the assessing authority has levied purchase tax contrary to Section 4(4) of the A.P. VAT Act, 2005 (for short the Act) and Sections 14 and 15 of the Central Sales Tax Act, 1956 (CST Act for short). The petitioner- assessees are either (1) rice millers, or (2) dhal millers, or (3) soyabean oil millers, or (4) cotton millers. The first category of petitioners purchase paddy from agriculturists, mill it to produce rice, sell rice either to FCI or in the open market, and pay value added tax (VAT) on the said sales. The husk obtained, after milling rice, is either sold or consumed by the dealer. In such cases, the assessing authorities have levied 5% purchase tax on the purchase price of paddy which was used as input for husk which is exempt from tax under the first Schedule to the Act. The second category of petitioners purchased raw dhal from agriculturists, milled it to produce dhal, and paid value added tax (VAT) on the sale of finished (dehusked) dhal. The husk obtained, after milling dhal, is either sold or consumed by them. In these cases the assessing authorities have levied 5% purchase tax on the purchase price of raw dhal which was used as input for husk. The third category of petitioners purchased soyabean seed, and crushed it to produce soyabean oil. The residue was used to make soyabean deoiled cake which was sold by them as cattle/poultry feed. The assessing authorities have levied 5% purchase tax on the purchase price of soyabean seed which was used as input for soyabean deoiled cake which is exempt from tax under the Act. The fourth category of petitioners purchased raw cotton (Kapas) from agriculturists, and ginned it. Cotton seeds were separated in the process. The ginned cotton i.e., cotton lint was sold. The cotton seeds were crushed, and cotton seed oil was extracted and sold. Cotton deoiled cake, obtained after crushing cotton seed, was sent outside the State otherwise than by way of sale. The assessing authorities have levied purchase tax at 4%/5% on the proportionate value of cotton kapas used in the manufacture of cotton deoiled cake which was sent outside the State otherwise than by way of sale. In a few cases cotton seeds were despatched outside the State otherwise than by way of sale. Purchase tax, under Section 4(4) of the Act was levied at 4%/5% on the proportionate purchase price of raw cotton used as input for cotton seed.

THE HONBLE SRI JUSTICE RAMESH RANGANATHAN AND THE HONBLE SRI JUSTICE M.SATYANARAYANA MURTHY                

Writ Petition Nos.17972 of 2014

04-03-2015

M/s. K.G.F. Cottons (P) Ltd. Cotton Dealers, Bhainsa, Adilabad District Rep.,
by its Managing Director Sri Subhash Chandra Agarwal.Petitioner      

The Assistant Commissioner (CT) LTU, O/o The Dy. Commissioner (CT), 1st Floor,
Ashok Road, Vinayak Chowk, Municipal Complex, Adilabad and othersRespondents    

Counsel for the petitioner: S.R.R. Viswanath, Sri V. Bhaskar
                             Reddy, Sri Shaikh Jilani Basha and Sri M.V.J.K.
Kumar

Counsel for the respondents: Sri D. Srinivas, Sri M. Govind
                              Reddy and Sri J. Anil Kumar, Learned     Special
Standing
                              Counsel for Commercial Taxes

<Gist:

>Head Note:

?  Citations:
1)      (1993) 88 STC 98
2)      1994 Suppl. (2) SCC 59
3)      (2004)11 SCC 26
4)      (2008) 14 SCC 186
5)      (2005) 12 SCC 77
6)      (1994) 5 SCC 672
7)      (1972) 1 SCC 209
8)      AIR 1962 SC 955 (Five Judge Bench)
9)      (1980) 4 SCC 697
10)     (1949) 2 ALLER 155
11)     (1985) 60 STC 1 (SC)
12)     AIR 1975 SC 1871 : (1975) 36 STC 191 (SC)
13)     (1993) 90 STC 537 (Karnataka HC)
14)     (1989) 72 STC 317 (AP) = 7 APSTJ (1988) 43) (AP HC)
15)     (1972) 30 STC 537 (Ker)
16)     (1968) 21 S.T.C. 1 (S.C)
17)     Order of the Tamil Nadu High Court in TRC No.2286 of 2008 dated
12.07.2010)
18)     (1982) 51 STC 1 (APHC)
19)     (2008) 12 VST 546
20)     (1999) 29 APSTJ 1 (APHC)
21)     AIR 1979 Andhra Pradesh 173
22)     7 APSTJ (1988) 116) (APHC)
23)     AIR 1970 SC 1742
24)     AIR 1957 SC 657
25)     (2004) 7 SCC 642
26)     (2007) 4 SCC 30
27)     (1997) 11 SCC 751 = (1997) 105 STC 325(SC)  
28)     (MANU/KE/0089/1979  
29)     [1973] 32 STC 623
30)     [1981] 47 STC 369
31)     AIR 1985 SC 582
32)     (1990) 77 STC 282
33)     (1988) 68 STC 287 (APHC)
34)     [1968] 61 STC 337 (Mad)
35)     [1987] 65 STC 16 (Ker)
36)     [1983] 53 STC 163 (Pan & H)
37)     [1980] 45 STC 1 (Kar)
38)     (1988) 2 SCC 264
39)     (2010) 35 VST 226 (P&H)
40)     (1994) 6 SCC 479
41)     1989 Supp (1) SCC 128
42)     (1965) 1 All E.R. 225
43)     (1921) K.B. 64
44)     AIR 1978 SC 897
45)     (1997) 3 All ER 817
46)     (1981) 1 ALLER 865 = (1982) AC 300
47)     (1992) 85 STC 220 (SC)
48)     (2013) 58 VST 281 (Gauhati)
49)     [1959] 2 All E.R. 350
50)     [1974] 2 All E.R. 97
51)     (1972) 3 SCC 717 = ([1973] 1 S.C.R. 172
52)     (1990) 77 STC 373 (APHC)
53)     (48) STC 466 at 476
54)     (1994) 6 SCC 623
55)     (16) TC 1 at 19
56)     (1927) P.C. 242
57)     (1976) 2 SCC 917
58)     (37) STC 77 at 111
59)     AIR 1969 SC 147
60)     (1980) 45 STC 438 (PH)
61)     AIR 1985 SC 1041 = (1985) 60 STC 1 (SC)
62)     AIR 1968 Madras 90 (Madras High Court)
63)     (1995) 97 STC 395 (Kerala HC)
64)     (1982)  51 STC 195 (Allahabad HC)
65)     1979 UPTC 1125
66)     [1967] 20 STC 290 at 296-297 (SC)
67)     (2012) 54 APSTJ 39 (APHC)
68)     (1965) 16 STC 310 (SC)
69)     AIR 1965 SC 1310
70)     (1989) 74 STC 1
71)     (1970) 25 STC 52 : AIR 1969 SC 1073
72)     (1960) XI STC 149 (P&H HC)
73)     91 STC 409
74)     1998 (6) ALD 443
75)     (1962) XIII STC 709 (APHC)
76)     (1958) 9 STC 723 (APHC DB)  
77)     1976 UPTC 518
78)     (1969) 24 STC 320 (A.P)
79)     (Order in S.T.R. No. 539 of 1966, dated 02.01.1969 All HC)
80)     (1967) XX STC 89 (Karnataka H.C)
81)     (1986) 2 APSTJ 42
82)     (Order in WP No.15413 of 2014 dated 25.09.2014)
83)     (2013) 9 SCC 753
84)     (2006) 6 SCC 482
85)     (1995) Suppl. (3) SCC 322
86)     (2007) 8 SCC 559
87)     AIR 1959 SC 49
88). (2007) 1 SCC 732


        THE HONBLE SRI JUSTICE RAMESH RANGANATHAN        
AND
THE HONBLE SRI JUSTICE M.SATYANARAYANA MURTHY            

Writ Petition Nos.17972, 22902, 22907, 28240 of 2008; 6503,
6519, 7877, 7898, 7907, 18756, 18791 of 2009; 10710, 11596
of 2010; 17136, 17151, 21980, 22013, 22035, 22123 of 2012;
15515, 15570, 22425, 22426, 22428, 22446, 22552, 22632,
22717 of 2013; 5855, 5862, 5864, 5868, 11564, 11650,
12442, 13587, 14559, 16361,16363, 16378, 16379, 20265,
20277, 20278, 20354, 20372, 20531, 20581, 20582, 20583,
20590, 20594, 20695, 20703, 21119, 21138, 23349, 23350,
23664, 25661, 25664, 26593, 26600, 26707, 26811, 26904,
27032, 27055, 27278, 27280, 27757, 27885, 27933, 27956,
27967, 28002, 28168, 28175, 28353, 28368, 28514, 28676,
29351, 29429, 29701, 29740, 29742, 29750, 29762, 29806,
29911, 30260, 30371, 30377, 30857, 30860, 30887, 30895,
30902, 30941, 31743, 31871, 31894, 31939, 32032, 33027,
34323, 34452, 34474, 34476 and 34890 of 2014

COMMON ORDER: (per Honble Sri Justice Ramesh Ranganathan)      

       
         In this batch of writ petitions, the validity of the assessment
orders are put in issue on the ground that the assessing authority
has levied purchase tax contrary to Section 4(4) of the A.P. VAT
Act, 2005 (for short the Act) and Sections 14 and 15 of the
Central Sales Tax Act, 1956 (CST Act for short).  The petitioner-
assessees are either (1) rice millers, or (2) dhal millers, or (3)
soyabean oil millers, or (4) cotton millers.  The first category of
petitioners purchase paddy from agriculturists, mill it to produce
rice, sell rice either to FCI or in the open market, and pay value
added tax (VAT) on the said sales.  The husk obtained, after milling
rice, is either sold or consumed by the dealer.  In such cases, the
assessing authorities have levied 5% purchase tax on the purchase
price of paddy which was used as input for husk which is exempt
from tax under the first Schedule to the Act.  The second category
of petitioners purchased raw dhal from agriculturists, milled it to
produce dhal, and paid value added tax (VAT) on the sale of
finished (dehusked) dhal. The husk obtained, after milling dhal, is
either sold or consumed by them.  In these cases the assessing
authorities have levied 5% purchase tax on the purchase price of
raw dhal which was used as input for husk.  The third category
of petitioners purchased soyabean seed, and crushed it to produce
soyabean oil.  The residue was used to make soyabean deoiled
cake which was sold by them as cattle/poultry feed.  The assessing
authorities have levied 5% purchase tax on the purchase price of
soyabean seed which was used as input for soyabean deoiled
cake which is exempt from tax under the Act. The fourth category
of petitioners purchased raw cotton (Kapas) from agriculturists,
and ginned it.  Cotton seeds were separated in the process.  The
ginned cotton i.e., cotton lint was sold.  The cotton seeds were
crushed, and cotton seed oil was extracted and sold.  Cotton
deoiled cake, obtained after crushing cotton seed, was sent outside
the State otherwise than by way of sale.  The assessing authorities
have levied purchase tax at 4%/5% on the proportionate value of
cotton kapas used in the manufacture of cotton deoiled cake which
was sent outside the State otherwise than by way of sale.   In a few
cases cotton seeds were despatched outside the State otherwise
than by way of sale.  Purchase tax, under Section 4(4) of the Act
was levied at 4%/5% on the proportionate purchase price of raw
cotton used as input for cotton seed.

2.      Elaborate oral submissions have been put forth by Dr.
S.R.R. Viswanath, Sri V. Bhaskar Reddy, Sri Shaikh Jilani Basha
and Sri M.V.J.K. Kumar, Learned Counsel for the petitioners and
Sri D. Srinivas, Sri M. Govind Reddy and Sri J. Anil Kumar,
Learned Special Standing Counsel for Commercial Taxes.  Written
submissions have also been filed by Dr. S.R.R. Viswanath and Sri
M.V.J.K. Kumar, Learned Counsel for the petitioners and Sri D.
Srinivas, Sri M. Govind Reddy and Sri J. Anil Kumar, Learned
Special Standing Counsel for Commercial Taxes.

I. THE RULE OF PRESUMPTION, IN FAVOUR OF        
       CONSTITUTIONALITY, AS A PRINCIPLE OF STATUTORY      
       CONSTRUCTION:

3.      Before considering the rival submissions of Learned Counsel
on either side, it is useful to examine the scope of Section 4(4) of
the Act and its proviso.  In order to arrest tax avoidance, a
provision for levy of contingent purchase tax was introduced in
almost all State enactments.  This tax was called contingent
purchase tax as the levy of tax on purchases is contingent upon
the happening of certain events subsequent to the purchase viz.,
(1) consumption in the manufacture/production of other goods for
sale; (2) consumption otherwise; (3) disposal of those goods within
the State otherwise than by way of sale; and (4) dispatch of goods
outside the State.  Purchase tax, levied under Section 4(4) of the
Act, is similar to Section 6-A of the A.P. General Sales Tax Act,
1957 (for short the APGST Act).  Section 6-A was inserted in the
APGST Act by Act 49 of 1976 w.e.f. 1-9-1976.  The Statement of
Objects and Reasons, appended to the Andhra Pradesh General  
Sales Tax (Second Amendment ) Bill, 1976, reads as under:
         Section 5 of the Andhra Pradesh General Sales Tax Act, 1957, provides
for the levy of tax on sales or purchases of goods.  However, in certain
circumstances goods sold or purchased are escaping tax.  It is, therefore,
proposed to levy tax at the rates specified in section 5 or section 6 on the
purchases in the circumstances specified in the proposed new Section 6-A.


4.      The constitutional validity of Section 6-A of the APGST Act,
and Section 9 of the Haryana Sales Tax Act, was upheld by the
Supreme Court in Hotel Balaji v. State of A.P. .  The
constitutional validity of Section 5-A of the Kerala General Sales
Tax Act, Section 4-B of the Punjab Sales Tax Act and Section 7-A
of the Tamilnadu General Sales Tax Act, all of which were similar
to Section 6-A of the APGST Act, was upheld by the Supreme Court
in Devi Dass Gopal Krishan (P) Ltd. v. State of Punjab .  The
aforesaid provisions of different State enactments levied tax on the
purchase of goods where such goods, either in its original form or
as inputs for other goods, were disposed of otherwise than by way
of sale within the State or in the course of inter-State trade or
commerce or export.

5.      The vires of Section 4(4) of the Act and its proviso has not
been subjected to challenge in this batch of Writ Petitions.  In view
of the presumption of constitutionality of statutes, and in the absence
of a challenge to its validity, we must proceed on the footing that
Section 4(4) and its proviso is constitutionally valid. Our approach
must be to uphold the validity of the provision by a process of a
fair and broad reading of the constitutional mandate, (State of
Punjab v. Devans Modern Breweries Ltd ), and interpret it in
such a manner that its constitutionality is upheld. (Aslam
Mohammad Merchant v. Competent Authority ). The rule of
presumption in favour of constitutionality, as a principle of
construction, is that if two meanings are possible then the courts
will reject the one which renders it unconstitutional and accept the
other upholding the validity of the legislation. (State of Rajasthan
v. Basant Nahata ; Kerala State Housing Board v. Ramapriya
Hotels (P) Ltd., ; State of M.P. v. Chhotabhai Jethabhai Patel &
Co., ; Kedar Nath v. State of Bihar ).  If the language is not clear
and precise as it ought to be, the attempt of the court should to
ascertain the intention of the legislature and put that construction
which would lean in favour of the constitutionality unless such
construction is wholly untenable. (State of Karnataka v. Hansa
Corpn. ; Seaford Court Estates Ltd. v. Asher ).

II. SECTION 4(4) OF THE ACT  ITS SCOPE:  
6.      Section 4(4) of the Act provides that every VAT dealer, who in
the course of his business purchases any taxable goods from a
person or a dealer not registered as a VAT dealer or from a VAT
dealer in circumstances in which no tax is payable by the selling
VAT dealer, shall be liable to pay tax at the rate of four/five
percent on the purchase price of such goods if, after such
purchase, the goods are (i) used as inputs for goods which are
exempt from tax under the Act; or (ii) used as inputs for goods,
which are disposed of otherwise than by way of sale in the State or
dispatched outside the State otherwise than by way of sale in the
course of inter-State trade and commerce or export out of the
territory of India; or (iii) disposed of otherwise than by way of
consumption or by way of sale either within the State or in the
course of inter-State trade or commerce or export out of the
territory of India.  Under the first proviso thereto, wherever a
common input is used to produce goods, the turnover, taxable
under Section 4(4), shall be the value of the inputs, proportionate
to the value of the goods used or disposed of in the manner
prescribed under Section 4(4).

7.      The components which enter into the concept of a tax are
well known. The first is the character of the imposition known by
its nature which prescribes the taxable event attracting the levy,
the second is a clear indication of the person on whom the levy is
imposed and who is obliged to pay the tax, the third is the rate at
which the tax is imposed, and the fourth is the measure or value to
which the rate will be applied for computing the tax liability. If
these components are not clearly and definitely ascertainable, it is
difficult to say that the levy exists in point of law. Any uncertainty
or vagueness in the legislative scheme, in defining any of these
components of the levy, will be fatal to its validity. (Govind Saran
Ganga Saran v. Commissioner of Sales Tax ).  The scheme of
the Act involves three interrelated but distinct concepts which may
conveniently be described as 'taxable person', 'taxable goods' and
'taxable event'. All the three must be satisfied before a person can
be saddled with liability under the Act. "Taxable person' is a
'dealer' as defined under the Act. "Taxable event' is the sale or
purchase of `goods' effected during the tax period. Section 4(4)
brings to tax goods the sale of which would, normally, have been
taxed at some point in the State subsequent to their purchase by
the dealer, if those goods were not available for taxation owing to
the acts of the dealer as specified in clauses (i) to (iii) thereof.  (The
State of Tamil Nadu v. M.K. Kandaswami ).

