- Bookmark
- Share
- CaseIQ
Malayala Manorama Company Limited v. Assistant Commissioner, Commercial Taxes And Another
Factual and Procedural Background
M/s Malayala Manorama Co. Ltd., Kottayam, purchased printing ink valued at Rs. 1,00,03,050 from M/s Quality Ink Manufacturing during the assessment year 2001-2002. Relying on Section 5(3) of the Kerala General Sales Tax Act, 1963 (“the Act”), the company issued Form No. 18 to claim a concessional purchase-tax rate of 3% on the ground that the ink constituted a raw material for the “production” of newspapers.
The Commercial Taxes Department contended that printing newspapers does not amount to “manufacture”, that newspapers are not “goods” within the meaning of Section 2 of the Act, and that the declarations in Form 18 were therefore incorrect. A notice proposing a penalty of Rs. 18,19,208 under Section 45(A) was issued and, after considering the assessee’s reply, the Assistant Commissioner imposed a penalty of Rs. 14,66,256 for the year 2000-2001.
Instead of pursuing the statutory appellate remedies, the assessee filed a writ petition before the Kerala High Court. The Department opposed the petition on the ground of alternate remedy. The High Court, relying on certain Supreme Court precedents, held the writ petition maintainable but dismissed it on the merits, while directing the assessing authority to reconsider whether double the tax was an appropriate penalty. The assessee appealed to the Supreme Court under Article 136 of the Constitution.
Legal Issues Presented
- Whether the High Court erred in upholding the penalty without examining the impact of the 1-4-2000 amendments to Section 5(3) of the Act, particularly the substitution of the word “manufacture” by “production” and deletion of the proviso relating to non-taxable goods.
- Whether newspapers qualify as “goods” for the purposes of Section 5(3) post-amendment, thereby permitting concessional taxation on ink purchases.
- Whether notices dated 16-1-2006 and 17-1-2006 and the consequent penalty order, based on alleged misuse of Form 18, are legally sustainable.
- Whether the writ petition was maintainable despite the availability of statutory appellate remedies under the Act.
Arguments of the Parties
Appellant's Arguments
- The penalty proceedings relied on provisions that had been deleted or materially altered; therefore, the notice and penalty are ultra vires.
- After the 2000 amendment, Section 5(3) uses the term “production” rather than “manufacture”; hence, the concessional rate applies even if printing is not “manufacture”.
- Newspapers constitute “goods” for purposes of the amended Act, entitling the assessee to the concessional rate.
- The High Court failed to consider these core legal contentions, rendering its judgment unsustainable.
Department's Arguments
- The High Court did not examine the amended provisions; the matter should therefore be remanded rather than the notice being quashed outright.
- Notices and penalty cannot be invalidated without full consideration by the competent forum.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Aspinwall & Co. Ltd. v. CIT (2001) 7 SCC 525 | Defines “manufacture” as producing commercially distinct goods from raw materials. | Relied on by the assessee to argue that printing newspapers constitutes manufacture, or at minimum “production.” |
| CCE v. Ballarpur Industries Ltd. (1989) 4 SCC 566 | Consideration of what constitutes “goods.” | Cited by the Assistant Commissioner to conclude that newspapers are not “goods” under the Act. |
| Printers (Mysore) Ltd. v. CTO (1994) 2 SCC 434 | Illustrates when writ jurisdiction may be invoked despite alternate remedies. | Used by the High Court to hold the writ petition maintainable. |
| Whirlpool Corp. v. Registrar of Trade Marks (1998) 8 SCC 1 | Exceptions to the rule of exhaustion of alternative remedies. | Also cited to justify maintainability of the writ petition. |
| State of H.P. v. Gujarat Ambuja Cements Ltd. (2005) 6 SCC 499 | Scope of writ jurisdiction in tax matters. | Relied upon by the High Court in deciding maintainability. |
Court's Reasoning and Analysis
The Supreme Court observed that significant amendments to Section 5(3) effective from 1-4-2000 — including deletion of the proviso and replacement of the word “manufacture” with “production” — were central to the controversy. The High Court had not considered these amendments when affirming the penalty. Because the unaddressed statutory changes could materially affect both (i) whether newspapers are “goods” under the amended Act and (ii) whether concessional tax is available, the Supreme Court found the High Court's decision unsustainable. The Court declined to adjudicate the merits itself, noting that the High Court must first analyze the amended statutory framework and the parties’ competing legal submissions.
