*1* kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SALES TAX REFERENCE NO.6 OF 2001 IN REFERENCE APPLICATION NO.20 OF 1998 The Commissioner of Sales Tax, M.S., Mumbai. ..Applicant -Versus- M/s Moonlight Metal Industries Pvt.Ltd.. ..Respondent ........... Mr.V.A.Sonpal, “A” Panel Counsel for the Applicant/Revenue. Mr.P.C.Joshi, for the Respondent/Assessee. .......... CORAM : V.C.DAGA & K.K.TATED, JJ. {Closed for orders : 01st April, 2010 Pronounced : 30th April, 2010} JUDGMENT (Per K.K.Tated, J): 1 Heard the learned counsel for the rival parties. 2 This reference, at the instance of the Applicant/Revenue, is made by the Maharashtra Sales Tax Tribunal, Mumbai under Section 61(1) of the Bombay Sales Tax Act, 1959 vide its judgment dated 30th April, 2001 for the opinion of this Court on the following eight questions of law :- i) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the activity of the appellant does not amount to manufacture when it is carried out on goods supplied by its customers though the same activity amounts to manufacture if carried out on the appellant’s own goods? ii) Whether, on the facts and in the circumstances of *2* the case, the Tribunal was justified in law, in holding that the impugned activity is apparently falling within the description of sale under the Works Contract Act? iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in holding that the activity which is declared as amounting to works contract, cannot be held as activity of manufacture under the Bombay Sales Tax Act, 1959? iv) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in the law in holding that the impugned goods have not been used for the manufacture of finished goods? v) Whether, on the facts and in the circumstances of the case and upon the true and correct interpretation of Section 13-AA of the Bombay Sales Tax Act, 1959, as it existed during the relevant period, the Tribunal was justified in law, in holding that it will not be legal to hold that such purchases would qualify for the levy of purchase tax under the said section? vi) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the action of revision is not just and proper and in doing away the levy of purchase tax as made by the revision order? vii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in deleting the consequential levy of interest under Section 36(3)(b) of the Bombay Sales Tax Act, 1959? viii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Miscellaneous Application requesting for enhancement of the purchase tax and the consequential interest will have to be rejected out of hand? 3 While hearing this Reference we found that these eight questions of law referred by the Tribunal were overlapping, apart from the fact that some questions were repeated one after another. *3* After hearing, both the parties agreed that the following two questions of law would resolve the entire controversy in the matter:- (I) Whether in facts and circumstances of the case, the Tribunal was justified in holding that Respondents’ materials used in the job work of converting aluminium ingots into aluminium alloys by utilizing the raw materials supplied by its customers is not liable for levy of purchase tax under Section 13-AA under the Bombay Sales Tax Act, 1959? (II) Whether in facts and in the circumstances of the case, the Tribunal was justified in deleting levy of interest under Section 36(3)(b) of the Bombay Sales Tax Act, 1959? FACTS 4 A few facts leading to this reference can be briefly summarized as under:- The Respondent-Company is a registered dealer under the BST Act, 1959 and is also registered under the Works Contract Act. The Respondent is engaged in manufacturing of non-ferrous alloys and simultaneously also undertakes the works-contract in making non-ferrous alloys out of the materials supplied by the customers. Mostly aluminium alloys are manufactured on works- contract basis. Aluminium is supplied by the customers. Some more materials such as silicon and copper are required in small quantities for carrying out the works-contract and the same is added by the Respondent for making aluminium alloy. This activity, was held by the Assessing Authority vide its assessment order dated 21.10.1991, as manufacturing process for the assessment period from *4* 01.04.1988 to 31.03.1989 and the purchase tax under Section 13- AA was levied at Rs.2,98,453/- by applying proportionate ratio method. Consequential additional tax and interest under Section 36(3)(b) of the BST Act, 1959 were also levied. 5 Being aggrieved by the aforesaid assessment order dated 21.10.1991, the Respondent-Assessee preferred the first appeal before the Deputy Commissioner (Appeals) contending that the impugned activity is covered under the Works Contract Act and hence, there is no occasion attracting levy of the purchase tax under Section 13-AA of the BST Act, 1959. The Deputy Commissioner (Appeals) vide his order dated 31.03.1993 accepted the contentions of the Respondent-Assessee and deleted the purchase tax levied under Section 13-AA of the BST Act, 1959 and also consequential additional tax and interest under Section 36(3) (b). 6 The aforesaid order dated 31.03.1993 passed in the first appeal was examined by the Additional Commissioner who noticed that the relief granted by the Deputy Commissioner (Appeals) deleting the purchase tax was wrong. Hence, an action under Section 57 of the BST Act, 1959 was taken and levy of the purchase tax under Section 13-AA along with consequential levy of additional tax and interest was restored by the Additional Commissioner vide its order dated 10.01.1996. 