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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10430 OF 2016

(@ S.L.P. (Civil) No. 28962 of 2013)

Commissioner of Commercial Tax, U.P. …Appellant

Versus

M/s Oswal Greentech Limited …Respondent

J U D G M E N T

Dipak Misra, J.

Leave granted.

2.The respondent, a dealer registered under Section 8-A of

the U.P. Trade Tax Act, 1948 (for brevity, “the Act”), is a holder

of a recognition certificate as per provisions contained in

Section 4-B of the Act. The respondent used to make

purchases of raw material at the concessional rate of tax

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against Form III-B obtained by it from the office of the Trade

Tax Officer. As per conditions prescribed under Section 4-B(2)

of the Act, the notified goods manufactured out of the raw

material produced at the concessional rate of tax against Form

III-B is required to be sold by such manufacturer in the State

or in the course of inter-State trade and commerce or in the

course of export out of India. It is also provided in the said

Section that if a recognition certificate holder sells goods

manufactured by it out of the raw material purchased at the

concessional rate of tax against Form III-B in a manner

otherwise than prescribed under Section 4-B(2), the said

dealer shall be liable to penal action equal to three times of the

tax, thus saved by the said dealer on purchase made against

Form III-B.

3.At the time of scrutiny, the assessing authority noticed

that the respondent had made purchases of natural gas

against Form III-B at the concessional rate of tax, and after

manufacture of the notified goods, that is, fertilizers, out of the

said purchases of natural gas purchased against Form III-B,

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some of the finished goods were transferred outside the State

of Uttar Pradesh. The Revenue issued show cause notice to

the respondent for the assessment year 2005-06 and after

considering the explanation offered, imposed penalty of

Rs.10,46.98,335/- vide order dated 28.03.2009. Being

aggrieved, the respondent preferred an appeal under Section 9

of the Act before the Joint Commissioner (Appeals)-1,

Commercial Tax, Bareilly being Appeal No. 798 of 2009, and

the appellate authority vide its order dated 12.11.2009

dismissed the appeal and confirmed the order of the assessing

authority dated 28.03.2009 passed under Section 3-B of the

Act.

4.The dismissal of appeal constrained the respondent to file

a second appeal (Appeal No. 237 of 2009) before the Tribunal,

Trade Tax, U.P. (for short, “tribunal”). Since there was

difference of opinion in the Division Bench of the tribunal, the

case was referred to the Chairman of the tribunal who

nominated another Judicial Member for his opinion. The

learned Judicial Member gave his opinion in favour of the

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respondent. On the basis of the opinion expressed by the

nominated Judicial Member, the appeal stood allowed as a

consequence of which the order imposing penalty was

annulled.

5. Being aggrieved by the order of the tribunal, the Revenue

filed Trade Tax Revision No. 579 of 2011 under Section 11 of

the Act before the High Court. The question of law that arose

for consideration before the High Court was as follows:-

“Whether under the facts and circumstances of the

case, the Commercial Tax Tribunal were legally

justified in granting the exemption on purchase of

raw material against Form III-B whereas the dealer

has made a stock transfer of finished goods which is

not permissible under law?”

6. The learned Single Judge took note of the fact that the

tribunal had relied on a Division Bench decision of the High

Court in Camphor and Allied Products Ltd. v. State of U.P.

& Ors.

1

and on that basis had come to the conclusion that the

assessee had purchased the material and used it in

manufacture and there was no violation of Section 3-B of the

1

(2005 ) 139 STC 380 (All)

Page 5 5

Act and accordingly concurred with the view of the tribunal as

a result of which the revision stood dismissed.

7.We have heard Mr. Pawanshree Agrawal and Mr. Rajeev

Dubey, learned counsel for the appellant and Mr. Punit Dutt

Tyagi for the respondent.

8.It is profitable to refer to the findings recorded by the

assessing officer. It has been held by him that under Section

3-B and 4-B(2) of the Act, the finished product manufactured

from the raw material purchased at a concessional rate can

only be sold in U.P. or in the course of inter-State trade and

commerce or can be exported out of country, but stock

transfer is not permissible. According to the assessing officer,

the trader had purchased natural gas at a concessional rate

against Form III-B i.e. 20% minus 15% = 5%, availing the

benefit at the rate of 15% and paying tax at the rate of 5%.

