NIRMA LTD Vs. COMMISSIONER OF SALES TAX

JUDGEMENT

(1.) BY filing this petition under Article 226 of the Constitution, the petitioners have prayed to issue a writ of mandamus or any other appropriate writ or order to declare, that notice dated March 1, 2005 issued by the Deputy Commissioner of Sales-Tax, Corporate Cell, Gujarat State, Ahmedabad, calling upon the petitioner No. 1 to show cause as to why the transaction of supply of Linear Alkyl Benzene Fuels by M/s. I. O. C. Limited to the petitioner No. 1, and the transaction of supply of the processed S. K. O. by the petitioner No. 1 to I. O. C. Limited, be not treated as sales and value thereof be not subjected to tax under the provisions of the Gujarat Sales-Tax Act, 1969, is without authority of law, arbitrary, irrational, unjustified, untenable in law and on the facts as well as violative of the provisions of Articles 14, 19 (1) (g) and 300a of the Constitution. The petitioners have further prayed to issue a writ of mandamus to declare that the transactions of receiving LABFS (SKO) and returning the same after extraction of 15% to 20% do not amount to sales as defined in Section 2 (28) of the Gujarat Sales-Tax Act, 1969 [?the Act? for short), except in respect of the quantity retained by the petitioner No. 1-Company. The petitioners have also prayed to issue a writ of prohibition restraining the respondents permanently from proceeding further with and/or from adjudicating and deciding the impugned show-cause notice dated March 1, 2005 produced at Annexure-A to the petition and/or from passing any order pursuant to and in connection with the said notice and subsequent intimations dated March 16, 2006 and/or March 31, 2006. The petitioners have also prayed to issue a writ of certiorari to quash the show-cause notice dated March 1, 2005 as well as the subsequent intimations dated March 16, 2006 and March 31, 2006.

(2.) THE petitioner No. 1 i. e. M/s. Nirma Limited is a Company registered under the provisions of the Companies Act, 1956. One of its Plants is situated at Alindra wherein Linear Alkyl Benzene Fuels (LAB), detergent powder, detergent cakes etc. are being manufactured. The Alindra Plant of the petitioner No. 1 is purchasing Superior Kerosene Oil (LABFS) from M/s. I. O. C. Limited, Vadodara through dedicated pipelines from the refinery of M/s. I. O. C. Limited as per the agreement dated March 14, 1998 entered into between them. The S. K. O. received by the petitioner No. 1 is used for manufacturing normal paraffin in Alindra Plant. After extracting normal paraffin, the petitioner No. 1 gives back/returns residue of S. K. O. to M/s. I. O. C. Limited, Vadodara. With respect to such transaction, the petitioner No. 1 treats purchase of S. K. O. only to the extent of S. K. O. consumed in extracting normal paraffin and in respect of remaining S. K. O. returned to M/s. I. O. C. Limited, the petitioner No. 1 is claiming the said quantity as goods returned under Rule-4 of the Gujarat Sales-Tax Rules, 1970 [the Rules? for short]. On January 1, 2005, a surprise visit was carried out at Alindra Plant by the officers discharging duties in the Office of the Deputy Commissioner of Sales-Tax, Corporate Cell, Ahmedabad. During the surprise visit, copies of various documents were collected for verification. Thereafter, notice in Form-45 was issued to the petitioner No. 1 calling for further information and clarification. In response to the notice in Form-45, the petitioner No. 1 submitted some details and clarifications vide letter dated January 10, 2005 and January 28, 2005. The Deputy Commissioner of Sales-Tax, Corporate Cell, Gujarat State, Ahmedabad, perused the aforesaid documents as well as information and clarifications supplied by the petitioners and after examining the legal provisions as well as nature of transactions between the petitioner No. 1 and M/s. I. O. C. Limited, found prima facie that the transaction of supply of Linear Alkyl Benzene Fuels by M/s,i. O. C. Limited to the petitioner as well as the transaction of processed S. K. O. supplied by the petitioner No. 1 to M/s. I. O. C. Limited are sales within the meaning of Section 4 of the Sale of Goods Act, 1930. He also noticed that the petitioner No. 1, after receiving the goods, is consuming the goods in processing, which clearly indicates acceptance of goods as defined in Section 42 of the Sale of Goods Act, 1930. According to the Deputy Commissioner of Sales-Tax, Ahmedabad, the petitioner No. 1 and M/s. I. O. C. Limited have given nomenclature to such transaction as ?return of goods?, which is contrary to Rule-4 of the Rules because goods sold and goods returned are different products, as normal paraffin is missing in the returned goods. In the alternative, he was of the view that the claim for goods returned cannot be allowed in view of the decision of Kerala High Court in case of Grasim Industries Limited (1996 STC 285) where it is held that a return of the left over after use cannot be equated with the goods purchased and returned and the return should be of goods of the same nature and quality as those supplied. The Deputy Commissioner of Sales-Tax noticed that determination made by the Deputy Commissioner of Sales-Tax, Gujarat State under Section 62 of the Act on March 26, 1980 in the case of M/s. I. O. C. Limited was not applicable to the supply of S. K. O. by M/s. I. O. C. Limited to the petitioner No. 1 and supply of Linear Alkyl Benzene Fuels by the petitioner No. 1 to M/s. I. O. C. Limited because the language employed in the agreement dated March 14, 1998 entered into between the petitioner No. 1 and M/s. I. O. C. Limited is quite different and peculiar. It was also noticed by him that goods sold and goods returned were not having identical ingredients though prices for goods sold and goods returned might have been the same. In view of these tentative findings, the Deputy Commissioner of Sales-Tax, Corporate Cell, Gujarat State, Ahmedabad issued notice dated March 1, 2005 calling upon the petitioner No. 1 to show cause as to why the transaction of supply of Linear Alkyl Benzene Fuels by M/s. I. O. C. Limited to the petitioner No. 1 and the transaction of processed S. K. O. supplied by the petitioner No. 1 to M/s. I. O. C. Limited be not treated as sales and value thereof be not subjected to tax under the provisions of the Gujarat Sales Tax Act, 1969, giving rise to the instant petition.

