M/S. Uma Bricks Industries vs The Union of India

As a common question of law wades through the writ petitions being W.P.(C) No.448 of 2014 [M/S. Uma Bricks Industries vs. The Union of

India & Ors.] and W.P.(C) No.284 of 2014 [M/S. Parbati Bricks Industry & Construction vs. Union of India & Ors.] in the resembling

conspectus of facts, we propose to dispose these writ petitions by a common judgment.

The petitioners have challenged the notice dated 09.06.2014 [Annexure-P/3 collectively] in W.P.(C) No.448 of 2014 and the order dated

28.03.2014 [Annexure-P/3 collectively] in W.P.(C) No.284 of 2014. Further the petitioners have urged for prohibiting the respondents from

acting on the said notice and the order as according to the petitioners the claim of the revenue is unsustainable in law.

Brief facts which are considered essential to appreciate the challenge may be introduced at the outset. The petitioners are the registered dealers

under the Central Sale Tax Act, 1956, in short CST Act and under Tripura Value Added Tax Act, 2004, in short TVAT Act. The petitioners are

engaged in the business of manufacturing and sale of bricks. In order to facilitate mechanisation within the manufacturing process of the bricks in his

brickfield the petitioner in the W.P.(C) No.284 of 2014 purchased a JCB machine (Excavator) from M/S. JCB India Limited, Ballabgarh,

Haryana. The petitioner purchased the said machine on payment of the price i.e. Rs.18,50,000/- and issued ''C'' form to M/S. JCB India Limited.

The said purchase is the subject matter of W.P.(C) 284 of 2014. The Superintendent of Taxes, Belonia issued a notice on 03.03.2014 seeking

explanation from the petitioner as to why a penalty @ 150% on the leviable tax on the value of the JCB machine shall not be imposed under

Section 10A of the CST Act. Having received the said notice, the said petitioner submitted the reply to the respondent No.4, the Superintendent

of Taxes, Belonia on 06.03.2014. It would be apparent from the said reply that the said machine was purchased for excavating the earth, loading

earth in the truck vehicle, loading earth in the moulding machine and loading the moulding earth in the truck vehicle to lift the moulded earth in the

place of preparation of green bricks by the labourer and for loading bats and bricks in the truck vehicle as well as for supplying the produced

goods to destination of sale.

Despite such explanation, by the order dated 28.03.2014, the respondent No.4 exercised his jurisdiction under Section 10A of the CST Act for

purported contravention of Section 10B of the CST Act and determined the tax at 12.5% with penalty under Section 10A at Rs.3,46,875/- on the

purchase value of Rs.8,50,000/-. The petitioner has been asked by the said order dated 28.03.2014 to deposit a sum of Rs.5,78,125/- by

27.04.2014. On 23.07.2014 delivered in CM Appl. No.319 of 2014 [from W.P.(C) No.284 of 2014] this court had passed the following order

staying the recovery of the said demand: ""We are prima facie of the view that the petitioner has made out a case that the State had no jurisdiction,

therefore the impugned order and notice dated 28.03.2014 is stayed till next date.

The said order was confirmed by the subsequent order dated 14.01.2015. Thus there was no recovery as yet. The other petitioner [in W.P.(C)

No.448 of 2014] purchased another JCB machine (excavator) from the same manufacturer and seller namely M/S. JCB India Limited Ballabgarh,

Haryana on payment of the price i.e. Rs.18,42,510/- and the said petitioner issued ''C'' form to M/S. JCB India Limited. It had been declared that

the said machine was purchased by the said petitioner for use in manufacture and processing of the goods for sale. The said purchase is the subject

matter in W.P.(C) No.448 of 2014.

On 07.05.2014, the Superintendent of Taxes, Belonia, the respondent No.4 herein asked for an explanation from the said petitioner why

penalty @150% on the leviable tax shall not be imposed on the petitioner under Section 10A of the CST Act as the said petitioner has

contravened the provision of Section 10B of the CST Act. By filing the reply dated 28.05.2014, the said petitioner had clearly stated as follows:

You are also quite aware that earth for manufacturing of green bricks within the brick field area are not available for last 6/7 years and due to non-

availability of earth we had to carry earth from various places at a distance of 7/8 KM by utilising the aforesaid JCB. But it is not a fact that the

aforesaid JCB is being used only for manufacturing process of green bricks and misusing the purpose in strong violation of the CST Act. It may be

mentioned in this connection that we have arranged two local made molding machine of earth and the JCB is only the instrument which are fully

engaged for loading of earth. In addition, it is also used for loading of bricks/bats/rubbish. We had to maintain drainage system/internal

road/approach road around the brick field by utilizing the said machine. As a result of the above situation, it cannot be said that the JCB is used

only for excavating earth as mentioned in your letter referred to above rather, it can safely be concluded that the JCB is utilizing for other purposes

in addition to excavation of earth only.