7 Being aggrieved by the aforesaid order dated 10.01.1996, the Respondent/Assessee preferred Appeal No. 30/1996 before the Maharashtra Sales Tax Tribunal, Mumbai. The Tribunal vide its judgment dated 18.10.1997 came to the conclusion that the impugned goods have not been used for manufacturing the finished goods and in fact these have been used *5* for carrying out the transaction falling under the Works Contract Act. The Tribunal held that since there is no manufacturing process involved it will not be legal to hold that such purchase would qualify for levy of purchase tax and accordingly, it deleted the purchase tax as also the interest levied under Section 36(3)(b) of the BST Act, 1959. 8 Being aggrieved by the aforesaid order dated 18.10.1997, the Applicant/Revenue preferred the Reference Application No.20/1998 under Section 61(1) of the BST Act, 1959 and the Tribunal vide its judgment dated 30.04.2001 referred the above mentioned questions of law for the opinion of this Court. SUBMISSIONS 9 Mr.Sonpal, learned “A” Panel counsel appearing for the Applicant-Revenue submitted that the Respondent is engaged in manufacture of non-ferrous alloys and it also undertakes the works- contract for manufacturing the non-ferrous alloys out of the materials supplied by the customers. In executing the works- contract wherein aluminium is supplied by the customers and other ingredients like silicon and copper belonging to the Respondent are used. Thus, the copper and silicon are added by the Respondent for making aluminium alloys and therefore, this activity is nothing but manufacturing process and therefore, the purchase tax under Section 13-AA of the BST Act, 1959 attracts in the present case. Section 13-AA of the BST Act, 1959 for the relevant period from 01.07.1982 to 31.08.1990 reads thus:- “Section 13-AA: Purchase tax payable on goods in Schedule C, Part I, when manufactured goods are not sold. (1) Where a dealer, who is liable to pay tax under this Act, purchases any goods specified *6* in Part I of Schedule C, directly or through Commission agent, from a person who is or is not a Registered Dealer and uses such goods in the manufacture of taxable goods, then, unless the goods so manufactured are sold by the dealer, there shall be levied, in addition to the sales tax, paid or payable, if any, or as the case may be, the purchase tax levied or leviable, if any, under the other provisions of this Act in respect of purchases of such goods, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods, so used in the manufacture, and accordingly the dealer shall include purchase price of such goods in his turnover of purchases in his return under section 32, which he is to furnish next thereafter.” 10 Mr.Sonpal further submitted that whenever the Respondent is doing works-contract for their customers they are using certain quantity of silicon and copper as without that it is not possible for them to do the same. He further submitted that on perusal of Section 13-AA of the BST Act, 1959 in order to attract tax under this Section, the following are the requirements:- (1) Dealer liable to pay tax under the BST Act, 1959; (2) Purchases of goods covered by Schedule-C Part-I; (3) Use of such goods in the manufacture of taxable goods; (4) Non sale of goods so manufactured would results in levy of purchase tax under Section 13-AA of the BST Act, 1959. 11 According to Mr.Sonpal, a dealer treated himself as manufacturer of aluminium alloy wherein all raw materials belonged to him. Therefore, even in case some material is supplied by the buyer and part of the material was used by the Assessee should also be treated as a manufacturer for the purpose of the BST *7* Act, 1959. The word “manufacture” has been defined under Section 2(17) of the BST Act, 1959 which reads as under:- “2(17) “manufacture”, with all its grammatical variations and cognate expressions, includes:- (a) producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods, or using or applying any such process, as the State Government may, having regard to the impact thereof on any goods or to the extent of alteration in the nature, character or utility of any goods brought about by such process, by notification in the Official Gazette, specify; (b) cutting, sawing, shaping, sizing or hewing of timber; and (c) refining of oil; (d) Lacquering of Polyester Film. But does not include such manufacture or manufacturing process, as may be prescribed.” 12 Mr.Sonpal further submitted that at the time of carrying out the contract job works it is necessary for the Respondent to use some silicon and copper. The Respondent is charging for the said materials to its customers. He further submitted that the amount of works-contract also included the cost of material used by the Respondent in carrying out the contracts and therefore, it amounted to sale of material used by them for carrying out the manufacturing process. Therefore, according to him, the Respondent is liable to pay the purchase tax under Section 13-AA of the BST Act, 1959. He further submitted that the activities under the Works Contract Act and the BST Act, 1959 were altogether different and the statutes providing tax liability on the Assessee were also altogether different and, therefore, the Assessees could *8* not take a plea that once they were charged under the Works Contract Act then they could not be held liable to pay under the BST Act, 1959 for the same transaction. He further submitted that both these Acts simultaneously provided the tax liability on the Respondent-Assessee and therefore, they were liable to pay the same. He further submitted that the Respondent-Assessee used their material for completing the works-contract on behalf of their customers and therefore, to the extent of materials used by them, amounted to sale and thus, they were liable to pay purchase tax under Section 13-AA of the BST Act, 1959. 