure 15), passed by the learned Commissioner of Commercial Taxes, as well as the order dated 26.3.98 (Annexure 12), passed by the learned Assistant Commissioner of Commercial Taxes, the combined effect of which is that the benefit of exemption from payment of purchase tax/sales tax has been deleted retrospectively from the date the same was granted. The impugned order is also to the effect that the benefit of exemption from payment of purchase tax on raw materials used for manufacture of agricultural implements has also been withdrawn retrospectively from the date the same was allowed. The respondents have placed on 2 record their counter affidavit and have supported the impugned action. 2. A brief statement of facts essential for the disposal of the writ petition may be indicated. The petitioner is a private limited company and is engaged in the production, manufacture, sale and purchase of steel and iron products. It is subject to the provisions of the Bihar Finance Act 1981 (hereinafter referred to as the Bihar Act), as well as the Central Sales Tax Act 1956 (hereinafter referred to as the Central Act). In exercise of the powers conferred by section 7(3) of the Bihar Act, the State Government issued S.O. no.95, dated 4.4.94 (Annexure 2), whereby the entries mentioned therein were granted the benefit of exemption from payment of purchase tax on the raw materials purchased by them from their sellers on the terms and conditions mentioned therein. Sl.no. 46 of the same reads as follows, and allegedly covers the case of the petitioner :- Þ¼46½ vk;ju ,.M LVhy tks lasVªy fcØh&dj vf/kfu;e] 1956 ds Hkkx 14 esa ifjHkkf’kr gSAÞ The three items of iron and steel, namely, HR sheets and coils, CR sheets and coils, and GP sheets and coils, purchased by the petitioner from different manufacturers, allegedly covered by sl.no.46 of S.O.no.95, are in question. 2.1) The State Government issued a similar notification bearing S.O.no.96, dated 4.4.94 (Annexure 2), once again passed in purported exercise of power under section 7(3) of the Bihar Act, whereby the items mentioned therein have been exempted from payment of sales tax on the terms and conditions mentioned therein. Paragraph 1(vii) of the same reads as follows, and allegedly covers the case of the petitioner in so far as the agricultural implements manufactured and sold by it are concerned:- “1(vii) ykSg ,oa bLikr ij vk/kkfjr m?kksxÞ 3 2.2) The petitioner had commenced production on 18.3.96, whereafter submitted application for grant of the benefit of exemption from payment of purchase tax on the aforesaid three items as per the terms and conditions of S.O.no.95. It had also applied for exemption from payment of sales tax on agricultural equipments manufactured and marketed by it, and is allegedly covered by paragraph 1(vii). After following the prescribed procedure, respondent no.4 issued order dated 5.2.97 (Annexure 3), whereby the aforesaid three items were granted the benefit of exemption from payment of purchase tax, and agricultural equipments manufactured by it were granted the benefit of exemption from payment of sales tax, all with effect from 18.3.98, the date of commencement of production. 3. In view of the doubts expressed in the order dated 21.1.98 (Annexure 9), respondent no.5 issued show-cause notice dated 22.1.98, as to why the benefit of exemption granted to the petitioner be not deleted from the certificate. The petitioner had shown cause by his communication dated 14.2.98 (annexure 4). On a consideration of the materials on record including the cause shown by the petitioner, respondent no.5 passed the order dated 26.3.98 (Annexure 12), whereby the three items have been deleted from the certificate of exemption retrospectively. Aggrieved by this order, the petitioner moved revision application before respondent no.3, who rejected the same by order dated 10.9.98 (Annexure 15), and the three items have been deleted from the certificate of exemption. Respondent no.3 has also deleted agricultural equipments from the certificate of exemption. Aggrieved by this order, the petitioner preferred revision application before the Tribunal which has been rejected by the impugned judgment. The net result is that the four items stand deleted from the certificate of exemption retrospectively from the date the same was granted. Hence this writ petition. 