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The State Of Tamil Nadu v. East Coast Constructions And Industries

Madras High Court

Feb 11, 1985

Judgment

Subsequent
References

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Structured Summary of the Opinion — T.C (R) Nos. 19 & 20 of 1985

Factual and Procedural Background

The revision involved an appeal by the revenue challenging the Sales Tax Appellate Tribunal's decision that a turnover of Rs. 9,55,485.78 could not be brought to tax under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959. The assessees were building contractors and engineers. For the assessment year 1980-81 they reported a taxable turnover of Rs. 54,161.96 but excluded Rs. 9,55,485.78, which represented the purchase value of sand and blue-metal from unregistered dealers used in construction. The assessing authority and the Appellate Assistant Commissioner both held that the disputed turnover was taxable under section 7-A. The assessee appealed to the Sales Tax Appellate Tribunal, which reversed that conclusion and set aside the assessment of the disputed purchase turnover. The revenue filed tax revision (T.C (R) No. 19 of 1985) challenging the Tribunal's decision. A connected tax revision (T.C (R) No. 20 of 1985) challenged the Tribunal's cancellation of penalty under section 12(5) after the Tribunal set aside the tax assessment on the disputed turnover.

Legal Issues Presented

Whether the purchase turnover of Rs. 9,55,485.78 (price of sand and blue-metal used in construction of buildings) could be assessed to tax under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959.
Alternatively, whether clause (b) of section 7-A(1) (disposal of goods in any manner other than by way of sale) could apply to the use of those goods in construction.
Whether the Tribunal was correct in cancelling the penalty levied under section 12(5) once the disputed turnover was held not taxable under section 7-A.

Arguments of the Parties

Revenue (learned Additional Government Pleader) — Arguments

Relied on the Supreme Court decision in Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh [1969] 24 STC 343 (SC) to contend that purchase turnover by a building contractor attracts the purchase tax provision (analogous provision in Madhya Pradesh Act).
Argued that if clause (a) of section 7-A(1) does not apply, clause (b) could be invoked because the goods were allegedly "disposed of in any manner other than by way of sale".
Contended that the Tribunal should not have followed the Andhra Pradesh High Court decision in Nandanam Construction Co. v. Assistant Commissioner [1983] 53 STC 42 insofar as it is inconsistent with the Supreme Court decision in Ganesh Prasad Dixit.

Assessees — Arguments

The assessees (building contractors and engineers) contended that the purchase price of sand and blue-metal used in construction could not be charged under section 7-A of the Tamil Nadu Act because the goods were consumed in construction of buildings (immovable property) and not in the "manufacture of other goods for sale".
Their position was adopted by the Tribunal, which held that section 7-A(1)(a) did not apply to goods used only for construction of buildings and thus set aside the assessment on the disputed purchase turnover.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh, [1969] 24 STC 343 (SC)	Held that purchase turnover of materials used by a building contractor attracted the purchase tax under section 7 of the Madhya Pradesh General Sales Tax Act (decision proceeded on the basis that materials were used in the course of the contractor's business).	The court examined this decision but found it does not clearly indicate whether the materials were used in the construction of buildings (immovable property). The court concluded that Ganesh Prasad Dixit does not decide the specific question whether section 7-A(1) applies when goods are used in construction of immovable property, and therefore it could not be invoked as decisive here.
Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh, [1966] 17 STC 14 (Madhya Pradesh High Court)	Earlier High Court decision that led to the Supreme Court decision; factual details queried by the court in the present opinion.	The court reviewed the High Court record (as excerpted in the Supreme Court file) and noted the High Court decision also did not indicate that the goods were used in construction of buildings; thus it could not be treated as deciding the construction/immovable-property issue under section 7-A(1).
Nandanam Construction Co. v. Assistant Commissioner, [1983] 53 STC 42 (Andhra Pradesh High Court)	Held that a building contractor purchasing goods for use in construction of buildings did not fall within the mischief of clause (a) of section 7-A(1).	The Tribunal relied on this decision and the court noted that it supports the Tribunal's view. The court observed, however, that the Andhra Pradesh High Court did not examine the precise scope of the expression "manufacture of other goods for sale" in clause (a).
Deputy Commissioner of Sales Tax v. Pio Food Packers, [1980] 46 STC 63 (SC)	Held that slicing and canning pineapple did not amount to manufacture of a new commodity; as a result a provision similar to section 7-A(1) would not apply.	The Andhra Pradesh High Court had purported to follow Pio Food Packers, but the present court explained that Pio Food Packers dealt with processing of a movable commodity (pineapple) and is not applicable to goods used in the construction of immovable property; therefore it did not assist the revenue here.

