[2010) 7 S.C.R. 993

MALAYALA MANORAMA CO. LTD. v.

ASSTT. COMMISSIONER, COMMERCIAL TAXES & ANR.

(Civil Appeal No. 2267 of 2007)

JULY 08, 2010

[DR. B.S. CHAUHAN AND SWATANTER KUMAR, JJ.]

Kera/a General Sales Tax Act, 1963:

s.5(3) - Printing of newspaper - Ink purchased for use c in the manufacture/printing of newspapers - Declaration furnished by assessee under Form 18 - Authorities issued notice imposing penalty on the ground that printing newspaper did not amount to manufacture and therefore declaration under Form 18 was not correct - Plea of assessee 0 that s.5(3) was amended on 1.4.2000 and the amended section did not contemplate any manufacturing activity - Held: Material amendment were carried out in s.5(3)- Despite the amendments, the format of Form 18 was not amended - High court did not deal with these legal issues - Matter E remitted to High Court for consideration afresh.

Assessee purchased printing ink for use in printing newspapers during the year 2001-02. The purchase was effected by issuing Form 18 under the Kerala General Sales Tax Act, 1963. In terms of Section 5(3) of the Act, F assessee was liable to pay only concessional rate for that period.

The Assistant Commissioner issued a notice for imposition of penalty on the ground that the process of G printing of newspapers did not involve manufacturing process and thus the declarations furnished by the assessee under Form 18 were not correct. It was specifically pleaded by the assessee that the provisions

993 .H

A of Section 5(3) of the Act were amended by the Finance Act, 2000 with effect from 01.04.2000 deleting the provision that manufactured items shall be taxable and, therefore, the issuance of notice was not proper. It was also stated that the amended section did not contemplate B any 'manufacturing' activity and the word used was 'production'.

The Assistant Commissioner held that the concession was applicable only to 'goods' and C newspaper was not 'goods' within the meaning of

Section 2 of the Act. Assessee filed writ petition which was dismissed.

In appeal to this Court, appellant-assessee contended that the initiation of the proceedings was D based on a provision which had been repealed, nonexistent and inapplicable, as such, the entire proceedings and imposition of penalty was unjustified, however, this issue was not dealt with by the High Court. It was further argued that even the alternative submission as to E whether the newspaper was covered within the definition

of 'goods' and as to what was the effect of the amendment of the provisions of Section 5(3) and particularly, the substitution of the word 'manufacture' by the word 'production' was not correctly examined. The F conclusion of the High Court on the matter in issue was

primarily with reference to the un-amended provisions and on an erroneous impression of law that despite amendment, the 'goods' would still not include

'newspapers'.

G Disposing of the appeal and remitting the matter to High Court, the Court

HELD: There is no dispute to the fact that the material amendments were carried out in the provisions H of Section 5(3) of the Kerala General Sales Tax Act with

MALAYALA MANORAMA co. LTD. V. Assn. COMMNR., I ~95

COMMERCIAL TAXES .

effect from 01.04.2002. The existing 1st proviso to Section A 5(3)(i) was deleted as well as the expression 'or , uses' th~ same rn the manufacture of any goods which are not

liable to tax in this Act' in Section 5(3)(i) was also deleted.

Despite these amendments, as it appears from the record before the Court, format of Form No. 18 was not B amended consequently. However, the High Court did not dwelve updn those legal issues which were the core issues involved in the case. [Para 9] [999-D-FJ

Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam (2001) 7 SCC 525; Collector of Central Excise v.

C I Bal/arpur Industries Ltd. (1989) 4 SCC 566; Printers (Mysore) Ltd. v. Assistant Commercial Tax Officer (1994) 93 Sales Tax Cases; Whirlpool Corporation v. Registrar of Trade Marks

(1998) 8 SCC 1; State of H.P. & Ors. v. Gujarat Ambuja -· Cements Ltd. (2005) 6 SCC 499 - referred to.

Case Law Reference:

(2001) 1 sec 525 referred to Para 6

(198~) 4 sec 566 referred to Para 6 ' i 19~-4) ~31Sales Tax cases 95 referred to Para 6

. I

(1998) a sec 1 referred to Para 6

(2005) s sec 499 referred to Para 6

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2267 of 2007.