8.      The ingredients of Section 4(4) of the Act are (1) a VAT
dealer, in the course of his business, purchases taxable goods from
(a) any person, or (b) a dealer not registered as a VAT dealer, or (c)
from a VAT dealer in circumstances in which no tax is paid by the
selling dealer; (2) the VAT dealer, who has purchased the taxable
goods from persons mentioned at (a), (b) and (c) above, is liable to
pay tax at 4%/5% on the purchase price of such goods which,
under Section 2(25) of the Act, is defined to mean the amount of
valuable consideration paid or payable by a person for any
purchase made by him.  The liability to pay such tax, however,
arises only when, after such purchase, the goods are (i) used as
inputs for goods which are exempt from tax under the Act; or (ii)
used as inputs for goods which are (a) disposed of otherwise than
by way of sale in the State, or (b) dispatched outside the State
otherwise than by way of (1) sale in the course of inter-state trade
or commerce or (2)  export out of the territory of India; or (iii)
disposed of, otherwise than by way of consumption or by way of
sale, either (a) within the State or (b) in the course of inter-state
trade or commerce or (c) export out of the territory of India.  If a
common input is used to produce more goods than one and, if any
one of the goods so produced attracts clauses (i) to (iii) of Section
4(4), the manner in which the taxable turnover, under Section 4(4),
is to be computed is as stipulated in its first proviso.

9.      The levy created by Section 4(4) is a levy on the goods
purchased within the State which are used as inputs for
manufacture/production of other goods within the State. If,
however, the manufactured/produced goods are sold within the
State, no purchase tax is collected on the inputs as the State gets
larger revenue by taxing the sale of such goods. (The value of
manufactured/produced goods is bound to be higher than the
value of the goods used as inputs).  The State legislature does not
wish in the interest of trade and general public  to tax both the
input and the output (i.e., the finished/manufactured product).
But where the manufactured goods are not sold within the State
but are yet disposed of, or where the manufactured goods are sent
outside the State (otherwise than by way of inter-state sale or
export sale), tax is levied on the purchase value of the input. The
reason is simple: if the output (i..e, the manufactured goods) are
disposed of otherwise than by way of sale within the State or are
sent out of State (i.e., consigned to the dealers own depots or
agents), the State does not get any revenue because no sale of the
output (i.e., the manufactured goods) has taken place within the
State. In such a situation, the State says, it would retain the levy
and collect it since there is no reason for waiving the purchase tax
in these situations.   In the case of inter-state sale, the State gets
tax-revenue  may not be to the full extent.  Though Central Sales
Tax (CST) is levied and collected by the Government of India,
Article 269 of the Constitution provides for making over the tax
collected to the States in accordance with certain principles.  In the
case of export sale, within the meaning of Section 5(1) of the CST
Act, the State may not get any revenue but larger national interest
is served thereby.  It is for these reasons that tax, on the purchase
of raw material/input, is waived in the aforesaid two situations.
There is a sound and consistent policy underlying the provision.
The object is to tax the purchase of goods whose existence as such
goods is either put to an end by a dealer, using them in the
manufacture or production of different goods which are not taxable
in certain circumstances, (Hotel Balaji1; Madhur Trading Co. v.
State of Karnataka ), or where a VAT dealer purchases goods
and disposes it otherwise than by way of consumption or by way of
sale.    The idea is that the State should have the benefit of one tax
atleast from a transaction in such goods involving sale or
purchase. (Madhur Trading Co.13).

10.     Section 4(4) of the Act brings to tax goods the sale of which
would, normally, have been taxed at some point in the State.
Subsequent to their purchase by the dealer if those goods are not
available for taxation, owing to the act of the dealer in (1) using
them as inputs for goods which are exempt from tax under the Act;
(2) using them as inputs for goods which are disposed of otherwise
than by way of sale in the State; (3) using them as inputs for goods
which are dispatched outside the State otherwise than by way of
sale in the course of inter-state trade and commerce or export out
of the territory of India; or (4) disposing of such goods otherwise
than by  consumption or by way of sale either within the State or
in the course of inter-state trade or export, tax is levied on the
purchase price of such goods.  (Kandaswami12).   True it is that
the levy materialises  only when the purchased goods (raw
material/input) is consumed in the manufacture of different goods
and those goods are disposed of within the State otherwise than by
way of sale or are consigned to the manufacturing-dealers
depots/agents outside the State.  Merely because the levy attaches
on the happening or non-happening of a subsequent event, the
nature and character of the levy does not change. If the goods are
not available in the State for subsequent taxation, by reason of one
or other of the circumstances mentioned in clauses (i) to (iii) of
Section 4(4) of the Act, then the purchaser is sought to be made
liable under Section 4(4). (Hotel Balaji1; M/s.Andal & Co.,
Hyderabad v. State of A.P. ; Malabar Fruit Products Co. v.
S.T.O. ; M.K. Kandaswami12; State of Madras v.
Narayanaswami Naidu ). Section 4(4) creates a liability against
the VAT dealer on his purchase turnover with regard to goods
which, though taxable, are not taxed due to other factors such as
exemption etc. (The State of Tamil Nadu v. Tvl. Pari Trading
Co. ).
11.     Section 4(4) is at once a charging as well as a remedial
provision. (M.K. Kandaswami12). Section 4(4) creates a liability
against a VAT dealer on his purchase turnover with regard to
goods which, though generally liable to tax under the Act, have not
been taxed due to the circumstances of such goods, after
purchase, having been dealt by him in any of the modes indicated
in clauses (i) to (iii). (M.K. Kandaswami12).  The contention that
Section 4(4) of the Act attracts goods to tax which are not
otherwise exigible to tax, and is otiose, has no substance.
(Hindustan Milkfood Manufacturers Ltd. v. State of A.P ).

12.     Each transaction of purchase, used or disposed of in the
manner contemplated under clauses (i) to (iii) of Section 4(4), is
distinct and is neither capable of being construed as overlapping or
as redundant. (Hindustan Milkfood Manufacturers Ltd.18). The
scheme of Section 4(4) is to levy tax on the purchase of raw
material/input, and not to forego it, where the goods
manufactured out of them are disposed of (or despatched) in a
manner not yielding any revenue to the State or serving the
interests of nation and its economy. The purchased goods are put
an end to by their consumption in the manufacture of other goods,
and yet the manufactured goods are dealt with in a manner as to
deprive the State of revenue.  In such cases, there is no reason
why the State should forego its tax revenue on the purchase of raw
material/inputs. (Hotel Balaji1).

13.     The principle behind the levy of purchase tax is that, if the
goods purchased are not available for taxation inside the State
and, by reason of one of the contingencies, the State is likely to
lose its revenue, the interest of the State needs to be secured.  The
policy underlying Section 4(4) is to tax every transaction either at
the point of sale or purchase.  Where the seller is not taxed or
cannot be taxed, the purchaser is taxed. By the same reasoning,
when the seller is taxed, the purchases is not taxed. (Ruchi Soya
Industries Limited v. Commercial Tax Officer, Harbour III
Assessment Circle, Chennai ; Malabar Fruit Products Co.15
approved in M.K. Kandaswami12; and Hotel Balaji1).  The fact
that, in a given case, the purchased goods are consigned by the
purchaser to his own depots or agents outside the State makes no
difference to the nature and character of the tax. By doing so, he
cannot escape even the one-time tax levied upon the goods
purchased. The legislative policy is directed towards ensuring levy
of tax at least on one transaction of sale/purchase of the goods.  If
the goods are not available in the State for subsequent taxation, by
reason of the circumstances mentioned in clauses (i) to (iii) of
Section 4(4), then the purchaser is made liable to tax under
Section 4(4). (Ruchi Soya Industries Limited19; M.K.
Kandaswami12).

14.     Bearing in mind the scope and purport of Section 4(4) and
its first proviso, we shall now examine the submissions, put forth
by Learned Counsel on either side, under different heads.

III. TAX, UNDER SECTION 4(4) OF THE ACT, IS LEVIED ON    
      TAXABLE GOODS:  

15.     It is contended, on behalf of the petitioners, that the
petitioners, among others, purchased cotton kapas (raw cotton)
from cultivators and other unregistered-dealers and subjected it to
ginning; ginning of raw-cotton yields cotton-lint and cotton seed;
the entire quantity of cotton lint was sold within the State or in
the course of inter-State trade and commerce, and the tax due
under the Act or the CST Act respectively was completely paid; the
cotton-seed, derived out of ginning (i.e., the cotton seed was not
purchased), was crushed and the resultant cotton seed oil or
cotton seed oil cake was sent on consignment to agents in other
States; in a few cases cotton-seed was sent on consignment to
agents in other states; cotton kapas and cotton lint are the same
commodity; unginned cotton (that is raw cotton or cotton kapas)
cannot be brought under any of clauses (i), (ii) or (iii) of Section
4(4);  when cotton as a commodity has fetched full tax on its sales,
no purchase tax can be levied; and Section 4(4) of the Act, though
similar to Section 6-A of the APGST Act, is narrower in its scope.

16.     The submissions urged on behalf of the respondents, on the
other hand, is that the purpose and object of Section 4(4) of VAT
Act is similar to that of Section 6-A of the APGST Act; the scope of
Section 4(4) is wider than Section 6-A; by using the word input
(instead of raw material), and by deleting the word manufacture
in clause (i) thereof, the Legislature has expanded the scope of
Section 4(4) of the Act; the petitioner(s)-dealer(s) purchase raw
cotton, process it and dispatch cotton deoiled cake outside the
State, otherwise than by way of sale; purchase tax is levied only
when the goods, produced from the inputs, are not subjected to
tax; and the petitioners cannot escape the liability to pay purchase
tax on raw cotton (proportionately), as no tax is levied on the oil
cake, extracted by them from cotton seed, which is dispatched
outside the State.

17.     In these Writ Petitions, the goods which have been subjected
to tax under Section 4(4) of the Act, are raw cotton (kapas), paddy,
raw dhal and soyabean seed.  Tax, under Section 4(4), has been
levied on the proportionate purchase value of raw cotton (kapas) on
the ground that cotton seed/cotton deoiled cake/cotton delint
husk (hull) have not been subjected to tax under the Act.  Likewise
tax has been levied on the proportionate purchase value of paddy
and raw dhal on the ground that husk has not been subjected to
tax under the Act.   Tax has also been levied on the proportionate
purchase value of soyabean seed on the ground that soyabean
deoiled cake has not been subjected to tax under the Act.

18.     Raw cotton, paddy, raw dhal and soyabean seed are all
taxable goods.  The expression taxable goods, as used in Section
4(4), can be defined as goods the sale of which is liable to tax
under the Act.  The word "taxable qualifies the term goods and
excludes, by necessary implication, goods the sale of which is
exempt from tax under the Act. The goods so exempt - not being
'taxable goods'  are not brought to charge under Section 4(4).
(Pardha Saradhi Hotel Enterprises Ltd., Guntur v. Commercial
Tax Officer, Eluru Bazar, Guntur ; M.K. Kandaswami12).  The
goods which are purchased by a VAT dealer are referred to in
Section 4(4) as taxable goods, and such purchases are in
circumstances in which no tax is payable by the seller.  Both these
ingredients are not mutually exclusive and the existence of one
does not necessarily negate the other. Both can co-exist and in
harmony. The former ingredient would be satisfied if it is shown
that the particular goods were "taxable goods". (M.K.
Kandaswami12).  In these Writ Petitions the goods, on which
purchase tax has been levied, under Section 4(4) of the Act, are all
taxable goods ie they are goods the sale of which is generally
taxable under the Act. Raw cotton (kapas) is taxable under Entry
79 of the IV Schedule to the Act; paddy is taxable under Entry 84
of the IV Schedule; raw dhal is taxable under Entry 82 of the IV
Schedule; and soyabean seed is taxable under Entry 72(ii) of the IV
Schedule to the Act.  Sale of the aforesaid goods would, ordinarily,
be subjected to tax under Section 4(1) of the Act, read with the
relevant entries in the IV Schedule.

19.     Notwithstanding the goods being "taxable goods", there may be
circumstances by reason of which the particular sale transaction
does not attract tax under the Act.  Section 4(4) provides for such a
situation and makes the purchase of such goods taxable in the
hands of the purchasing VAT dealer, on his purchase turnover, in
any of the circumstances referred to clauses (i) to (iii). For instance,
branch transfer or stock transfer of goods by a VAT dealer to his
consignee/agent is not taxable under the Act.  Such transactions
attract the ingredients of clause (ii) of Section 4(4).  Therefore the
input of such goods are subjected to tax under Section 4(4) of the
Act.  The contention that the expression "taxable goods and the
phrase "purchase in circumstances in which no tax is payable by the selling
VAT dealer are a contradiction in terms, cannot be accepted as
such an interpretation would render Section 4(4) wholly nugatory.
(M.K. Kandaswami12).


20.     The table below details the process to which the agricultural
produce (on which tax under Section 4(4) has been levied in this
batch of Writ Petitions), are subjected to, resulting in production of
other goods.
































IV. SALE OF AGRICULTURAL PRODUCE TO VAT DEALERS            
      FARMERS ARE NOT SUBJECTED TO TAX UNDER THE          
      ACT:

21.     It is contended, on behalf of the petitioners, that the goods,
i.e., paddy, cotton kapas, soyabean seed, and dhal, are purchased
from farmers in all these cases, except in the case of cotton mills
where kapas are also purchased from registered dealers; the
farmer is outside the purview of the Act; Section 2(6), which deals
with the definition of business, excludes farmer in the relevant
Explanation-III appended to the definition; so also the definition of
dealer in section 2(10) r/w ExplanationII; as the farmer, is
outside the purview of the Act, treating him as a person, or a
dealer not registered as a VAT dealer, is without jurisdiction; the
intention of the legislature is to exempt the farmer from the
clutches of the Act; the definition of Sale, in Section 2(28), refers
to business and trade; trade and business are synonymous;
and, as the farmer is excluded from the definition of business, he
is equally exempt from the definition of sale also.

22.     On the other hand Learned Special Standing Counsel for
Commercial Taxes would submit that, under the APGST Act,  
various goods were taxable either at the point of sale or at the
point of purchase despite which some transactions escaped levy of
tax which prompted the legislature to introduce Section 6-A; under
the Act all goods are taxable only at the point of sale; hence, in the
absence of Section 4(4), many more transactions would have
escaped the tax net, and the State would have lost crores of rupees
in revenue; for example paddy, dhal, cotton and all other
agricultural produce are taxable at the point of sale only;  since
these goods are sold by agriculturists, who are not dealers under
the Act, these sales would escape levy of tax in the absence of
Section 4(4); a plain reading of Section 4(4) makes it clear that the
dealers are liable to pay purchase tax if the conditions mentioned
therein are present; in all these cases, since the petitioners have
purchased agricultural produce such as paddy, dhal, kapas, soya
etc. from agriculturists and have used them as inputs for other
goods which are exempt from tax or have used them as inputs for
goods which were sent out of the State otherwise than by way of
sale, the dealers are liable to pay purchase tax on the
proportionate purchase value of the inputs; and farmers would fall
within the ambit of person under Section 4(4) of the Act.

23.     The State Legislature is empowered, under Entry 54 of List II
to the VII Schedule to the Constitution of India, to make a law
levying tax on the sale or purchase of goods other than
newspapers.  The law, which the State legislature is empowered
under Entry 54 to make, includes a law levying tax not only on the
sale of goods but also on its purchase.  Tax is levied, under Section
4(4) of the Act, on a VAT dealer who, in the course of his business,
purchases taxable goods from (1) a person; or (2) a dealer not
registered as a VAT dealer; or (3) a VAT dealer in circumstances in
which no tax is payable by the selling VAT dealer. The word
purchase, as used in Section 4(4), is not defined under the Act.
Purchase is the other side of a sale transaction.  Every transfer of
the property in goods for consideration results in a sale and a
purchase.  (Madhur Trading Co.13).  Section 4(4) visualises
imposition of tax on purchases made by a VAT dealer from a
person other than a registered dealer, who could be a non-
registered dealer or a person who is not a dealer. (Hindustan
Milkfood Manufacturers Ltd.18).

24.     Section 2(6) of the Act defines business to include (a) any
trade, commerce or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture whether or not such
trade, commerce, manufacture, adventure or concern is carried on
or undertaken with a motive to make gain or profit and whether or
not any gain or profit accrues therefrom; (b) any transaction in
connection with, or incidental or ancillary to, such trade,
commerce, manufacture, adventure or concern; and  (c) any
transaction in connection with commencement or incidental or
ancillary to the commencement or closure of such trade,
commerce, manufacture, adventure or concern.  Under
Explanation (iii) thereto, for the purpose of Section 2(6), a sale by a
person, whether by himself or through an agent of agricultural or
horticultural produce grown by himself or grown on any land
whether as owner or tenant in a form not different from the one in
which it was produced, save mere cleaning, grading or sorting,
does not constitute business.

