Holding

The appellant is liable to pay the differential tax because the Bulk Premix was transferred for further processing rather than sold, breaching the declaration under the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947.

Summary

ICI India Ltd purchased ammonium nitrate liquor for making "Bulk Premix" at its Rourkela plant and declared in Form IV to obtain a concessional tax rate of 4% under the Orissa Sales Tax Act, 1947. The bulk premix, an intermediate product, was not sold but transferred to the company's other units in Orissa and outside the state for further processing into "Bulk Explosives", which were eventually sold. The Sales Tax authorities held that this transfer amounted to "any other purpose" under the fifth proviso to section 5(1) of the Act, thereby violating the declaration and attracting differential tax. The High Court upheld the assessment, and the Supreme Court dismissed the appeals, confirming that the appellant was liable to pay the differential tax.

Issues considered

Whether the transfer of an intermediate product (Bulk Premix) to other units for further processing, without its sale, violates the conditions of the concessional tax declaration under the fifth proviso to section 5(1) of the Orissa Sales Tax Act, 1947.

Legislation cited

Subjects

Sales TaxDifferential TaxConcessional RateForm IV DeclarationOrissa Sales Tax ActBulk PremixIntermediate GoodsTax LiabilityProviso 5Manufacture for Sale

Judgment

/

/
f

ICI INDIA LTD. AND ANR. A
v.
STATE OF ORISSA AND ORS.

SEPTEMBER 28., 2007
B
(DR. ARIJIT P ASAYAT AND TARUN CHATTERJEE, JJ.]

,,_
-- Orissa Sales Tax Act, 1947-s. 5(1), proviso 5-Differential tax,
payment of-When attracted-Manufacturer purchasing raw materials
for manufacture/processing of 'Bulk Premix' for sa/e.,..-Furnishing C
declaration to the effect in Form No. IV by paying concessional rate
of tax @ 40/o-However, 'Bulk Premix' transferred to its other units
in State of Orissa and outside the State for manufacture of 'Bulk
Explosive '-Held: Proviso 5 to s. 5(1) attracted-There was violation

..
~
ofthe terms ofdeclaration in Form IV since goods manufactured were D
not sold-Thus, manufacturer liable to pay differential tax payable on
raw materials purchased at concessional rate byfurnishing Form JV-
Order ofSales Tax Authorities as upheld by High Court calls.for no
interference-Orissa Sales Tax Rules, 194 7.
E
Appellant, manufacture and sale of 'Bulk Explosives', set up its
bulk emulsion premix manufacture unit at Rourkela. It was granted
certificate of registration which indicated that the appellant required
.~ amon~t others, Ammonium Nitrate to be used for manufacture/process
of'BulkPremix' for sale. Appellant purchased the principal raw material F
"Ammonium Nitrate Liquor" for manufacture/process of Bulk Premix
at its Rourkela unit for sale and gave declaration in Form No.IV to avail
the concessional rate of tax@4%. The 'Bulk Premix' so manufactured
is used for manufacture of 'Bulk Explosive' which is not manufactured
in the appellant's plant Appellant transferred the 'Bulk Premix' to its G
other branches in the State of Orissa and also outside the State for
manufacture of 'Bulk Explosive'. The Sales Tax Officer passed
Assessment Order for assessment year 1997-98 and 1998-99. It held
that the appellants had contravened the declaration given in Form IV
433 H
434 SUPREME COURT REPORTS [2007] 10 S.C.R.

A while pure.basing the raw material to avail concessional rate as provided >-
in the Orissa Sales Tax Act, 1947 and the Orissa Sales Tax Rules, 1947
and demanded differential tax as provided in the 5th Proviso to Section
5(1) of the Act on the raw material purchased. Assistant Commissioner
of Sales Tax upheld the order. Aggrieved, appellant filed writ petitions
B which were dismissed. Hence the present appeal.

Dismissing the appeals, the Court

HELD: 1.1. In the instant case, the raw material-' Ammonium
Nitrate Liquor' has been used within the State ofOrissa by the appellant
C in the manufacture of goods namely 'Bulk Premix'. But the 'Bulk
Premix' so manufactured gets further processed for the manufacture
of the final product i.e. 'Bulk Explosives' which undisputedlywas for
sale and is actually sold. [Para 7] [438-E, G]

D 1.2. The 5th proviso to s. 5(1) of the Orissa Sales Tax Act, 1947
indicates the purpose for which the goods are intended to be used i.e.
for manufacture/processing of goods for sale. The use of the expression
'within the State ofOrissa' in 5th proviso makes the position clearthat
the raw materials purchased must be used for manufacture of goods in
E the State of Orissa for sale. In the instant case, the raw material
purchased for manufacture of 'Bulk Premix', has not been used for any
other purpose. Butthe manufactured product i.e. 'Bulk Premix' has not
been sold but has been transferred to other branches of the appellant
situated inside as well as outside the State of Orissa. The Certificate of
F Registration indicates that the raw materials purchased would be utilized
in the manufacture of'Bulk Premix'. There is also a mention about
'machinery for explosive'. Though appellant contended that the same
is the mistake offact and the only thing which is intended to be produced
at the. Unit is 'Bulk Premix', and instead of selling the manufactured
G goods, it is transferred to other places for further manufacture of'Bulk
Explosive'. The transfer clearly fell within the expression 'any other
purpose' mentioned iI1the5th proviso to Section 5(1) of the Act.As the
goods manufactured havenot been sold but have been transferred, there
is a violation of the terms of the declaration and the assessee has been
H rightly held to be liable for payment of the differential tax payable on
,_I
I
ICI INDIA LTD. v. STATE OF ORISSA [PASAYAT, J.] 435

the raw materials purchased at concessional rate of tax@4 % paid by A
furnishing Form IV. Therefore, High Court's impugned judgment does
not warrant any interference.
[Paras 10, 14and15] (440-A,B; 441-C-G; 442-A]

Mis. Polestar Electronic (Pvt.) Ltd v.Additional Commissioner, Sales
B
TaxandAnr., [1978] 1SCC636;JK CottonSpinningandWeavingMills
Co. Ltd. v. S.TO., Kanpur, and Anr., (1965) (16) STC 563 and Indian
'>- Aluminium Co. Ltd. v. S. T 0., (1993) 90 STC 410, referred to.
~

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1193-
1194 of 2002. c
From the Judgment and Order dated 9.10.2001 of the High Court
of Orissa at Cuttack in O.J.C.S. Nos. 16928/1998 and 1550/2000.
. Debi Prasad Pal, Shibashish Misra, Priya Hingorani, Aman Hingorani
and Ananda Sen (for MIS. Hingorani & Associates) forthe Appellants. D
...__
G. Ramakrishna Prasad for the Respondents .
The Judgment of the Court was delivered by
DR. ARIJIT PASAYAT, J. I. These two appeals assail
E
correctness of the judgment rendered by a Division Bench of the Orissa
High Court dismissing the writ petitions filed by the appellants. The two
writ petitions i.e. OJC 16928 of 1998 and 1500 of 2000 were filed
~-
questioning correctness of the views expressed by the Sales Tax Authorities
that the appellants had contravened the declaration given in Form IV to
F
avail concessional rate as provided in the Orissa Sales Tax Act, 1947 (in
short the 'Act') and the Orissa Sales Tax Rules, 1947 (in short the
'Rules'). In the first writ petition challenge was to the appellate order
passed by the Assistant Commissioner of Sales Tax confirming the
assessment made by the assessing officer for the .assessment year 1997-
G
·~ 98, whereas in the second writ petition challenge was to the assessment
order passed by the Sales Tax Officer for the assessment year 1998-99.
2. Background facts sans unnecessary details are as follows:-
The ICI India Ltd. (hereinafter referred to as "the assessee") is a H
436 SUPREME COURT REPORTS [2007] 10 S.C.R.