The production of urea has been done by using the natural

gas obtained at a concessional rate and the manufactured

product, that is, urea has been sent by way of stock transfer

outside the State in clear violation of Section 3-B and 4-B(2) of

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the Act. It has been further opined by him that the assessee

had acted contrary to the provision of law by purchasing raw

material at a concessional rate and thereafter sending the

finished goods as stock transfer outside the State which does

not come under the term ‘sale’ and no revenue is generated by

the State. Proceeding further, the assessing officer has held

thus:-

“The trader without acting under the provisions of

the Section 3B and 4B(2) of the Uttar Pradesh Trade

Tax Act, had caused loss of revenue to the State.

The State had lost revenue at the rate of 15% on the

purchase of raw material used in the produced

goods sent as stock transfer, which could have

received had these were not purchased against

Form 3B. Because the tax has been paid at the rate

of 5% against form 3B. Had the trader not declared

false declaration against Form 3B, and had acted as

per the provision of Section 4B(2), then the State

Government could have got 20% as Tax and 1% as

development tax totaling 21%. The local purchase

of natural gas could have been made without form

3B. But the trader had not acted under the

provisions of Section 3B. The trader had not also

acted u/s 4B (2) which he had declared to act when

taking the forms 3B. Hence, the raw material

purchased at a concessional rate were utilized in

the manufacturing of the notified finished product

(Urea), but instead of making any sale (within and

outside the State) and without exporting those

outside the country, had made stock transfers,

thereby had violated Section 4B(2) of the Act. By

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making false declaration u/s 3B of the Act, the

trader had only deposited tax on the purchase of

raw material (Natural Gas) at the rate of 5% only

and availed the benefit of 15%. On the other hand

without taking any action u/s 4B (2) of the Act, had

made stock transfer outside the State, as a result of

which had saved tax @ 7.5% apart from the

development tax on Urea. As such the trader was

able to evade tax @ 22.5% in an illegal manner and

thereby had caused double loss of revenue to the

State.”

9.The appellate authority, as the order would reflect, has

expressed the view that the assessee, after availing the benefit

at the concessional rate, has violated the provisions contained

in Section 4B(2) of the Act and has been making stock

transfers quite often. The appellate authority has opined that

the principle stated in the authorities in Camphor and Allied

Products Ltd. (supra), Bareilly v. State of U.P.

2

, CTT v.

Manoharlal Heeralal Pvt. Ltd.

3

are different and not

applicable to the facts of the case.

10.The opinion of the tribunal, as expressed by the judicial

member, which is the final view of the tribunal, is that the

trader was authorized to purchase the natural gas for the

2

2004 UPTC 331

3

2006 NTN, Vol. 29 page 223

Page 8 8

manufacture of urea and it is undisputed that it had

manufactured urea by utilizing the natural gas purchased

against the issue of Form III-B. He has proceeded to state that

no action can be taken under Section 3-B on the ground that

the products utilizing the natural gas purchased against the

issue of Form III-B were sent through stock transfer without

selling those directly, because Section 4-B of the Act cannot be

extended to determine the responsibility under Section 3-B.

The judicial member has arrived at the said conclusion on the

foundation that Section 4-B has nothing to do with the fact

that how the notified goods are to be disposed of because the

provision of Section 3-B is not applicable in case the raw

material is used for production of the notified goods mentioned

in the recognition certificate. The learned member has

expressed the view that the decisions in Camphor and Allied

Products Ltd. (supra) and Bareilly (supra) are fully

applicable and the case of the assessee is covered by the

principles stated therein. He also took note of the fact that the

decisions in Camphor and Allied Products Ltd. (supra),

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Bareilly (supra) and Manoharlal Heeralal (supra) have not

been assailed before the Supreme Court and, therefore, they

are binding precedents in the field. Eventually, the learned

member came to hold thus:-

“In the present case it is established that the trader

had utilized natural gas purchased against the

Form 3B in the production of the ‘Urea’. As such, in

my opinion, proceeding u/s 3B should not have

been initiated against the trader. The order which

has been passed by the assessing officer u/s 3B of

the Act and which has been confirmed by the first

appellate court, are not justified.”

11.To appreciate the controversy in proper perspective and

to scrutinize the analysis of the departmental authorities on

one hand and the tribunal and the High Court on the other, it

is necessary to scan the statutory scheme and its real import.