13 Mr.Sonpal further submitted that the word “manufacturer” has wider connotation in fixing tax liability on the Assessee. According to him, the Apex Court in the matter of M/s B.P. Oil Mills Vs. Sales Tax Tribunal and others reported in 1998(3) STC 188 held that where any commodity is subjected to a process or treatment with a view to its development or preparation for the market, it would amount to processing. Paragraph No.7 of the judgment reads thus:- “7. Two expressions “manufacture” and “manufacturer” are also relevant in the context. The expression “manufacture” is defined in clause (e-1) and the expression “manufacture” is defined in clause (ee) of Section 2 of the Act. “Manufacture” is defined to mean producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; not including such manufactures or manufacturing processes as has been prescribed; and “manufacturer”, in relation to any goods is defined to be a dealer who makes the first sale of such goods in the State after their manufacture and includes a dealer who sells bicycles in completely knocked down form. Proviso to clause (e) of sub-section (1) of *9* section 3-A of the Act empowers the State Government to, from time to time by notification, modify the rate or point of tax in respect of any such goods, with effect from such date as may be notified in that behalf, so, however, that the rate does not exceed eight per cent.” In view of this authority, Mr.Sonpal submitted that in the present case the Respondent-Assessee is using its own materials at the time of carrying out the works-contract and therefore, the same amounts to a manufacturing activity. 14 Mr.Sonpal, learned counsel for the Revenue further relied on the judgment in the matter of the Commissioner of Sales Tax Vs. Radha Dying & Printing Mills reported in 1981(48) STC 61. In this case, while deciding the issue whether a dealer buying grey clothes, dying and printing it and selling it and also dying and printing clothes of others amounts to a manufacturing activity. Head-note of the said judgment reads thus:- “The expression “manufacture” is defined in Section 2(17) of the Bombay Sales Tax Act, 1959 and in view of the provisions of Section 20 of the Bombay General Clauses Act, 1904, not only the expression “manufacture” in entry 39 of Notification No.STA.1059-(iii)-G-1 dated 28th December, 1959, issued under Section 41(1) of the Sales Tax Act but all cognate expressions must bear the same meaning of the expression “manufacture” as defined in section 2(17) of the Sales Tax Act. Dyeing and printing would be a process carried out on cloth and would result in a new marketable commodity coming into existence. Therefore, dyeing and printing cloth would be manufacture within the meaning of Section 2(17) of the Sales Tax Act. For the purposes of entry 39 of notification dated 28th December, 1959 issued under Section 41(1) of the Sales Tax Act, manufacture for sale *10* could be goods of the purchasing dealer himself or on behalf of some other person who gets his goods manufactured by the purchasing dealer for the purpose of sale.” 15 Mr.Sonpal, learned counsel for the Revenue further submitted that in the present case undisputedly aluminium is converted into a aluminium alloys where the Assessee uses his own copper and silicon. This process results into manufacturing of a new product i.e. aluminium alloys. Therefore, according to him, the Respondent-Assessee is liable to pay tax under Section 13-AA of the BST Act, 1959. On the basis of these submissions, Mr.Sonpal urged that this Court may hold that the activity carried out by the Respondent-Assessee amounts to a manufacturing activity and thus, they are liable to pay purchase tax under Section 13-AA of the BST Act, 1959 as well as interest under Section 36(3)(b). PER CONTRA 16 Mr.Joshi, learned counsel appearing for the Respondent-Assessee submitted that the Respondent-Assessee was manufacturing non-ferrous alloys on its own materials. It also undertook job works of converting aluminium of the customers into aluminium alloys by adding small quantity of silicon and copper to the aluminium supplied by the customers as per requirements of the customers. That activity of job work was statutorily determined to be an activity covered by a separate enactment providing for levy of sales tax on indivisible works contract. According to him, the Respondents were paying tax for their job works under the Works Contract Act and therefore, there was no question of imposing any tax under Section 13-AA of the BST Act, 1959. He further submitted that it was clear from the definitions of a dealer, *11* purchase price, sale, sale price, tax and turnover of purchases as defined under the BST Act, 1959 as well as under the Works Contract Act that the Assessee was not liable to