A company incorporated under the Companies Act, 1956 having its
registered office at ICI House, 34, Chowranghee Road, Calcutta. It is
engaged, inter-alia, in the business of manufacture and sale of "Bulk
Explosives". For the purpose of carrying on business at Rourkela in the
State of Orissa, the appellant has set up an industry on Plot No. 77,
B Industrial Estate, Kalunga, and is registered as a dealer with the Sales
Tax officer, Rourkela-11 Circle, Panpcish (Respondent No.3). The
certificate of registration granted under Section 9 of the Act indicates that
the appellant requires, amongst others, "Ammonium Nitrate" to be used
for manufacture/processing of "Bulk Premix" for sale. The appellant had
C set up and commissi01;1ed its third bulk emulsion premix manufacture unit
at Rourkela in April, 1997. The principal rnw material for manufacture of
"Bulk Premix" is "Ammonium Nitrate Liquor". The principal supplier of
the said raw material is the Rourkela Steel Plant of the Steel Authority of
India (in short the 'SAIL') from whom the appellant purchases the same.
D The other raw materials are either purchased locally or purchased centrally
at Gomia in Bihar and the stock is transferred to its Rourkela Plant. At
the Rourkela Plant, all the raw materials. are utilized for manufacture of
Emulsion Premix or Bulk Premix, which is an excisable product. For
. purchase of raw material from the Rourke:la Steel Plant, the appellant gives
E declaration in Form No.IV to avail the concessional rate of tax@4%. It
is an admitted case of the parties that the "Bulk Premix" so manufactured
at Rourkela is not sold as such because it is an intermediary product which
is used for manufacture of"Bulk Explosive". This "Bulk Explosive" is not
manufactured in the Rourkela plant ofth1e appellant. So the "Bulk Premix"
F is sent to its other branches at Angul (Talcher) and Belpahar in the State
of Orissa, for which the appellant has obtained Sales Tax Registration,
wherein the raw material has been mentitoned as "Bulk Premix", while the
finished product is mentioned as "Bulk Explosive". Apart from sending
the "Bulk Premix" to its different branches in the State of Orissa, the
G appellant also transfers/sells the goods. outside the State.
3. For manufacture of"Bulk Explosive", the "Bulk Premix" is carried
in special tankers dedicated for such purpose to the actual blasting site
from the onsite support plants where thre ingredient i.e. "Bulk Premix" and
other chemicals are mixed in proportion commensurate with the character
H
,_I
I
ICI INDIA LTD. v. STATE OF ORISSA [PASAYAT, J.] 437

of the rock and/or other substances to be blasted. Such mixing in right A
proportion takes places at the site of blasting and the resultant manufacture
being explosive is discharged into the bore holes at the mine bench. It is
at this stage that the "Bulk Premix" when mixed with the other chemicals
and discharged into bore holes becomes explosives and at that stage the
sale of explosives takes place and the sales tax and excise duty are paid B
on such sale of"Bulk Explosive".
4. In the assessment order for the year 1998-99, the assessing officer
did not find any violation of the declaration given by the appellant while
purchasing "Ammonium Nitrate", though the "Bulk Premix" has been C
transferred from Rourkela plant to Talcher and Belpahar, i.e., inside the
State of Orissa, and did not make any addition for the same. But, for
goods sent outside the State of Orissa, the assessing officer was of the
view that the appellant had contravened the provisions of the 5th proviso
to Section 5(1) of the Act by furnishing wrong declaration as the goods D
.._ manufactured were not sold. For the year 1997-98, however, all transfers
•'. of"Bulk Premix", whether inside or outside the State of Orissa, were
disallowed and it was held that the appellant has contravened the
declaration given in Form IV while purchasing the raw material. This order
was confirmed by the Assistant Commissioner of Sales Tax.
E
5. Considering the rival stands taken before it, the High Court noted
that the only question that arose for consideration was whether the
appellant who purchased raw materials for manufacture/processing of
"Bulk Premix" for sale on the strength of declaration can be said to have
violated the declaration when the "Bulk Premix" was transferred to its F
different branches for manufacture of "Bulk Explosive". The High Court
held that the Sales Tax Authorities were justified in demanding differential
tax as provided in the 5th Proviso to Section 5( 1) of the Act on the raw
material (Ammonium Nitrate) purchased by furnishing declaration in Form
IV by paying concessional tax at the rate of 4%. The writ applications G
were accordingly dismissed.