Section 3-B of the Act reads as follows:-

"Section 3-B. Liability on issuing false certificate,

etc.-Notwithstanding anything to the contrary

contained elsewhere in this Act, and without

prejudice to the provisions of Sections 14 and 15-A,

a person, who issues a false or wrong certificate or

declaration, prescribed under any provision of this

Act or the Rules framed thereunder, to another

person by reason of which a tax leviable under this

Act on the transaction of purchase or sale made

with or by such other person ceases to be leviable or

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becomes leviable at a concessional rate, shall be

liable to pay on such transaction an amount which

would have been payable as tax on such transaction

had such certificate or declaration not been issued :

Provided that before taking any action under this

section, the person concerned shall be given an

opportunity of being heard.

Explanation.-Where a person issuing a certificate or

declaration discloses therein his intention to use the

goods purchased by him for such purpose as will

make the tax not leviable or leviable at a

concessional rate but uses the same for a purpose

other than such purpose, the certificate or

declaration shall, for the purpose of this section, be

deemed to be wrong."

[Emphasis supplied]

12.Section 4-B(2) and 4-B(6) of the Act which are relevant to

the controversy at hand and further on which the Revenue has

laid immense emphasis are extracted hereunder:-

“(2)Where a dealer requires any goods, referred to

in sub-section (1) for use in the manufacture by

him, in the State of any notified goods, or in the

packing of such notified goods manufactured or

processed by him, and such notified goods are

intended to be sold by him in the State or in the

course of inter-State trade or commerce or in the

course of export out of India, he may apply to the

assessing authority in such form and manner and

within such period as may be prescribed, for the

grant of a recognition certificate in respect thereof,

and if the applicant satisfies such requirements

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including requirement of depositing late fee and

conditions as may be prescribed, the assessing

authority shall grant to him in respect of such

goods a recognition certificate in such form and

subject to such conditions, as may be prescribed.

Explanation.-For the purposes of this

sub-section,-(a) goods required for use in the

manufacture shall mean raw materials, processing

materials, machinery, plant, equipment,

consumable stores, spare parts, accessories,

components, sub-assemblies, fuels or lubricants ;

and

(b)‘notified goods’ means such goods as may,

from time to time, be notified by the State

Government in that behalf.

xxxx xxxxx

(6) Where a dealer in whose favour a recognition

certificate has been granted under sub-section (2)

has purchased any goods after payment of tax at

concessional rate under this section, or as the case

may be, without payment of tax and the goods

manufactured out of such raw materials or

processing materials or manufactured goods after

being packed with such packing material are sold or

disposed of otherwise than by way of sale in the

State or in the course of inter-State trade or

commerce or in the course of export out of the

territory of India, such dealer shall be liable to pay

an amount equal to the difference between the

amount of tax on the sale or purchase of such goods

payable under this section and the amount of tax

calculated at the rate of four per cent, on the sale or

purchase of such goods."

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13.It is submitted by Mr. Agrawal, learned counsel for the

appellant that recognition certificate is granted where a dealer

uses the goods (raw material) in the manufacture of notified

goods by him in the State or in the course of inter-State trade

and commerce or in the course of export outside India and the

fulfillment of aforesaid two conditions is a pre-requisite for

claiming exemption, but in the case at hand, the assessee

though has purchased the goods at concessional rate by

furnishing Form III-B under Rule 25-B(1) has engaged itself in

stock transfer and, therefore, the penal provisions gets fully

attracted. Relying on sub-section (6) of Section 4-B, it is urged

by him as no differential tax has been paid by the assessee,

certificate in Form III-B continues to be a false or a wrong

certificate as regards the purchase of natural gas and used in

the manufacture of urea, hence the penalty has been correctly

levied. It is his further submission that decision in Camphor

and Allied Products Ltd. (supra) is not applicable to the facts

of the present case, for in the said case the camphor

manufactured by the assessee was transferred by way of stock

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transfer outside the State of U.P. on which the differential tax

was paid in accordance with Section 4-B(6) of the Act, but in

the present case, no differential tax has been paid by the

respondent, and such violation as a natural corollary leads to

the inevitable conclusion that the certificate in Form III-B

continues to be a false or wrong certificate. Lastly, it is

contended by him that the Division Bench of the High Court

has not correctly laid down the law in Camphor and Allied

Products Ltd. (supra) inasmuch as it has confined its

consideration to the first part of condition enshrined under

Section 4-B(2) of the Act, whether the raw material has been

used in the manufacture or not, but has not considered the

second part, that is, the goods had been sold intra-State or

inter-State or exported out of India.

14.Mr. Tyagi, learned counsel for the assessee, per contra,

would contend that the respondent-assessee is engaged in the

manufacture and sale of fertilizer and as per the recognition

certificate, it is entitled to procure natural gas at a

concessional rate and the respondent has procured natural

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gas from two sources (1) from GAIL at a concessional rate

against Form III-B and (2) from outside the State from

BPCL/GAIL at normal tax. Learned counsel would submit

that the respondent has disposed of urea by local sale and has

also transferred the stock to various States which have been

pursuant to and in compliance of Movement Orders issued by

the Government of India from time to time. He has referred to

directions issued by the Ministry of Chemicals & Fertilizers

under the Fertilizer (Movement Control) Order, 1973. It is

urged by him that as per the Fertilizer (Movement Control)

Order, 1973 unless the Government of India authorizes a

manufacturer to make stock transfer of a particular quantity

of urea in a particular month, no urea can be transferred/sold

from one State to another. Learned counsel would put forth

that the State never disputed the stock transfers made under

Fertilizer (Movement Control) Order, 1973. Learned counsel

would further propone that show cause notice was issued

under Section 3-B for alleged violation of Form III-B and it

cannot change the foundation to raise a fresh plea under

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Section 4-B(6) of the Act. It is further urged by Mr. Tyagi that

the pronouncement in Camphor and Allied Products Ltd.

(supra) is absolutely correct and, in fact, it has been holding

the field for considerable length of time as far as the State of

U.P. is concerned. To substantiate the contentions he has

raised, he has placed reliance on CCE v. Gas Authority of

India Ltd.

4

and SACI Allied Products Ltd. v. CCE, Meerut

5

.

Though Mr. Tyagi has contended with regard to limitation in

exercise of revisional jurisdiction and the bar on the part of

revenue to accept the judgment on the same question in the

case of one assessee and question its correctness in the case

of another assessee and in support of the same has cited

certain authorities, we need not enter into the said arena, for

what we are going to hold.

15.In Camphor and Allied Products Ltd. (supra) the High

Court took note of the fact that the RFO and furnace oil was

purchased against Form III-B and the same was used in the

manufacture of camphor and other goods mentioned in the

4

2008 (232) ELT 7 (SC)

5

2005 (183) ELT 225 (SC)

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recognition certificate granted under Section 4-B of the Act. It

took note of the two earlier decisions in Commissioner of

Trade Tax v. Spox India and Allied Industries

6

and Arora

Steel Udyog (P) Ltd. v Commissioner of Trade Tax, U.P.

7

and quoted a passage from the latter authority, which is to the

following effect:-

"It is well-settled that proceedings under Section

3-B shall be initiated only when the assessee issues

a false or wrong certificate or declaration provided

under any of the provisions under the Act or Rules

framed thereunder. This view has been constantly

taken by this Court in Sahni Engineering Works v.

Commissioner of Sales Tax 1994 UPTC

70, Commissioner of Sales Tax v. B.K. & Co.

Engineering Works, Agra 1995 UPTC 502 and S.G.

Industries v. State of Uttar Pradesh [1998] 108 STC

328; 1997 UPTC 616 of this Court. Therefore,

unless it was shown that the form III-B issued by

the revisionist were false or wrong, or the

declarations made therein was false or wrong, no

proceedings under Section 3-B of the Act could have

been initiated. It is also not the case of the

department that the assessee did not use the goods

purchased by him for the purpose for which

exemption certificate was granted to him. Therefore,

the assessee cannot be deemed to have issued a

wrong certificate."

6

1998 UPTC 631

7

1999 UPTC 277

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It also took note of the decision relied upon by the

Revenue in Puri Industries v. Commissioner of Sales Tax

8

,

which took a different view and thereafter came to hold as

follows:-

“28. The petitioner purchased RFO/furnace oil

against form III-B for manufacture of its final

product, namely, camphor and other allied

products. Section 3-B clearly shows that it is the

user of the goods which is relevant for the purpose

for which form III-B was given and not how the

finished product or manufactured goods are sold.