(3.) THE claim of the petitioners is that the S. K. O. is supplied by I. O. C. Limited to the petitioner No. 1 through pipeline, for which M/s. I. O. C. Limited raises invoices for the gross quantity and after part of S. K. O. supplied is used in manufacture of normal paraffin, the residue of S. K. O. is returned by the petitioner No. 1 to M/s. I. O. C. Limited through another pipeline, for which the petitioner No. 1 also raises invoices on M/s. I. O. C. Limited and as sale of S. K. O. within the meaning of Section 4 of the Sale of Goods Act, 1930 does not take place, notice impugned in the petition should be regarded as without jurisdiction and should be set aside. The petitioners have averred that excise is payable by the petitioner No. 1 on the net quantity of S. K. O. consumed by the petitioner No. 1 and, therefore, the transaction of supply of Linear Alkyl Benzene Fuels by M/s. I. O. C. Limited to the petitioner No. 1 and the transaction of supply of processed S. K. O. by the petitioner No. 1 to M/s. I. O. C. Limited cannot be treated as sales, nor value thereof be subjected to tax under the provisions of the Act. What is maintained by the petitioners is that there was a similar arrangement between M/s. I. O. C. Limited and Indian Petro-Chemicals Limited regarding which determination was made by the Deputy Commissioner of Sales-Tax under Section 62 of the Act and as the determination made under Section 62 of the Act is binding on the respondent No. 2, the impugned notice, which is issued without jurisdiction, should be set aside. According to the petitioners, final decision in the matter of liability of payment of tax by the petitioners is already taken by the Deputy Commissioner of Sales-Tax, Ahmedabad, which is quite evident from the perusal of the impugned notice and, therefore, the same deserves to be quashed. It is claimed by the petitioners that the Indian Petro-Chemicals Limited and Reliance Industries are not called upon to show cause as to why supply of LABFS and return of goods be not treated as sales and subjected to tax under the provisions of the Act, which is discriminatory and violative of the principles enshrined in Article 14 of the Constitution. Under the circumstances, the petitioners have filed the instant petition and claimed reliefs to which reference is made earlier.