From the Judgment & Order dated 02.08.2006'of-the High

Court of Kerala at Ernakulam in WA No. 1035 of 2006.

T.R. Andhyarjuna, R. Venkataramani, S.Sukumaran, Anand Sukumar, Bhupesh Pathak, K. Rajeev for the Appellant.

M.L. Varma, R. Sathish for the Respondents.

A The Judgment of the Court was delivered by

SWATANTER KUMAR, J. 1. M/s. Malayala Manorama Co. Ltd., Kottayam, purchased printing ink for Rs. 1,00,03,050/

- from M/s. Quality Ink Manufacturing, Kottayam during the year

8 2001-2002. The ink so purchased was to be used for printing newspapers by the said firm. This firm filed Form No. 18 under the Kerala General Sales Tax Act, 1963 (for short 'the Act') for purchase of raw material for use in the manufacture of 'finished goods' i.e. newspaper and in terms of Section 5 (3) of the Act they were liable to pay only concessional tax at the rate of 3% C for that period.

2. There was no dispute at any point of time that this concern was engaged in printing of newspapers. However, the Department felt that no manufacturing was involved in the [) process of printing of newspapers and, as such, purchase of printing ink effected by issuing Form No. 18 was not the correct statement in terms of the statutory provisions of the Act. The case of the Department was that the declarations thus furnished by the firm were not accurate, according to law and there was E misuse of statutory forms. This resulted in issuance of a notice for imposition of penalty under Section 45 (A) of the Act providing an opportunity to the firm to respond thereto and file its objections, if any. It was proposed to impose a penalty of Rs. 18, 19,208/- on the said assessee, being double the amount F of tax due on the purchase turnover.

3. The reply to the notice was filed by the assessee firm admitting that printing ink was purchased and that sub-section 3 of Section 5 does not stipulate that there should be manufacture of taxable goods. It was specifically pleaded that G the provisions of Section 5 (3) of the Act were amended by the Finance Act, 2000 with effect from 01.04.2000 deleting the provision that manufacture items shall be taxable. The impact of the amendment was such that, according to the assessee firm, the issuance of notice was not proper. It was also stated H that amended section does not contemplate any

'manufacturing' activity and the word used was 'production' and A there is a clear distinction between the two. The assessee relied upon the judgment of this Court in the case of Aspinwall & Co.

Ltd. v. Commissioner of Income Tax, Ernakulam [(2001) 7 SCC 525 : (2002) 125 Sales Tax Cases 101 (SC)] wherein it was held that 'manufacture' means use of raw materials for B production of goods commercially different from raw materials used. When the end product is a commercially different product, it amounts to manufacturing.

4. The Assistant Commissioner, Commercial Tax, who had issued the notice, came to the conclusion that the concession C has been extended to non-taxable g9ods also and formed an opinion that the concession is applicable only to 'goods' and newspaper was not a 'goods' within the meaning of Section 2 of the Act. While referring to another judgment of this Court in Collector of Central Excise v. Ballarpur Industries Ltd. [(1989) D 4 SCC 566 : (1990) 77 Sales Tax Cases 282], the said Assistant Commissioner concluded that newspaper was not a 'goods' and, therefore, the declaration was not appropriate and imposed a penalty of Rs. 14,66,256 for the year 2000-2001.

5. The assessee firm did not take recourse to the statutory remedies available under the Act but questioned the very correctness and legality of the issuance of the notice as well

as the order passed by the Assistant Commissioner before the High Court of Kerala at Ernakulam, by filing a writ petition under F Article 226 of the Constitution of India.

6. This writ petition was contested by the Department which filed detailed counter affidavit. It was specifically pleaded by the Department that for availability of statutory alternative remedy as well as for other reasons and facts stated in the G reply, the writ petition itself was not maintainable. The Division Bench of the High Court while considering this primary objection raised by the Department before the High Court, came to the conclusion that as the facts were not in dispute and questions raised were purely legal and are to be tested in view of the H

A judgment of this Court in the case of Printers (Mysore) Ltd. v.