pay tax as claimed by the Revenue in the present case. The definitions of a dealer, purchase price, sale, sale price, tax and turnover of purchases under both the Acts read thus:- Bombay Sales Tax Act, 1959 Works Contract Act Sec.2(11): “Dealer” means any person who whether for commission, remuneration or otherwise carries on business of buying or selling goods in the State, and includes the Central Government, or any State Government which carries on such business, and also any society, club or other association of persons which buys goods from or sells goods to its members. Sec.2(d) : “Dealer” means any person who, whether for valuable consideration, commission, remuneration or otherwise, transfer of property in goods involved in the execution of works contracts and includes any State Government and the Central Government which so transfers such property in goods, and any society, club, or association of persons which so transfers the property in goods to its members. Sec.2(22): “purchase price” means the amount of valuable consideration paid or payable by a person for any purchase price include any sum charged for anything done by the seller in respect of the goods at the time of or before the delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged. Sec.2(i): “purchase price” means the amount of valuable consideration paid or payable by a person for purchase of any goods in relation to execution of works contract, effected in the State in the course of inter State trade or commerce or in the course of import including any sum charged for any thing done by the seller in respect of the goods at the time of or before delivery thereof and will also include the cost of freight, transit or insurance and any taxes, duties, cesses and fees paid or payable in respect of such goods, whether charged separately or not. Sec.2(28): “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy” and “purchase”, with all its grammatical variations and cognate expressions, shall be construed accordingly. Sec.2(1): “sale” means a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract in the State, and the word “sell” with all its grammatical variation and cognate expressions shall be construed accordingly. *12* Sec.2(29): “sale price” means the amount of valuable consideration paid or payable to a dealer for any sale made including any sum charged for anything done by the dealer in respect of goods at the time of or before delivery thereof, other than then cost of insurance for transit or for installation, when such cost is separately charged. Sec.2(m): “sale price” means:- (i) the amount of purchase price of the goods or, as the case may be, the value of the goods, brought or transferred from a place outside the State where such goods are sold in the same form in which they were purchased, brought or transferred; and (ii) where the goods have been sold in the form other than the form in which they were purchased or as the case may be, brought or transferred from a place outside the State, then the purchase price of the goods or, as the case may be, the value of the goods brought or transferred from a place outside the State, and so sold. Sec.2(32): “tax” means a sale tax, turnover tax, purchase tax, or additional tax as the case may be, payable under this Act. Sec.2(n-1): “tax” means the tax payable under this Act and includes a lump sum amount by way of composition payable in lieu of the amount of tax. Sec.2(35): “turnover of purchases” means the aggregate of the amounts of purchase price paid and payable by a dealer in respect of any purchase of goods made by him during a given period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller in respect of any goods purchases from the seller and returned to him within the prescribed period. Sec.2(o): “turnover of purchases” means the aggregate of the amounts of purchase price paid or payable by a dealer in respect of purchase of any goods in relation to the execution of works contract, made by him during any period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller in respect of any goods purchased from the seller and returned to him within the prescribed period. 17 Mr.Joshi, learned counsel for the Respondent-Assessee further submitted that 46th amendment to the Constitution of India in Article 366, Entry No.29(A) about tax on sale or purchase of the goods is added. Considering the said amendment also, the Respondent-Assessee is not liable to pay tax in addition to the tax paid by him under the Works Contract Act. Entry No.29-A under Article 366 of the Constitution of India reads thus:- “(29A) “tax on the sale or purchase of goods” includes— (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; *13* (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire- purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;] ” 18 Mr.Joshi, learned counsel for the Respondent-Assessee also pressed into service the judgment of the Apex Court in the matter of Builders Association of India and others Vs. Union of India and others, reported in 1989 (73) STC 370. In this case, the Apex Court considered the amendment enlarging definition to include a deemed transfer of property in the goods involved in the works contract etc. by which Entry No.29(A) was introduced in the Central Sales Tax Act. In this judgment, the Apex Court held thus:- “We, therefore, declare that sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution