Teblik Drugs Limited vs State of Madhya Pradesh and Another

P.K. Jaiswal, J.—This writ petition under article 226/227 of the Constitution of India, has been filed by the assessee, against respondent No. 2 and prayed for issuance of writ of certiorari to modify the order dated January 2, 2008 passed by the Additional Commissioner, Commercial Tax, Madhya Pradesh, Indore, and to allow exemption to the trading division of the assessee-company for the remaining turnover of Rs. 27,48,403 based on the duplicate portion of C form. The assessee also prayed that respondent No. 2 be directed to refund the entire amount of tax to Rs. 2,91,719 deposited by the assessee on receipt of demand notice. The assessee is a company registered under the provisions of the Indian Companies Act, 1956, having registered office at 9/3, North Rajmohalla, Indore (M. P.) and is engaged in the business of manufacturing and trading of drugs and pharmaceuticals products under two different divisions, viz., "manufacturing division" and "trading division".

In manufacturing division the assessee-company carries on the business of manufacturing as well as trading of drugs and pharmaceuticals products while in the trading division it carries on the business of trading of drugs and pharmaceuticals products only. The registered place of business of both the divisions is same. For the purpose of commercial tax both the divisions are separate assessees and registered as separate dealers. The manufacturing division of the assessee is registered under TIN No. 23060202129 while the trading division of the assessee is registered under TIN No. 23330200865.

During the financial year starting from April 1, 2002 to March 31, 2003, both the divisions of the assessee-company carried out some inter-State sale of pharmaceuticals products to a common purchaser who issued declaration in C form to the assessee-company without mentioning the name of the concerned division. The sale transactions made by the manufacturing division and the trading division of the assessee-company to same purchaser outside the State of Madhya Pradesh a common C form was issued by the purchaser u/s 8(4) of the Central Sales Tax Act, 1956 read with rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1957.

The assessee in compliance with the provisions of rule 8(2) of the Madhya Pradesh Sales Tax (Central) Rules, 1957 submitted "original" C forms, as received from the purchaser, to the Department for assessment of the manufacturing division and accordingly due credit was given by the assessing officer exempting the manufacturing division from levy of commercial tax.

The assessing officer vide order dated January 9, 2006 assessed taxable turnover of Rs. 42,00,001 and levied a tax Rs. 4,20,000 on the trading division. While passing the assessment order the assessing officer recorded that C form with respect to the entire taxable turnover of Rs. 46,17,040 was not furnished on the grounds that in accordance with Notification No. 24 dated March 31, 2003, no C form is required to be furnished with respect to the turnover of tax-paid material. The assessing officer further recorded that as per the amendments dated May 13, 2002 in Central Sales Tax Act, C form is mandatory even in cases of turnover of tax-paid material and after deducting a turnover of Rs. 4,17,039, which took place up to May 12, 2002 determined a taxable turnover of Rs. 42,00,001 and levied a tax of Rs. 4,20,000 at of 10 per cent.

Against the order dated January 9, 2006 of the assessing officer in the trading division, the assessee preferred an appeal before the appellate authority u/s 9(2) of the Central-Sales Tax Act, 1956 read with section 61(1) of the Madhya Pradesh. Commercial Tax Act, 1994 and submitted the duplicated C form for a turnover of Rs. 8,64,619. The Appellant Commissioner vide order dated March 5, 2007, allowed the appeal and partially reduced the taxable turnover of the assessee by a sum of Rs. 8,64,619 and granted a tax relief of Rs. 86,462. However, the learned Appellate Commissioner rejected the request of the assessee to grant exemption from the remaining amount of taxable turnover for want of C form. The learned appellate authority also recorded this fact that the assessee has presented the declaration in C form in original in its manufacturing division and has "presented the declaration in C form in duplicate in its Trading Division and there is no possibility of misuse of these declarations".

The assessee-company for its trading division preferred a revision of order dated July 5, 2007 (annexure P/4) before the Additional Commissioner of Commercial Tax, M.P., Indore, u/s 9(2) of the Central Sales Tax Act, 1956 read with section 62(1) of the Madhya Pradesh Commercial Tax Act, 1994 and submitted original C form for a turnover of Rs. 1,40,770 and "duplicate C form for a turnover of Rs. 27,48,403".

