Case: Hindustan Brown Boveri Ltd. Etc Vs. State Of Gujarat

The appellant in Civil Appeal No. 1185 of 1979 is M/s. Hindustan Brown Boveri Ltd., a company engaged in the business of manufacturing certain goods which are used in electrical undertakings for the purpose of generating and distributing electrical energy. It is registered as dealer under the provisions ofthe Gujarat Sales Tax Act, 1969 (Gujarat Act No. I of 1970) (hereinafter referred to as the Act). For the purpose of manufacturing the goods, the appellant which was also a recognised dealer under the Act purchased raw materials during the period between May 6, 1970 and March 31, 1971 after furnishing a certificate in Form No. 19 as provided under section 13(1)(B) of the Act read with Rule 24(4) of the Gujarat Sales Tax Rules, 1970 (hereinafter referred to as the Rules) framed under the Act stating that the raw materials purchased by it would be used in manufacturing taxable goods which would be sold by it in the State of Gujarat. Some part of the goods manufactured by th e appellant were sold to a certain electrical undertaking in the State of Gujarat against C forms in order to claim exemption from payment of tax on the said sales under the Act by virtue of a notification issued under section 49(2) of the Act exempting the goods sold to electrical undertakings for being used in generation and distribution of electrical energy. On coming to know of the said sales, the Sales Tax officer., who was the assessing authority under the Act levied purchase tax under section 16 of the Act on the raw materials purchased be the appellant on the ground that the undertaking given in Form No. 19 had been violated. The appeals filed by the appellant before the Assistant Commissioner of Sales Tax and the Gujarat S ales Tax Tribunal against the said levy were unsuccessful. Thereafter at the instance of the appellant the Tribunal referred the following question of law to the High Court of Gujarat under section 69 of theon the facts and in the circumstances of the case, and on a correct interpretation of sub- section (33) of section 2 ofthe Gujarat Sales Tax Act, 1969 the Tribunal was right in deciding that the applicant was liable to pay purchase tax under section 16 ofthe Gujarat Sales Tax Act, 1969 on the ground that certain electric goods manufactured out of raw materials etc. purchased against declaration in Form 19 were sold to Gujarat State Electricity Board against declarations in Form prescribed in Entry 5 of the Government Notification issued under section 49 ofthe Gujarat Sales Tax Act, 1969appellant in Civil Appeal No. 1187 of 1979 is M/s. Hindustan Engineering Co. Ltd. which is engaged in manufacturing heavy machinery and gear conveyers. It is also a recognised dealer under the Act. Like the appellant in Civil Appeal 1185 of ]979, this appellant also purchased raw materials by furnishing certificates in Form N o. 19 and later on sold a part of the goods manufactured by it to a certain electrical undertaking against Form No. C and claimed exemption under the notification issued under section 49(2) of the Act. In this case also the Sales Tax officer levied purchase tax under section 16 of the Act for violation of the undertaking given in Form No. 19. The appeals to the Assistant Commissioner of Sales Tax and the Gujarat Sales Tax Tribunal failed. Thereafter at the instance of the appellant, the Gujarat Sales Tax Tribunal referred the following question for the opinion of the High Court ofon the facts and in the circumstances of the case, the Tribunal is justified in holding that the sales of machineries and conveyers manufactured by the applicant to an electrical undertaking against Form C under Entry 5 of the Government Notification issued under section 49 ofthe Gujarat Sales Tax Act, 1969resulted in the breach of the declarations in Form 19 as the goods so manufactured and sold did not amount to manufacture of taxable goodsis seen from the two questions referred to above that they are substantially the same. The High Court answered the said questions in favour of the Revenue and against the assessees by two separate orders following its earlier decision in M/s. Nawroji N. Vakil &Co. v. State of Gujarat. The appellants have filed these appeals against the decision of the High Court by special leave under Article 136 of the Constitution.

Court's reasoning:
The solution to the question, therefore, lies on the true meaning of the expression taxablefind no substance in any of t he three grounds urged on behalf of the appellants for the reason that the present case is governed by the definition of the expression taxable goods in section 2(33) of the Act. It is interesting to note that the Bombay Sales Tax Act, 1959 (Bombay Act No. 1 of 1959) which was in force in the State of Gujarat before the Act came into force and which was repealed by section 88 of the Act contained the definition of the expression taxable goods in section 2(33) thereof. T he expression taxable goods was defined in the Bombay Act as goods other than those on the sale or purchase of which no tax is payable under section 5. In the Bombay Act there was also a provision corresponding to section 49 of the Act in section 4 1 thereof which empowered the State Government subject to such conditions as it may impose to exempt by a notification published in the Official Gazette any specified class of sales or purchases from payment of the whole or any part of any tax payable thereunder if the State Government was satisfied that it was necessary so to do in the public interest. Still the definition of taxable goods in that Act did not refer to sales exempted under section 41 thereof. But in the Act which repealed and replaced the Bombay Act the meaning of the expression taxable goods has been narrowed down as section 2(33) of the Act reads taxable goods means goods other than those on the sale or purchase of which no tax is payable under section 5 (which corresponds to section 5 of the Bombay Act) and section 49 of the Act (which corresponds to section 41 of the Bombay Act) or a notification issued thereunder. By this definition, the dichotomy that is stated to exist between taxable goods and taxable events has been given a go by. It may be that section 5 and Schedule I refer to goods only but section 49 deals with only taxable events which result in the exemption from payment of tax on the conditions mentioned th erein or in the notification issued thereunder being satisfied even though the goods in question do not come under Schedule I. Secondly one has to wait till the disposal of the goods by the dealer to find out whether the goods are taxable goods or not in view of the definition of the said expression which takes away goods sold under circumstances attracting section 49 from the scope of the meaning of that expression. Nor does the third ground survive for the very same reason. If the sale is exempt from tax under section 49 of the Act, the goods sold would not be taxable goods. We need not go into the question whether the purchaser in a sale under section 49 of the Act has to pay tax in these cases. This reason also disposes o f an allied argument of the appellants that the possibility of any liability arising under section 50 of the Act on the breach of any condition imposed by section 49 or the notification issued thereunder would absolve the appellants of their liability to pay the tax under section 16 of the Act. Any such levy made under section 50 has not been shown to have any effect in law on the liability of the appellants under section 16.The scheme of the Act appears to be that sales tax should be levied on goods which are not included in Schedule I at least once inside the State in the series of sales and purchases even though they may have been converted into manufactured goods and that is why Form No. 19 requires the purchaser to state that the goods will be used by him as raw or processing materials or as consumable stores in the manufacture of taxable goods for sale by him inside the State and section 16 of the Act provides that where any dealer has purchased any taxable goods under a certificate given by him under section 12 or section 13 of the Act and contrary to such certificate the goods are used for another purpose or are not resold or despatched in the manner and within the period certified or on the resales in the course oftrade or commerce, of the goods so purchased no tax under the Central Sales Tax Act is actually payable by him on account of any deductions admissible under any of the provisions of that Act, then such dealer shall b e liable to pay tax on the purchase price of the goods purchased under such certificate. The deliberate alteration of the definition of taxable goods in the Act also is attributable to the said intention of the State legislature.The appellants also cannot derive any assistance from the decision of this Court in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax and Anr. as these cases are governed by the provisions of the Act and as there appears to be no similarity between the facts of these appeals and the facts involved in that case.