4 4. While assailing the validity of the impugned action, learned counsel for the petitioner submits that the learned Tribunal has completely overlooked the sweep of the definition of `manufacture’ occurring in section 2(n) of the Bihar Act, read with rule 2(9) of the Rules framed thereunder. In his submission, once the wide sweep of the definition of `manufacture’ is accepted, the impugned order falls foul of the same. He relies on the following reported judgments:- (i) (1998) 8 SCC 85 Ashirwad Ispat Udyog v. State Level Committee (ii) (1999) 9 SCC 162 Indian Poultry v. Sales Tax Officer (iii) (2006) 7 SCC 322 Sonebhadra Fuels v Commissioner, Trade Tax (iv) (2007) 4 SCC 140 (paragraphs 12 to 14) Kumar Motors v. Commissioner of Sales Tax He submits in the same vein that the reliance placed by the learned Tribunal on the judgment of the Supreme Court in Commissioner of Sales Tax v. Jagannath Cotton Company [(1995) 5 SCC 527], is misplaced. He relies on the various inspection reports as well as the orders of the learned three authorities under the Act, in an effort to establish that the kind of industrial activity in which the petitioner is engaged in so far as the four items are concerned, are clearly covered by the definition of `manufacture’ occurring in the Bihar Act and the Rules thereunder. He next submits that withdrawal of exemption and recovery of the sales tax retrospectively is bad in law. He relies on the following judgments of the Supreme Court :- (i) (2000) 5 SCC 271 (Paras. 3 and 8) Birla Jute & Industries Ltd. V State of MP (ii) (2006)3 SCC 620 (Paras 2o to 24) Mahabir Vegetables Oils(P)Ltd. V. State of Haryana He also submits that no suppression, omission, or misrepresentation, of facts is attributable to the petitioner. Therefore, change of opinion at a later stage on the self-same facts is bad in law. He relies on the following reported judgments:- (i) 2010 (1) PLJR 725 Dr. Narendra Prasad vs. Commissioner of Income Tax-I (ii) Judgment dated 28.9.2010, passed by a 5 Division Bench of this Court in CWJC No.4748 of 1997 Dr. Bindeshwari Pathak v. CIT, Patna He further submits that part of the order of respondent no.3, whereby he has deleted agricultural implements from the certificate of exemption, was not the subject matter of lis before him and has therefore travelled beyond the issues raised before him. He lastly submits that the benefit of exemption was granted by respondent no.4, whereas respondent no.5, a junior functionary, passed the order dated 26.3.98 (Annexure 12), which is impermissible in law. 5. Learned counsel for the respondents submits that the petitioner has been granted the benefit of exemption under the notifications bearing S.O.nos. 95 and 96 and, therefore, the petitioner has to measure up to the strict conditions indicated therein. He submits that, in view of the terms and conditions of the two notifications, the petitioner’s industrial activity did not measure up to the conditions stated therein. He relies on the following reported judgments:- (i) (1995) 5 SCC 527 CST v. Jagannath Cotton Company (ii) 1993 91 STC 409 (page 420) Rajasthan Roller Flour Mills Asson. vs. State of Bihar He also relies on the judgment of a Division Bench of this Court of 19th August 1998 (Annexure A), passed in CWJC No.1887 of 1998(R) (M/s Steel India, Dankars Barwadda v. State of Bihar). He submits that the petitioner of that case had challenged the same by preferring Civil Appeal no.20301-20302 of 1998, before the Supreme Court ,which was dismissed In Limine by order dated 30.3.99 (annexure B). He has taken us through the two circulars in question in an effort to establish that respondent no.5 is the appropriate authority to take steps for withdrawal of the benefit of exemption. He has supported retrospective operation of the order. He relies on the judgment of a Division Bench of this Court in Vihar Talkies, Jharia v. Industrial 6 Tribunal [1969(1) LLJ 145]. He also submits that it is immaterial whether or not the petitioner has been able to pass on the liability of purchase tax or sales tax to its purchasers. He relies on the following reported judgments:- (i) 1984 (2) SCC 456 (Paras 1, 4, 12, 15) Khazan Chand v. State of J & K (ii) 1974 (34) STC 73 (pages 76-77) Kodar v. State of Kerala He lastly submits that deletion of agricultural implements is legally sustainable. 6. We have perused the materials on record and considered the submissions of learned counsel for the parties. We shall first deal with the three items, namely, HR sheets and coils, CR sheets and coils, and GP sheets and coils. We should first of all be clear about the alleged industrial activity undertaken by the petitioner with respect to these three items. The petitioner’s show-cause (Annexure 4) before respondent no.5 stated as follows:- “That the petitioner started a SSI Unit to manufacture MS Tores, logo-steel, Angles, Channel, Plates etc. Besides manufacturing of these items the petitioner was engaged in processing of sheets by cutting it to marketable sizes out of big coils and sheets. He was also registered to manufacture agricultural implements and doing general fabrication works…” On a consideration of the materials on record including inspection report, respondent no.5 observed as follows in his order marked Annexure 12:- ÞO;olk;h }kjk fj&jkSfyax fcy esa ,e0,l0jksM] VkWj LVhy vkfn dk gh fofuekZ.k fd;k tkrk gSA blds vykos vk;ju ,.M LVhy ds “khV~l dk dfVax ,oa izkslsflax dj fcØh dh tkrh gSAÞ The inspection report dated 6.1.1998 of the Commercial Tax Department found as follows:- Þfuns”kkuqlkj mi;qZDr izfr’Bku dk O;kolkf;d fujh{k.k fd;k x;kA bl izfr’Bku dk QSDVªh lCcyiqj] nhnkjxat] iVuk esa vuqifLFkr gSA blds vUrxZr Þfj&jkSfyaxÞ fey gSA ftlesa ,e0 ,l0 jksM] VkWj LVhy vkfn dk fofuekZ.k fd;k tkrk gSa blds vykok O;olk;h }kjk vk;ju ,oa LVhy ds “khV~l bR;kfn dk izkslslhax ,oa dVhax dj mldh fcØh dh tkrh gSaAÞ 7 Another inspection report of 25.8.98 (Annexure 14), by a Committee of five functionaries of the Department found as follows:- ÞO;olk;h vk;ju jkSM+ ,asfxy bR;kfn dk fofu;ksx djrs gS rFkk ,d vkSj DokbZy dh dfVax dj izkslsflax dk dk;Z dj jgs gSAÞ Respondent no.3 has found as follows in his order impugned before the learned Tribunal:- “On verification it was detected that the petitioner, apart from manufacturing MS Tores, Angles, Channels and round, does the work of cutting, processing and general fabrication which does not fall under the category of manufacture as defined Bihar Finance Act.” (Emphasis althrough added) It is thus evident on the basis of the inspection reports and the orders of respondent nos. 5 and 3 that, in so far as the three items are concerned, the petitioner does the only job of cutting them into different sizes and sell the same in the market. 7. We should now ascertain the law which would be applicable to such a situation. Section 7 of the Bihar Act reads as follows:- “7. Exemption.- (1) No tax shall be payable under this part on sales or purchases of goods which have taken place – (a) in the course of inter-State trade or commerce; (b) outside the State; (c) in the course of import of goods into, or export of the goods out of the territory of India. (2) The provisions of the Central Sales Tax Act, 1956 (LXXIV of 1956) shall apply for determining when a sale or puchase of goods shall be deemed to have taken place in any of the ways mentioned in clauses (a), (b) or ( c) of sub-section (1). (3) The State Government may, by notification and subject to such conditions or restrictions as it may impose, exempt from the sales tax or purchase tax - (a) sales of any goods or class or description of goods; (b) sales of any goods or class or description of goods to or by any class of dealers; (c) any sale or category or description of sales; and (d) purchase of any goods by any class of dealers or any purchase of category or description of purchases of such goods. (4) Where exemption from the levy of tax under this part on any sale or purchase of goods is claimed by dealer under the provisions of this Section or Section 21, the burden of proof shall lie on such dealer and prescribed authority may require the dealer to substantiate the claim in the prescribed manner.” 8 In exercise of the powers conferred on the State Government by section 7(3) of the Bihar Act, the State Government issued notification bearing SO No.95, dated 4.4.94 (Annexure 2), which gives a list of the items which would enjoy the benefit of exemption from payment of purchase tax. Sl.no. 46, as well as clause 2 of the notification concern the petitioner and reads as follows:- Þ2- ;g foeqfDr oSls gh dPps eky ds fy;s vuqekU; gksxh tks eky ds fofuekZ.k esa izR;{k :i ls mi;ksx ds fy;s visf{kr gSA izR;{k :i ls visf{kr dPp eky ls vfHkizsr gS flQZ oSlk dPpk eky gS tks rS;kj ekyksa esa izR;{k :i ls ifjofrZr gksrs gksa vkSj buesa vizR;{k :i ls lg;ksx djus okyh lkefxz;ksa rFkk lHkh izdkj ds ba/ku ftlesa dks;yk ;fn ba/ku ds :i esa O;og~r gks] rsy midj.k] lg lkexzh vkfn “kkfey ugha gksaxsAÞ The English translation of clause 2 is to be found in the judgment of this Court in Steel India, Dankars Barwadda v. State of Bihar (supra), and is reproduced hereinbelow:- “This exemption is available on such raw material which is directly used for manufacture. Direct raw materials means only such raw materials which are directly consumed for conversion into finished goods, but these raw materials which are indirectly used such as coal, fuel, oil etc. shall not be included in such raw materials.” 8. It is thus evident that the benefit of exemption from payment of purchase tax on the three specified items in question must meet the requirements of clause 2 of the notification. Clause 2 clearly mandates that the exemption is available only on such raw materials which is primarily used for manufacture of, and is consumed for conversion into, finished goods. The petitioner’s alleged industrial activity with respect to the three items is, in our opinion, not used for manufacture of a new item and is not used for conversion into, finished goods. It does the simple act of cutting them into pieces for sale in the market. The petitioner’s alleged activity does not result in production of an item known to the commercial world as a new item. It continues to be steel sheets in the same condition as it was at the time of purchase except that the size and shape has changed. This much of industrial activity is not enough for the petitioner to measure up to the requirements of clause 2 of SO No.95 of 4.4.94. Identical 9 situation came up for the consideration of a Division Bench of this Court in M/s Steel India, Dankars Barwadda (supra), wherein the same view has been taken. We entirely agree with the view taken therein. We are indeed bound by the view of the Division Bench. We are, therefore, of the view that the petitioner’s alleged activity with respect to the three items in question do not satisfy up to the requirements of clause 2 of SO No.95, dt. 4.4.94. 9. The definition of `manufacture’ occurring in section 2(n) read with rule 2(9) is relevant for the purpose of levy or otherwise of sales tax under the provisions of the Bihar Act. Section 7(3) of the Act makes it abundantly clear that the benefit of exemption shall be available along with the conditions mentioned in the notification. Such being the legislative intent, the petitioner is bound by the terms and conditions engrafted in SO No.95, dt. 4.4.94, including clause 2 discussed hereinabove. Indeed the Supreme Court has observed in the judgment of Ashirwad Ispat Udyog (supra), that the decisions construing the meaning of the word “manufacture” as used in other statutes do not apply unless the definition of that word in the particular statute under consideration is similar to that construed in the decisions. The remaining decisions relied on by learned counsel for the petitioner deal with industrial activities which were tested on the anvil of the definitions occurring in different enactments are, therefore, not relevant for the disposal of the present writ petition. 10. The judgment of the Supreme Court in CST v Jagannath Cotton Co. (supra), is relevant in the present context. That was a case where the respondent therein was engaged in manufacture of cotton from waste cotton. The question arose whether the same is industrial activity within the meaning of the expression `manufacture’ occurring in Orissa Industrial Policy Resolution 1986, granting benefits of exemption from payment of sales tax. Paragraph 5 of the 10 judgment is relevant, and is reproduced hereinbelow for the facility of quick reference:- “5. A reading of the above provisions in the context of the IPR shows that the incentives are meant only for those units which are engaged in the manufacture or production of goods. Indeed, clause (2)(a) in the above extract speaks of “concerned manufacturing units”. Manufacture, in its ordinary connotation, signifies emergence of new and different goods as understood in relevant commercial circles. Furthermore, the use of the expression “purchase of raw material” itself shows that what is ultimately produced is different goods than the raw material used. Similarly, the repeated use of the expression “finished products” and the grant of exemption in the case of small-scale industries both in respect of raw materials as well as finished products indicates that these concessions at substantial cost to public exchequer were being provided with a view to encourage units engaged in the manufacture or production of goods and not to help those units which merely engaged themselves in some sort of processing whereunder the goods remain essentially the same goods even after the said process. Even if a process is adopted, the test is the same, viz. whether different goods emerge as a result of application of such process.” (Emphasis added) 11. We are, therefore, of the view that the three items in question do not measure up to the requirements, and do not satisfy the conditions, of manufacturing process envisaged by clause 2 of SO No.95. We agree with the impugned judgment dealing with these three items. 