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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)

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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

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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, Meerut5.

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 Industries6 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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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