GAEKWAR MILLS LTD Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THIS reference arises out of the assessment of sales tax for the calendar years 1965 and 1966. During the course of the said assessment, the sales tax authorities have imposed penalty under section 10a of the Central Sales Tax Act, 1956, which is hereinafter referred to as "the Act", on the footing that the applicant-assessee has failed, without reasonable excuse, to make use of the goods for the purpose mentioned in clause (b) of sub-section (3) of section 8 of the Act. The Tribunal has, in this reference, referred the following two questions for our opinion : " (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no reasonable excuse on the part of the applicant within the meaning of section 10 (d) of the Central Sales Tax Act, 1956, and thereby confirming the imposition of penalty under section 10a of the Central Sales Tax Act, 1956, though the penalty was reduced to certain extent ? (ii) Whether, on a true construction of section 10a of the Central Sales Tax Act, 1956, the Tribunal was justified in rejecting the contention of the applicant that the maximum penalty that could be levied under section 10a of the Central Sales Tax Act, 1956, was 3 per cent up to 30th June, 1966, and 4. 5 per cent since 1st July, 1966 ?"

(2.) THESE two questions arise in the background of the following facts : The applicant-assessee is a limited concern, whose main business is to manufacture and sell textile goods. During the calendar years 1965 and 1966, the assessee purchased dyes and chemicals in the course of inter-State trade and commerce against C form declarations. A small part of the goods, (working out at 2 to 3 per cent) out of the goods purchased against C forms, was utilised by the assessee in processing cloth of outside parties. The main bulk of the goods so utilised for the outside parties was for a sister concern of the applicant-assessee, namely, the Navsari Cotton and Silk Mills Ltd. The remaining quantity was used in the processing of cloth of Messrs. High Fashion Printers, Bilimora, and Messrs. Star Trading Corporation. While making the assessment for the calendar years 1965 and 1966, the Sales Tax Officer, Navsari, held that the assessee was liable for contravention of declarations in form C in respect of that part of dyes and chemicals which was utilised by the assessee in processing the cloth of outside parties. The said officer, thereupon, assessed the value of such goods and imposed penalty for the breach of the undertaking given in the C form, under section 10a read with section 10 (d) of the Act, at the rate of 12 per cent of the estimated purchase value of the goods so utilised.

(3.) THE Sales Tax Officer has rejected the above contentions of the assessee. He has come to the conclusion that the assessee has utilised the goods purchased against C form for the purpose of processing the goods of the other parties "without reasonable excuse" and has, therefore, committed the offence contemplated by section 10 (d) and had, therefore, attracted the penalty contemplated by section 10a of the Act. THE Sales Tax Officer has further found that the penalty should be calculated at the rates contemplated by sub-section (2) of section 8 and not by sub-section (1) thereof. It is an admitted position that under sub-section (2) of section 8 of the Act, the rate of the tax was 10 per cent and, therefore, the maximum penalty, which could be levied under section 10a of the Act, would be 15 per cent, if that sub-section is applied. THE Sales Tax Officer has, however, imposed the penalty at the rate of 12 per cent.