The revisional authority allowed the revision application of the trading division of the assessee partially and further reduced the taxable turnover of the assessee-company by a sum of Rs. 1,40,770 for which "original" C form were submitted and granted a tax relief of 10 per cent, of the exempted turnover. However, the learned Additional Commissioner vide order dated January 2, 2008 (annexure P/1) rejected the request of the assessee to considering duplicate C forms for the remaining amount of taxable turnover of Rs. 27,48,403. It is this part of the order by which the assessee aggrieved and filed this present petition.

The learned counsel for the assessee submitted that the requirement of submitting the original declarations in form C under the Central Act and Rules and the certificates as per clause (ii) of the notification were directory and not mandatory. Accordingly the claims for concessional rate of tax/exemption could not be rejected.

Rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules 1957, requires furnishing of C form only and does not require furnishing of original to the assessing officer. Rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1957 reads as under:

(1) The declaration and the certificate referred to in sub-section (4) of section 8 shall be in forms C and D, respectively:

Provided that form C in force before the commencement of the Central Sales Tax (Registration & Turnover) (Amendment) Rules, 1974, or before the commencement of the Central Sales Tax (Registration & Turnover) (Amendment) Rules, 1976, may also be used up to the December 31, 1980 with suitable modifications.

C form as prescribed under rule 12(1) consists of three parts: first leaf, it is named "original", the second leaf is named "duplicate" and the third leaf is named as "counterfoil". It is submitted by learned counsel for the assessee that the said nomenclature is only for administrative convenience to enable the assessing officer to differentiate between the three copies though all the three copies are original.

Section 13(1) of the Central Sales Tax Act, 1956 empowers the Central Government to make rules for the transaction covered in the course of inter-State trade or commerce and section 13(3) and (4) of the Central Act empowers the State Government to make rules, not inconsistent with the provisions of the Central Act to carry out the purposes of the Central Act by that State Government and since as per the scheme of the Central Act the State Governments are authorized to control and regulate the collection of Central sales tax within their territory, they are authorized to frame necessary rules in this regard.

It is submitted that under sub-sections (3) and (4) of section 13 of the Central Sales Tax Act, 1956, the State of Madhya Pradesh has framed Madhya Pradesh Sales Tax (Central) Rules, 1957 and therefore, the rules framed by the State of Madhya Pradesh are subordinate rules and cannot supersede the scheme of the Central Act.

The Madhya Pradesh Sales Tax (Central) Rules, 1957 under rule 8(2) requires furnishing of the portion marked "original" of the C form as received by the selling dealer to the assessing authority for the purpose of claiming exemption under sub-section (4) of section 8 of the Central Act while under the Central Act and the Rules framed thereunder there is no requirement for furnishing of the "original" C form with the assessing authority.

It is also submitted that the findings recorded by the revisional authority to the effect that the "originals" of C form are available with the Department in the files of the manufacturing division of the assessee-company for its assessment. Thus, the view taken by the Revenue is perverse and bad in law.

Sub-rule (2) of rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 provides that in case the declaration in C form is lost either by the purchasing dealer or by the selling dealer, the purchasing dealer or the selling dealers as the case may be, may furnish an indemnity bond to the notified authority of his State to enable the concerned assessing authority to recognize and accept existence of the "original" C form.

It is submitted that the scheme of the Act under sub-rule goes to show that even when the "original" C form is lost the assessing authority, on the basis of indemnity bond may proceed with the assessment for giving the benefit of exemption under sub-section (4) of section 8 of the Central Sales Tax Act, 1956. He lastly submitted that the question involved in this writ petition is squarely covered by the decision Division Bench of the M.P. High Court in the case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax reported in [1991] 83 STC 116 (MP) : [2005] 7 STJ 412: Para 10, pages 119 and 120 in 83 STC is relevant, which reads as under:

Section 8(1) of the Central Act prescribes concessional rate of tax for a dealer, who sells specified goods to a registered dealer in the course of inter-State trade or commerce. Sub-section (4) of section 8 provides:

8(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) a declaration duly filled and singed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or

(b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed from duly filled and signed by a duly authorised officer of the Government:

Provided that the declaration referred to in clause (a) is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit.