25.     Section 2(10) of the Act defines dealer to mean any person
who carries on the business of buying, selling, supplying or
distributing goods or delivering goods on hire purchase or on any
system of payment by instalments, or carries on or executes any
works contract involving supply or use of material directly or
otherwise, whether for cash or for deferred payment, or for
commission, remuneration or other valuable consideration.  Under
Explanation II thereto, where a grower of agricultural or
horticultural produce sells such produce grown by himself on any
land in which he has an interest whether as owner, usufructuary
mortgagee, tenant or otherwise, in a form different from the one in
which it was produced after subjecting it to any physical, chemical
or any process other than mere cleaning, grading or sorting, he
shall be deemed to be a dealer for the purpose of the Act.
Explanation V to Section 2(10) stipulates that, save as otherwise
expressly provided for under the Act, the word dealer shall include
a VAT dealer.

26.     A farmer who grows agricultural produce and, except for
cleaning, grading and sorting, does not subject the agricultural
produce to any other physical, chemical and other process, would
neither fall within the definition of a dealer under Section 2(10) of
the Act nor can he be said to be carrying on business for the
purposes of the Act.  The word person is not defined under the
Act.  Section 2(22) of the A.P. General Clauses Act defines person
to include any company or association of individuals whether
incorporated or not.  The word person, in Section 2(22) of the A.P.
General Clauses Act, brings within its ambit not only natural
persons but also artificial persons.  It is an inclusive definition, and
must receive an extended connotation.  While the meaning to be
given to the word person must naturally depend on the context,
there is nothing in Section 4(4) of the Act which compels us to give
a restricted meaning to the expression person so as to exclude
from its ambit farmers or agriculturists.  (Kanyakaparameswari
Varthaka Sangham v. Commissioner of Endowments, Andhra    
Pradesh ).  A farmer or an agriculturist would be a person under
Section 2(22) of the AP General Clauses Act and consequently, as
the context does not otherwise provide, under Section 4(4) of the
Act also.
27.     The tax levied under Section 4(4) is not on the sale of goods
by a farmer/agriculturist, but on the VAT dealer who purchases
goods (agricultural produce) from the farmer.  The contention
that a farmer or an agriculturist is being subjected to tax is not
tenable, as tax is levied not on him but on the VAT dealer who
purchases goods from him.  It is not every purchase of taxable
goods from an agriculturist/farmer, but only such goods which fall
within the ambit of clauses (i) to (iii) of Section 4(4), and its
proviso, which attracts levy of tax at the stage of its purchase.  The
contention that a farmer/agriculturist is indirectly being subjected
to tax does not, therefore, merit acceptance.

28.     Broadly speaking, the effect of Section 4(4) is: tax payable at
sale point becomes the tax payable on the purchase point in
certain circumstances. Because the seller is not, or cannot be,
taxed for certain reasons, the purchasing dealer is being taxed.
When taxable goods are sold by a farmer/agriculturist he cannot
be taxed because he is not a dealer. The purchaser is taxed in such
cases provided one of the conditions specified in clauses (i) to (iii)
in Section 4(4) are satisfied. (Hotel Balaji1).  Where goods, liable to
tax under the Act, are purchased by a VAT dealer from other
dealers who are not registered under the Act, and the goods have
not suffered any sales tax, a liability is imposed on the purchasing
dealer to the extent the goods purchased by him are used as
specified in clauses (i) to (iii) of Section 4(4). (M/s.P.Subbaraju &
Co., Kondapalli v. State of A.P. ; Hindustan Milkfood
Manufacturers Ltd.18).
V. CAN GOODS, EXEMPT FROM TAX UNDER THE VAT ACT, BE            
    INDIRECTLY SUBJECTED TO TAX UNDER THE PROVISO TO          
    SECTION 4(4)?

29.     It is contended, on behalf of the petitioners, that the
executive cannot  take advantage of the proviso, appended to
Section 4(4), to levy purchase tax on the sale of goods exempt from
tax, by virtue of its being placed in the exempt list by the
legislature; such a construction would defeat the very object  and
purpose of the exemption granted by the legislature; as sale and
purchase are but two facets of the same transaction, purchase tax
cannot be levied on the ground that sales tax is exempt or vice
versa; and tax, under Section 4(4), cannot be levied merely to
augment revenue.

30.     When taxable goods are sold by a person, who is not a dealer
under the Act, then VAT is not payable on the sale of such goods.
Where a farmer grows raw cotton, paddy, raw dhal and soyabean
seed in his land, and sells these agricultural produce to others, he
is not liable to pay tax, on the sale of such goods, as he is not a
dealer under Section 2(10) of the Act.  Purchase of such
agricultural produce by a VAT dealer is in circumstances in which no
tax is payable by the seller.  In such circumstances tax, at 4%/5% of
the purchase price of such goods, is liable to be paid by the VAT
dealer who purchases the aforesaid goods i.e., agricultural
produce.  This liability of a VAT dealer to pay purchase tax would,
however, arise only if any one of the conditions, mentioned in
clauses (i) to (iii) of Section 4(4), are satisfied.

31.     The provisions contained in a statute, with respect to
exemption of tax on the one hand, must be distinguished from the
total non-liability or non-imposition of tax on the other. (Rattan
Lal & Co. v. Assessing Authority, Patiala ; A. V. Fernandez v.
State of Kerala ).  The question of exemption arises only when
there is a liability.   But for the exemption, the dealer would be
required to pay tax. In other words, exemption pre-supposes a
liability.  (Associated Cement Companies Ltd. v. State of
Bihar ; Peekay Re-Rolling Mills (P) Ltd. v. Asstt. Commr., ).
Exemption does not negate levy of tax altogether. Despite an
exemption, the liability to tax remains unaffected, only the
subsequent requirement of payment of tax to fulfil the liability is
done away with. (Peekay Re-Rolling Mills (P) Ltd.26). Section
4(4)(i) of the Act is attracted where the purchased goods are used
as inputs for goods which are exempt from tax under the Act.
Section 7 of the Act stipulates that the goods, listed in Schedule I
to the Act, shall be exempt from tax under the Act. The VAT dealer,
who purchases paddy from a farmer and mills it, obtains rice and
husk. A process of manufacture is involved in the production of
rice by milling paddy, and the rice so produced is distinct in nature
and character from paddy. When paddy is dehusked and rice is
produced there is a change in the identity of the goods, and paddy
does not continue to be paddy thereafter. Rice and paddy, in
ordinary parlance, are two distinct and different commodities.
(Raja Provision Stores v. Appellate Tribunal (Sales Tax),
Trivandrum ; M. Narayanan Nambiyar v. State of Kerala ;
Ganesh Trading Co., Karnal v. State of Haryana ; State of
Karnataka v. B. Raghurama Shetty ).

32.     While rice is taxable under Entry 85 of the IV Schedule,
husk is exempt under Entry 41 of the First Schedule to the Act.
As VAT is liable to be paid on the sale of rice, tax cannot be levied
under Section 4(4), on the purchase price of paddy, to the extent it
results in production of rice.  However, as husk is exempt from tax
under the Act, the proportionate purchase value of paddy, to the
extent it has resulted in production of husk, is liable to tax under
Section 4(4)(i) of the Act. Soyabean seed is taxable under Entry 72
(ii) of the IV Schedule to the Act.  However, when it is sold by
agriculturists or farmers, no tax is liable to be paid on its sale.
Where soyabean seed is purchased by a VAT dealer, and is
crushed to produce soyabean oil, its residue is used to make
soyabean deoiled cake.  Soyabean oil is taxable under Entry 67 of
the IV Schedule to the Act.  However soyabean deoiled cake is
exempt under Entry 3 of the First Schedule to the Act.  The VAT
dealer is, therefore, subjected to tax under Section 4(4)(i) on the
proportionate purchase value of soyabean seed which has yielded
soyabean deoiled cake.  It is only because the goods listed in the
first schedule to the Act are exempt from payment of VAT under
the Act, is purchase tax levied, under Section 4(4)(i) of the Act, on
goods which are used as inputs for goods which are exempt from
tax under the Act.
33.     Tax under Section 4(4) is not levied on goods which are
exempt from tax. For instance purchase tax, under Section 4(4)(i),
is not levied on soya bean de-oiled cake which is exempt from tax
under the Act, but on soya bean seed which is a commodity
distinct and different from soya bean de-oiled cake and is taxable
under Entry 72(ii) of the IV Schedule to the Act.  The legislative
intent is to ensure that the State is not deprived of its revenue and
that goods are taxed once either at the time of its sale or at the
time of its purchase.  It is only because certain goods are exempt
from tax under the Act, is purchase tax levied on other goods
which are used as input for such exempted goods. Both Section
4(4) and Section 7 form part of the Act and the submission that the
executive is seeking to levy tax on goods, which are exempt from
tax under the Act, does not merit acceptance.  Having granted
exemption in respect of certain goods, under Section 7 read with
the entries in the first schedule, the legislature has also chosen to
levy purchase tax, under Section 4(4) (i) of the Act, on goods which
are used as inputs for goods exempt from tax under the Act.

VI. THE FIRST PROVISO TO SECTION 4(4)  ITS SCOPE:      

34.     It is contended, on behalf of the petitioners, that the pro-rata
principle, incorporated in the 1st proviso to Section 4(4), applies
only to the value of goods, used or disposed of in the manner as
prescribed; no purchase tax is leviable as the use of expression
disposed of in the proviso makes it clear that branch transfers or
stock transfers to ones own consignee/agents, which do not
involve transfer of ownership, will not attract the charge; the pro-
rata principle is not applicable to stock transfers; Section 4(4), as
interpreted by the Revenue, tries to reach out to the purchase
followed by two taxable events by looking to derivatives of the
derivates of the input, even though the main product has fetched
full revenue; Section 4(4) cannot reach out to the outputs output
and hence, when cotton deoiled cake is sent on consignment, tax
cannot be levied on the purchase of cotton kapas calculating
backwards; similarly cotton oil is also the outputs output and,
when cotton oil is sent on consignment, tax cannot be levied on the
purchase of cotton kapas by calculating backwards; in a few cases
where cotton-seed is sent on consignment, since the petitioners
have paid the full tax due on the sale of cotton lint (i.e ginned
cotton), no purchase tax can be levied on cotton kapas relatable to
cotton seed; disposal by way of sale, of the entire cotton lint,
amounts to disposal of cotton kapas; the condition precedent for
the levy of purchase tax, i.e., disposed otherwise than by way of
sale, is not fulfilled; levy of purchase tax under Section 4(4), by
subjecting by-products to tax (which are otherwise exempt from
tax by the legislature), is impermissible; the goods i.e. husk,
soyabean de-oiled cake, cotton hull, hank yarn, cotton delint husk
(hull) and cotton de-oiled cake are all by-products  obtained while
manufacturing the main product i.e. rice , dhal, cotton lint, hank
yarn, processed cotton seed and cotton oil; levy of purchase tax on
the by- products, treating them as the main product intended to be
manufactured, is improper and incorrect; and the corresponding
purchase turnover is arrived at by adopting a formula not
prescribed under the Act, referring to the purchase turnover of
kapas purchased from farmers, for arriving at the corresponding
purchase turnover of kapas presumed to have been used for
manufacturing hank yarn and cotton delint husk.

35.     On the other hand the Learned Special Standing Counsel for
Commercial Taxes would submit that the word input, used in
Section 4(4), has a broader meaning than raw material; it includes
any goods that are put in; there may be intermediary products, but
the goods which first go into the process also become input for the
end product;
      Raw Cotton
      Cotton Seed                          Cotton Lint

                     Oil                    Cake
raw cotton is the input for cotton lint, cotton seed, cotton seed oil
and cake; since the dealer is not purchasing cotton seed, but is
extracting cotton seed from raw-cotton purchased from farmers
(i.e., Kapas), and then the cotton seed is processed into oil and
cake, raw cotton becomes the input for all these products; the
petitioners herein claim exemption on the turnover relating to
dispatches outside the state, otherwise than by way of sale (i.e.
consignment) of cotton seed oil, cotton seed cake and, in some
instances, cotton seed; since it is an exempt transaction, purchase
tax is levied on the proportionate purchase value of the goods i.e.,
input i.e., raw cotton under clause (ii) of Section 4(4) of the Act; a
common input is one which gives rise to an output or outputs;
inputs, which are not related to the outputs, are specific inputs; a
common input is one which gives rise to both common and specific
outputs; raw cotton is a common input for cotton seed, oil and
cake; in case the dealer purchases cotton lint and sells it as it is, it
would be a specific output as it is not connected with oil and cake;
the word used in Section 4(4) permits the assessing authority to
go back and levy purchase tax on the purchase price of the input
which is purchased from farmers/ un-registered dealers, if any of
the output /outputs, arising from such input, are disposed in the
manner prescribed under clause (i), (ii) and (iii) of Section 4(4);
anything that is put in is input;  there may be an intermediary
product between the first good (input) and the end products
(outputs); and the goods which first go into the process becomes
the input for the end products.
36.     Learned Standing Counsel would seek to explain the scope of
Section 4(4) by way of an illustration.

Example: A ------------B------------ C (output)
                   (Input)              D (output)

If the dealer purchases A from VAT dealers and sells C and D within the State,
VAT paid on A is allowed as input tax credit while calculating tax payable on C
and D, which will be (C+D --A).  In this case input tax credit will not be
denied
stating that C and D are obtained from B but not from A, because A is also an
input which is purchased from VAT dealers and C and D are obtained from A.
When the input tax credit is allowed to be adjusted going back (any number of
steps), purchase tax also can be levied going back (any number of steps) to the
actual purchase point.  In the instant case Raw Cotton (Kapas) purchased from
farmers is used as an input to produce cotton lint and cotton seed; and cotton
seed is further processed into cotton seed oil and cotton seed cake.  The input
purchased is raw cotton and not cotton seed.  Purchase tax is levied on the
purchase price of raw cotton which is used as an input for cotton lint, cotton
seed, cotton seed oil and cotton seed cake, and one or two outputs are
dispatched otherwise than by way of sale. Common inputs are taxable on the
happening of any of the events specified under Section 4(4) (i), (ii) or (iii).
There
must be goods produced or manufactured out of such common inputs.  In such
a process, the identity of the goods change.  As long as such goods are produced
from out of the common inputs, it is not material when the identity of such
goods change, and at what stage such goods are produced. In the present case,
the consigned goods (de-oiled cake) have not suffered tax at any point, as the
transaction is exempt.  The value of the consigned goods is taken from the
account books of the dealer and then, through a method of backward
calculation, the proportionate purchase value is arrived at, and purchase tax is
levied thereon at 4%/5%.  This is because, except for raw cotton, the dealer has
not purchased any other input to produce cotton seed de-oiled cake consigned
by him outside the State.

37.     A proviso may serve four different purposes:  (1) qualifying or
excepting certain provisions from the main enactment; (2) it may
entirely change the very concept of the intendment of the
enactment by insisting on certain mandatory conditions to be
fulfilled in order to make the enactment workable; (3) it may be so
embedded in the Act itself as to become an integral part of the
enactment and thus acquire the tenor and colour of the
substantive enactment itself; and (4) it may be used merely to act
as an optional addenda to the enactment with the sole object of
explaining the real intendment of the statutory provision. (S.
Sundaram v. V.R. Pattabhiraman ). The proviso to Section 4(4)
prescribes the manner in which the turnover, taxable under
Section 4(4) of the Act, should be determined.  It stipulates that,
where a common input is used to produce goods, the taxable
turnover under Section 4(4) shall be the value of the inputs
proportionate to the value of the goods used or disposed of in the
manner prescribed in clauses (i) to (iii) thereunder.

38.     The goods used in the manufacture of any output or end-
product might comprise, amongst others, inputs which may retain
their dominant individual identity and character throughout the
process and also in the end-product; those which, as a result of
interaction with other ingredients, might themselves undergo
qualitative changes and in such altered form find themselves in the
end-product; those which, while influencing reactions, may
themselves remain uninfluenced and unaltered and remain
independent of and outside the end-products and those which
might be burnt-up or consumed in the process. (Collector of C.E.
v. Ballarpur Industries Ltd. ). "Disposing of" means parting with
the goods in some or the other manner. It means transfer of goods
from one to another. (Venkata Krishna Constructions v.
Commercial Tax Officer, No.I, Vijayawada ; State of Tamil
Nadu v. E.C. Constructions and Industries , State of Kerala v.
Ocean Wealth , Goodyear India Ltd. v. State of Haryana  and
K. Cheyyabba v. State of Karnataka ).   Disposal means transfer
of title in the goods to any other person. The expression dispose
means to transfer or alienate. It was formerly an essential word in
any conveyance of land. Section 4(4)(i) & (ii) require that the goods
in question should be transferred to some person otherwise than
by way of sale. (CST v. Thomas Stephen & Co. Ltd., ; Jowitt
The Dictionary of English Law and Webster Comprehensive
Dictionary, International Edition, Vol. 1. p. 368). If the
manufactured goods are not sold within the State, but are yet
disposed of within the State then no tax is payable on such
disposition. Again where such manufactured goods are taken out
of State to the manufacturers own depots or to the depots of his
agents then no such tax is payable on such removal. (Shri Krishna
Oil and General Mills v. State of Punjab ).

