Case: Mukerian Papers Limited Vs. State of Punjab

The assessee-appellant M/s. Mukerian Papers Ltd., is a company engaged in the manufacture of paper at Mukerian in the State of Punjab and is a registered dealer under the Punjab General Sales Tax Act, 1948 (the Act hereinafter). The assessee dispatched some part of the manufactured goods outside the State of Punjab for sale on consignment basis. However, the assessee had not paid the taxes on the taxable raw material consumed in the manufacture of such goods. A show cause notice was, therefore, issued by the Assessing Authority under Section 10(6) of the Act for the assessees failure to pay the taxes along with the return as required by Section 4-B of the Act. Interest on the tax amount which the assessee had failed to pay was also claimed under Section 11-D of the Act. The assessee disputed its liability to pay penalty and interest on the amount of tax withheld on the plea that there was no wilful or intentional default on the part of the assessee to pay the taxes due under Section 4-B of the Act as the assessee was under a bona fide belief that no tax was to be paid on the raw material purchased for the manufacture of paper which was ultimately sent outside the State on consignment basis. This impression, based on the language of the statute, stool confirmed by the subsequent decisions of the Punjab and Haryana High Court in the case of Goodyear India Ltd. (Goodyear India Ltd. v. State of Haryana, 1983 (53) STC 163 ) and Bata India Ltd. (Bata India Ltd. v. State of Haryana, 1983 (54) STC 226 ) till those decisions were overruled by the Full Bench decision in Des Raj Push Kumar case (Des Raj Pushp Kumar Gulati v. State of Punjab, 1985 (58) STC 393 ). The assessee further contended that it had acted on legal advice that it was not liable to pay any purchase tax and, therefore, in the absence of a clear intention to avoid the payment of tax, there could be no question of imposition of penalty and demand for interest. On the other hand it was contended on behalf of the revenue that the two decisions on which the assessee placed reliance were subsequent to the date on which the liability to pay the tax had arisen and hence the assessee could not take shelter under the said two decisions. The submissions made on behalf of the assessee did not find favour with the revenue. The assessee thereupon sought a reference under Section 22(1) of the Act but the Presiding Officer of the Tribunal by its order dated August 12, 1987 rejected the application as he saw no point of law to make a reference to the High Court. Civil Appeal Nos. 936 and 937 of 1988 arise out of the said order of August 12, 1987. In the other two Appeal Nos. 2239 and 2240 of 1988 the appellants have come to this Court directly from the Tribunals order in appeal without going through the formality of seeking a reference under Section 22(1) of the Act in view of the refection of a similar request by the impugned order of August 12, 1987. This Court granted Special leave to appeal without insisting on the appellant-assessee approaching the High Court in view of the Full Bench decision of that Court in Des Raj case ( 1990 (2) SCC 71 : 1990 SCC(Tax) 223 : 1990 AIR(SC) 781). As the facts are identical and common questions of law arise we have thought it proper to dispose of all the four appeals by this common judgment

Court's reasoning:
4. Under Section 4-B of the Act the tax becomes exigible not on the purchase of the raw material or on the use thereof in the manufacture of a new and distinct commodity but only after the goods so manufactured are dispatched to a place outside the State. Once the goods are sent outside the State the purchaser is made liable to pay the tax at the rate prescribed on the purchase of such goods provided no tax is payable on the purchase thereof under any other provision of the Act. It is, therefore, obvious that the tax though described as purchase tax is in effect a tax on consignment since it becomes effective on the happening of an event which has nothing to do with the actual purchase. Even if the raw material is used in the manufacture of any taxable goods, the purchaser does not become liable to pay tax on the raw material until the manufactured item is sent out of the State. And between the manufacture of the goods out of the purchased raw material and their actual despatch outside the State there may be a long time gap. There is, therefore, no room for doubt that the liability of tax falls only after despatch of the manufactured goods outside the State and that event may have no relation to the actual purchase or manufacture. That being so, the conclusion is inescapable that the tax though described as a purchase tax is actually a tax on the consignment of the manufactured goods. Therefore, even though the language of Section 4-B of the Act is not identical with the relevant part of Section 9(1) of the Haryana Act, it is in substance similar in certain respects, particularly in respect of the point of time when the liability to pay tax arises. Under that provision, as here, the liability to pay purchase tax on the raw material purchased in the State which was consumed in the manufacture of any other taxable goods arose only on the despatch of the goods outside the State. We are, therefore, of the opinion that the ratio of the said decision of this Court in Goodyear India Ltd. ( 1990 (2) SCC 71 : 1990 SCC(Tax) 223 : 1990 AIR(SC) 781) applies on all fours to the main question at issue in thisOnce it is found that the revenue was not entitled to levy the tax which it purported to levy as purchase tax on the raw material, there can be no question of imposition of penalty or interest on the unpaid amount of tax. Therefore, the action taken in exercise of power under Section 10(6) and Section 11-D of the Act cannot be allowed to stand and must be set aside