Rule 12(1) of the Central Rules says:

12(1). The declaration and the certificate referred to in sub-section (4) of section 8 shall be in forms C and D respectively.

It would, thus, appear that in order to obtain the benefit of section 8(1) of the Central Act, the dealer has to comply with the provisions of section 8(4) thereof by filing a declaration in form C in terms of rule 12(1) of the Central Rules. In the present case, though the assessee did not file the ''original'' part of the form C, it did file the ''duplicate'' part of the form. As pointed out earlier, form C consists of three parts: ''original'', ''duplicate'' and ''counterfoil''. All the three parts are identical in terms and they all form part of form C It must, therefore, follow that the declaration in C form was furnished, but instead of submitting that part of the form which contained the word ''original'' and which was meant for being filed before the assessing authority, another part of the form, marked ''duplicate'', was filed. Section 8(4) or rule 12(1) does not say which part of the form was required to be filed before the assessing authority. It is the form itself, which by use of the words ''original'', ''duplicate'' and ''counterfoil'', gives an indication as to which part of the form is required to be filed before the assessing authority. In the light of these facts and the provisions of law, we are of the view that there was sufficient compliance with the provisions of section 8(4) of the Central Act and those of rule 12(1) of the Central Rules, so as to entitle the assessee to get the benefit of concessional rate of tax u/s 8(1) of the Central Act. Accordingly, the first two questions of law referred to us must be answered in favour of the assessee and against the Department.

In the case in hand the assessee had filed the original part of the declaration in C form in assessment case of manufacturing division and the duplicate parts thereof were filed along with the appeal filed by the trading division of the assessee-company and in view of the law laid down by the Division Bench in the case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1991] 83 STC 116 (MP), the assessee was entitled to concessional rate of tax.

On the other hand, Ms. Mini Ravindran, learned Deputy Government Advocate appearing for the Revenue has submitted that a dealer has to submit the original copy of C form then only he could claim the benefit of tax-paid intra-State sale. She further submitted that the assessee cannot take the benefit unless he submit the original C form as per the provision of rule 8(2) of the Madhya Pradesh Sales Tax (Central) Rules, 1957. She also submitted that the revisional authority relying on the pronouncement of honourable apex court in the case of Indian Agencies (Regd.), Bangalore Vs. Additional Commissioner of Commercial Taxes, Bangalore, , denied the benefit to the assessee.

In return it has been admitted by the Revenue that the form C was available with the Department in the matter of manufacturing division, the benefit of the same can be extended in respect of another division (trading division). She submitted that the apex court has held the requirement of submitting the original C form and, therefore, the order passed by the revisional authority is legal and proper and prayed for dismissal of the writ petition.

We have heard the arguments of the learned counsel for the parties and perused the record of the case and also perused the Division Bench judgment of this court in the case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1991] 83 STC 116 (MP) and decision of the apex court in the case of Indian Agencies (Regd.), Bangalore Vs. Additional Commissioner of Commercial Taxes, Bangalore, .

In the case of Indian Agencies (Regd.), Bangalore Vs. Additional Commissioner of Commercial Taxes, Bangalore, , the entire of 279 original C form was misplaced and therefore, the appellant therein could file only the portions of C form marked as "duplicate". Paras 12, 15 and 22 of the judgment of the apex court read as under (pages 340, 341, 343, 345 and 346 in 139 STC):

We have carefully considered the elaborate submissions made by the learned senior counsel. It is contended on behalf of the appellant that in respect of the inter-State sales transactions, the appellant had collected 279 original C forms and duplicates and that the appellant had separated original C forms for submitting the same to the assessing officer and kept the duplicate separately. The entire file containing the original had thereafter been misplaced and, therefore, the appellant could file only the duplicate. It is submitted that under rule 12(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957 in case of loss of original C forms, if he complies with the above rule, the appellant will be eligible for the concessional rate of sales tax. It is stated that when the appellant had complied with the said rule, there is no reason for denial of the concessional rate. The impugned order passed by the respondent was, therefore, erroneous and it is set aside restoring the order of the assessing authority. In our opinion, the said contention is not tenable and has no force. We have already extracted rule 6(b)(ii) of the Central Sales Tax (Karnataka) Rules, 1957 and rule 12(2) and 12(3) of the Central Sales Tax (Registration and Turnover) Rules, 1957. In our view, the rule has to be strictly construed. Admittedly, the appellant has not complied with the said provisions and, therefore, he is not entitled to the concessional rate of tax u/s 8 of the Central Sales Tax Act. Section 8(4) specifically provides that 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. Rule 8(4)(a) also provides that 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. On the above provision a registered dealer will not be entitled to the concessional rate of tax in respect of inter-State sales made by him without the production of the declaration referred under clause (a) of sub-section (4) noted above.