Admittedly form III-B was issued for use in

manufacture of camphor and other allied products

and RFO/furnace oil for which the recognition

certificate was granted. Hence in our opinion the

petitioner cannot be deemed to have issued any

wrong or false certificate and tax cannot be legally

charged under Section 3-B of the Act.

xxxxx xxxxx

31. In the present case RFO and furnace oil have

admittedly been used in the manufacture of

camphor and allied products for which recognition

certificate was granted. Hence it cannot be deemed

that the petitioner has issued any wrong or false

certificate. It is evident from the facts that the

petitioner has not issued any wrong or false

certificate or declaration in form III-B inasmuch as

both RFO and furnace oil have been used for the

same purpose, namely, in the process of

8

1988 UPTC 1197

Page 18 18

manufacture of goods, i.e., camphor, and another

allied products.”

16.We have already analysed the statutory scheme and what

has been dwelt with by the High Court in Camphor and

Allied Products Ltd. (supra) and what has been pressed into

service by Mr. Tyagi. Presently, text and context in detail.

Section 4-B(2) is applicable to the dealer who manufactures

notified goods in the State or engaged in packaging of such

notified goods manufactured or processed by him. The said

dealer can apply to the assessing authority in such form,

manner and within the time prescribed for grant of the

recognition certificate. The assessing authority can grant the

recognition certificate to the dealer in respect of goods used in

the manufacture of the notified goods or packing of the

notified Goods.Explanation to the sub-section defines the

word “Goods” which means raw materials, processing

material, machinery, spare parts and also fuels. The

expression “Notified Goods” means such goods as notified by

the State government from time to time.

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17.Sub-section (2) to Section 4-B also requires that the

notified goods should be “intended” to be sold by the dealer

within the State or in the course of inter-State trade or

commerce or in the course of exports out of India. The

expression “intended” is significant and important. It refers to

the intention of the dealer after the goods are manufactured

and packed. The expression “in the course inter-State trade or

commerce” is quite broad and wide. An issue may arise as to

whether the stock transfer outside the State in terms of

directions issued by the Central Government can be

considered as sale or transaction in the course of inter-State

trade or commerce. In the case at hand, we would not decide

the said issue or question, for it was not raised or argued

before the authorities and can be examined in an appropriate

case when raised and considered. Be it noted, sub-section (6)

is a specific provision which deals with the case of the dealer

who has been issued the recognition certificate and has

purchased goods without payment of tax or at concessional

rates, but has sold the manufactured goods or packaged goods

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otherwise than by way of sale in the State, or in the course of

inter-State trade or commerce or export out of India. The

provision specifically deals with cases where the dealer

manufactures or packs the notified goods and has taken

benefit of lower/concessional or nil rate of tax on the raw

material but is unable to fulfill the intendment, i.e., he has not

been able to sell the notified goods by way of sale within the

State or in course of inter-State state or commerce or by way

of export. In such cases, the dealer is liable to pay the amount

of difference on the amount of sale or purchase of such goods

on which concession or nil rate of tax was paid on account of

issue of the requirement certificate and the amount of tax

calculated @ 4%. The sub-section is a particular and a

specific section which deals with and specifies the

consequences when the dealer is unable to meet and comply

with intendment. The sub-section (6) would, thus, be

applicable.

18.Section 3-B undoubtedly commences with a

non-obstante clause, but the provision has to be read

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harmoniously with sub-section (6) to Section 4-B. Any other

interpretation would make sub-section (6) a dead letter, for if

we accept the plea of the Revenue whenever there is violation

or failure to abide with the “intendment”, Section 3-B would be

invoked and applied, not sub-section(6) to Section 4-B. Section

3-B would apply when a false and wrong certificate or

declaration is made. Sub-section (6) on the other hand, deals

with cases where the dealer is unable to comply with the

intendment, i.e., for some reason he is unable to sell the goods

within the State, export them or sell them in the course of

inter-State trade or commerce. Intendment of the said nature

has not been treated as false or wrong declaration as

consequences have been prescribed in sub-section (6). It is

essential to be stated that consistency and certainty in tax

matters is necessary. In cases relating to “Indirect Taxation”,

this principle is even more important. Clarity in this regard is

a necessity and the interpretative vision should be same.

19.In view of the aforesaid analysis, we find the view

expressed by the tribunal which has been concurred by the

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High Court is absolutely defensible and does not warrant any

interference. Resultantly, the appeal, being devoid of merit,

stands dismissed. There shall be no order as to costs.

…….……….............J.

(DIPAK MISRA)

….……………………..J.

(SHIVA KIRTI SINGH)

New Delhi,

October 28, 2016