39.     The dictionary meaning of inputs is what is put in, enter,
enter the system. The use of the word input is indicative that the
benefit is intended for every item which is a raw material in the
widest sense made wider by using the expression input. The
purpose is to broaden the meaning of raw material by including in
it even those items which could be placed in the goods to make it
marketable as such.  (TELCO v. State of Bihar ; CCE v. Jay
Engineering Works Ltd., ).   The word common, as used in the
proviso to Section 4(4), is significant.  The Concise Oxford
Dictionary of Current English (Eighth Edition) defines common,
among others, to mean belonging to two or more quantities
(common factor). The input must be common to one or more
outputs.  Paddy, as an input, is common both to rice and husk
and soyabean seed, as an input, is common both to soyabean oil
and soyabean deoiled cake.
40.     The proviso to Section 4(4) is attracted where a common
input is used to produce goods more than one, and where the
output or one of the outputs cannot be subjected to tax as it
attracts the ingredients of clauses (i) to (iii) of Section 4(4) of the
Act.  In such cases tax is levied on the value of the input
proportionate to the value of such output/outputs.  Application of
the principle, words in the singular include the plural and vice versa,
depends on whether the contrary intention appears from the context of
the provision.  (Sin Poh Amalgamated (H.K.) v. Attorney
General ).  As the word inputs, referred to in the second limb of
the proviso, refers only to the common input in the first limb, it
matters little that the word inputs is used in the plural in the
second limb, and the word input in the singular in the first limb of
the proviso to Section 4(4) of the Act.  The submission that it is
only where multiple inputs are used would the proviso be attracted
does not merit acceptance, for then the word common input in the
first limb must be read in the plural as common inputs.  The
proviso to Section 4(4) only prescribes the manner of computation
of tax under Section 4(4) of the Act. As Section 4(4) is the charging
section the proviso, which prescribes the manner of computation of
tax on goods which are charged to tax under Section 4(4) of the
Act, cannot be so construed as to render Section 4(4) itself
redundant.  Too wide and fanciful a construction is often sought to
be given to the maxim that, in a taxing Act, clear words are
necessary in order to tax the subject,   which does not mean that
words are to be unduly restricted against the State, or that there is
to be any discrimination against the State in those Acts.  It simply
means that, in a taxing Act, one has to look merely at what is
clearly said.  (Cape Brandy Syndicate v. Inland Revenue
Commissioner ).  The rule of literal construction is that a
statutory enactment must, ordinarily, be construed according to
the plain natural meaning of its language.  No words should be
added, altered or modified unless it is plainly necessary to do so in
order to prevent a provision from being unintelligible, absurd,
unreasonable, unworkable or totally irreconcilable with the rest of
the statute.  (Polestar Electronics (P) Ltd v. Addl. S.T.
Commissioner, New Delhi ).
41.     The accepted principle of statutory construction is that a
subject is only to be taxed upon clear words.  On the question
"what are clear words?", the answer is that the court is not
confined to a literal interpretation. There may, indeed should, be
considered the context and scheme of the relevant Act as a whole,
and its purpose may, indeed should, be regarded. This new
principle was not invented on a juristic basis independent of
statute. That would be indefensible since a court has no power to
amend a tax statute. The principle is developed as a matter of
statutory construction. The new development is not based on a
linguistic analysis of the meaning of particular words in a statute.
It is founded on a broad purposive interpretation, giving effect to
the intention of the legislature. This principle is based on an
orthodox form of statutory interpretation. And in asserting the
power to examine the substance of a composite transaction,
formalism in fiscal matters is rejected and a more realistic legal
analysis has been chosen. (Inland Revenue Commissioners v. Mc
Guckian ; Ramsay (WT) Ltd. v. IRC ).  The main object of
Section 4(4) is to plug leakage of revenue and prevent evasion of
tax. In interpreting such a provision, a construction which would
defeat its purpose and, in effect, obliterate it from the statute book
should be eschewed. If more than one construction is possible,
that which preserves its workability, and efficacy is to be preferred
to the one which would render it otiose or sterile. (Hotel Balaji1;
M.K. Kandaswami12).

42.     The proviso to Section 4(4) of the Act is attracted where a
common input is used to produce one or more outputs.  By the use
of the word common, the legislative intent is to tax the
proportionate value of the common input to the extent one or more
of the outputs attract the ingredients of clauses (i) to (iii) of Section
4(4) of the Act.  Cotton seed is the common input for cotton seed
oil and cotton seed cake.    Cotton seed purchased by a dealer, on
being subjected to a manufacturing process, results in the
extraction of oil which is the primary product. However, it also
brings into existence oil cakes which are sold outside the State
and are, therefore, not subject to tax under the provisions of the
Act. Therefore, the taxable event is the purchase of cotton seed to
the extent the by -product oil -cakes have been sold outside the
State. (Shri Krishna Oil and General Mills39).  If the purchased
goods are utilised partly for manufacture of goods that are taxable,
and another part for the manufacture of goods that are not
taxable, and only a portion of the purchased goods are utilised for
the first purpose and some other for the second purpose, purchase
tax is not levied in respect of the quantity utilised for the first
purpose.  (State of Maharashtra, Commissioner of Sales Tax,
Bombay v. Bharat Petroleum Corporation Ltd ).

43.     In Pawan Industries v. State of Assam , the validity of the
levy of purchase tax, on the turnover relating to purchase of oil
seeds, referable to oil -cake disposed of by way of stock transfer on
consignment basis outside the State, was under challenge. The
petitioner therein contended, like in the present batch of Writ
Petitions, that, as oilcakes were merely a by -product in the course
of production of oil, such goods could not be subjected to levy of
tax.  The Division bench of the Gauhati High Court negatived the
contention and upheld the validity of the levy.

44.     The goods used as input/inputs are distinct and different
from the goods which constitute the output/outputs.  Cotton seed
is a commodity distinct and different from both cotton seed oil and
cotton seed cake.  Cotton seed is used to produce cotton seed hull,
cotton seed oil and cotton seed de-oiled cake. If cotton seed hull or
cotton seed oil or cotton seed de-oiled cake attract the ingredients
of clauses (i) to (iii) of Section 4(4) of the Act, and if cotton seed is
purchased by a VAT dealer from a person, or a dealer not
registered as a VAT dealer, or from a VAT dealer in circumstances
in which no tax is payable by the person who sold the goods, then
the proportionate purchase value of cotton seed can be subjected
to tax under Section 4(4) of the Act.  That would, however, not
justify raw-cotton, which is a commodity distinct from cotton seed,
being subjected to tax in terms of the proviso to Section 4(4), as
raw-cotton is not the common input for cotton seed hull, cotton
seed oil and cotton seed de-oiled cake.  The use of the words used
or disposed of in the manner as prescribed under this section in the proviso,
makes it clear that the common input, of the outputs which are
used or disposed of in the manner prescribed in clauses (i) to (iii) of
Section 4(4) of the Act, can alone be subjected to tax in terms of
the proviso.  Cotton seed is derived from raw-cotton.  Even if cotton
seed de-oiled cake were to attract the ingredients of Section 4(4)(ii),
the proportionate value of raw-cotton cannot be subjected to tax as
it is not raw-cotton, but cotton seed which is the common input for
cotton seed oil or cotton seed hull or cotton seed de-oiled cake.
The proviso to Section 4(4) cannot be so extended as to bring
within its ambit goods whose derivatives are common inputs for
other goods (outputs) which attract the ingredients of clauses (i) to
(iii) of Section 4(4) of the Act.
45.     The theory, of common input/specified input, put forth on
behalf of the respondents does not derive support from a plain and
literal reading of the proviso to Section 4(4) of the Act, and such a
construction would require the word common in the proviso to
Section 4(4) to be ignored, and the word specific to be added
thereto.  Where the meaning of the statutory provision is clear and
explicit, words cannot be interpolated as, in the first place, they
are not needed. If they should be interpolated, the statute would
more than likely fail to express the legislative intent as the thought
intended to be conveyed might be altered by the addition of new
words. They should not be interpolated even if the remedy of the
statute would thereby be advanced, or a more desirable or just
result would occur. Even where the meaning of the statute is clear,
and sensible, either with or without the omitted word, interpolation
is improper since the primary source of the legislative intent is in
the language of the statute.  (Crawford in his book on
"Construction of Statutes": 1940 Edn 269; Polester Electronic
(P) Ltd44).
46.     Where the literal reading of a statute produces an intelligible
result, there is no ground for reading in words or changing words
according to what may be the supposed intention of Parliament.
Cases where it has been held that a word can be struck out of a
statute and another substituted can be grouped under different
heads i.e., (1) where, without such substitution, the provision is
unintelligible or absurd or totally unreasonable; or (ii)  where it is
unworkable; or (iii) where it is totally irreconcilable with the plain
intention shown by the rest of the statute. (R. v. Dakes ; Federal
Steam Navigation Co. Ltd. v. Department of Trade and
Industry ; Polester Electronic (P) Ltd44).   Addition or
modification of words, used in a statutory provision, is generally
not permissible but courts may depart from this rule to avoid a
patent absurdity. (Narayanaswami v. Pannerselvam ; Polester
Electronic (P) Ltd44).
47.     The proviso to Section 4(4) is not independent of the main
Section.  The proviso is attracted where the input referred to in
Section 4(4), is used to produce more goods than one (for
convenience sake referred to as outputs).  In such a situation,
where one of the outputs is dealt with in the manner specified in
clauses (i) to (iii) of Section 4(4) and the other output is not, it is
only the output which is dealt with in the manner specified in
clauses (i) to (iii) of Section 4(4) which falls within the ambit of
Section 4(4) of the Act.  For instance, cotton seed is an input both
for cotton seed oil and cotton seed cake.  If cotton seed oil were to
constitute 70% of cotton seed and the remaining 30% cotton seed
deoiled cake, and if cotton seed oil is sold and the cotton seed
deoiled cake is used or disposed of in the manner specified in
clauses (i) to (iii) of Section 4(4), it is only the proportionate value of
cotton seed, representing cotton seed deoiled cake, which can be
subjected to purchase tax under Section 4(4) of the Act.  In the
aforesaid illustration as cotton seed deoiled cake is taken as
constituting 30% of cotton seed, the proportionate value, liable to
tax under Section 4(4) of the Act, would be 30% of the purchase
price of cotton seed.  In order to attract levy of tax under Section
4(4) of the Act cotton seed, in the aforesaid illustration, should
have been purchased by a VAT dealer from persons who are not
dealers under the Act and, consequently, VAT should not have
been levied when cotton seed was so purchased.  Where Raw  
cotton is purchased, tax under Section 4(4) can only be levied on
cotton seed, provided the ingredients of clauses (i) to (iii) are
satisfied, as the former is the input and the latter is the output.
However Section 4(4) is not attracted where cotton seed oil and
cotton seed deoiled cake satisfy the ingredients of clauses (i) to (iii)
as cotton seed, which is their input, has not been purchased by
the VAT dealer and, instead, the goods purchased are raw cotton.

48.     The question concerning the application of the principles of
proportionality, in calculating purchase tax on the oil -cakes
disposed of by the dealer otherwise than in inter -State sale or for
purposes of export, must, on first principles, be answered holding
that, if cotton seed results in the manufacture of oil -cakes in
addition to oil, then the cotton seed, to the extent it produced oil-
cakes, would be liable to purchase tax.  The percentage of oil-
cakes, which are sent outside the State otherwise than by inter -
State sale, would be liable to tax and calculated accordingly.  The
tax is imposed on the raw material purchased by the dealer (ie
cotton seed) for, if purchase tax is calculated on the value of the
end product (ie oil cake), it would then be a tax imposed on the
manufacture of goods which would be beyond the competence of
the State Legislature.  Purchase tax is, therefore, levied on the
purchase of raw material/input.  (Shri Krishna Oil and General
Mills39).

49.     The contention that purchase tax under Section 4(4) cannot
be levied on by-products is not tenable.  The proviso to Section 4(4)
enables tax to be levied on the proportionate value of purchased
goods which are used as inputs for producing goods more than
one, where one of the goods so produced attracts the ingredients of
clauses (i) to (iii) of Section 4(4) of the Act.  Husk, soyabean deoiled
cake, etc. are all goods which are exempt from tax under Section 7
read with the first schedule to the Act.  The tax levied, under
Section 4(4) of the Act, is not on the goods which constitute the
output, but on the proportionate value of the purchased goods
which constitute the input, to the extent it has resulted in
production of goods which constitute the output.  Tax under
Section 4(4) is not levied on soyabean deoiled cake, husk etc but
on paddy and soyabean seed which have yielded the aforesaid
goods.

VII. IS THE METHOD PRESCRIBED IN THE FIRST PROVISO        
       TO SECTION 4(4), FOR COMPUTING THE    
       CORRESPONDING VALUE, IRRATIONAL?      

50.     It is contended, on behalf of the petitioners, that the
assessing authorities, in this batch of writ petitions, have not
specifically adopted a rational method for the purpose of
computing the corresponding purchase value; neither the
legislature in the Act, nor the rule making authority under the
relevant rules, have prescribed any method for computing the
corresponding purchase turnover of the input alleged to have been
used for obtaining the resultant by-product exempt from tax; it is
the value of the inputs which is relevant; and the proviso should be
understood to be applicable in cases where multiple inputs are
used for obtaining an output or different outputs exempt from
payment of tax, in which case only the proportionate purchase
value of the specific input, used for obtaining the output, has to be
calculated as the second limb refers to the value of inputs which is
plural in nature.  Reliance is placed on Delux Wires v. State of
A.P.  in this regard.

51.     On the other hand Learned Special Standing Counsel for
Commercial Taxes would submit that Kapas is the input for Lint
and Cotton seed; Cotton seed is the input for cotton cake; since the
purchase price of cotton seed is embedded in the purchase price of
Kapas, and is not separately shown, the assessing authority has
taken the proportionate purchase price of Kapas to levy purchase
tax on the cotton cake sent out of the State; such levy is legal and
is within the scope of Section 4(4); the first proviso to Section 4(4)
of the Act deals with the method of calculation of purchase tax on
a proportionate basis; the proportionate basis or method was
introduced to bring uniformity in the calculation of purchase tax in
respect of different commodities, and among different assessing
authorities in the State; there is no ambiguity in the proviso; it
prescribes the method to be adopted to calculate the purchase
price of the input liable to tax under Section 4(4); and, to arrive at
the purchase price of raw Cotton (Kapas) proportionate to the value
of the Cotton Seed Cake/oil/seed dispatched on consignment
basis, the proportionate (prorata) method is to be followed which is
as under:
Purchase tax    = (Purchase price  X (Value of
Liability on         of Kapas from        Consignment
Raw Cotton        farmers within        or exempt
(Kapas)               within the State      transactions)
                    ------------------------------------------      =Purchase
price of input
                       Total Sales (Taxable + Exempt Sales)     (Kapas) liable to
tax @  
4%

52.     According to the Learned Special Standing Counsel, since in
the numerator exempt transactions are taken and in the
denominator total sales are taken, the purchase price of Kapas,
liable to tax under Section 4(4), will generally be less than the
consignment value; this proportionate method adopted cannot,
therefore, be said to be irrational or irregular; the measure or value
is clearly ascertainable because the value of the portion of cotton
kappas, out of  which the proportionate value of the goods (oil
cake) is produced, is derived from the yield statement supplied by
the petitioners; alternatively the information can be obtained from
the records maintained mandatorily, as per Rule 34(4) in Form 524
and 525, in respect of cotton Kappas and seeds comparing it with
the records in respect of oil cake dispatched to other branches; and
it is not difficult to arrive at the value applying ordinary principles
of accountancy.

53.     In Delux Wines52, a Division Bench of this Court declared
that Section 2(1)(s)(ii) and Section 14-B of the APGST Act, as
incorporated by the Amendment Act 18 of 1985, must be read
down by not giving effect to the said provisions until and unless
the legislature prescribes guidelines for exercising the power
conferred thereunder; and the expressions "prevailing market
prices" and "abnormally low" occurring in Section 14-B of the Act,
are defined. The Division bench, however, made it clear that, as
and when the legislature chooses to define the said two
expressions and indicates the method and manner of
determination of the turnover with reference to the prevailing
market prices, Section 14-B of the Act can be enforced from such
date.

54.     No uniform formula can be prescribed in applying the
proviso to Section 4(4) of the Act, as the proviso would apply to
different goods, the proportionate value of which may vary from
one to another.  For instance, in the present batch of Writ Petitions
itself, the proportionate value of paddy, soya bean seed etc are
subjected to tax under Section 4(4) of the Act.  While paddy is the
common input for rice and husk, soya bean seed is the common
input for soya bean oil and soya bean de-oiled cake.  The
proportionate quantity of husk obtained from paddy would differ
from the proportionate quantity of soya bean de-oiled cake
obtained from soya bean seed.  It is neither possible, nor is it
required for the application of the proviso to Section 4(4), that a
specific formula be uniformly prescribed for arriving at the
proportionate value of different goods under Section 4(4) of the Act.

55.     It is not even contended before us that the proportionate
value determined by the assessing authority, in subjecting paddy,
soya bean seed etc to purchase tax under Section 4(4) of the Act, is
not on its proportionate value.  The proportionate value can only
be determined by the assessing authority after verification of the
books of accounts and cost records of the VAT dealer.  The
question whether the assessing authority has properly determined
the proportionate value is a question of fact to be determined on
the facts and circumstances of each case.  Suffice it to hold that
the mere fact that no uniform formula is prescribed does not
disable the assessing authority from giving effect to the proviso to
Section 4(4) of the Act, and in subjecting the proportionate value of
the purchase price of taxable goods to tax under Section 4(4) of the
Act.
VIII. IS THE 1ST PROVISO TO SECTION 4 (4) PROSPECTIVE IN      
        ITS APPLICATION?