Court's Reasoning and Analysis

The court proceeded by textual construction of section 7-A(1) of the Tamil Nadu General Sales Tax Act, 1959, which contains three clauses (a), (b) and (c). Clause (c) was not relevant on the facts. The court analysed clauses (a) and (b) in turn:

Interpretation of clause (a):
- Clause (a) applies when a dealer "consumes such goods in the manufacture of other goods for sale or otherwise." The court analysed the grammar of the phrase and concluded that the word "otherwise" qualifies "sale" and not "consumed". Thus clause (a) operates where goods are consumed in the manufacture of other goods for sale (or otherwise sold).
- The court emphasised the phrase "manufacture of other goods" and held that the construction of a building (immovable property) cannot be equated with the manufacture of other goods for sale. A building is not a movable "good" produced by manufacture.
- Consequently, clause (a) cannot be invoked where purchased goods are used in constructing immovable property. On this textual basis the court agreed with the Tribunal that clause (a) did not apply to the disputed turnover.
- The court considered the revenue's reliance on Ganesh Prasad Dixit but found that neither the High Court nor Supreme Court decisions in that matter clearly addressed use of goods in the construction of buildings; therefore Ganesh Prasad Dixit could not be treated as deciding the issue under clause (a).
- The court also rejected reliance on Pio Food Packers because that case involved processing of a movable commodity (pineapple) and did not deal with manufacture in the context of immovable-property construction.
Interpretation of clause (b):
- Clause (b) taxes goods where the dealer "disposes of such goods in any manner other than by way of sale in the State." The court analysed the term "disposes" and concluded it contemplates a transfer or disposal of goods to another person other than by sale.
- In the present case, the goods were used in construction; there was no transfer or disposal of the goods to another person in any manner other than by sale. The court therefore held that the use of the goods in construction cannot be equated with a "disposal" as contemplated by clause (b).
- Thus clause (b) did not apply on the facts.

On this textual and contextual analysis the court found itself unable to disagree with the Tribunal's conclusion that section 7-A(1)(a) did not apply to the assessee's purchase turnover used in the construction of buildings and that clause (b) was likewise inapplicable.

Given the Tribunal's setting aside of the tax assessment on the disputed turnover, the court also accepted the Tribunal's cancellation of the penalty under section 12(5) as justified (there being no tax assessment on the disputed amount to trigger penalty liability).

Holding and Implications

Holding: The court dismissed the tax revision T.C (R) No. 19 of 1985 challenging the Tribunal's decision that the turnover of Rs. 9,55,485.78 could not be brought to charge under section 7-A(1)(a). The connected tax revision T.C (R) No. 20 of 1985 challenging the cancellation of penalty under section 12(5) was also dismissed.

Implications:

Direct effect: The disputed purchase turnover of Rs. 9,55,485.78 (price of sand and blue-metal used in construction of buildings) is not taxable under section 7-A(1) of the Tamil Nadu General Sales Tax Act, 1959, on the facts of this case. Consequently, the penalty levied under section 12(5) based on that assessment is properly cancelled.
Broader implications: The court confined itself to textual construction and to distinguishing relied-upon precedents. The opinion does not purport to create a broader novel precedent beyond the interpretation applied to the facts; it upholds the Tribunal's application of the law to these facts. In other words, the decision's direct effect is on the parties and the assessment/penalty before the court; no sweeping new principle beyond this interpretative application was announced in the opinion.

Note: This summary is compiled strictly from the information contained in the provided opinion. No outside facts or inferences beyond the text have been introduced.

Show all summary ...

The Judgment of the Court was delivered by

T.C (R) No. 19 of 1985.

Ramanujam, J.:— In this tax revision case filed by the revenue, the decision of the Sales. Tax Appellate Tribunal holding that the turnover of Rs. 9,55,485.78 could not be brought to charge under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959, has been challenged.

