AI Structured Summary
Not yet generated for this judgment
Judgment
R. Jayasimha Babu, J.—The assessee owns a refinery in which petroleum products are refined. It sells all the refined petroleum to other oil
marketing companies, as it is, we are informed, bound to do so under a scheme by which it is governed. To meet the requirements of fleet of
vehicles maintained by the company, it buys petroleum products such as petrol, diesel, oil, lubricants from the oil marketing companies. The
petitioner also buys furfural which is used by it in the manufacture of goods for sale. Such purchase by the assessee of the petroleum products from
the marketing companies, as also of the furfural, was made in circumstance in which no tax was payable.
The assessing authority invoking Section 7-A of the Tamil Nadu General Sales Tax Act, 1959, subjected the turnover of such purchases to
purchase tax as the petroleum products bought by the assessee had been consumed by it in running the vehicles and furfural had also been
consumed by it in the manufacture of other goods for sale. The assessing authority did not, while making such an assessment specify the Sub-
clause in Sub-section 7-A(1) which was being invoked. On appeal, the Deputy Commissioner who was of the view that the levy of tax was
justified under Clause (b) of Section 7-A(1) examined the case only in relation to that Sub-clause. On further appeal, the Tribunal also took the
view that Sub-clause (b) was applicable and it sustained the order of assessment on that ground.
Learned counsel for the assessee Mr. Chandran submitted that the view of the Tribunal with regard to the applicability of Clause (b) is plainly
erroneous. Counsel submitted that the word ""disposal"" necessarily implies parting with possession or divestment of title to a party other than the
one who is said to dispose of, and such a thing not having occurred in this case, the orders of the Tribunal and the appellate authority were
untenable. Counsel in this context referred us to the decision of the Supreme Court in the case of Deputy Commissioner of Sales Tax v. Thomas
Stephen and Co. Ltd. [1988] 69 STC 320 wherein the Court has observed thus :
Disposal means transfer of title in the goods to any other person. The expression ''dispose'' means to transfer or alienate. It was formerly an
essential word in any conveyance of land. See Jowitt ''The Dictionary of English Law'' and also Webster Comprehensive Dictionary (International
Edn.) Vol. 1, page 368.
In that case also, the court had found that the goods in question had been consumed by the assessee. The court rejected the argument for the
Revenue that such consumption by the assessee would amount to disposal. While so holding, it was observed in that case that there was no
evidence of any transfer at all. Therefore there was no ""disposal"" of the goods as known to law.
Counsel also invited attention to the case of State v. B. Raghurama Shetty [1975] 35 STC 360, a decision rendered by the Karnataka High
Court in which also the meaning of the word ""disposal"" was considered. At para 14 of the judgment, the court quoting the Corpus Juris Secundum
(Volume 27), set out the meaning of the word ""disposal"" given therein :
Passing out of control from one to another, either temporarily or permanently, as distinguished from a mere change of use of the owner.
The statement in the Corpurs Juris Secundum with regard to the expression ""dispose of was also extracted :
To alienate, bargain away, barter, bestow, convey, exchange, give, give away or transfer by authority. Also in other senses, to collect, finish with,
get rid of, put away by any means or remove. Even when standing alone the phrase ''dispose of when used in a criminal statute, is universally held
by the courts to include only those transactions in which there has been a transfer of either title or absolute possession of the property or else some
such disposition of it as would destroy it in whole or in part.
Having regard to the meaning of the term ""disposal"", which necessarily implies a transfer or parting with, it cannot be said, as the Tribunal
erroneously has held, that consumption also would amount to disposal. When a thing is consumed by oneself and there is no parting with
possession or alienation, it only results in the commodity being used by for one''s own purpose. Such use is not ""disposal"". The view of the Tribunal
in the impugned order that the consumption of the petrol, diesel, etc., amounts to disposal of the same by the assessee is plainly erroneous and
cannot be sustained. That, however, cannot result in any relief being granted to the assessee as Sub-clause (a) of Section 7-A is clearly attracted
on the facts of this case. That sub-section reads thus :
7-A. Levy of purchase tax.--(1) ...
(a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise.
