Bihar Alloy Steels Ltd. And Another v. State Of Orissa And Others

S.C Mohapatra, J.:— Petitioner in this writ application under article 226 of the Constitution of India is a company incorporated under the Companies Act, 1956.

2. Petitioner is engaged in the manufacture of alloy steel products out of iron scraps and other alloying elements by establishing at Patratu in the district of Hazaribagh in the State of Bihar an electronic arc furnace which is popularly known as a mini-steel plant. Carbon steel melting scrap is required for the manufacturing process which has to be imported from foreign countries. For the purpose of import, Central Government laid down import policy. As per the procedure, import is to be made by a Government company established for the purpose known as “Metal Scrap Trading Corporation Limited” (hereinafter referred to as “Government company”). The intending consumers of carbon steel melting scrap are to make applications for allotment of imported carbon steel melting scrap to the Government company and the allotted goods would be obtained by the consumers on import.

3. Petitioner and various other similar manufacturers made applications. On receipt of applications, allotments of different quantities were made by the Government company in favour of various consumers who including the petitioner were called upon to furnish letters of credit to be opened from time to time. On that basis, petitioner-company furnished letter of credit in favour of the Government company which was to import the material. After calling for limited tender from intending foreign suppliers they were opened on 8th September, 1986 and purchase order was issued. In the purchase order (annexure-4), the Government company was described as a purchaser and an American company was the seller on behalf of a Japan based unit. Along with the purchase order, a breakup of the quantities to be purchased was indicated mentioning the various allottees to be the intending consumers. The Government company issued sale order (annexure-5) to the petitioner intimating that as per the application of the petitioner-company, carbon steel melting scrap has been imported which is to be delivered at Paradeep Port and as per the terms the delivery is to be made on the high seas. Petitioner was to arrange at its cost unloading and taking delivery of the cargo at the Port of delivery at Paradeep from the vessel carrying the material. petitioner was instructed to co-ordinate with other allottees for the purpose.

4. After the goods were received at Paradeep Port, petitioner-company arranged for transportation of the same to the destination in Bihar. Goods so transported are to cross a check-post at Athar Banki established by the State Government under the Orissa Sales Tax Act. Way-bill in form No. XXXII is required to be furnished under section 16-A of the Act read with rule 94(4)(a) made thereunder in support of the transport. On 4th April, 1987, the Sales Tax Officer in-charge of the check-post before whom the way-bill was produced found it to be defective and incomplete and also found that there was evasion of tax in respect of the goods carried. He issued notice in form No. VI-B to the petitioner-company to rectify the defects and omissions or to pay an [amount of Rs. 1,000 immediately failing which action would be taken under rule 94(4)(b) of the Rules. On 7th April, 1987, the said Sales Tax Officer passed an order that opportunity was given to rectify the defects and omissions. Such opportunity was also given to pay an amount of Rs. 1,000. Despite the same, petitioner did not rectify the defects nor opted to pay the amount. The petitioner claimed before the Sales Tax Officer that the goods were sold on the high seas by way of transfer of documents of title to the goods and thus, he would not be exigible to tax. The Sales Tax Officer was not satisfied from the oral explanation submitted and the documents produced that the consignment in question is not exigible to tax under the Orissa Sales Tax Act. He, therefore, concluded that the title to the goods passed to the petitioner after the goods have passed the customs frontiers and thus, the legitimate dues to the Government have not been paid. Therefore, the petitioner was called upon to deposit the amount of Rs. 1,000 on account of M/s. Metal Scrap Trading Corporation Limited (the Government company) as demanded in the notice in form No. VI-B, failing which action as contemplated under rule 94(4)(b) of the Orissa Sales Tax Rules would be taken. On 8th April, 1987, the Government company addressed a letter to the Commissioner of Sales Tax that the allottees were not allowed to remove the materials out of Paradeep Port without payment of sales tax. In the said letter it was claimed that sales tax is not leviable on the transactions under article 286 of the Constitution of India and section 5(2) of the Central Sales Tax Act, 1956. When the matter was at that stage, in response to the notice in form No. VI-B, the petitioner-company explained in a letter to the Sales Tax Officer on 14th April, 1987 that there is no defect in the way-bill and the omissions shall be furnished. No importance was given to such written intimation. Despite such intimation dated 14th April, 1987, the order which had already been passed by the Sales Tax Officer on 7th April, 1987, was issued to the petitioner on 22nd April, 1987. Immediately after receipt of this order, the petitioner has filed this writ application apprehending that at each and every time when the consign-ments would pass through the check-post the Sales Tax Officer would detain the goods of the petitioner and exercise the power under rule 94(4)(a) of the Rules and the goods are likely to be auctioned.

5. While admitting the writ application, this Court passed an interim order directing that on furnishing bank guarantee to the extent of 50 per cent of the amount demanded by the check gate authorities the consignment in question and future similar consignments shall be allowed to move to their destinations without any further objection regarding non-payment of sales tax.

6. Counter-affidavit has been filed on behalf of opposite party Nos. 2 and 3. It has been asserted that notices under section 12(6) of the Orissa Sales Tax Act and also under rule 9 read with rule 12(6) of the Central Sales Tax (Orissa) Rules have been issued to the petitioner for assessment of the transactions. The Government company has also been assessed in respect of the transactions between it and the allottees including the petitioner under section 12 of the Orissa Sales Tax Act by the order dated 14th October, 1987 (annexure-4).

