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M/s. Bajrangballi Wire Products Pvt.Ltd. v/s State of Orissa, represented by the Commissioner of Sales Tax, Odisha

    STREV No. 28 of 2006

    Decided On, 20 April 2021

    At, High Court of Orissa

    By, THE HONOURABLE CHIEF JUSTICE DR. S. MURALIDHAR & THE HONOURABLE MR. JUSTICE B.P. ROUTRAY

    For the Petitioner: Jagabandhu Sahoo, Senior Advocate. For the Opposite Party: Sunil Mishra, Additional Standing Counsel.



Judgment Text

Dr. S. Muralidhar, CJ.

1. This revision petition under Section 24(1) of the Sales Tax Act, 1947 (OST Act) arises from a judgment dated 20th December, 2005 passed by the Orissa Sales Tax Tribunal, Cuttack (Tribunal) dismissing the Petitioner's appeal i.e. S.A. No.523 of 2001-02 thereby affirming the order dated 17th April, 2001 of the Assistant Commissioner of Sales Tax, Puri Range, Bhubaneswar (ACST, Bhubaneswar) dismissing the Petitioner's first appeal i.e. Appeal No. AA. 175/BH.I of 2000-01. In turn the said order of the ACST, Bhubaneswar had affirmed the assessment order of the Sales Tax Officer, Bhubaneswar (STO) dated 30th January, 2001 enhancing the gross taxable turnover (GTT) by adding Rs.48,28,209.51 thereby resulting in a tax demand of Rs.1,95,829 under Section 12 (4) of the OST Act for the Assessment Year 1997-98.

2. The questions of law that arise for determination in the present revision are as under:

"(a) Whether in the facts and circumstances of the case, M.S. Wires and M.S. Rods are two different commercial commodities and the Tribunal is justified to hold that Petitioner is not entitled to exemption ?

(b) Whether in the facts and circumstances of the case, the consequential addition of purchase value of M.S.Rod with the gross turnover and taxable turnover in assessment is sustainable in law?"

3. The background facts are that the District Industries Center, Bhubaneswar (DIC) issued a certificate in favour of the Petitioner for eligibility for sales tax concession on raw materials, machinery, spare parts, packing materials and finished products under the Industrial Policy Resolution, 1996 (IPR, 1996) (New Units) for the special claim mentioned in column 2, what was the finished products (M.S. Wire, Wire Nails and L-Hook/J. Hook) whereas column 4 of the title "particulars of machinary, spare parts, raw materials and packing materials", listed out the following:

"1. M.S. Rod in Coil

2. Machinery spares like Dies, Nuts, Bolts, V. Balts, Ball, Bearing, Electrical spares etc. L.S.

3. Packing materials like Gunny Bags/MDPE Bags worth L.S."

4. It is stated that for the periods 1995-96 and 1996-97, the taxing authority granted the Petitioner exemption on the basis of the eligibility certificate. However, for the period 1997-98 the claim for exemption from payment of sales tax was disallowed by the STO. It was held by the STO that M.S. Rods from which the M.S. Wires was manufactured by the Petitioner was not a different commodity in respect of which an exemption could be claimed for the tax already paid on it. Thus, the STO determined that the tax leviable would be @ 4% on the GTT, and that the corresponding tax due would be rounded as Rs.1,95,829/-. In arriving to the above conclusion, the STO placed reliance on the judgment of the Supreme Court in Telengana Steel Industries v. State of Andhra Pradesh, (1994) 93 STC 187 (SC).

5. Aggrieved by the above order, the Petitioner filed an appeal before the ACST, Bhubaneswar who again referred to the judgment of the Supreme Court in Telengana Steel Industries (supra) to justify the order of the STO. The aforementioned order was further affirmed by the Tribunal by dismissing the Petitioner's appeal S.A. No.523 of 2001-02

6. The plea of the Petitioner that a judgment of the larger Bench in K.A. K. Anwar and Co. v. State of Tamilnadu, (1998) 108 STC 258 (SC) had distinguished the judgment in Telengana Steel Industries (supra), was negative by the Tribunal on the ground that it did not to help the case of the Petitioner. Thereafter, the present revision petition was filed.

7. This Court has heard the submission of Mr. Jagabandhu Sahoo, learned Senior Advocate for the Petitioner and Mr. Sunil Mishra, learned Additional Standing Counsel for the Opposite Party (Sales Tax).