The notice dated 07.05.2014 and the reply dated 28.05.2014 are available as Annexure-P/2 collectively in the said writ petition. Despite the

said explanation by the order dated 09.06.2014, the respondent No.4 had observed as under:

.....the petitioner has violated the provisions of CST Act by using the services of excavator in addition to excavating of earth which are not

integrally connected with ultimate production of goods that commercially inexpedient. Again the guideline issued by the Commissioner of Taxes,

Government of Tripura vide his office Memo No.F.I-7(6)- TAX/06(P-1)/2895-919, dated 18.03.2009 that the ''C'' Form can be used against

interstate purchase of taxable materials which are re-sold/directly engaged in manufacturing works. It is also stated in the Memorandum that when

the machineries being the taxable item is/are neither re-sold nor straight-way used/involved for manufacturing purpose, the C form cannot be used

against such interstate purchase of machineries.

The petitioner has, according to the respondent No.4, utilised the service of the said excavator for several purposes in addition to excavation of

earth for which purpose the excavator was procured or purchased. Hence the tax at 12.5% being Rs.2,30,314/- and imposed penalty thereon

under Section 10A at Rs.3,45,471/-. Having considered the price value at Rs.18,42,510/-, the petitioner was asked to deposit the said tax and

the penalty amounting to Rs.5,75,740/- by 07.05.2014.

Being aggrieved, the petitioner has approached this court and by the order dated 11.11.2014 delivered in CM Appl. No.475/2014 [arising

from W.P.(C)No.448 of 2014], the recovery has been stayed in the following terms:

We are prima facie of the view that the petitioner has made out a case that the State had no jurisdiction, therefore the impugned order and notice

dated 09.06.2014 is stayed till next date.

By the order dated 14.01.2015, the said order was confirmed and as such no recovery has been made from the petitioner.

Mr. A. Pal, learned counsel appearing for the petitioner has submitted that there is no dispute that the petitioner used the ''C'' form for

purchasing the JCB machine as stated above. The allegation as levelled against the petitioner is that the JCB machine as purchased is used neither

for manufacture or processing of the bricks. The role of the JCB machine in the brickmanufacturing process is to do excavation of earth only and

nothing else. Thus, the JCB machine is one of the auxiliary machineries being used for excavation of the earth and the service of the JCB machine is

not required in the core manufacturing process and in the processing of the bricks. According to the revenue, the petitioner in order to evade tax

has adopted unfairness by way of contravening Section 8(3)(B) of the CST Act. Such contravention comes within the purview of Section 10B of

the CST Act. According to Mr. Pal, learned counsel, the respondent No.4 had no authority to assess the tax or other consequential liability

inasmuch as Section 33 of the TVAT Act clearly provides that no assessment under section 31 and 32 shall be made after the expiry of five years

from the end of the tax period to which the questioned assessment relates.

Mr. Pal, learned counsel appearing for the petitioner has asserted that from the ''C'' form it would be apparent that the machines were

purchased on or before 28.05.2008 on payment of the said price [in W.P.(C) No.448 of 2014] and on 20.08.2009 so far the purchase relating to

W.P.(C) No.284 of 2014 is concerned. As far as the purchase of the JCB machine on 20.05.2008 is concerned, the five years period of limitation

would start from 01.04.2009, meaning after 31.03.2014 and hence the respondent No.4 will have no authority to assess or pass any order in this

regard having been barred under Section 33 of the TVAT Act, save it can be shown that the said order is covered under proviso to Section 33 of

the TVAT Act. But there is no such assertion and in fact, no such action, adverse to the petitioner was taken before 07.05.2014 so far the

purchase which is the subject matter of W.P.(C) No.448 of 2014 is concerned.