2. The assessees are building contractors and engineers. For the assessment year 1980-81, they reported a taxable turnover of Rs. 54,161.96. This however did not include a turnover of Rs. 9,55,485.78 which represented the purchase value of sand and blue-metal from unregistered dealers, which the assessee had used in the construction of the buildings. The assessee claimed that the said sum of Rs. 9,55,485.78 representing the purchase price of blue-metal and sand cannot be brought to charge under section 7-A of the Act. That contention was negatived by the assessing authority and the said turnover was brought to charge. The matter was taken in appeal to the Appellate Assistant Commissioner, who also sustained the levy under section 7-A of the Act on the said turnover.

3. Thereafter, the matter was taken up in further appeal to the Sales Tax Appellate Tribunal by the assessee denying his liability to be assessed to tax under section 7-A of the Act on the said turnover of Rs. 9,55,485.78. The Tribunal, after dealing with the scope of section 7-A(1)(a) of the Act and following the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner, [1983] 53 STC 42, held that section 7-A(1)(a) of the Act will not apply to the disputed turnover of Rs. 9,55,485.78 as the assessee had purchased sand and blue-metal only for the construction of the buildings and not for the manufacture of other goods for sale. In that view, the Tribunal set aside the assessment on the disputed purchase turnover.

4. According to the learned Additional Government Pleader, the facts of this case attract the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1969] 24 STC 343 (SC) and in so far as the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner, [1983] 53 STC 42 is inconsistent with the said decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1969] 24 STC 343 (SC) the Tribunal should not have applied the decision of the Andhra Pradesh High Court. Before considering the various decisions referred to by the learned Additional Government Pleader in support of his case that the disputed purchase turnover can be assessed under section 7-A(1)(a) of the Act, we would like to refer to the said provision.

5. Section 7-A runs as follows:

“7-A. Levy of purchase tax.— (1) Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be, and either,

(a) consumes such goods in the manufacture of other goods for sale or otherwise; or

(b) disposes of such goods in any manner other than by way of sale in the State; or

(c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year.”

6. section 7-A(1) consists of three clauses. However, on the facts of this case, clause (c) cannot obviously apply. The contention of the learned Additional Government Pleader is that even if clause (a) of section 7-A(1) is held not to apply to the facts of this case, clause (b) thereof may apply. We have, therefore, to consider the scope of clauses (a) and (b) of section 7-A(1) of the Act, to find out whether the disputed purchase turnover could be assessed under either of these clauses. Clause (a) can be applied only when the goods purchased had been consumed in the manufacture of other goods for sale or otherwise. The expression “otherwise” occurring in clause (a) will qualify only sale and not the expression “consumed”. Therefore, that provision will come into play only when the purchasing dealer consumes the goods in the manufacture of other goods for sale or otherwise. Clause (a) obviously cannot apply when the purchasing dealer consumes the goods in the construction of buildings, which is an immovable property and can in no sense be called “other goods”. In our view, clause (a) can be invoked only when the purchasing dealer consumes the goods purchased in the manufacture of other movable properties and not when the goods purchased are used in the construction of buildings, which cannot be held to be a movable property.