...

The very purpose of prescribing the filing of C forms is that there should not be suppression of any inter-State sales by a selling dealer and evasion of tax to the State from where the actual sales are effected. Secondly, the purchasing dealer also cannot suppress such purchases once he issues C form to the selling dealer. Since the dealer should issue C form has to maintain a detailed account of such C forms obtained from the Department prescribed under the States taxation law. The C form is a declaration to be issued only by the sales tax authorities of concerned States. By issuing declaration in C form the purchasing dealer would be benefited as he is entitled to purchase goods by paying only concessional rate of tax of four per cent as prescribed by the concerned State of purchasing dealer otherwise the purchasing dealer has to pay tax at a higher rate besides additional taxes on such sales effected within the State where selling dealer is situated.

The case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1991] 83 STC 116 (MP) was relied on by learned counsel for the appellant. In the above case, in order to obtain the benefit of section 8 of the Central Sales Tax Act, it was argued before the High Court that form C consists of three parts--original, duplicate and counter foil and all the three parts are identical in terms of them and form part of form C and that section 8(4) or rule 12(1) does not say which part of the form is required to be filed before the assessing authority. In that case, the dealer filed the duplicate part of form C instead of the original. The High Court held that there was sufficient compliance with the provisions of section 8(4) of the Central Sales Tax Act and those of rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1957 so as to entitle the dealer to get the benefit of concessional rate of tax u/s 8(1) of the Central Sales Tax Act. The High Court as a result of their discussion held that the filing of original parts of declaration in C form is not mandatory but directory under the Central Sales Tax Act, 1956 read with rules thereunder and in the facts and circumstances of the case, the asses-see was entitled to the concessional rate of tax as if it had filed the original parts of the declaration in C form as it had filed the original parts in Maharashtra. The assessing authority which was also sought to be summoned by an application for their production and further the duplicate parts thereof were filed before the assessing authority in Madhya Pradesh.

The judgment of the M.P. High Court in the case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1991] 83 STC 116 (MP) has not been overruled by the apex court. The honourable apex court has held that the above judgment does not help the appellant in the case of Indian Agencies (Regd.), Bangalore Vs. Additional Commissioner of Commercial Taxes, Bangalore, because the facts in the above case and in the case of Indian Agencies (Regd.), Bangalore Vs. Additional Commissioner of Commercial Taxes, Bangalore, were different. The honourable apex court also observed that Karnataka Rules and Madhya Pradesh Rules are different.

During the course of the arguments learned counsel for the parties made a statement at bar that both the rules are almost same. In the above case all original C forms were lost whereas the case on hand all the original C forms are with the Department and the same were filed in the case of marketing division of the assessee and this fact is admitted by the Department in their return, the case of the assessee is fully covered by the Division Bench of this court in the case of Manganese Ore (India) Ltd. v. Commissioner of Sales Tax [1991] 83 STC 116 (MP) which is also approved by the apex court.

In view of the aforesaid, we are of the view that the assessee is entitled to the concessional rate of tax as if he had filed the original parts of declaration in C form.

For the abovementioned reasons, the impugned order dated January 2, 2008 (annexure P/1), rejecting the request of the assessee to consider the duplicate C form is hereby quashed. The learned revisional authority is directed to verity the duplicate C form in question of trading division of the assessee from the original C form, which has been presented by the assessee in its manufacturing division and after verifying the same, if it is found that same are as per originals then, exemption to the trading division of the assessee for the remaining turnover of Rs. 27,48,403 be granted accordingly. After completing the whole exercise, if it is found that assessee is also entitled for refund of the amount of tax deposited by him to respondent No. 2, the same may be refunded to the assessee. In the result, the writ petition is allowed, but without any orders as to costs.