Mr. Pal, learned counsel however did not insist the same plea in W.P.(C) No.284 of 2014 for obvious reason as the purchase in the said case

took place on 20.08.2009 meaning the five years limitation would start from 01.04.2010 and expire on 31.03.2014. But the notice has admitted

by been issued by the respondent No.4 on 03.03.2014, within the period of limitation. But Mr. Pal, learned counsel has asserted that there had

been no violation of Section 8(3)(B) of the CST Act. For purpose of reference, Section 8(3)(B) is reproduced hereunder:

Rates of tax on sales in the course of inter-State trade or commerce. [(1) Every dealer, who in the course of inter- State trade or commerce,

sells to a registered dealer goods of the description referred to in sub-section (3), shall be liable to pay tax under this Act, which shall be 6 [two

per cent.] of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that

State, whichever is lower: Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this

subsection.]

[(2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-

State trade or commerce not falling within sub-section (1), shall be at the rate applicable to the sale or purchase of such goods inside the

appropriate State under the sales tax law of that State.

Explanation. -For the purposes of this sub-section, a dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the

appropriate State, notwithstanding that he, in fact, may not be so liable under that law.]

(3) [The goods referred to in sub-section (1)]-

(b) 4 [***] are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being

intended for re-sale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing

of goods for sale or [in the tele-communications network or] in mining or in the generation or distribution of electricity or any other form of power;

(c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or

materials intended for being used for the packing of goods for sale;

(d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in 6

[***] clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c).

[(4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods

furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are

sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority:

Provided that the declaration is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit.]

Mr. Pal, learned counsel appearing for the petitioner has further submitted that the said provision unequivocally provides that if the good is

used by the dealer in the manufacturing process of the goods for sale, he is entitled to get the benefit of tax under sub-section 1 of Section 8 of the

CST Act. In this regard he has emphatically stated that excavation of earth and its transportation to the further process is inalienable part of

manufacture of the green bricks. The apex court in Collector of Central Excise, Jaipur vs. Rajasthan State Chemical Works, Deedwana, Rajasthan

reported in (1991) 4 SCC 473, had occasion to dwell upon the meaning and ambit of the word ''manufacture'' and ''the process'' in the following

manner:

The natural meaning of the word ''process'' is a mode of treatment of certain materials in order to produce a good result, a species of activity

performed on the subject-matter in order to transform or reduce it to a certain stage. According to Oxford Dictionary one of the meanings of the

word ''process'' is ""a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the

accomplishment of some result.

The activity contemplated by the definition is perfectly general requiring only the continuous or quick succession. It is not one of the requisites that

the activity should involve some operation on some material in order to its conversion to some particular stage. There is nothing in the natural

meaning of the word ''process'' to exclude its application to handling. There may be a process which consists only in handling and there may be a

process which involves no handling or not merely handling but use or also use. It may be a process involving the handling of the material and it need

not be a process involving the use of material. The activity may be subordinate but one in relation to the further process of manufacture.

In J.K. Cotton Mills v. S.T. Officer :[1965]1SCR900 , this Court ''in construing the expression ''in the manufacture of goods'' held thus: -

But there is no warrant for limiting the meaning of the expression ''in the manufacture of goods'' to the process of production of goods only. The

expression ''in the manufacture'' takes in within its compass, all processes which are directly related to the actual production.

Mr. Pal, learned counsel has contended that the contravention of Section 10 of the CST Act cannot assume for penal action unless it is

established that there was mens rea. For purpose of reference, Section 10 of the CST is reproduced:

Penalties.-If any person-

[(a) furnishes a declaration under sub-section (2) of section 6 or sub-section (1) of section 6A or sub-section (4) 3[or sub-section (8)] of section

8, which he knows, or has reason to believe, to be false; or

(aa) fails to get himself registered as required by section 7 or fails to comply with an order under sub-section (3A) or with the requirements of sub-

section 3(C) or sub-section (3E) of that section;]

(b) being a registered dealer, falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of

registration; or

(c) not being a registered dealer, falsely represents when purchasing goods in the course of inter-State trade or commerce that he is a registered

dealer; or

(d) after purchasing any goods for any of the purposes specified in 4[clause (b) or clause (c) or clause (d)] of subsection (3) [or sub-section (6)] of

section 8 fails, without reasonable excuse, to make use of the goods for any such purpose;

(e) has in his possession any form prescribed for the purpose of sub-section (4) [or sub-section (8)] of section 8 which has not been obtained by

him or by his principal or by his agent in accordance with the provisions of this Act or any rules made thereunder;

[(f) collects any amount by way of tax in contravention of the provisions contained in section 9A,] he shall be punishable with simple imprisonment

which may extend to six months, or with fine or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty

rupees for every day during which the offence continues.