8. Mr. Sahoo at the outset submitted that it was not open to the sales tax authority to ignore the certification of the DIC as to the grant of exemption in respect of M.S. Wires produced from M.S. Rods. He pointed out that the Petitioner is a registered small scale industrial unit manufacturing M.S. Wires. The notification of the Finance Department dated 26th July, 1996 in terms of the IPR 1996 rendered the Petitioner eligible to avail sales tax exemption on the purchase of raw material, machinery, spare parts, packing materials and on sale of finished products 100% of the fixed capital investment made by it. This exemption was for a period of five years from the date of commencement of the commercial production. Relying on the decision in Vadilal Chemicals Ltd. v. State of Andhra Pradesh, [2005] 5 RC 295 he submitted that it could not be presumed that the DIC had wrongly granted the petitioner exemption from paying sales tax subject to satisfaction of the conditions of such certificate. Mr. Sahoo also relied on the decision in SREI International Finance Ltd. v. State of Orissa, [2008] 16 VST 193 (Orissa) where, in similar circumstances, it was held that in mere admission of the liability by the Assessee on a wrong presumption would not disentitle the Assessee to relief. He submitted that the decision in K.A. K. Anwar and Co. (supra) was wrongly distinguished by the Tribunal and that it squarely applied to the facts and circumstances of the case.

9. On his part, Mr. Sunil Mishra, learned Additional Standing Counsel for the Opposite Party relying on the decision of the Supreme Court in Commissioner of Trade Tax, Uttar Pradesh v. S/S International Electrodes (2018) 17 SCC 302 contended that iron rods and iron wires are one and the same commodity and the extraction of wires from iron rods does not amount to manufacture. He relied on the decision of the Supreme Court in Collector of Central Excise v. Technoweld Industries, (2003) 11 SCC and submitted that obtaining of wire of thinner gauge from wire rod by cold drawing process did not amount to manufacture of a new product. Lastly, he relied on the decision in Telengana Steel Industries (supra) in support of his plea that the revision petition ought to be dismissed.

10. The above submissions have been considered. Since considerable reliance has been placed by both sides on the decision in Telengana Steel Industries (supra) and the subsequent decision in K.A. K. Anwar and Co. (supra), the Court takes up the detailed examination of the said two decisions first.

11. In Telengana Steel Industries (supra), a Bench of two learned Judges of the Supreme Court considered the question whether iron wires were separate commercial goods from wire rods from which they were produced and were therefore exigible to a single point tax even if the wire rods, when purchased had suffered sales tax. This was answered in the negative by holding that iron wires could not be considered to be a separate taxable commodity and, if wire rods which were purchased by the Petitioner had suffered sales tax, the same could not be realised from the sale of wires.

12. It requires to be noticed that the Supreme Court in Telengana Steel Industries (supra) In Telengana Steel Industries (supra) observed that it did not propose to decide whether iron wires are separate commercial goods from iron rods from which they were produced, "by trying to answer whether they are one commercial commodity or separate." It noted that the question had arisen for consideration because the Court was concerned with a single point sales tax, which would not allow taxing the 'same commodity'. What according to the Supreme Court was the clinching factor in answering the question was that both were clubbed together in sub-item (xv) of Section 14 of the Central sales tax act, 1956 ('CST Act'). Accordingly the Supreme Court in In Telengana Steel Industries (supra) concluded that "iron wires cannot be taken as a separate taxable commodity, and, if wire rods which were purchased by the appellants had suffered sales tax, the same could not be realized from the sale of wires."

13. Subsequently, a three judge Bench of the Supreme Court in K.A. K. Anwar and Co. (supra) addressed the question whether raw hides and skins were different from dressed hides and skins. It was held that although the appellants there had purchased raw hides and skins on payment of tax, 'it will be liable to payment of sales tax in respect of dressed hides and skins' and such levy will not fall foul of Section 15 of the CST Act as the two goods were different taxable commodities. It was held that it was a trite proposition that the same goods cannot be taxed more than once. In that process while discussing the decision in Telengana Steel Industries (supra) the Supreme Court in K.A. K. Anwar and Co. (supra) noticed the judgment of the Constitution Bench of Supreme Court Hajee Abdul Shukoor and Co. v. State of Madras [1964] 8 SCR 217, where the Constitution Bench of the Supreme Court held that "hides and skins in the untanned condition are undoubtedly different as articles of merchandise than tanned hides and skins". In para 13, the Supreme Court observed as under:

"13. From the aforesaid observations it clearly follows that the Constitution Bench had, in no uncertain terms, come to the conclusion that raw hides and skins and dressed hides and skins were not one and the same commodity. Therefore, the first contention raised in the present case by the learned counsel for the appellant cannot be accepted notwithstanding the reliance by them on the aforesaid decision in the case of Telanganna Steel Industries case [1994] 93 STC 187 (SC) : (1994) Supp 2 SCC 259. It may here be noted that in none of these decisions was the attention of the learned Judges drawn to the aforesaid observations of the Constitution Bench in Hajee Abdul Shukoor's case [1964] 15 STC 719 (SC) :

[1964] 8 SCR 217." (emphasis supplied)

14. It was further observed by the Supreme Court in K.A. K. Anwar and Co. (supra) that Section 14 of the CST Act was not a taxing provision but merely classified different commodities under the same species under one entry. It was observed: 'merely because different goods or commodities are listed together in the same sub-heading or sub-items in Section 14 cannot mean that they are regarded as one and the same item."