6. In support of the appeals it is stated by Dr. D.P. Pal, learned Senior
Advocate that the only question that arises for consideration is whether
the raw material i.e. "Ammonium Nitrate Liquor" was used for the purpose H
'
-~
\

438 SUPREME COURT REPORTS (2007] 10 S.C.R.

A of manufacturing "Bulk Premix" in the Rourkela factory? Such "Bulk ,'>-·

Premix" is undisputedly the raw material for manufacturing used in thei
manufacture of"Bulk explosive". Such products were for sale and were
actually sold. Even if the "Bulk Premix" gets transferred outside the State
of Orissa for being further used in the manufacture of a final product i.e.
B "Bulk Explosive", there is no contravention of the 5th proviso to Section
5(1) of the Act. Raw materials purchased at concessional rate of tax would
be liable to tax at the full rate prevailing on the following conditions -~
..,.
satisfied:
(1 Y The dealer must be a registered dealer.
c
(2) The goods or class of goods must be specified in its certificate
of registration as being intended for use within the State· of
Orissa by him in the manufacture/processing of goods for sale.
(3) The goods so manufactured must be sold.
D
(4) The purchasing dealer must fornish a declaration in Form IV. ~
. "
In case the goods so purchased are used for any other purpose
or utilized outside the State of Orissa, the dealer shall pay the
differential tax on the goods.
E
7. It was pointed out that there is no dispute or controversy that the
raw material i.e. "Ammonium Nitrate Liquor" has been used within the
State of Orissa by the appellant in the manufacture of goods namely "Bulk
Premix". But the "Bulk Premix" so manufactured gets further processed h,

F for the manufacture of the final product i.e. "Bulk Explosives" which
undisputedly was for sale and is actually sold. It is submitted that law does
not require that the final products which are for sale should to be sold
within the State of Orissa. Reliance is placed on Paragraphs 11 and 18
of Mis. Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner,
G Sales Tax and Anr., (1978] 1 SCC 636 to support the argument. )'-·
Reference is also made to JK. Cotton Spinning & Weaving Mills Co.
Ltd v. STO., Kanpur, andAnr., (1965) 16 STC 563 which related to
meaning of expression "in manufacture of goods" appearing in Section
8(3) (b) of the Central Sales Tax Act.. 1956 (in short the 'Central Act')
H which, according to appellant is in pari materia with the 5th proviso to
f, ICI INDIA LTD. v. STATE OF ORISSA [PASAYAT, J.] 439

Section 5(1) of the Act. Reference is also made to decision of the Orissa A
High Court in Indian Aluminium Co. Ltd. v. S.TO., (1993) 90 STC
410 for this purpose. It is, therefore, submitted that so long as the goods, .
that is, the intermediary products are manufactured within the State of
Orissa but are used in the manufacture of final product either in the State
of Orissa or outside, the raw materials have been used for manufacture B
of goods for sale, and there is no contravention of the 5th proviso to
Section 5(1) of the Act.
8. Per contra, learned counsel for the respondent-State and its
functionaries submitted that the factual position as noticed by the
Authorities and the High Court clearly shows that the 5th proviso to C
Section 5(1) is clearly attracted. The said provision pertains to tax
concession. When the claim concessions are under consideration, these
provisions have to be construed strictly. The appellant is in the business
of manufacture and sale of "Bulk Explosive", which has several uses in
Orissa. "Bulk Premix" is used as raw material for manufacture and sale D
of"Bulk Explosive" as per the Certificate of Registration. However, so
far as the Rourkela unit is concerned, the company has different Certificate
of Registration and it is admitted that the appellant manufactures only "Bulk
Premix" in this unit. In the Certificate of Registration it is mentioned that
raw materials purchased would be used in the manufacture of "Bulk E
Premix". Though certificate also mentioned about "machineries for
explosives" before the High Court it was conceded that it is a mistake
and assessee does not manufacture "Bulk Explosives" in the Rourkela Unit
Thus the appellant purchases raw materials mainly from SAIL in Orissa
and other raw materials in Bihar and had manufactured "Bulk Premix" in F
their Rourkela Unit. Undisputedly, appellant gave declaration in Form IV
for concessional rate of tax i.e. 4%. Admittedly, the appellant did not sell
"Bulk Premix" manufactured by it and the same is used after stock transfer
for manufacture of "Bulk Explosive" in other units in Orissa and places
outside the State. G

9. It is submitted by the revenue that the stress is on use of the goods
purchased in the manufacture/process of"goods for sale". By not selling
"Bulk Premix" and instead effecting stock transfer for manufacturing of
"Bulk Explosives" for sale, there is clear violation of the first limb of the H
I
\

--\ '
440 SUPREME COURT REPORTS [2007] 10 S.C.R.