In the transaction, relevant in the context, there had been no of false representation. Even no such false representation has been established for

violation of Section 10(b). Having situated thus, the respondent No.4 cannot invoke the jurisdiction provided under Section 10A for imposing

penalty in lieu of prosecution. For reference, Section 10A of the CST Act is reproduced:

[10A. Imposition of penalty in lieu of prosecution-[(1) ] If any person purchasing goods is guilty of an offence under clause (b) or clause (c) or

clause (d) of section 10, the authority who granted to him or, as the case may be, is competent to grant to him a certificate of registration under this

Act may, after giving him a reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding

one and a half times 3[the tax which would have been levied under sub-section (2) of section 8 in respect of the sale to him of the goods, if the sale

had been a sale falling within that sub-section]:

Provided that no prosecution for an offence under section 10 shall be instituted in respect of the same facts on which a penalty has been imposed

under this section.]

[(2) The penalty imposed upon any dealer under subsection (1) shall be collected by the Government of India in the manner provided in sub-

section (2) of section 9-

(a) in the case of an offence falling under clause (b) or clause (d) of section 10, in the State in which the person purchasing the goods obtained the

form prescribed for the purposes of 5[sub-section (4) of section 8] in connection with the purchase of such goods;

(b) in the case of an offence falling under clause (c) of section 10, in the State in which the person purchasing the goods should have registered

himself if the offence had not been committed.]

Mr. Pal, learned counsel has taken us to a decision of the apex court in Commissioner of Sales Tax, Uttar Pradesh vs. Sanjiv Fabrics reported

in (2010) 9 SCC 630, where the apex court has observed as under:

In view of the above, we are of the considered opinion that the use of the expression ""falsely represents"" is indicative of the fact that the

offence under Section 10(b) of the Act comes into existence only where a dealer acts deliberately in defiance of law or is guilty of contumacious or

dishonest conduct. Therefore, in proceedings for levy of penalty under Section 10A of the Act, burden would be on the revenue to prove the

existence of circumstances constituting the said offence.

[Emphasis added]

From the other side, Mr. D.C. Nath, learned Addl. G.A. appearing for the respondents No.2, 3 and 4 has admitted and asserted that the

petitioner is a registered dealer under Section 19 of the TVAT Act and Section 17 of the CST Act. He has been registered as manufacturer, re-

seller and importer etc. From the CST registration certificate, it would be apparent that the said registration under CST Act does not include the

sale for manufacturing but only for resale. Mr. Nath, learned Addl. G.A. has referred the entry in the CST registration to submit that:

Excavator, parts and accessories'' are only shown for purchase for resale.

But the petitioner has purchased the excavator using ''C'' form and as such he has committed an offence for which he can be imposed penalty

under Section 10A of the CST Act, 1956.

Mr. Nath, learned Addl. G.A. has further submitted that Section 8(3)(b) of the CST Act provides that ''C'' form shall be allowed to be used in

respect of the goods of the class specified in the certificate of registration of the dealer. Since the petitioner''s certificate is only for the resale, the

said purchase cannot come under Section 8(1) of the CST Act. He has further submitted that Section 9 of the CST Act has no application in the

present case and the respondent No.4 has correctly exercised his jurisdiction under Section 10(a) for imposing penalty. The limitation as provided

under Section 33 of the TVAT Act cannot be extended against the action imposing penalty under Section 10(A) for penalty.

Having appreciated the submission made by the learned counsel for the parties, the pertinent questions those emerge for consideration are as

under:

(i) Whether the petitioners have falsely represented while using the C-form against the said purchase of the JCB excavators?

(ii) Whether the order passed by the respondent No.4 is a simple order of penalty or the assessment in terms of Section 31 of the TVAT Act or is

it a composite assessment of the tax and penalty being in the nature of assessment and whether in the circumstances, the limitation for 5(five) years

would apply?