7. Dr. Debi Pal, the learned counsel for the petitioner, submitted that the entire transaction is in the course of import as would be revealed from the various annexures filed and the sales to the petitioner would not be exigible to tax under article 286 of the Constitution of India. Thus, the Sales Tax Officer had no authority to exercise the power under section 16-A of the Orissa Sales Tax Act and rule 94 of the Orissa Sales Tax Rules made thereunder. Dr. Pal further submitted that the defects in the way-bill as pointed out by the Sales Tax Officer have already been explained to be no defects and the omissions having been assured to be supplied which are minor in nature, the Sales Tax Officer should not have detained the goods. Even if the order was passed on 7th April, 1987, after receipt of the letter dated 14th April, 1987 from the petitioner, the order had been issued on 22nd April, 1987 without considering the explanation of the petitioner and this action of the Sales Tax Officer reveales that he was not prepared to apply his judicial mind and has determined to collect the demand on the threat of taking action under rule 94. Dr. Pal submitted that the nature of the transaction is such that evasion of tax cannot be considered by the Sales. Tax Officer in exercise of the power under rule 94.

8. Notice in form No. VI-B indicates that the Sales Tax Officer found defects/omissions in the way-bill and evasion of tax. In the notice, the Sales Tax Officer called upon the petitioner to rectify the defects/omissions or pay Rs. 1,000. This indicates that much importance was not given to evasion of tax and in case the defects/omissions would have been rectified, the goods detained would have been released from detention despite the finding that there was evasion of tax.

9. Mr. A.B Misra, the learned Standing Counsel of the Commercial Taxes Department, on behalf of opposite party Nos. 2 and 3, submitted that admittedly there being omissions in the way-bill which were not rectified, the Sales Tax Officer was within jurisdiction to exercise power under rule 94 and no exception can be taken to the consideration of the question of evasion of tax to find the same for exercise of power under rule 94. Mr. Misra submitted that proceedings for assessment having already been initiated against the petitioner and assessment having been completed against the Government company, evasion of tax as found by the check-gate officer is corroborated. In such circumstances, when the statutory authorities are already in session of the dispute, the nature of transaction ought to be left to be determined by them since complicated questions of fact are involved and the provisions in the statute give adequate scope to the petitioner to agitate the questions as raised in this writ application which are equally efficacious.

10. After receipt of notice for assessment under section 12(5) of the Act and in course of hearing, the petitioner has applied for amendment of the writ application seeking to quash the notice. We were not inclined to allow the amendment since it was filed at the last stage of hearing to widen the scope of challenge. Thereupon, the petitioner prayed for withdrawal of the petition for amendment to challenge the same later, if so advised. The prayer was allowed.

11. The short question for consideration in this case, thus, is whether the Sales Tax Officer is justified in detaining the goods at the check-post and in demanding amounts on the ground that he found defects/omissions in the way-bill and evasion of tax by the Government company.

12. It is not disputed that after receipt of the statutory form No. VI-B, explanation has been given on 14th April, 1987. A perusal of the explanation indicates that the petitioner claimed that the defects pointed out in the way-bill are no defects excepting the few omissions which the petitioner agreed to supply. Before issue of the order on 22nd April, 1987 which was signed on 7th April, 1987 when explanation dated 14th April, 1987 was available the same ought to have been considered by the Sales Tax Officer since the order had not become effective before issue. It can safely be concluded that the Sales Tax Officer has determined to detain the goods to collect the amount demanded for which the explanations available were not considered. The order passed on 7th April, 1987 and issued on 22nd April, 1987 does not disclose that any importance was given to the defects in the way bill. The entire order supports the demand of Rs. 1,000 on the ground of evasion of tax. The notice in form VI-B indicates that on rectification of defects/omissions, the detained goods would be released. Thus, in the notice, defects and omissions were given importance while in the order evasion was given importance and defects/omissions were not dealt with.

13. The next question is whether there was evasion of tax and by whom? The goods are carbon steel melting scrap. The liability for payment of tax on sale of such goods is on the seller and not on the purchaser. The petitioner is a purchaser and there is no material that he conducted any sale. Accordingly, there is no tax evasion by the petitioner.

14. Assuming the Government company to be the seller of the goods to the petitioner, which is in dispute, no inference of evasion of tax by the Government company would arise. The term “evasion” in the context must relate to the conduct of the Government company and mere non-payment cannot lead to an inference of evasion when it disputes its liability before the authorities. Where a person causing the movement of goods to pass through a check-post is not a dealer, there is no scope of his being assessed to tax. In such cases, demand on him to pay a certain sum to avoid confiscation may not be called for unless a clear case of evasion is made out. However, the said question is not required to be answered in this case since the matter is now before the statutory authorities. It can thus safely be concluded that on 4th April, 1987, there was no justification for the Sales Tax Officer, Athar Banki check-gate to find that there was evasion of tax.

15. In the result, the writ application is allowed, the notice in form No. VI-B in the circumstances is unjustified and is quashed. Consequently, all subsequent actions on the basis of such notice in form No. VI-B are also quashed. Parties shall bear their own costs.

K.P Mohapatra, J.:— I agree with the conclusion. There are a large number of documents which were relied upon by Dr. Pal, the learned counsel appearing for the petitioner, to substantiate his contention that the transaction being in course of import was not subjected to assessment of sales tax in the State. These documents, consisting of material facts can be better examined by the Sales Tax Officer in the appropriate assessment proceeding which has in the meantime been initiated. As alternative remedy is available and the entire matter can be thrashed out about the nature of transaction, none of the observations in this judgment shall influence the Sales Tax Officer who, we believe, shall arrive at his own independent conclusion on the facts placed before him.

16. Writ application allowed.