A 5th proviso to Section 5(1) and therefore second limb of the proviso is
attracted making the assessee liable to pay the differential tax on goods.
I 0. The First proviso to Section 5( I) is conceptually different from
Section 8(3) of the Central Act. While the Act used the expression ''within
the State of Orissa" the Central Act does not have any such restriction.
B This is inevitable because in respect of the Central Act, the sale has to
be outside the State. The use of the expression "within the State of Orissa"
in 5th proviso makes the position clear that the raw materials purchased
must be used for manufacture of goods in the State of Orissa for sale.
C 11. Entry serial No. 48 of List -C, is quoted below :-
"Goods of the class or classes specified in the certificates of
registration ofthe registered dealler purchasing the goods as heir'*
intended for use by him in the manufact\ll'e or processing or packing
of goods for sale or in mining or in the generation or distribution
D of electricity or any other form of power subject to the production
of tme declaration by the purchasing registered dealer or ~s
authorized agent in Form IV."
12. The 5th proviso to section 5(1) of the Act reads as under :-
E
"5. Rate oftax- (1) The tax payable by a dealer under this
Act shall be levied on his taxable turnover at such rate, not
exceeding twenty five percent, and subject to such conditions as
the State Government may, from time to time, by notification
specify:
F
xx xxxx
Provided further that where a registered dealer purchases
goods of the class or classes specified in his Certificate of
G
Registration as being intendred for 'use within the State of Orissa
by him in the manufacture or processing of goods for sale or in
mining or in generation or distribution of electricity or any other
form of power at concessional rate of tax or free of tax after
furnishing a declaration in the prescribed form, but utiliz.es the same
for any other purpose or outside the State of Orissa, he shall pay
H
I

I ICI INDIA LTD. v. STATE OF ORISSA [PASAYAT, J.] 441

the difference in tax or the tax, as the case may be, payable had A
he not furnished the declaration."
13. Form IV, which is appended to the list of taxable goods, is in
the following language:-
"I/we............ hereby declare that the goods purchased by me/ B
us in cash Memo/Bill No ......... dated the
......... from ......... shall be used in the manufacture/processing or
packing of goods for sale in mining/generation or distribution of
electricity or any other form of power.
Dealer/Authorised Agent."
c
14. The 5th proviso to Section 5(1) indicates the purpose for which
the goods are intended to be used i.e. for manufacture/processing of goods
for sale. In the instant case the raw material purchased for manufacture
of "Bulk Premix", has not been used for any other purpose. But the D
manufactured product i.e. "Bulk Premix" has not been sold but has been
transferred to other branches of the appellant situated inside as well as
outside the State of Orissa.
15. As noted above the Certificate of Registration indicates that the E
raw materials purchased would be utilized in the manufacture of"Bulk
Premix". There is also a mention about "machinery for explosive". Though
it was contended by the appellant that the same is the mistake of fact
and the only thing which is intended to be produced at Rourkela is "Bulk
Premix", it is conceded that the "Bulk Premix" manufactured had not been F
sold but has been sent to different places for manufacture of other goods
i.e. "Bulk Explosive". The position is factually different from that under
consideration in Indian Aluminum's case (supra) as the appellants instead
of selling the manufactured goods transferred it to other places for further
manufacture of"Bulk Explosive". The transfer clearly falls within the G
expression "any other purpose" mentioned in the 5th proviso to Section
5( 1) of the Act. As the goods manufactured have not been sold but have
been transferred, there is a violation of the terms of the declaration and
the assessee has been rightly held to be liable for payment of the
differential tax payable on the raw materials purchased at concessional H
\

442 SUPREME COURT REPORTS [2007] 10 S.C.R.
\
A rate of tax by 4% paid by furnishing Form IV. High Court's impugned
judgment, therefore, does not warrant any interference. It may be noted
that the High Court made some observation about what would have been
the consequence had there been mention of final product in the Certificate
of Registration of the appellant.
B
16. Learned counsel for the respondent-State submitted that the
observations of High Court are erroneous. Though learned counsel for
the appellants also referred to the observation to support their stand, we
make it clear, that we have not expressed any opinion about the
correctness of the said view as that does not really fall for determination
C in the present case.
17. The appeals fail and are accordingly dismissed.
N.J. Appeals dismissed.