56.     It is contended, on behalf of the petitioners, that the first
proviso to Section 4 (4), which incorporates the pro-rata principle,
was introduced only with effect from 24-9-2008; the proviso has no
application to the period prior to its introduction; hence levy of
purchase tax applying the pro-rata principle, during the period 1-
4-2005 to 23-9-2008, is not sustainable.

57.     A distinction must be drawn by Courts, while interpreting
the provisions of a taxing statute, between charging provisions
which impose the charge to tax and machinery provisions which
provide the machinery for the quantification of the tax and the
levying and collection of the tax so imposed. While charging
provisions are construed strictly, machinery sections are not
generally subject to a rigorous construction. Courts construe the
machinery sections in such a manner that a charge to tax is not
defeated. (Associated Cement Company Ltd. v. Commercial Tax  
Officer, Kota ; Commissioner of Wealth Tax, Meerut v.
Sharvan Kumar Swarup & Sons ). Procedural law, generally
speaking, is applicable to pending cases. No suitor can be said to
have a vested right in procedure. (Sharvan Kumar Swarup &
Sons54).

58.     The liability is imposed by the charging section ie Section
4(4) of the Act.  Its proviso enables the liability to be quantified
and, when quantified, to be enforced against the subject, but the
liability is definitely and finally created by the charging section i.e.,
Section 4(4) of the Act. (Sharvan Kumar Swarup & Sons54; W.H.
Cockerline & Co. v. The Commissioner of Inland Revenue ).  It
is important to distinguish between charging provisions, which
impose the charge to tax, and machinery provisions which provide
the machinery for the quantification of the charge and the levying
and collection of the tax in respect of the charge so imposed.
Machinery provisions do not impose a charge or extend or restrict
a charge elsewhere clearly imposed. (Halsbury's Law of England
(Fourth Edn.) Vol. 23, Para 29; Sharvan Kumar Swarup &
Sons54).  While provisions of a statute, dealing merely with matters
of procedure may properly, unless that construction be textually
inadmissible, have retrospective effect attributed to them,
provisions which touch upon a right in existence at the passing of
the statute are not to be applied retrospectively in the absence of
express enactment or necessary intendment (Delhi Cloth and
General Mills Co. Ltd. v. Income Tax Commissioner ; Jose Da
Costa. v. Bascora Sadasiva Sinai Narpomim ; Sharvan Kumar
Swarup & Sons54).

59.     We are concerned, while applying the proviso to Section 4(4),
with the determination not whether a particular turnover can be
brought to tax under the Act but whether, if the turnover is liable
to be charged to sales tax, the manner in which the turnover must
be determined. In other words, we are concerned with a provision
which prescribes the machinery for the computation of tax and not
with a charging provision of the Act. (Murari Lal Mahabir Prasad
v. B.R. Vad. ; Sharvan Kumar Swarup & Sons54).  The proviso to
Section 4(4) is a machinery provision as it relates to the mode and
manner in which the taxable turnover under Section 4(4) of the
Act, should be determined where a common input is used to
produce goods. When a provision sets out the method or formula
for determining the taxable turnover, it can only be considered to
be procedural and not substantive. It has not the effect of
impairing any vested right or creating any new obligation.
(Sharvan Kumar Swarup & Sons54).  As the proviso to Section 4(4)
is a machinery provision, the contention that it has no application
to the assessment period prior to 24.09.2008, when it was inserted
by Act 28 of 2008, does not merit acceptance.

IX. IS TAX, LEVIED UNDER SECTION 4(4), IN THE NATURE OF      
     CONSIGNMENT TAX?  

60.     It is contended, on behalf of the petitioners, that in the
context of declared goods, as described in Section 14 of the CST
Act, levy of purchase tax on cotton kapas, relatable to the value of
seed/cake/oil sent on consignment, even though there is no sale
or purchase of seed/cake/oil in the State, makes the levy, in pith
and substance, a consignment tax which can be levied only by
Parliament; and such an unconstitutional outreach is not
permissible.
61.     A similar contention was considered and negatived in Hotel
Balaji1, wherein the Supreme Court held:-
       .The section applies only in those cases where (a) the goods are
purchased (for convenience sake, I may refer to them as raw material) by a
dealer liable to pay tax under the Act in the State, (b) the goods so purchased
cease to exist as such goods for the reason they are consumed in the
manufacture of different commodities and (c) such manufactured commodities
are either disposed of within the State otherwise than by way of sale or
despatched to a place outside the State otherwise than by way of an inter-State
sale or export sale. It is evident that if such manufactured goods are not sold
within the State of Haryana, but yet disposed of within the State, no tax is
payable on such disposition; similarly, where manufactured goods are
 despatched out of State as a result of an inter-State sale or export sale, no
tax is
payable on such sale. Similarly again where such manufactured goods are taken
out of State to manufacturers own depots or to the depots of his agents, no tax
is payable on such removal. Goodyear1 takes only the last eventuality and holds
that the taxable event is the removal of goods from the State and since such
removal is to dealers own depots/agents outside the State, it is consignment,
which cannot be taxed by the State legislature. With the greatest respect at our
command, we beg to disagree. The levy created by the said provision is a levy on
the purchase of raw material purchased within the State which is consumed in
the manufacture of other goods within the State. If, however, the manufactured
goods are sold within the State, no purchase tax is collected on the raw
material,
evidently because the State gets larger revenue by taxing the sale of such
goods.
(The value of manufactured goods is bound to be higher than the value of the
raw material.) The State legislature does not wish to  in the interest of trade
and general public  tax both the raw material and the finished (manufactured)
product. ..
       ..The object is to tax the purchase of goods by a manufacturer whose
existence as such goods is put an end to by him by using them in the
manufacture of different goods in certain circumstances. The tax is levied
upon the purchase price of raw material, not upon the sale price  or
consignment value  of manufactured goods. Would it be right to say that
the levy is upon consignment of manufactured goods in such a case? True
it is that the levy materialises  only when the purchased goods (raw
material) is consumed in the manufacture of different goods and those
goods are disposed of within the State otherwise than by way of sale or are
consigned to the manufacturing-dealers depots/agents outside the State of
Haryana. But does that change the nature and character of the levy? Does
such postponement  if one can call it as such  convert what is avowedly
a purchase tax on raw material (levied on the purchase price of such raw
material) to a consignment tax on the manufactured goods? We think not.
Saying otherwise would defeat the very object and purpose of Section 9 and
amount to its nullification in effect. ..

       In the light of the above scheme of Section 9, it would not be right,
in our respectful opinion, to say that the tax is not upon the purchase of
raw material but on the consignment of the manufactured goods. It is well
settled that taxing power can be utilised to encourage commerce and
industry. It can also be used to serve the interests of economy and
promote social and economic planning. Section 9 of Haryana Act and
Section 13-AA of Bombay Act are intended to encourage the industry and
at the same time derive revenue. It is also not right to concentrate only on
one situation viz., consignment of goods to manufacturers own depots (or
to the depots of his agents) outside the State. Disposal of goods within the
State without effecting a sale also stands on the same footing, an instance
 of which may be captive consumption of manufactured products in the
manufacture of yet other products. Once the scheme and policy of the
provision is appreciated, there is no room, in our respectful opinion, for
saying that the tax is on the consignment of manufactured goods.
(emphasis supplied).

62.     The judgment in Hotel Balaji1 was followed in Devi Dass
Gopal Krishan (P) Ltd.2.  The contention urged on behalf of the
petitioners, that tax levied under Section 4(4) of the Act is in the
nature of consignment tax, does not, therefore, merit acceptance.

X. SECTION 15 (a) OF THE CST ACT: ITS SCOPE:    
63.     It is contended, on behalf of the petitioners, that unginned
cotton, and ginned cotton, are treated as one and the same
commodity under Section 14(ii) of the CST Act; Entry 79 of the IV
Schedule to the Act also treats cotton, whether unginned or
ginned, as one and the same commodity; when raw cotton is
ginned, the ginning process yields ginned cotton (also called cotton
lint) and cotton seed; it cannot be said that unginned cotton is the
input and ginned cotton is the output; the petitioners herein have
sold cotton lint either within the State or in the course of inter-
state trade and commerce; the State has collected the maximum
tax permitted by Section 15(a) and 15(b) r/w Section 8(1) of the
CST Act; the petitioners have not disposed of ginned cotton in any
other manner; no purchase tax under Section 4(4) can be levied on
the supposed value of cotton kapas relatable to the value of cotton
seed; even after the amendment of clause (a) of Section 15, by Act
No.20 of 2002 (intended to facilitate introduction of the VAT
system of taxation in States), tax cannot be levied both on sale and
purchase;  levy of purchase tax again on cotton kapas, relatable to
the value of cotton seed deoiled cake sent outside the State on
consignment, would result in contravention of clauses (a) & (b) of
Section 15 r/w Section 8(1) of the CST Act; Section 4(4) of the Act
must be interpreted to conform to Sections 14 & 15 of the CST Act;
levy of tax on the sale of cotton lint, and again purchase tax on the
supposed value of cotton kapas, is in violation of Article 286(3) of
the Constitution, Sections 14 and 15 of the CST Act, and Section
4(4) of the Act; the petitioners have paid tax at the rate of 4% on
the sale of cotton lint within the State; levy of purchase tax, under
Section 4(4), on cotton kapas (i.e., raw cotton) in proportion to the
cotton seed/cotton seed oil/cotton seed oil cake sent on
consignment basis would result in a levy in excess of the ceiling of
4%/5% fixed under Section 15(a) of the CST Act; it would also
amount to levy of tax, on purchase as well as sale, contrary to the
parliamentary mandate contained in Section 15(a); and, as tax is
paid on the sale of cotton lint, levy of purchase tax under Section
4(4) at 4% again, will result in a levy in excess of 4%.

64.     On the other hand, Learned Special standing counsel for
commercial taxes would submit that in no case has the total tax,
levied on any declared goods, exceeded four percent; paddy and
rice are two different commercial commodities taxable under two
different entries; therefore purchase tax on paddy, and sales tax on
rice, can be levied; husk is also a different commercial commodity
under the Act; Kapas and cotton seed are two different commercial
commodities taxable under two different entries; it is established
from the returns, filed by the petitioners, that 100 kgs. of Kapas
yields only 32 or 33 kgs of lint, and the rest is either seed or waste;
as per this calculation also, the total tax levied on kapas do not
exceed 4% as restricted under Section 15(a) of the CST Act; while
the petitioners have raised this issue in some of the Writ Petitions,
they did not produce any material evidence to prove that the tax
levied on declared goods exceeded 4% in any given case; the tax
payable under Section 15(a) of the CST Act is output tax  input
tax; even after levy of purchase tax, if the total tax paid or payable
by the dealer does not exceed 4% on the total purchase or sale of
cotton, Section 14 & 15 of the CST Act will not be violated; in the
instant case (cases), since the total tax paid or payable by the
dealer does not exceed 4% on the total purchase or sale of cotton,
it cannot be said that levy of purchase tax is in violation of Section
14 & 15 of the CST Act, as is evident from the illustration given
below ( i.e., the tax payable on Cotton in W.P.No.22428 of 2013) -

Purchase of Kapas from farmers 2,90,764.43 Quintals Value Rs. 86,35,68,153
Tax @ 4% = Rs. 3,45,42,726(if levied)
Output Tax under VAT as per the assessment order               Rs. 1,01,55,539
       
(Including levy of purchase tax of Rs. 3,51,120 )      

Output Tax under CST as per the turnover reported
in Trading Account  (Tax @2% on Rs. 31,73,21,530)              Rs.    63,46,431
       
                                                                   ----------------------
Total Output tax under VAT+ CST                               Rs. 1,65,01,970  
Less: Total Input Tax Credit eligible                                 Rs.
19,00,957
as per the assessment order after restriction of ITC                  ------------
----------    
Tax payable by the dealer under VAT and CST                Rs.  1,46,01,013
including levy of purchase tax & Restriction of ITC

Total tax @4% if levied on purchase of Kapas Rs. 86,35,68,153
Rs.  3,45,42,726
                                                                  ----------------------
Difference                                                          Rs.  1,99,41,713
                                                                  ----------------------
65.     Learned Special Standing Counsel would contend that, in
terms of percentage, it is only 1.69% (not exceeding 4%); even after
levy of purchase tax, on the proportionate value of the goods
consigned, the total tax does not exceed 4% if levied on raw cotton
and, therefore, Section 14 and 15 of the CST Act are not violated;
and each item is a separately taxable commodity, under Section
14(ii) of the CST Act, as they possess a separate commercial
identity.
66.     Under the Constitution, as it originally stood, revenue from
sales-tax was reserved to the States.  Since the power of taxation
could be exercised by the States, in a manner prejudicial to the
larger public interest, it was considered necessary to restrict the
power of taxation in respect of transactions which had an inter-
State content.  The Constitution-makers intended that there
should be free flow of trade in India and certain goods, which were
of special importance in inter-state trade and commerce, should
not be taxed over and over again. In order to achieve this object, it
was left open to Parliament to make a law on the subject. In the
exercise of this constituent power under Article 286 of the
Constitution, the Parliament enacted the CST Act.  The
amendment of Article 286 by the Constitution (6th Amendment)
Act, 1956, and the enactment of the Sales Tax Validation Act 1956,
and the CST Act, were all intended to serve a dual purpose: to
maintain the source of revenue from sales-tax to the States and, at
the same time, to prevent the States from subjecting transactions,
in the course of inter-State trade, to tax and thereby obstruct the
free flow of trade by making commodities unduly expensive.  The
CST Act was enacted under the authority of Parliament, but the
tax is collected through the agency of the State.  It is levied
ultimately for the benefit of the States and is, statutorily, assigned
to them. It is clear from the amendments made by the Constitution
(Sixth Amendment) Act, 1956, in Article 269, and the enactment of
the CST Act that CST, though levied for and collected in the name
of the Central Government, is a part of the sales-tax levy imposed
for the benefit of the States.  (The State of Madras v. N.K.
Nataraja Mudaliar ; Sterling Steels & Wires Ltd. v. State of
Punjab ).   Article 286(3)(a) of the Constitution of India, after its
substitution by the Constitution (46th Amendment) Act, 1982,
stipulates that any law of a State shall, in so far as it imposes or
authorises the imposition of a tax on the sale or purchase of goods
declared by parliament by law to be of special importance in inter-
State trade or commerce, be subject to such restrictions and
conditions in regard to the system of levy, rates and other
incidents of tax as parliament may, by law, specify.
67.     The CST Act firstly specifies the declared goods and,
secondly, imposes conditions and restrictions subject to which the
State Governments can impose tax on the internal trade in these
goods. Section 14 of the CST Act declares certain goods to be of
special importance in inter-State trade or commerce. Such goods
are commonly known as declared goods. (Sterling Steels &
Wires Ltd.60). Section 14 of the CST Act declares, among others,
the following goods to be of special importance in inter-State trade
or commerce i.e., (i) paddy, (ii) rice, (iii) cotton, that is to say, all
kinds of cotton (indigenous or imported) in its unmanufactured
State, whether ginned or unginned, baled, pressed or otherwise,
but does not include cotton waste; (iv) oilseeds, that is to say,
cotton seed, soya bean etc; (vi-a) pulses.
68.     Section 15 of the CST Act, as it originally stood, prescribed
restrictions and conditions in regard to tax on the sale or purchase
of declared goods within a State and, thereunder, every sales-tax
law of a State was required, in so far as it imposed or authorised
the imposition of a tax on the sale or purchase of declared goods,
to be subject to the following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed three per cent of the sale or purchase
price thereof, and such tax shall not be leviable at more than one stage;
(b) where a tax has been levied under that law in respect of the sale or
purchase
inside the State of any declared goods and such goods are sold in the course of
inter- State trade or commerce, the tax so levied shall be refunded to such
person in such manner and subject to such conditions as may be provided in
any law in force in that State."
69.     Section 15, as it originally stood, stipulated that, in respect
of declared goods, the tax (on sale or purchase) should not exceed
the prescribed rate; it should not be levied at more than one stage;
and it should be refunded to persons from whom it is collected if
the goods are sold in the course of inter-state trade or commerce.
70.     Section 15(a) of the CST Act was amended by Act 20 of 2002
with effect from 13.05.2002 and the words and such tax shall not be
levied at more than one stage, in the pre-amended provision, was
omitted.  Clause 146 of the notes and clauses to the Finance Bill
2002, as introduced in Parliament on 28.02.2002, noted that
Section 15(a) of the CST Act was sought to be amended with a view
to allowing the State Governments to impose tax on declared goods
at more than one stage in respect of the sale of declared goods.
After its amendment, by Act 20 of 2002 with effect from
13.05.2002, Section 15 of the CST Act reads as under:
       Every sales tax law of a State shall, in so far as it imposes or
authorises the imposition of a tax on the sale or purchase of declared
goods, be subject to the following restrictions and conditions, namely:-

       (a) the tax payable under that law in respect of any sale or purchase of
such goods inside the State shall not exceed four per cent of the sale or
purchase price thereof;

       (b) where a tax has been levied under that law in respect of the sale or
purchase inside the State of any declared goods and such goods are sold in the
course of inter-State trade or commerce and tax has been paid under this Act in
respect of the sale of such goods in the course of inter-State trade or
commerce,
the tax levied under such law shall be reimbursed to the person making such
sale in the course of inter-State trade or commerce in such manner and subject
to such conditions as may be provided in any law in force in that State;

       (c) where a tax has been levied under that law in respect of the sale or
purchase inside the State of any paddy referred to in Sub-clause (i) of clause
(i)
of Section 14, the tax leviable on rice procured out of such paddy shall be
reduced by the amount of tax levied on such paddy;

       (d) each of the pulses referred to in Clause (via) of Section 14, whether
whole or separated, and whether with or without husk, shall be treated as a
single commodity for the purposes of levy of tax under that law.