15. Therefore, it is clear that the subsequent decision of the three- Judge Bench of the Supreme Court in K.A. K. Anwar and Co. (supra) had to prevail over the earlier two Judge Bench decision in Telengana Steel Industries (supra).

16. However, in the instant case, the Tribunal has sought to distinguish K.A.K. Anwar and Co. (supra) on a rather strange reasoning that "it was no way helpful to the dealer". This is no way to distinguish a binding judgment of the larger Bench of Supreme Court. Consequently, the Tribunal fell in error in proceeding to rely exclusively on the decision in Telengana Steel Industries (supra).

17. Mr. Sahoo is right in contending that the sales tax authorities cannot ignore the DIC certificate issued in favour of the Petitioner expressly granting it exemption from payment of sales tax on M.S.Wires produced from M.S. Rods as raw material. The decision in Vadilal Chemicals Ltd. (supra) is instructive in this regard. In similar circumstances in that case, the Supreme Court disapproved the approach of the sales tax authorities seeking to override the exemption granted by the Department of Industries and Commerce. It was held that the Deputy Commissioner of Commercial Taxes (DCCT) "certainly could not assume that the exemption was wrongly granted nor did he have the jurisdiction under Section 20 of the State Act to go behind the eligibility certificate and embark upon a fresh enquiry with regard to the appellant's eligibility for the grant of the benefits. The counter affidavit filed by the respondents-sales tax authorities is telling. It is said that the Sales Tax Department had decided to cancel the eligibility certificates for sales tax incentives. As we have said the eligibility certificates were issued by the Department of Industries and Commerce and could not be cancelled by the Sales Tax Authorities. [See in this connection Apollo Tyres Ltd. v. CIT (2002) 9 SCC."

18. It was then contended by Mr. Mishra, learned Additional Standing Counsel that once the period of exemption came to an end on 31st March, 2000, the Petitioner had itself been contending to the contrary and on the basis of the decision in in Telengana Steel Industries (supra) was seeking to avoid payment of tax on the finished product viz., M.S. Wires since it had already paid sales tax on M.S. rods.

19. As rightly pointed out by Mr. Sahoo, learned Senior Counsel for the Petitioner, we are in the instant case concerned with AY 1997-98. The STO, the ACST and the Tribunal were called upon to answer the question whether for the said AY the Petitioner could avail the sales tax exemption on the strength of the DIC certificate and whether it fulfilled the conditions therein? The fact that in a subsequent year, from 1st April 2000 onwards, when such exemption was no longer available, the Petitioner took a different stand cannot deprive the Petitioner from getting exemption for AY 1997-98 in terms of the certificate of the DIC. The tax liability for each AY had to be decided on the law prevailing in that AY and if for such AY the Petitioner fulfilled the condition for getting tax exemption, then such benefit could not be denied to it. Indeed, this Court in SREI International Finance Ltd. (supra) observed thus:

"Liability to pay tax has always to be imposed by law: it cannot be imposed on admission. Article 265 of the Constitution is very clear on this point."

20. As far as the decisions cited by Mr. Mishra, learned Additional Standing Counsel are concerned, they would be relevant if the question was whether drawing of M.S. Wires from M.S. Rods amounts to manufacture. Here that is not the question. The only question is whether for the AY in question viz., 1997-98 the Petitioner's products i.e. M.S. Wires which is admittedly manufactured from M.S. Rods would be amenable to sales tax exemption in terms of the certificate dated 26th November, 1996 issued by the DIC, Bhubaneswar subject to fulfilling the

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conditions therein. The answer to that question, in our considered view, has to be in the affirmative. 21. Consequently, the orders passed by the STO, the ACST and the Tribunal are accordingly set aside. 22. The amount deposited by the Petitioner in this Court pursuant to the order dated 19th May, 2006 will be refunded to it in accordance with law not later than eight weeks from today. 23. The questions of law framed are answered thus: (i) question (a) is answered in the negative by holding that the Tribunal is not justified in holding that the Petitioner was not entitled to exemption since M.S. Wires and M.S. Rods are different commodities. (ii) Consequently, question (b) is answered in the negative by holding that the consequential addition of the purchase value of M.S. Rods in the gross turnover and tax turnover of the Petitioner in the assessment order in question cannot be justified and is hereby set aside. 24. The reference is accordingly decided in favour of the Petitioner Assessee and against the Opposite Party (Department). 25. The revision petition is disposed of in the above terms. 26. As the restrictions due to resurgence of COVID-19 situation are continuing, learned counsel for the parties may utilize a printout of the order available in the High Court's website, at par with certified copy, subject to attestation by the concerned advocate, in the manner prescribed vide Court's Notice No.4587, dated 25th March, 2020 as modified by Court's Notice No.4798, dated 15th April, 2021.
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