(iii) Whether the petitioner is liable to pay further tax as the situs of sale falls within the jurisdiction of the State of Haryana?

It is apparent on the face of the records that in the registration certificate issued under Section 7 of the CST Act against the item code

Excavator and accessories, it has been mentioned not for ''manufacture'' but ''resell''. Let us first explore whether there was any false

representation. In Sanjiv Fabrics (supra), the apex court has observed that the object of Section 10(b) of the Act is to prevent any misuse of the

registration certificate but the legislature has, in the said section, used the expression ""falsely represents"" in contradistinction to ""wrongly

represents."" The word ""false"" has two distinct and well-recognised meanings: (1) intentionally or knowingly or negligently untrue and (2) untrue by

mistake or accident, or honestly after the exercise of reasonable care. A thing is called ""false"" when it is done, or made, with knowledge, actual or

constructive, that it is untrue or illegal, or is said to be done falsely when the meaning is that the party is in fault for its error. Thus the use of

expression ""falsely represents"" is indicative of the fact that the offence under Section 10(b) of the CST Act comes into existence only where a

dealer acts deliberately in defiance of law or is guilty of contumacious or dishonest conduct. Therefore, in proceedings for levy of penalty under

Section 10-A of the CST Act, the burden would be on the Revenue to prove the existence of circumstances constituting the said offence. In the

light of the language employed in Section 10-A and the nature of penalty contemplated therein, it cannot be held that all types of omissions or

commissions in the use of Form C will be embraced by the expression ""false representation."" Hence, a finding of mens rea is a condition precedent

for levying penalty under Section 10(b) read with Section 10-A of the CST Act. In Sanjiv Fabrics (supra), it has been observed by the apex court

as under:

Furthermore, it is evident from the heading of Section 10A of the Act that for breach of any provision of the Act, constituting an offence under

Section 10 of the Act, ordinary remedy is prosecution which may entail a sentence of imprisonment and the penalty under Section 10A of the Act

is only in lieu of prosecution. In light of the language employed in the Section and the nature of penalty contemplated therein, we find it difficult to

hold that all types of omissions or commissions in the use of Form ''C'' will be embraced in the expression ""false representation"". In our opinion,

therefore, a finding of mens rea is a condition precedent for levying penalty under Section 10(b) read with Section 10A of the Act.

[Emphasis added]

In the impugned notice dated 07.05.2014 and the order dated 09.06.2014 [in W.P.(C) 448 of 2014] or in the order dated 28.03.2014 [in

W.P.(C) 284 of 2014] we do not come across any finding in respect of mens rea. Only allegation against the petitioners are that they have

adopted unfairness to avoid payment of the local tax. In absence of finding of mens rea the notices and orders as challenged are liable to be set

aside and accordingly those are set aside.

In the manner in which the assessment has been made it clearly appears to have been made under Section 31 of the TVAT Act and as such

the limitation under Section 33 of the TVAT Act would apply. Therefore, the impugned otice dated 07.05.2014 and the order dated 09.06.2014

[Annexure-P/3 collectively in W.P.(C) No.448 of 2014] are without jurisdiction being barred by limitation under Section 33 of the TVAT Act. But

the said bar is not applicable so far the impugned notice and the order as challenged in W.P.(C) No.284 of 2014.

We are persuaded to observe that if the jurisdiction under Section 10(a) is exercised by the authority on conforming to the conditions laid

down therein, the limitation as prescribed by Section 33 of the TVAT Act will have no manner of application in such cases.

Whether the tax for the said purchase is exigible or not, is not the issue raised herein. What has clearly emerged is that the purchase took place

at Haryana and ''C'' form has been used to get the benefit of reduced rate of tax under Section 8(1) of the CST Act. The word ''resell'' or the

provisions as appearing in Section 8(3)(b) if read jointly, the word ''resell'' would take an expansive meaning. We are of the view that when there

can be two interpretations viz. (i) the strict interpretation of ''resell'' and (ii) the expansive interpretation of ''resell'' as stated above, the benefit must

go to the dealer. In view of that, we are of the further view that the impugned orders are not sustainable in law.

In terms of the above, this writ petitions are allowed. There shall be no order as to costs.