A Constitution Bench of the Supreme Court in the case of Assistant Commissioner (Intelligence) v. Nandanam Construction Company [1999]
115 STC 427 resolved the conflict with regard to the manner in which such clause occurring in different State statutes should be interpreted. After
examining the matter, the court held, referring to the analogous provision in the Andhra Pradesh General Sales Tax Act, in Section 6-A(ii)(a), thus :
To our mind, it appears that the object of Section 6-A(ii)(a) of the Act is to levy purchase tax on goods consumed either for the purpose of
manufacture of other goods for sale or consumed otherwise. If the view in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam Vs. Pio Food Packers, is accepted the result would be that the expression ''otherwise'' will qualify the expression ''sale'' and not the
expression ''manufacture'', which appears to us to be erroneous on a plain construction of the provision. The intention of the Legislature, it appears
to us, is to bring to purchase tax in either event of consumption of goods in the manufacture of goods for sale or consumption of goods in any other
manner.
In that case, the court held that the utilisation of goods in construction of the buildings resulted in the goods ceasing to be available and that though
the construction of the buildings could not be regarded as manufacture, such goods which had been purchased in circumstances which rendered
the provision relating to purchase tax applicable, were exigible to purchase tax as they had been consumed in a manner otherwise than by way of
manufacture of goods for sale.
The consumption of petroleum products purchased by the assessee from the Indian Oil Corporation and the use thereof in its motor vehicles,
clearly resulted in the consumption of the goods purchased, in a manner otherwise than by way of consumption in the course of manufacture of
goods for sale. Learned counsel for the assessee submitted that even if that be so, the purchase effected by the assessee from the Indian Oil
Corporation being exempt from tax, it cannot be said that there was a purchase, which had gone untaxed and therefore, Section 7-A(1)(a) would
not be attracted. Counsel in this context relied upon Explanation I below item 159 in the First Schedule to the State Act as it stood at the relevant
time. That Explanation which refers to items 151 to 159 which set out various petroleum products reads thus :
Explanation I.--For the purposes of items 151 to 159, a sale by one oil company to another oil company shall not be deemed to be the first sale in
this State and accordingly any sale by one oil company to any other person (not being an oil company) shall be deemed to be the first sale in the
State.
This Explanation does not treat a sale from one oil company to another as a transaction which falls out of the definition of sale in the Act. On the
other hand, it recognises the fact that a sale does take place between two oil companies. All that it does is to declare that such a sale shall not be
deemed to be a first sale in the State. The purchase of petroleum products by the assessee from the Indian Oil Corporation therefore was very
much a purchase and that purchase, though had not been taxed by reason of the Explanation referred to above, did not cease to be a ""purchase"" in
a circumstance in which tax had not been levied thereby attracting Section 7A, subject of course to the other requirement being met.
As admittedly the purchases effected by the assessee from the Indian Oil Corporation had not been subjected to tax, the consumption of those
goods by the assessee clearly attracted Section 7-A(1)(a) and the assessee was liable to be taxed accordingly. That in fact is what the assessing
officer has done. The erroneous view adopted by the appellate authority and the Special Tribunal that, that levy was under Clause (b) does not in
any way affect the validity of the order of assessment made u/s 7A.
It was also submitted by counsel that the object of the Explanation would not be fully served if the petroleum products used by the assessee
were to be subjected to tax. Counsel submitted that the petroleum products made available to the average consumers is at a subsidised price and
the transactions among the oil companies are not to be taxed. It was also submitted that, had the assessee-refinery retained the stock of the
products for its own use, it would not have been liable to tax, but it cannot do so, as, under the scheme by which it was governed, it was required
to sell the entire stock of petroleum products to the marketing company. These factors, in our opinion, do not in any way affect the taxability of the
transaction. As observed earlier, the Explanation does not confer immunity from tax for oil companies. It merely declares that sales effected by one
oil company to another will not be treated as first sale in the State and those transactions continue to remain ""sale"" and do not cease to be so by
reason of the Explanation.
So far as the submission that the assessee would be subjected to an additional burden by the imposition of the tax u/s 7A is being cast on the
assessee. The petroleum products that it would use for the vehicles owned by it, would be subject to the same amount of tax as any other
purchaser of such products would be liable, and no more. The Government by framing the scheme requiring the assessee to sell its entire products
to the marketing company obviously did not intend that the consumption of the petroleum products by the assessee''s vehicles should not be
subjected to tax. It would have to incur expenditure on that account on par with any other owner of similar vehicle in so far as payment of tax is
concerned.
9A. So far as the furfural is concerned, it is clear from the fact that Clause (a) of Section 7A(1) is clearly attracted. Admittedly, the goods were
used in the manufacture of other goods for sale and no tax has been paid on the purchase of those goods.
In the result, though we disapprove of the reason given by the Tribunal for sustaining the assessment, we uphold its conclusion that the
assessment is not liable to be interfered with as we have found that the levy of purchase tax was justified u/s 7A(1)(a). Petitions are dismissed.