12. Learned counsel for the petitioner has also submitted that the impugned order with retrospective effect is bad in law. We are unable to accede to the submission for the reason that, once it is found that the petitioner was not entitled to the benefit from the inception, he should not have never claimed it. Such an action on the part of the petitioner verges on misuse of the benefit. Law is well settled that nobody can retain a benefit illegally retained by him, particularly the tax liability of the State. We, therefore, do not find fault with the impugned order whereby the certificate of exemption has been set aside retrospectively. 13. We now pass on to the question of issues relating to the manufacture of agricultural implements by the petitioner. It is correct 11 to state that this was not an issue before respondent no.5, nor before respondent no.3, notwithstanding which the latter dealt with the matter on his own and held that the raw materials used for manufacture of agricultural equipments manufactured by the petitioner do not qualify for the benefit of exemption from payment of purchase tax in terms of SO No.95, dated 4.4.94. The grievance is apparently justified. We would, however, like to deal with the merits of the issue to conclude the same to save the parties as well as this Court from harassment in future, particularly in a situation where the same has been dealt with by respondent no.3, as well as the learned Tribunal. 13.1) Learned counsel for the respondents submits that agricultural equipments like Khurpi, Kodal, Gainti, are not covered by item no.46 of SO No.95. He also relies on the provisions of section 14(iv)(ix) of the Central Act. Sl.no.46 of SO no.95 states that the provision of section 14 of the Central Act shall be considered. Section 14(iv)(ix) is reproduced hereinbelow:- “14. Certain goods to be of special importance in inter- State trade or commerce. – It is hereby declared that the following goods are of special importance in inter-State trade or commerce:- ………… ……….. (iv) iron and steel, that is to say – …………… …….. …………… …….. (ix) tools, alloy and special steels of any of the above categories.” 13.2) We are unable to give a restricted meaning to the expression `tool’, occurring in section 14(iv)(ix) of the Central Act. Tool will include the agricultural equipments manufactured by the petitioner. It is indeed manufacturing process which results in production of new product known to the commercial world. We, therefore, disagree with the orders of respondent no.3, and the learned Tribunal. The impugned orders as contained in Annexures 15 and 16 are set aside in so far as cancellation of the benefit of exemption from payment of 12 purchase tax in respect of raw materials used for agricultural equipments manufactured by the petitioner are concerned. 14. Initial certificate of exemption was granted by respondent no.4, whereas the same was in the first instance cancelled by respondent no.5. Learned counsel for the respondents has rightly relied on clause 8 of SO No.95 which reads as follows:- Þ8- ?kks’k.kk&i= dk nq:I;ksx fd;s tkus dh fLFkfr esa foeqfDr izek.k&i= jn~n djus dk vf/kdkj lac) vapy izHkkjh dks gksukA The respondents have stated in their counter affidavit that respondent no.5 was the competent authority to deal with the issues relating to misuse of the benefits of exemption. The contention of the petitioner is, therefore, rejected. 15. Learned counsel for the petitioner has also raised a grievance that, on account of the benefit of exemption, it could not pass on its liability of sales tax and/or purchase tax. It is, therefore, submitted that withdrawal of the benefit with retrospective effect is bad in law. Law is well settled that, if the assessee has not been able to collect sales tax from its purchasers, or purchase tax from its sellers, the same does not dilute his liability to pay sales tax or purchase tax. Learned counsel for the respondents has rightly relied on the judgments of the Supreme Court in Khazan Chand v. State of J & K [(1984) 2 SCC 456] (paragraphs 12 and 16), and Kodar v. State of Kerala (34 STC 73). 16. In