71.     By Section 77 of the Finance Act, 2011 the words four
percent in Section 15(a) was substituted by the words five
percent with effect from 08.04.2011.

72.     Where the turnover of goods which, under Section 14 of the
CST Act, have been declared to be of special importance in inter-
State trade or commerce, are subjected to tax under the sales tax
law of a State, Section 15(a) of the CST Act prescribes the
maximum rate at which such tax may be imposed. This condition
has been imposed to ensure that inter-State trade or commerce in
such goods is not hampered by heavy taxation within the State
occasioned by an excessive rate of tax. Section 15 enacts
restrictions and conditions which are essential to the validity of an
impost by the State on such goods. If the condition is not satisfied,
the impost will be invalid. (Govind Saran Ganga Saran v.
Commissioner of Sales Tax ).  The whole idea, underlying
Section 15(a) of the CST Act, is that the declared goods should not,
in the aggregate, suffer tax at the rate of more than four/five per
cent both in intra-State and inter-State trade. (Mahendrakumari
Iswarlal and Co., Tirupattur v. Commercial Tax Officer, North
Arcot ). The restriction placed by Section 15 (a) of the CST Act, on
the taxing power of a State, is to ensure minimum tax burden on
the declared goods because of their special importance in the
economy. (Premier Steels v. Assistant Commissioner
(Assessment) ).   Section 15 of the CST Act is not restricted only
to registered dealers. (Rattan Lal & Co.23).

73.     The provisions of a State Act cannot override the provisions
of Section 15(a) of the CST Act.  The pre-amended Section 15(a)
required that, if sales or purchase tax had been levied on declared
goods at one point, it could not be levied at any other subsequent
stage and consequently, if declared goods had suffered purchase
tax, they could not be subjected to tax again at the point of sale to
the consumer. (Commissioner, Sales Tax, U.P., Lucknow v.
Chokhani Co. ; Commissioner of Sales Tax v. Nirankari
Engineering, Kanpur ; Bhawani Cotton Mills Ltd. v. State of
Punjab ). Hitherto, when the purchaser of the goods was exempt
from levy of tax, sales tax could not be collected from the selling
dealer as it would then have violated the condition of single -stage
tax under the pre-amended Section 15(a) of the CST Act. (Vijaya
Lakshmi Enterprises v. State of A.P ; Peekay Re -Rolling Mills
(P) Ltd.26).   Even before its amendment Section 15(a) itself, beyond
saying that the levy could only be at one stage, did not prescribe
any particular point in the series of sales or purchases. The
fixation of the point, in conformity with Section 15(a) of the CST
Act, was left to the particular State legislature. The automatic
modification of the provision in the State enactment, brought
about by Article 286 (3) and Section 15, did not extend to defining
the single point in the series of transactions at which the levy of
tax was to be made under the State law.  (Mahendrakumari
Iswarlal and Co., Tirupattur62).

74.     The intention of Article 286(3) of the Constitution is not to
destroy all charging sections in the Sales Tax Acts of the States,
which are discrepant with Section 15(a) of the CST Act, but to
modify them in accordance therewith. The law of the State is
declared to be subject to the restrictions and conditions contained
in the law made by Parliament, and the rate in the State Act would
pro-tanto stand modified.  (Modi Spinning and Weaving Mills Co.
Ltd. v. Commissioner of Sales Tax, Punjab ).   As a result of
Article 286 (3) and Section 15(a) of the CST Act, the rate of tax
under Section 4(4) of the AP Act, as in the case of sale or purchase
of declared goods, is limited to the rate of four/five per cent.

75.     Raw cotton undergoes various processes before cloth is
finally turned out. Cotton is cleaned, carded, spun into yarn, then
cloth is woven, put on rolls, dyed, calendered and pressed. (J.K.
Cotton Spg. & Wvg. Mills v. Sales Tax Officer ).   Declared
goods", in Section 14 of the CST Act, are individually specified
under separate items. All kinds of cotton, whether ginned or
unginned, baled, pressed or otherwise, fall under a single species
of declared goods under Section 14(ii) of the CST Act.  In terms of
Section 15(a) of the CST Act, the tax payable under the Act, in
respect of the sale or purchase of declared goods inside the State,
shall not exceed 4%/5% of the sale or purchase price thereof.
Cotton, whether ginned or unginned, is treated as a single
commodity or a single species of declared goods and cannot,
therefore, be subjected to tax exceeding the rate prescribed in
Section 15(a) of the CST Act  on both the sale and purchase price
and, prior to its amendment, at not more than one stage.  (State of
Punjab v. S.G.R. Cotton G. & P. Factory (SC) ; State of Punjab
v. Chandulal Kishorilal ).

76.     Section 15(a) of the CST Act, before its amendment by Act 20
of 2002 with effect from 13.05.2002, disabled tax from being levied
on declared goods at more than one stage.  For instance, if ginned
cotton (cotton lint) was hitherto subjected to tax on its sale, no
purchase tax could have been levied on raw cotton as Section
15(a), before its amendment, restricted imposition of tax on
declared goods only to one stage i.e., either at the stage of its sale
or its purchase.  However, after the amendment of Section 15(a) by
Act 20 of 2002 with effect from 13.05.2002, tax under the Act can
be imposed at more than one stage.  In effect tax can now be levied
both on the sale or purchase of cotton i.e., tax can be imposed
both on the purchase of raw cotton (kapas) and again on the sale
of ginned cotton i.e., cotton lint.  The restriction under Section
15(a) of the CST Act is now limited only to the rate of tax which
before 08.04.2011 was 4%, and is 5% thereafter.  In view of
Section 15(a) of the CST Act the rate of tax, both on the purchase
and sale of cotton together, cannot exceed 4%/5%.

77.     The fact that ginned and unginned cotton are consistently
treated under the same head, in the statutes dealing with the
matter, indicates that the legislature looked upon ginned and
unginned cotton as one and the same commodity. It seems to have
been felt that ginning does not alter the character of raw cotton.
When cotton is turned into yarn or cloth, it no longer remains raw
cotton and the change of identity is easily discernible.  A person,
who buys raw cotton and turns it into yarn or cloth, is liable to pay
tax first in respect of the transactions relating to cotton, and then
in respect of the transactions relating to yarn or cloth. In the same
way a man, who buys yarn and weaves it into cloth which he sells,
is not selling the commodity which he bought; he is dealing in two
different types of commodities one of which he buys and other of
which he sells. The person, who conducts the process of ginning,
obtains cotton seed which is a separate commodity, but ginned
cotton is the same as unginned cotton except that it is more ready
for use by the manufacturer. To put a commodity in such a state,
that it can be more readily used for manufacture, is almost the
same thing as making a commodity marketable; the commodity  
remains the same and does not alter its character in any respect.
Selling unginned cotton and ginned cotton are two transactions
dealing with the same commodity. (Raghubir Chand Som Chand  
v. Excise and Taxation Officer, Bhatinda ).

78.     If VAT is levied on cotton lint at 4%/5%, then purchase tax
under Section 4(4) cannot be imposed on raw cotton (which, after
the process of ginning, has been sold as cotton lint), for it would
then result in tax, exceeding 4%/5%, being levied on the sale and
purchase of the very same goods.  The restriction imposed by
Section 15(a) of the CST Act can be better explained by way of an
illustration.  If, for instance, a VAT dealer purchases 1000 kgs of
raw cotton at Rs.100/- per kg, the purchase value of raw cotton
would be Rs.1,00,000/-, and 4% tax thereon would be Rs.4,000/-.
If, after raw cotton is ginned, 70% thereof constitutes cotton seed,
and 30% ginned cotton, then, from the 1000 kgs of raw cotton
purchased by him, the VAT dealer would have obtained 300 kgs of
ginned cotton (cotton lint).  If ginned cotton is sold at say Rs.400/-
per kg, then the sale price of 300 kgs of ginned cotton would be
Rs.1,20,000 and sales tax thereon at 4% would be Rs.4,800/-.  As
raw cotton and ginned cotton are to be treated as the very same
commodity both under Section 14(ii) of the CST Act and Entry 79
of the IV Schedule to the VAT Act, tax, both on raw cotton and
ginned cotton together, cannot exceed 4%.  In the illustration
above mentioned, as tax on the sale of ginned cotton of Rs.4,800/-
exceeds the tax payable on the entire purchase value of raw cotton
of Rs.4,000/-, no purchase tax can be levied on the purchase of
raw cotton by the VAT dealer.

79.     Section 14(vi-a) of the CST Act relates to pulses (dhal).
Section 15(d) of the CST Act stipulates that each of the pulses
referred to in Section 14(vi-a), whether whole or separated and
with or without husk, shall be treated as a single commodity for
the purpose of levy of tax under the Act. Consequently the Act has,
in its fourth Schedule, listed under a common entry i.e., Entry 82
all kinds of pulses and dhals.  Raw dhal and finished dhal both
fall under Entry 82 of the IV Schedule to the Act.  In view of both
Section 15(d) of the CST Act, and Entry 82 of the IV Schedule to
the VAT Act, raw dhal (whole dhal) must be held to be the same
commodity as finished dhal even after it is dehusked.  As a result
the restriction placed by Section 15(a) of the CST Act, of the tax
payable under the VAT Act in respect of the sale or purchase of
such goods not exceeding 4%/5% of the sale or purchase price
thereof, would be attracted.  Consequently purchase tax on the
purchase of raw dhal (to the extent it has yielded husk) and tax of
the sale of finished dhal together cannot exceed 4%/5%.

80.     The restriction, under Section 15(a) of the CST Act, would
apply only to goods falling under one item or entry either under
Section 14 of the CST Act or the IV Schedule to the Act.
Commodities, other than those specified, cannot be introduced into
the relevant provisions/schedules on the ground that they are
derived from the primary commodities.  (Rajasthan Roller Flour
Mills Association v. State of Rajasthan ; ITC Bhadrachalam
Paperboards Ltd. v. State of A.P. (APHC) ). Cotton or kapas, in
its unginned or unmanufactured state, contain cotton-seeds. But it
is by a manufacturing process that cotton and seed are separated,
and the seeds so separated is neither cotton nor part of cotton.
They are two distinct commercial goods though, before the
manufacturing process, the seeds might have been a part of the
cotton itself.  (S.G.R. Cotton G. & P. Factory70; Chandulal
Kishorilal71; Kotak & Co. v. State of Andhra Pradesh ).   The
policy of taxation is more appropriately the province of the
statesmen and of the legislature rather than of the lawyer or the
courts. It is a public policy dependent not only upon the
necessities of administration but also implementation of the
scheme to serve the public needs.  If, in the exercise of the general
policy of taxation, the legislature describes cotton and cotton seed
as two different commodities or goods for the purpose of the Act, it
is not open to canvass the reasonableness or the justification of
such a classification. (Kotak & Co.75; Pithapuram Taluk Tobacco,
Cigars and Soda Merchants Union v. The State of Andhra
Pradesh ). While raw cotton is declared goods under Section
14(ii), cotton seed is treated separately as declared goods under
Section 14(vi)(iii) of the CST Act.  Likewise, while raw cotton is
listed under Entry 79 of the IV Schedule to the Act, cotton seed is
listed separately under Entry 77 of the IV Schedule to the Act.
Raw cotton and cotton seed are treated as two different
commodities both under the CST Act and the VAT Act.   The
restriction under Section 15(a), of the maximum rate of 4% tax
being imposed, would not disable tax at 4% being levied on
purchase of raw cotton and tax again being levied at 4% on the
sale of cotton seed as both Parliament and the State Legislature
have treated them as two different and distinct goods.
81.     The ingredients of Section 15[c] of the CST Act are: (i) tax
has been levied under the VAT Act on the sale or purchase of
paddy which is declared goods under Section 14(1)[c] of the CST
Act; (2) rice is procured from such paddy; and (3) tax is levied on
the rice so procured.  In such circumstances tax leviable  on the
procured rice must be reduced by the amount of tax levied on such
paddy.  Purchase tax under Section 4(4) is levied on the value of
paddy to the extent it yields husk which is exempt from tax under
the first schedule to the VAT Act.  In view of Section 15(c) of the
CST Act, the tax levied on the sale of rice would be required to be
reduced by the amount of purchase tax levied, under Section 4(4)
of the Act, on paddy.
82.     Reliance placed by the petitioners on Commissioner, Sales
Tax v. Mathura Das Ram Saran Das ; Radhakrishna & Co. v.
State of A.P. ; and Rattan Lal & Co.23, is misplaced. In Mathura
Das Ram Saran Das77, the question which arose for consideration
was whether cotton yarn could be subjected to tax at multiple-
points, notwithstanding that it had already suffered tax once. In
that case yarn, which was subjected to tax, was held in stock on
1st August, 1958, and was subjected to multiple point tax. As the
yarn in question had already suffered tax in the hands of the
manufacturer, the question arose whether they could be subjected
to tax again, as a result of the notification issued by the State
Government on 1st August, 1958 notifying cotton yarn to be a
declared commodity. A Division Bench of the Allahabad High
Court, following an earlier decision of another Division Bench in
Commissioner of Sales Tax v. Har Saran Das and Sons , held
that they could be subject to tax at multiple points. In Chokhani
Co64, the Allahabad High Court held that the decision in Mathura
Das Ram Saran Das77 could not have been otherwise, for cotton
yarn was not a declared commodity till it came to be included in
Section 14(ii-b) from 1st October, 1958; the restriction, imposed by
Section 15(a) of the CST Act, did not operate so as to fetter the
power of the State Government to impose multiple point tax in
respect of the cotton yarn upto 1st October, 1958; and, as such,
there arose no occasion to consider either Section 14 or Section 15
of the CST Act in that case.

83.     In Rattan Lal & Co.23, the argument was that no machinery
was provided to enable the dealer to discover that the goods had
been taxed before, and the single stage at which the tax is to be
levied was still not clearly discernible.  The Supreme Court held:-
       In the case of sales-tax, the stage of tax is the sale of such goods
by the last dealer liable to pay the tax and in the case of purchase tax the
stage
is purchase by the last dealer liable to pay the tax. It is also provided that
the
turnover of any dealer for any period shall not include his turnover during that
period of any sale or purchase of declared goods at any other stage than the
stage so mentioned.
       It will be seen that the matter is now in the hands of the dealer. He
has to find out for himself whether he is liable to pay the tax or not. A
dealer knows what he has done with his goods or is going to do with them.
If he knows that he is not the last dealer having parted with the goods to
another dealer or he knows that he is going to use the goods or sell them
to consumers, he knows when' he is not liable to tax and when he is.
Therefore, he will not include the transaction in his taxable turnover in the
first case but include it in the second. Goods in the hands of a dealer are
not taxed. They are only taxed on the last purchase or sales. This
information is always possessed by a dealer and by providing that he need
not include in his turnover any transaction except when he is the last
dealer, the position is now clear.
       It is contended that even so the dealer may not know that he is the
last dealer and may make some mistake. The law does not take into
account the actions of persons who are negligent or mistaken but only of
persons who act correctly, according to law. If the dealer is clear 'about his
own position he is now quite able see whether he is the last purchaser
liable to pay the tax or the last seller liable to pay the tax. The Act by
Specifying the stage  as the last purchase or sale by a dealer liable to pay
the tax makes the stage quite clear and by giving an option to him not to
include such transactions in his return saves him from the liability to pay
the tax till he is the dealer liable to pay the tax. In our opinion, therefore,
the present provisions of the Act are quite clear and are quite sufficient to
make the amended Act accord with the Central Act. (emphasis supplied).
84.     As noted hereinabove, after its amendment by Act 20 of 2002
with effect from 13.05.2002, Section 15(a) of the CST Act no longer
disables imposition of VAT at more than one stage and,
consequently, tax can be imposed both at the stage of purchase of
goods, and its sale.

85.     In Radhakrishna & Co.78, a Division bench of this Court
held that the Legislature had intended to fix only a single point
levy in respect of groundnuts having regard to the class of dealers
which were likely to deal with these goods; the point of last
purchase was before the goods either lost their identity or were
sold outside the State; in both cases, tax becomes exigible only
once; in cases where groundnuts were purchased by a miller, the
Legislature assumed that he was also the last dealer because a
miller purchases it only for crushing; if the Legislature had
contemplated that millers, who own or lease a mill for the purposes
of crushing oil-seeds into oil, not only crush them into oil but also
deal in the goods like ordinary dealers, who buy and sell them in
order to make profit, there was nothing to stop them from treating
such millers like ordinary dealers stating that the point of levy
would be the purchase by the last miller.