7. In support of his submission that the use of the expression “consumption of such goods in the manufacture of buildings” will also fall within clause (a) of section 7-A(1) of the Act, the learned Additional Government Pleader placed reliance on the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1969] 24 STC 343 (SC). The purchasing dealer in that case was a building contractor and he is said to have consumed the goods purchased in his business. After finding that he has used the materials purchased by him in his business, the Supreme Court held that the purchase turnover of the building materials by the purchasing dealer will attract section 7 of the Madhya Pradesh General Sales Tax Act, 1958, on the purchase price of the goods used in the course of their business as building contractors. The said decision proceeds on the basis that the materials purchased has been used in the course of the assessee's business. Whether the assessee used the materials purchased by him in the construction of buildings is not clear. As a matter of fact, to find out the factual position, we referred to the decision of the Madhya Pradesh High Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1966] 17 STC 14, which gave rise to the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1969] 24 STC 343 (SC). But the said decision also does not indicate that the goods purchased by the building contractor has been used in the construction of buildings. Therefore, neither the decision of the Madhya Pradesh High Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1966] 17 STC 14 nor the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner Of Sales Tax, Madhya Pradesh , [1969] 24 STC 343 (SC) can be said to have decided the question as to whether section 7-A(1) will be applicable to a case where a dealer purchased goods and used the same in the construction of a building, which is an immovable property. While construing section 7-A(1)(a) of the Act which uses the expression “consumes such goods in the manufacture of other goods for sale”, the significance of the expression “manufacture of other goods” cannot be lost sight of. A person who is constructing a building, which is an immovable property, cannot be said to manufacture other goods for sale so as to come within clause (a) of section 7-A(1) of the Act. In this case, the Tribunal has referred to the decision of the Andhra Pradesh High Court in Nandanam Construction Co. v. Assistant Commissioner, [1983] 53 STC 42 where the building contractor purchasing goods for use in the construction of buildings has been held not to come within the mischief of clause (a). Even though that decision supports the view taken by the Tribunal, it has not considered the scope of the expression “manufacture of other goods for sale” occurring in clause (a) of section 7-A(1). The Andhra Pradesh High Court purports to follow the decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers, [1980] 46 STC 63 (SC), which does not deal with a case of the purchasing dealer using the goods in the manufacture of building. Admittedly, if was a case of a dealer purchasing pineapple and thereafter slicing and canning and selling. The Supreme Court held that the slicing of a pineapple and canning does not convert it a different product but it still continues to be a pineapple and, as there is no manufacture of a new commodity, section 5A(1)(a) of the Kerala General Sales Tax Act, 1963, similar to section 7-A(1) of our Act, will not apply. Therefore, even Deputy Commissioner of Sales Tax v. Pio Food Packers, [1980] 46 STC 63 (SC) which has been relied on by the Andhra Pradesh High Court can have no application to the facts of this case. Therefore, we have to proceed to consider the case only on the basis of the language used in clause (a). As we have already expressed, that clause can be invoked only when the purchasing dealer uses the goods purchased in the manufacture of other goods for sale, and not when he uses the goods in the construction of immovable property. Thus, the view taken by the Tribunal that section 7-A(1)(a) of the Act will not apply to the assessee's case, for the goods have been utilised for the construction of buildings and not in the manufacture of other goods for sale, has to be upheld as correct.

8. The learned Additional Government Pleader then contends that even if clause (a) does not apply, clause (b) thereof may be invoked in the circumstances of the case as there has been a disposal of the goods purchased in any manner otherwise than by way of sale in this case. This contention of the learned Additional Government Pleader ignores the significance of the use of the expression “disposes” in clause (b). “Disposal of goods in any manner other than by way of sale” would indicate that there has been a transfer of the goods other than by way of sale from the assessee to some other person. In this case, admittedly there is no disposal or transfer of the goods in any manner otherwise than by way of sale as contemplated by the section, but the goods have been used in the construction of the buildings and such user cannot be said to be a disposal of the goods as contemplated by clause (b) of section 7-A(1) of the Act. We are, therefore, of the view that clause (b) of section 7-A(1) of the Act has no application at all. In this view we are not in a position to disagree with the conclusions arrived at by the Tribunal in this case. T.C (R) No. 19 of 1985 is, therefore, dismissed.

T.C (R) No. 20 of 1985.

9. This tax revision case is against the order of the Tribunal dismissing the enhancement petition filed by the revenue as regards the cancellation of the levy of penalty under section 12(5) of the Tamil Nadu General Sales Tax Act. In the connected case T.C (R) No. 19 of 1985, we have held that the assessee is not liable to be taxed under section 7-A of the Act on the purchase turnover of Rs. 9,55,485.78. Now that the tax on the disputed turnover has been set aside by the Tribunal, the Tribunal is justified in cancelling the quantum of penalty levied by the appellate authority on the basis of its finding that the sum of Rs. 9,56,485.78 is taxable under section 7-A of the Act. Since the assessment on the disputed turnover is set aside, there cannot be any levy of penalty for non-disclosure of the purchase turnover of Rs. 9,55,485.78. Therefore, this tax revision case is also dismissed.