Assistant Commercial Tax Officer [(1994) 93 Sales Tax Cases 95 : (1994) 2 SCC 434], Whirlpool Corporation v. Registrar of Trade Marks [(1998) 8 SCC 1] as well as the judgment in the case of State of H.P. & Ors. v. Gujarat Ambuja Cements B Ltd. [(2005) 6 SCC 499 : (2005) 142 Sales Tax Cases 1], the writ petition was maintainable. However, while laying emphasis that the newspaper would not fall within the expression 'goods' under sub-section 3 of Section 5 of the Act, the High Court held that the notice issued w.as proper as Form No. 18 which gives c benefit of concessional rate of tax was factually not correct.

While dismissing the writ petition, however, the Bench issued a direction to the assessing authority to examine whether the imposition of penalty at double the rate is justified in the facts and circumstances of the case, within a period of two months

0 from the date of receipt of the copy of the judgment. It is this judgment of tlie High Court which has been assailed in the present appeal under Article 136 of the Constitution of India.

7. Learned counsel appearing for the appellant with some vehemence argued that the High Court had specifically noticed E the Gontention of the assessee firm that the initiation of the proceedings is based on a provision which had been repealed, non-existent and inapplicable, as such, the entire proceedings and imposition of penalty was unjustified, still the High Court did not deal with this contention at dli. It was a pure question of F law and would even otherwise have effect on the merits of the case. Non-consideration of the contention and non-recording of any reasons in that regard on merit, would entirely vitiate the order. It is further argued that even the alternative submission as to whether the newspaper was covered under the definition G of 'goods' and as to what is the effect of amendment of the provisions of Section 5(3) and particularly, the substitution of the word 'manufacture' by the word 'production' have not been correctly examined. The discussion of the High Court on the matter in issue had primarily proceeded with reference to the H un-amended provisions and on an erroneous impression of law

that despite amendment, the 'goods' will still not include . A 'newspapers'. '

8. On the contra, Mr. Verma, learned senior counsel appearing for the Department fairly stated that the amended provisions and their effect have not been considered by the . 'j; High Ceurtjn_)ts_ judgment under appeal. Even, according to him, ttie discussl0rh:nrame11Q.ments with particular reference to the word 'production' coulcf navesome impact on the

alternafive submission made by the assessee-respondent.

However, he submitted tbat the matter at best can be remanded 'C to the High Court and the notice cannot be quashed as the contentions will still have to be examined by the competent authority/Courts.

9. Having heard the learned senior counsel appearing for the parties, we are of the considered view that the order under 0 challenge requires interference by this Court. There is no dispute to the fact that. the material amendments were carried out in the provisions of Section 5(3) of the Act with effect from 01.04.2002. The existing 1st proviso to Section 5(3)(i) was deleted as well as the expression 'or uses the same in the E manufacture of any goods which are not liable to tax in this Act' in Section 5(3)(i) was also deleted. Despite these amendments, as it appears from the record before the Court, format of Form No. 18 has not been amended consequently.

However, the fact of the matter remains that the High Court has not dwelt upon these legal issues which are the core issues involved in the present case. In our view, the discussion on the F

first issue would certainly have some bearing on the alternative argument raised on behalf of the appellant before us. Thus, it may not be possible for this Court to sustain the findin, Q

recorded by the High. Court in that regard. Of course, we are G not ruling out all the possibilities of the High Court arriving at

I the same conclusion if it' is of that view after examining the amendments as well as the submissions made on behalf of the. appellant with regard to its alternative submissions. In light-of this discussion, we pass the following order: H

(a) The impugned order dated 2nd August, 2006 passed by the High Court is hereby set aside.

(b) The matter is remanded to the High Court for consideration afresh in accordance with law on both the aforesaid submissions while leaving all the contentions of. the assessee and the Department open for the year 2000- 2001, in relation to imposition of penalty under Section 45 (A) of the Act.

(c) The legality and validity or otherwise of the notice dated 16.01.2006 and 17.01.2006 shall be subject to the final decisfun of the High Court.

10. The appeal is accordingly disposed off without. any order as to the costs.

D.G.

Appeal disposed of.