XI. SECTION 15 (b) OF CST ACT: ITS SCOPE:  
86.     It is contended, on behalf of the petitioners, that Section 15
(b) of the CST Act provides for the reimbursement in full of the
State tax paid on purchase or sale of cotton (or any other declared
commodity) where such goods are sold in the course of inter-state
trade or commerce, and tax under the CST Act is paid; where tax
has been levied under the state law on declared goods and,
subsequently, such goods are sold in the course of inter-state
trade and commerce and tax has been paid under the CST Act,
Section 15(b) of the CST Act requires the tax levied, under the state
law, to be reimbursed to the person making sale in the course of
inter-state trade and commerce; where cotton lint, derived out of
raw cotton, is completely sold in the course of inter-state trade,
and the tax due under the CST Act is completely paid, purchase
tax under Section 4(4) cannot be levied on the supposed value of
cotton kapas relatable to the value of cotton seed/cotton seed
oil/cotton seed oil cake sent on consignment; the petitioners, at
times, purchased cotton kapas (raw cotton) or cotton lint from
other registered VAT dealers under tax invoices; on such
purchases, the other registered VAT dealers charged VAT; the
petitioners, after purchasing from other registered VAT dealers,
ginned raw cotton and derived cotton lint; the purchased cotton
lint was sold locally within the State or in the course of inter-state
trade and commerce and the tax due under the Act, or the CST
Act, was completely paid; since they paid tax on the sales of cotton
lint  either derived out of ginning raw cotton or purchased from
other registered VAT dealers, the petitioners are entitled to
reimbursement of the entire tax paid on their purchase of raw
cotton or lint by the operation of Section 15(b) of the CST Act; this
reimbursement, which petitioners are entitled to, cannot be
confused with the input-tax credit due under Section 13 of the Act;
the petitioners sold a part of the cotton lint in the course of inter-
state trade and commerce to registered dealers, and paid the tax
due u/s 8(1) of the CST Act; under Section 15 (b) once CST is paid,
the tax paid under the State Act (even if it is more) must be
reimbursed to the petitioner making inter-state sale; by the
operation of Section 15 (b) of the CST Act, even assuming purchase
tax is payable, it should be refunded; where cotton-kapas are
purchased from other registered VAT dealers and, after ginning,
the entire cotton lint is sold locally within the State or in the
course of inter-state trade and commerce, or where cotton lint is
purchased from another registered VAT dealer, and is either re-
sold within the State or in the course of inter-state trade and
commerce, the tax due on such sales is completely paid under the
Act/CST Act; the petitioners have effected inter-state sales of
cotton lint, and have paid the tax due under the CST Act; the tax
paid under the State enactment must, therefore, be reimbursed to
the petitioners; when cotton lint is sold in the course of inter-state
trade and commerce, Section 4(4) has no application; and retention
of cotton seed, or the disposal of cotton seed, cannot be treated as
retention/disposal of raw cotton.

87.     Section 15(b) of the CST Act confers the right to receive
refund of State tax, if any, paid in respect of declared goods. The
object is that, in respect of goods which are of importance to inter-
state trade, any State law imposing tax on the transactions of sale
or purchase, must be subject to such restrictions as the
Parliament may prescribe and these restrictions are found in
Section 15 of the CST Act.  (Munshi Abdul Rahiman & Bros v.
Commercial Tax Officer ). Under Section 3 of the CST Act, a sale
or purchase of goods shall be deemed to take place in the course of
inter-state trade or commerce if the sale or purchase (a) occasions
the movement of goods from one State to another; or (b) is effected
by a transfer of documents of title to the goods during their
movement from one State to another.  Under Section 5(1) a sale or
purchase of goods shall be deemed to take place in the course of
export of the goods out of the territory of India only if the sale or
purchase either occasions such export or is effected by a transfer
of documents of title to the goods after the goods have crossed the
customs frontiers of India.  Under Section 5(3), notwithstanding
anything contained in sub-section (1), the last sale or purchase of
any goods preceding the sale or purchase, occasioning the export
of those goods out of the territory of India, shall also be deemed to
be in the course of such export, if such last sale or purchase took
place after, and was for the purpose of complying with, the
agreement or order for or in relation to such export.

88.     Section 8 of the CST Act prescribes the rates of tax on sales
in the course of inter-state trade or commerce.  Under Section 8(1)
every dealer who, in the course of inter-state trade or commerce,
sells to a registered dealer goods of the description referred to in
sub-section (3), shall be liable to pay tax under the Act which shall
be 2% of his turnover, or at the rate applicable to the sale or
purchase of such goods inside the appropriate State under the
sales tax law of that State, whichever is lower.  Under the proviso
thereto, the central government may, by notification in the official
gazette, reduce the rate of tax under Section 8(1).  Under Section
8(2) the tax payable by any dealer on his turnover, in so far as the
turnover or any part thereof relates to the sale of goods in the
course of inter-state trade or commerce not falling within sub-
section (1), shall be at the rate applicable to the sale or purchase of
such goods inside the appropriate state under the sales tax law of
that State.  Under the explanation thereto, for the purpose of
Section 8(2), a dealer shall be deemed to be a dealer liable to pay
tax under the sales tax law of the appropriate state,
notwithstanding that he, in fact, may not be so liable under that
law.  Section 8(3)(b) stipulates that the goods, referred to in Section
8(1), shall be goods of the class or classes specified in the
certificate of registration of the registered dealer purchasing the
goods as being intended for re-sale by him or, subject to any rules
made by the Central Government in this behalf, for use by him in
the manufacture or processing of goods for sale.  Section 8(4)
stipulates that the provisions of Section 8(1) shall not apply to any
sale, in the course of inter-state trade or commerce, unless the
dealer selling the goods furnishes to the prescribed authority, in
the prescribed manner, a declaration duly filled and signed by the
registered dealer, to whom the goods were sold, containing the
prescribed particulars in a prescribed form obtained from the
prescribed authority.

89.     Section 8 of the Act relates to zero-rated sales and
thereunder, subject to the conditions in Sections 9 and Section 13
of the Act, the following shall be zero rated sales for the purposes
of the Act, and shall be eligible for input tax credit (a) sale of
taxable goods in the course of inter-state trade and commerce
falling within the scope of Section 3 of the CST Act; and (b) sale of
goods falling within the scope of Sections 5(1) and (3) of the CST
Act.  Taxable goods, sold in the course of inter-state trade or
commerce under Section 3 of the CST Act, are zero rated sales
under Section 8 of the Act and, consequently, no tax is levied
under the Act on taxable goods sold in the course of inter-state
trade or commerce.  In addition, such inter-state sales are also
eligible for input tax credit.  The tax paid by a VAT dealer, on the
purchase of goods from another VAT dealer, can be claimed as
input tax credit by him when the said taxable goods are sold by
him in the course of inter-state trade or commerce.

90.     The ingredients of Section 15(b) of the CST Act are (1) tax
must have been levied under the VAT Act, in respect of the sale or
purchase of declared goods, inside the State; (2) such declared
goods must, thereafter, have been sold in the course of inter-state
trade or commerce; (3) tax must be paid under the CST Act in
respect of the sale of such goods in the course of inter-state trade
or commerce; (4) in such an event, the tax levied under the VAT
Act is required to be reimbursed to the person making such sale in
the course of inter-state trade or commerce; (5) reimbursement, of
the tax levied under the VAT Act, shall be in such manner, and
shall be subject to such conditions, as may be provided under the
VAT Act.  As goods sold in the course of inter-state trade or
commerce are zero-rated sales under Section 8 of the VAT Act, and
input tax credit can also be claimed by the VAT dealer, who sells
taxable goods in the course of inter-State trade or commerce, to
the extent tax was paid by him on the purchase of such goods, the
requirement of Section 15(b) would, ordinarily, be satisfied.

91.     While Section 15(b) is applicable only where declared goods
are sold in the course of inter-state trade or commerce, Section
4(4) of the VAT Act is attracted on the purchase of taxable goods
used or disposed of otherwise than by way of sale in the course of
inter-State trade or commerce.  The submission that Section 4(4) of
the VAT Act, and Section 15(b) of the CST Act, operate in different
fields is no doubt attractive.  Difficulty, however, arises when
cotton lint is sold in the course of inter-state trade and commerce,
and purchase tax is levied on the value of raw cotton proportionate
to the value of cotton seed sent outside the State on consignment.
If, for example, 1000 KGs of raw-cotton yields 700 KGs of cotton
seed and 300 KGs of cotton lint.  Raw-cotton and cotton lint are
treated, both under the CST Act and the VAT Act, as one and the
same commodity.  Tax, under Section 4(4)(i) and (ii) and its
proviso, can be imposed only where the goods which constitutes
the input is different from the goods which constitute the output.
While raw cotton can be treated as the input for cotton seed and
cotton yarn, it cannot be treated as the input for cotton lint as
both raw cotton and cotton lint are treated as the same commodity
both under the CST Act and the VAT Act.  Cotton seed, however, is
treated as a commodity distinct and different from raw-
cotton/cotton lint. If raw cotton is treated as the input for cotton
seed, and the entire 700 KGs cotton seed were to be despatched
outside the State on consignment, then, under Section 4(4),
purchase tax would be levied on the purchase price of raw-cotton
representing cotton seed i.e., 700 KGs of raw-cotton, representing
700 KGs of cotton seed would be liable to tax under Section 4(4) of
the VAT Act at the stage of its purchase.  However, if the entire
cotton (300 KGs of cotton lint) is sold in the course of inter-state
trade, then no cotton would be available for being subjected to
purchase tax under Section 4(4) of the VAT Act.  If, in such
circumstances, purchase tax were to be levied under Section 4(4)
on raw cotton, it would then amount to levy of purchase tax on the
very same goods which have been sold in the course of inter-state
trade and commerce.  In such an event, Section 15(b) of the CST
Act would require the entire purchase tax, levied under Section
4(4) of the VAT Act, to be reimbursed.
92.     Raw dhal (wholesome dhal) and furnished dhal (wholesome
dhal after it is dehusked) is treated as the same commodity, both
under Section 15(d) of the CST Act and Entry 82 of the IV Schedule
to the Act.  Likewise if finished dhal is sold in the course of inter-
state trade or commerce, then Section 15(b) would require
purchase tax levied under Section 4(4) on raw dhal to be
reimbursed to the person selling finished dhal in the course of
inter-state trade and commerce.    Unlike raw cotton, this difficulty
does not arise when cotton seed is purchased from persons who
are not dealers under the VAT Act.  Cotton seed is the common
input for both cotton seed oil and cotton seed de-oiled cake.
Where cotton seed de-oiled cake is despatched outside the State on
consignment, the proportionate purchase value of cotton seed,
representing the cotton seed de-oiled cake which has been sent
outside the State on consignment, can be subjected to tax under
Section 4(4) of the VAT Act.
XII. CAN THE ADVANCE RULING, UNDER SECTION 67 OF THE          
       A.P. VAT ACT, BE REVISED UNDER SECTION 32    
       THEREOF?

93.     It is contended, on behalf of the petitioners, that, on an
application being made for advance ruling under Section 67 of the
Act, the Advance Ruling Authority, vide CCTs Ref.
No.A.R.Com/517/2005 dated 12.03.2007, had clarified that where
cotton kapas (raw cotton) purchased from unregistered dealers is
ginned, no purchase tax can be levied under Section 4(4) on the
supposed value of raw cotton depending upon the manner of
disposal of the cotton seed; the advance ruling was revised by the
Commissioner of Commercial Taxes under Section 32(1) vide
revision order in CCTs Ref. No.AIII/226/07 dated 29.02.2008; the
revision order of the Commissioner of Commercial Taxes, setting
aside the advance ruling, has been questioned in Spl. Appeal S.R.
Nos.7855/2008 & 7859/2008 which are still pending before this
Court; the Advance Ruling Authority is not subordinate to the
Commissioner of Commercial Taxes, within the meaning of Rule 51
of the Rules; the advance ruling is not amenable to revision under
Section 32(1) as the Commissioner of Commercial Taxs has no
power to revise it; the Sales Tax Appellate Tribunal (STAT) had
decided, in M/s. C.H. Ranchodlal Jethalal v. State of A.P , that
purchases tax is not leviable; the Advance Ruling is based on the
STAT judgment in M/s. C.H. Randholal Jethalal81; levy of
purchase tax is contrary to the said ruling; as identical issues
were pending before this Court, the respondents ought to have
deferred assessment under Sections 21(7) read with 32(5) of the
Act; and non-deferment of the assessment, under Section 21(7)
read with 32(5), is arbitrary and illegal.

94.     As the petitioners herein have sought adjudication on the
scope and extent of Section 4(4) of the Act, on the purchase of raw
cotton, cotton seed, paddy, raw dhal and soyabean seed by them,
we have elaborately considered all the contentions urged before us
in this regard.  It is this judgment, as long as it remains in force,
which would bind the authorities under the Act, and neither the
decision of the advance ruling authority nor the STAT.  It is wholly
unnecessary for us, therefore, to examine whether the ruling of the
advance ruling authority, under Section 67 of the Act, could or
should have been revised by the Commissioner of Commercial
Taxes under Section 32(1) of the Act.  Even otherwise, as the
validity of the said order of revision is stated to be under challenge
in the Special Appeals before this Court, it would be wholly
inappropriate for us to examine this contention in the present writ
proceedings.  As the assessment orders are, itself, under challenge
in these Writ Petitions it is wholly unnecessary for us to express
any opinion on whether or not the assessing authority could or
should have deferred assessment proceedings on the ground that a
similar issue was pending adjudication before this Court.

XIII. LIMITATION FOR PASSING AN ORDER UNDER SECTION        
        21(3) AND 21(5) OF THE ACT:

95.     It is contended, on behalf of the petitioners, that a part of the
period, in the relevant assessment orders, is barred by limitation;
the Act does not prescribe a separate assessment year, and
assessment can be made for any part of a tax period; a part of the
assessment period is, therefore, barred by limitation as the
assessment order is passed beyond 4 years; nothing has been
stated in the show cause notices or the assessment orders with
regards the extended period of limitation nor has anything been
averred in the counter affidavits; and the extended period of
limitation, under Section 21(5) of the Act, would not be applicable
in these cases as there is no willful evasion or any best judgement
assessment referred to in the assessment orders.  On the other
hand, Learned Special Standing Counsel for Commercial Taxes
would submit that in some cases, since there is willful evasion of
tax by some of the dealers, the assessing authority has invoked his
jurisdiction under Section 21(5) of the Act, and has passed
assessment orders within 6 years which is legal and valid.

96.     Section 2(24) of the Act defines prescribed to mean
prescribed by the Rules made under the Act.  Section 2(36) defines
tax period to mean a calendar month or any other period as may
be prescribed.  As the rule making authority has not chosen to
prescribe any other period as the tax period, the tax period
continues to remain only a calendar month.  Section 20 of the
Act relates to returns and self-assessments.  Under sub-section (1)
thereof every dealer, registered under Section 17 of the Act, is
required to submit such return or returns, along with proof of
payment of tax, in such manner, within such time, and to such
authority as may be prescribed.  Section 20(2) stipulates that, if a
return has been filed within the prescribed time and the return so
filed is found to be in order, it shall be accepted as self-assessment
subject to adjustment of any arithmetical error apparent on the
face of the said return.   Section 20(4) stipulates that every dealer
shall be deemed to have been assessed to tax, based on the return
filed by him, if no assessment is made within a period of four years
from the date of filing of the return.

97.     Section 21 relates to assessment and, under sub-section (1)
thereof, where a VAT dealer fails to file a return, in respect of any
tax period, within the prescribed time, the authority prescribed
shall assess the dealer for the said period for such default in the
manner prescribed.  Under Section 21(3) where the authority is not
satisfied with a return filed by the VAT dealer, or the return
appears to be incorrect or incomplete, he shall assess, to the best
of his judgment, within four years of the due date of the return or
within four years of the date of filing of the return whichever is
later.  Section 21(4) empowers the prescribed authority, based on
any information available or on any other basis, to conduct a
detailed scrutiny of the accounts of any VAT dealer and, where any
assessment as a result of such scrutiny becomes necessary, to
make such assessment within a period of four years from the end
of the period for which the assessment is to be made.  Section
21(5) stipulates that, where any wilful evasion of tax has been
committed by a dealer, an assessment shall be made, to the best of
his judgment, by the prescribed authority within a period of six
years from date of filing of the return or the first return relating to
such offence.

98.     Rule 23 of the Rules relates to tax returns and, under sub-
rule (1) thereof, the return to be filed by a VAT dealer, under
Section 20, shall be in Form VAT 200, and shall be filed within 20
days after the end of the tax period.  Under Rule 23(6)(a) if any VAT
dealer, having furnished a return in Form VAT 200, finds any
omission or incorrect information therein, other than as a result of
an inspection or receipt of any other information or evidence by the
authority prescribed, he shall submit an application in Form VAT
213 within a period of six months from the end of the relevant tax
period.  Rule 24 relates to payment of tax and Rule 25 to
assessment.  Rule 25(1) stipulates that, where a VAT dealer fails to
file a VAT return as prescribed under Section 20, the prescribed
authority shall unilaterally assess the tax payable. Rule 25(1)
requires the prescribed authority to serve upon the VAT dealer a
notice of the tax assessed and the penalty due.  Under Rule 25(5),
where any VAT return filed by the VAT dealer appears to the
prescribed authority to be incorrect or incomplete, the prescribed
authority shall assess the tax payable, to be best of his judgment,
in Form VAT 305 after affording a reasonable opportunity to the
dealer in Form VAT 305A.  The prescribed authority is required to
serve upon the VAT dealer, the order of penalty, and the interest
due, in Form VAT 305 and the VAT dealer is required to pay the
sum within the time and manner specified in the notice.