Holding and Implications
Holding: The Supreme Court set aside the Kerala High Court’s judgment dated 2-8-2006 and remanded the matter for fresh consideration on all issues, leaving every contention of both parties open. The validity of the penalty notices dated 16-1-2006 and 17-1-2006 will depend on the High Court’s fresh decision. The appeal was disposed of without costs.
Implications: The parties return to the High Court, where the impact of the 2000 amendments and the status of newspapers as “goods” will be examined afresh. No new precedent on the substantive tax question has yet been set; the Supreme Court’s decision chiefly underscores the necessity for lower courts to address statutory amendments fully before reaching conclusions.
Swatanter Kumar, J.— M/s Malayala Manorama Co. Ltd., Kottayam, purchased printing ink for Rs. 1,00,03,050 from M/s Quality Ink Manufacturing, Kottayam during the year 2001-2002. The ink so purchased was to be used for printing newspapers by the said firm. This firm filed Form No. 18 under the Kerala General Sales Tax Act, 1963 (for short “the Act”) for purchase of raw material for use in the manufacture of “finished goods” i.e newspaper and in terms of Section 5(3) of the Act they were liable to pay only concessional tax at the rate of 3% for that period.
2. There was no dispute at any point of time that this concern was engaged in printing of newspapers. However, the Department felt that no manufacturing was involved in the process of printing of newspapers and, as such, purchase of printing ink effected by issuing Form No. 18 was not the correct statement in terms of the statutory provisions of the Act. The case of the Department was that the declarations thus furnished by the firm were not accurate, according to law and there was misuse of statutory forms. This resulted in issuance of a notice for imposition of penalty under Section 45(A) of the Act providing an opportunity to the firm to respond thereto and file its objections, if any. It was proposed to impose a penalty of Rs. 18,19,208 on the said assessee, being double the amount of tax due on the purchase turnover.
3. The reply to the notice was filed by the assessee firm admitting that printing ink was purchased and that sub-section (3) of Section 5 does not stipulate that there should be manufacture of taxable goods. It was specifically pleaded that the provisions of Section 5(3) of the Act were amended by the Finance Act, 2000 with effect from 1-4-2000 deleting the provision that manufactured items shall be taxable. The impact of the amendment was such that, according to the assessee firm, the issuance of notice was not proper. It was also stated that the amended section does not contemplate any “manufacturing” activity and the word used was “production” and there is a clear distinction between the two.
4. The assessee relied upon the judgment of this Court in Aspinwall & Co. Ltd. v. CIT (2001) 7 SCC 525, (2002) 125 STC 101 wherein it was held that “manufacture” means use of raw materials for production of goods commercially different from raw materials used. When the end product is a commercially different product, it amounts to manufacturing.
5. The Assistant Commissioner, Commercial Taxes, who had issued the notice, came to the conclusion that the concession has been extended to non-taxable goods also and formed an opinion that the concession is applicable only to “goods” and newspaper was not a “goods” within the meaning of Section 2 of the Act. While referring to another judgment of this Court in CCE v. Ballarpur Industries Ltd. (1989) 4 SCC 566, (1990) 77 STC 282, the said Assistant Commissioner concluded that newspaper was not a “goods” and, therefore, the declaration was not appropriate and imposed a penalty of Rs. 14,66,256 for the year 2000-2001.
6. The assessee firm did not take recourse to the statutory remedies available under the Act but questioned the very correctness and legality of the issuance of the notice as well as the order passed by the Assistant Commissioner before the High Court of Kerala at Ernakulam, by filing a writ petition under Article 226 of the Constitution of India.
