AMAR DYE CHEM LIMITED Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) The applicants carry on business of manufacturing various types of dyes and chemicals. They are registered as dealers under the Bombay Sales Tax Act, 1959 (hereinafter for the sake of brevity referred to as "the Act"). During the period 1st January, 1965, to 31st December, 1965, the applicants purchased raw materials for the purpose of the manufacturing business carried on by them. Out of the quantity of raw materials purchased by them, raw materials of the aggregate value of Rs. 10,56,643 were purchased by the applicants by giving certificates in form 15 prescribed under the Bombay Sales Tax Rules, 1959, to the effect that the goods so purchased would be used by them for the manufacture of taxable goods which would be sold by them and that such sales would not take place outside the State of Maharashtra. For the purposes of the said certificates a sale in the course of inter-State trade or commerce, or in the course of the export of the goods out of the territory of India, where such sale occasioned the movement of the goods from the State of Maharashtra, is to be considered as a sale within the State of Maharashtra. By reason of the aforesaid certificates given by the applicants to their vendors, the sales of raw materials covered by the said certificates made by the applicants' vendors to the applicants were eligible to tax at a reduced rate. During the said period, the applicants also purchased machinery of the aggregate value of Rs. 12,74,412 by giving certificates in form 15. The applicants had also purchased raw materials of the aggregate value of Rs. 36,01,414 otherwise than against certificates in form 15. The applicants also have branches outside the State of Maharashtra. They despatched to their said branches outside the State about one-third quantity of the total goods manufactured by them, the remaining quantity being sold by them in terms of the certificates in form 15 given by them. The goods transferred by the applicants to their branches outside the State were sold by the said branches and such sales were, therefore, outside-State sales and in breach of the certificates in form 15 given by the applicants. The applicants did not keep any separate account of the raw materials purchased by them against certificates in form 15 and the products manufactured out of the stock of such raw materials, the reason being that from the nature of things it would not have been possible for them to have maintained such accounts because it would be well-nigh impossible to pinpoint in what manner each item of manufactured goods was disposed of - whether by sale or transfer to a branch outside the State.

(2.) In the assessment of the applicants for the aforesaid period, the applicants contended that if the quantum or percentage of the total purchases made by them against certificates in form 15 were compared to the total sales made by them (i.e., without considering the goods transferred to their branches outside the State), there would be no infraction of any of the certificates in form 15 given by them because the entire quantity of raw materials purchased by them against certificates in form 15 would be less than the total sales, and that therefore, the applicants had not become liable to pay any purchase tax under section 14 of the Act to the extent of the percentage by which the tax payable on the sales of raw materials to the applicants had become reduced.

(3.) In cases such as the above, the practice followed by the department was to take the percentage of sales made by an assessee against certificates in form 15 as against the total disposals by an assessee of the goods manufactured, that is to say, the percentage of goods so sold as compared to the goods sold as also despatched to the assessee's branches outside the State, and to the extent of the ratio thus arrived at, to disallow an identical percentage of purchases of raw materials made by an assessee against certificates in form 15. The Sales Tax Officer, thus, held that the quantum of the total sales made by the assessees, including the branch transfers made by them, to be of the value Rs. 3,09,84,562, out of which he deducted the value of the goods returned to the applicants by their purchasers and arrived at the net total of Rs. 3,08,06,869. As out of this, goods of the aggregate value of Rs. 1,02,82,887 were transferred by the applicants to their branches outside the State, the proportion of the value of such goods so transferred as compared to the value of the net total sales amounted to 33.37 per cent. The Sales Tax Officer, therefore, disallowed an identical percentage of the purchases of raw materials by the applicants against certificates in form 15, viz., purchases of the value of Rs. 3,52,597 and held that the said purchases were exigible to purchase tax at the rate of 3 per cent. The assessment order was passed by the Sales Tax Officer on 2nd May, 1969.