7. This writ petition was contested by the Department which filed a detailed counter-affidavit. It was specifically pleaded by the Department that for availability of statutory alternative remedy as well as for other reasons and facts stated in the reply, the writ petition itself was not maintainable. The Division Bench of the High Court while considering this primary objection raised by the Department before the High Court, came to the conclusion that as the facts were not in dispute and questions raised were purely legal and are to be tested in view of the judgment of this Court in Printers (Mysore) Ltd. v. CTO (1994) 2 SCC 434, (1994) 93 STC 95, Whirlpool Corpn. v. Registrar of Trade Marks (1998) 8 SCC 1 as well as the judgment in State of H.P v. Gujarat Ambuja Cements Ltd. (2005) 6 SCC 499, (2005) 142 STC 1, the writ petition was maintainable.
8. However, while laying emphasis that a newspaper would not fall within the expression “goods” under sub-section (3) of Section 5 of the Act, the High Court held that the notice issued was proper as Form No. 18 which gives benefit of concessional rate of tax was factually not correct. While dismissing the writ petition, however, the Bench issued a direction to the assessing authority to examine whether the imposition of penalty at double the rate is justified in the facts and circumstances of the case, within a period of two months from the date of receipt of the copy of the judgment. It is this judgment of the High Court which has been assailed in the present appeal under Article 136 of the Constitution of India.
9. The learned counsel appearing for the appellant with some vehemence argued that the High Court had specifically noticed the contention of the assessee firm that the initiation of the proceedings is based on a provision which had been repealed, non-existent and inapplicable, as such, the entire proceedings and imposition of penalty was unjustified, still the High Court did not deal with this contention at all. It was a pure question of law and would even otherwise have effect on the merits of the case. Non-consideration of the contention and non-recording of any reasons in that regard on merit, would entirely vitiate the order.
10. It is further argued that even the alternative submission as to whether a newspaper was covered under the definition of “goods” and as to what is the effect of amendment of the provisions of Section 5(3) and particularly, the substitution of the word “manufacture” by the word “production” have not been correctly examined. The discussion of the High Court on the matter in issue had primarily proceeded with reference to the unamended provisions and on an erroneous impression of law that despite amendment, the “goods” will still not include “newspapers”.
11. On the contrary, Mr Varma, learned Senior Counsel appearing for the Department fairly stated that the amended provisions and their effect have not been considered by the High Court in its judgment under appeal. Even, according to him, the discussion on amendments with particular reference to the word “production” could have some impact on the alternative submission made by the appellant assessee. However, he submitted that the matter at best can be remanded to the High Court and the notice cannot be quashed as the contentions will still have to be examined by the competent authority/courts.
12. Having heard the learned Senior Counsel appearing for the parties, we are of the considered view that the order under challenge requires interference by this Court.
13. There is no dispute to the fact that the material amendments were carried out in the provisions of Section 5(3) of the Act with effect from 1-4-2002. The existing first proviso to Section 5(3)(i) was deleted as well as the expression “or uses the same in the manufacture of any goods which are not liable to tax in this Act” in Section 5(3)(i) was also deleted. Despite these amendments, as it appears from the record before the Court, format of Form No. 18 has not been amended consequently. However, the fact of the matter remains that the High Court has not dwelt upon these legal issues which are the core issues involved in the present case. In our view, the discussion on the first issue would certainly have some bearing on the alternative argument raised on behalf of the appellant before us. Thus, it may not be possible for this Court to sustain the finding recorded by the High Court in that regard. Of course, we are not ruling out all the possibilities of the High Court arriving at the same conclusion if it is of that view after examining the amendments as well as the submissions made on behalf of the appellant with regard to its alternative submissions.
14. In the light of this discussion, we pass the following order:
(a) The impugned order dated 2-8-2006 passed by the High Court is hereby set aside.
(b) The matter is remanded to the High Court for consideration afresh in accordance with law on both the aforesaid submissions while leaving all the contentions of the assessee and the Department open for the year 2000-2001, in relation to imposition of penalty under Section 45(A) of the Act.
(c) The legality and validity or otherwise of the notices dated 16-1-2006 and 17-1-2006 shall be subject to the final decision of the High Court.
15. The appeal is accordingly disposed of without any order as to costs.
Alert