99.     The return is required to be filed, under Section 20 of the Act
read with Rule 23(1) of the Rules, within 20 days of the end of the
tax period i.e., the return, for a particular month, must be filed on
or before the 20th of the succeeding month.  The limitation,
prescribed under Section 21(3) for making assessment, is four
years from the due date of the return or within four years of the
date of filing of the return whichever is later.  As the tax period is
one month, and the return is required to be filed on or before the
20th of the succeeding month, the four year period, stipulated
under Section 21(3), would commence from the last date of filing
the return for a particular month, and would end four years
thereafter.    As Rule 23(6)(a) enables a VAT dealer to submit an
application in Form VAT 213 within a period of six months from
the end of the relevant tax period, the limitation for making
assessment under Section 21(3), in such cases, would be four
years from the date of filing of such a return.  The period of
limitation of four years must be computed for each tax period i.e.,
for each month and, unlike the APGST Act, not for an assessment
year.  For instance the period of limitation of four years, under
Section 21(3) of the Act, for a return to be filed for the month of
March, 2014 would be 20.04.2018, as the last date of filing of the
return filed for the month of March, 2014 would be the 20th of
April, 2014. Except in cases where a revised return is filed, in
terms of Rule 23(6)(a), the limitation period, for making
assessment, would expire four years from the due date of the
return.
100.    The extended period of six years, prescribed under Section
21(5) of the Act, would apply only where the dealer has committed
wilful evasion of tax.  As the assessment order is required under
Rule 25(5), to be preceded by a notice in Form VAT 305-A, it is only
if the contents of the show cause notice contain factual allegations
of wilful evasion of tax, would the extended period of limitation of
six years under Section 21(5) of the Act apply.  It would not suffice
for the assessing authority to state, for the first time in the
assessment order, that the assessee has committed wilful evasion
of tax.  The show cause notice should contain factual details to
show the basis on which the assessing authority has arrived at the
tentative conclusion that the VAT dealer has committed wilful
evasion of tax, for it is only then would the VAT dealer have the
opportunity to submit his reply and satisfy the assessing authority
that he has not committed wilful evasion of tax; and the extended
period of limitation of six years under Section 21(5) of the Act
would not apply.

101.    Since the burden of proving malafide conduct lies with the
Revenue, Section 21(5) of the Act finds application only when
specific and explicit averments challenging the fides of the conduct
of the assessee are made in the show cause notice.  In order to
attract Section 21(5), it must be shown that VAT has escaped
assessment by reason of wilful evasion by a VAT dealer.  In order
to extend the period of limitation from four years to six years, the
show cause notice must put the assessee on notice of the
omissions and commissions which amount to committing wilful
evasion of tax. Unless the assessee is put to notice, he would have
no opportunity to meet the case of the Department. If the
commercial taxes department places reliance on Section 21(5) of
the Act, the show-cause notice must contain allegations against
the assessee falling within the four corners of the said provision.
Specific averments, finding mention in the show cause notice, is a
mandatory requirement for commencement of action under Section
21(5) of the Act. In the absence of any such averments in the
show-cause notice, the Revenue cannot sustain the notice or the
order passed under Section 21(5) of the Act. (M/s. Vijaya Venkata
Durga Oil Traders v. The Commercial Tax Officer, Sivalayam
Street, Circle, Vijayawada I Division, Gunadala, Vijayawada,
Krishna District ; Uniworth Textiles Ltd. v. CCE ; Aban Loyd
Chiles Offshore Ltd. v. Commissioner of Customs ; Collector
of Central Exise v. H.M.M. Ltd. ).  If the allegations in the show-
cause notice, accepted as true, show that the dealer had
committed wilful evasion of tax, and the findings recorded in the
assessment order establish that the assessee had wilfully evaded
tax, it would suffice to extend the period of limitation in terms of
Section 21(5) of the Act notwithstanding that the show-cause
notice does not explicitly refer to Section 21(5) and does not
specifically use the words wilful evasion of tax.  (M/s. Vijaya
Venkata Durga Oil Traders82; Uniworth Textiles Ltd.83).

102.    This issue can be examined from another angle.  The fact or
facts upon which the jurisdiction of an authority depends is a
jurisdictional fact the existence of which is the sine qua non, or
the condition precedent, to the assumption of jurisdiction by the
authority.  Once such a jurisdictional fact is found to exist, the
authority has the power to decide adjudicatory facts or facts in
issue. (Carona Ltd. v. Parvathy Swaminathan & Sons ;
Halsburys Laws of England (4th Edn.), Vol.1, Para 55, p.61;
Reissue, Vol.1(1), Para 68, pp.114-15; Chaube Jagdish Prasad
v. Ganga Prasad Chaturvedi ; Arun Kumar v. Union of India ).
The prescribed authority gets jurisdiction to assess the VAT dealer
to tax, within the extended period of limitation of six years under
Section 21(5) of the Act, only if the said dealer has committed
wilful evasion of tax.  As the fact, of commission of wilful evasion,
is a jurisdictional fact the dealer is entitled to satisfy the prescribed
authority, on being given the opportunity to show cause, that such
jurisdictional facts are non-existent; and jurisdiction under Section
21(5) of the Act cannot be exercised. It is necessary, therefore, for
the prescribed authority to detail these jurisdictional facts in the
show-cause notice proposing to assess the dealer to tax under
Section 21(5) of the Act.  The contents of the show cause notice
and the assessment order must clearly show the commission of
wilful evasion, in the absence of which the extended period of
limitation, under Section 21(5) of the VAT Act, would not apply.
The requirement of stating these jurisdictional facts in the show
cause notice is to ensure that the assessee-dealer has the
opportunity to satisfy the assessing authority that he lacks
jurisdiction, to assess the dealer to tax, applying the extended
period of limitation.

103.    We do not propose to examine whether, in each of the Writ
Petitions, the assessment order or a part thereof is barred by
limitation.  As the assessment orders are being set aside, and
remanded to the concerned authorities to pass orders afresh in
accordance with law, the concerned authorities shall, in the light of
what has been held hereinabove, examine each case to decide
whether or not it is barred by limitation.

XIV. IS COMPUTATION OF INPUT TAX CREDIT IN TERMS OF        
        RULE 20 IN VIOLATION OF SECTIONS 14 AND 15 OF THE    
       CST ACT?

104.    It is contended, on behalf of the petitioners, that the
respondent authorities cannot restrict the reimbursement, due
under Section 15(b) of the CST Act, applying the formula axb/c
prescribed for input-tax credit under Rule 20(8) of the Rules; the
effect of levy of purchase tax under Section 4(4), and the restriction
of reimbursement due under Section 15(b) of the CST Act by
applying the formula axb/c prescribed by the State Act in the
context of input-tax credit, will lead to imposition of both
purchase and sales tax on cotton which is a declared commodity; it
will also result in reimbursement of an amount less than what is
provided for under Section 15(b) of the CST Act; apart from
soyabean seed  purchased from farmers, which is the subject
matter of levy of purchase tax under Section 4(4), some of the
petitioners have purchased soyabean seed from registered dealers,
and have used them for obtaining soyabean oil, during the course
of which soyabean deoiled cake is obtained which is exempt from
payment of tax; the petitioner claimed input tax credit on the
entire soyabean seed purchased from registered dealers; however,
input-tax credit was rejected with regard to sale of soyabean
deoiled cake on the ground that the same is exempt from payment
of tax and, hence, would not be eligible for input-tax credit;
reliance is placed by the respondents on Rule 20(7) of the Rules
which prescribes the formula i.e. a x b/c, where a is said to be the
total amount of input tax for common inputs for each tax  rate
excluding the tax paid on goods mentioned in sub-rule (2) of Rule
20  which deals with the ineligible list; soyabean deoiled cake does
not find place in the ineligible list; it, being a by-product obtained
while manufacturing soyabean oil, cannot be denied the benefit of
input-tax credit as the purchased soyabean seed is used for
obtaining soyabean oil which is the main manufacturing activity of
the petitioner; rejection of input-tax credit on the by-product i.e.,
soyabean deoiled cake, which is exempt from payment of tax, is
without jurisdiction; restriction of input-tax, under Rule 20(6) of
the Rules, is illegal; the petitioners claimed input-tax credit  ITC as
per Rule 20(9)(a) of the Rules, applied the formula as prescribed,
and filed VAT 200A return and VAT 200B consolidated return;
column 3 of the Form VAT 200A specifically refers to the sum of
the boxes 13A, 14A, 16A, 17A and 19A of VAT 200 return;
therefore the total of all the turnovers, taxable at different rates, is
to be summed up for the purpose of restricting input-tax credit;
the assessing authority has not taken the turnover specified in
column 16A of VAT 200 return;  the authority proceeded on the
wrong premise that Rule 20(6) is applicable  on the ground that the
petitioner has used specific inputs for specific outputs which is
incorrect; the cotton kapas,  purchased from registered dealers, are
the original input used for obtaining the end product; the relevant
rule would, therefore, be Rules 20(9) & 20(10) as the assessees
have not maintained separate accounts with regards specific
inputs used for specific outputs; the entire turnover has to be
taken for the purpose of arriving at the turnover in column 3 of
VAT 200B return; and, accordingly, Form 200A and Form 200B  
returns i.e., the revised input tax claim returns were filed, and the
correct claim of input tax was made.

105.    On the other hand, Learned Special Standing Counsel for
commercial taxes would submit that Section 13 (6) of the Act
provides that input tax credit, for transfer of taxable goods outside
the State by any VAT dealer otherwise than by way of sale, shall be
allowed for the amount of tax in excess of 4%; Rule 20 (8) of the
Rules prescribes the procedure for claiming input-tax credit where
a VAT dealer is making sales of taxable goods, and also exempt
transactions of taxable goods in a tax period; wherever a common
input is processed into two outputs, one being taxable and the
other being non-taxable by virtue of the nature of the transaction,
input-tax credit is to be calculated on the relevant portion of the
input by applying the formula a x b /c; in the instant case, the
petitioner-dealers purchased raw cotton (Kapas) from registered
VAT dealers, and used them as an input for obtaining cotton lint
and cotton seed; the cotton lint so obtained is sold within the state
or in inter-state trade and commerce; a part of cotton seed so
obtained, along with cotton seed purchased from VAT dealers, is
further processed into cotton seed oil and cotton seed cake; a
portion of the cotton seed, cotton seed oil and cotton seed cake
were despatched outside the State on consignment; raw cotton
(Kapas) and cotton seed purchased are inputs; cotton seed, cotton
seed oil and cotton seed cake, derived in the process, are outputs;
cotton lint, obtained in the process, was sold and was taxable
whereas cotton seed, cotton seed oil and cotton seed cake, derived
in the process, were used for both taxable sales and for exempt
transactions; since some of the outputs are non-taxable by virtue
of the nature of the transactions, VAT paid on the relevant portion
of the inputs is restricted by rightly applying the formula a x b /c
as per Rule 20 (8) of the Rules; levy of purchase tax under Section
4(4) of the Act, and the restriction of input-tax credit under Section
13 (6) and Rule 20 (8), are two different and independent acts
which do not overlap; levy of purchase tax is limited to un-
registered dealers (farmer) purchases, whereas the restriction of
input tax credit is on VAT registered dealer purchases; and they
are mutually exclusive and independent exercises covering
different spheres of purchases by a VAT dealer.

106.    Section 2(13) of the Act defines exempt sale to mean a sale
of goods on which no tax is chargeable, and consequently no credit
for input-tax related to that sale is allowable.  Section 2(14) defines
exempted turnover to mean the aggregate of sale prices of all
goods exempt under the Act and full or part of the actual value or
fair market value of all transactions not taxable under the
provisions of the Act, including transactions falling under Section
6-A of the CST Act.  Section 2(19) of the Act defines input-tax to
mean the tax paid or payable under the Act by a VAT dealer to
another, whether directly by himself or through his agent on his
behalf, on the purchase of goods in the course of business.
Section 2(22) defines output tax to mean the tax paid or payable
by a VAT dealer, on the sale of goods to another VAT dealer,
whether by himself or through his agent or any other person.
Section 2(35) defines tax invoice to mean a sale invoice
containing such details as may be prescribed and issued by a VAT
dealer to another VAT dealer.

107.    Section 4 of the Act relates to charge to tax and, under sub-
section (1) thereof, save as otherwise provided in the Act, every
dealer registered, or liable to be registered, as a VAT dealer shall be
liable to pay tax, on every sale of goods in the state, at the rates
specified in the Schedules.  Section 7 relates to exemptions and,
thereunder, the goods listed in Schedule-I to the Act shall be
exempted from tax under the Act.  Section 13 provides credit for
input-tax and, under sub-section (1) thereof, subject to the
conditions, if any prescribed, an input-tax credit shall be allowed
to the VAT dealer for the tax charged in respect of all purchases of
taxable goods, made by that dealer during the tax period, if such
goods are for use in the business of the VAT dealer.  No input tax
credit shall be allowed in respect of the tax paid on the purchase of
goods specified in Schedule VI.  Under Section 13(3), a VAT dealer
is entitled to claim (a) input-tax credit under sub-section (1), on
the date the goods are received by him, provided he is in
possession of a tax invoice.  Under clause (c) of Section 13(5) no
input tax credit shall be allowed on the sale of exempted goods
except when such goods are sold in the course of export, or
exported outside the territory of India; under clause (d) on exempt
sale; and under clause (e) on transfer of exempted goods on
consignment basis or to branches of the VAT dealer outside the
State otherwise than by way of sale.  Section 13(6) stipulates that
the input-tax credit, for transfer of taxable goods outside the State
by any VAT dealer otherwise than by way of sale, shall be allowed
for the amount of tax in excess of 5%. Section 14 relates to tax-
invoices and requires a VAT dealer, making a sale liable to tax to
another VAT dealer, to issue, at the time of sale, a tax invoice in
such form as may be prescribed.

108.    Rule 20 of the Rules relates to input-tax credit and, under
sub-rule (6) thereof, where any VAT dealer is able to establish that
specific inputs are meant for specific output, the input-tax credit
can be claimed separately for taxable goods; and, for the common
inputs, such VAT dealer can claim input-tax credit by applying the
formula a x b/c for the common inputs used for taxable goods,
exempt goods (goods in Schedule I) and exempt transactions;
under the proviso thereto, the VAT dealer is required to furnish an
additional return, in Form VAT 200A, for each tax period for
adjustment of input-tax credit; and also to make an adjustment for
a period of 12 months, ending March every year by filing a return
in Form VAT 200B.  Rule 20(7) stipulates that, where a VAT dealer
makes taxable sales and sales of exempt goods (goods in Schedule
I) for a tax period, and inputs are common for both, the amount
which can be claimed as input tax credit, for the purchases of the
goods at each tax rate shall be calculated by the formula a x b/c.
The proviso thereto requires the VAT dealer to furnish an
additional return in Form VAT 200A for each tax period for
adjustment of input-tax credit; and also to make an adjustment for
a period of 12 months ending March every year by filing a return in
Form VAT 200B.

109.    Under Rule 20(8)(a), where a VAT dealer makes sales of
taxable goods and also exempt transactions of taxable goods in a
tax period, for the purchases of goods taxed at 12.5%, input-tax to
the extent of the 8.5% portion can be fully claimed in the same tax
period.  Rule 20(8)(b) provides that, in respect of purchases of
goods taxable at 1%, 4% and for the 4% tax portion in respect of
goods taxable at 12.5%, the VAT dealer shall apply the formula
axb/c for each tax period.  Under the proviso thereto, the VAT
dealer is required to furnish an additional return in Form VAT
200A for each tax period for adjustment of input-tax credit, and
also to make an adjustment for a period of 12 months ending
March every year, by filing a return in Form VAT 200B.  Under
Rule 20(9)(a), where a VAT dealer makes sales of taxable goods,
exempt sales (goods in Schedule I) and also exempt transaction of
taxable goods in a tax period, for the purchases of goods taxed at
14.5%, input tax, to the extent of the 9.5% portion, can be fully
claimed in the same tax period.

110.    Section 13(5) of the Act stipulates that no input tax credit
shall be allowed on sale of exempted goods (except in the case of
export), exempt sales, and transfer of exempted goods on
consignment or to branches outside the state.   Input-tax credit is
eligible on the sale of taxable goods under Section 8(a) of the Act
i.e., the sale of taxable goods in the course of inter-state trade or
commerce.  In the present case, purchase tax is levied on goods
which are used as inputs for other goods which are exempt from
tax, or for goods which have been transferred on consignment or to
branches of the VAT dealer outside the State otherwise than by
way of sale.   While the provisions of the Act must, in view of
Article 286(3) of the Constitution of India, be complaint with
Sections 14 and 15 of the CST Act, it is not clear as to how denial
of input-tax credit, or computation of input-tax credit in
accordance with Rule 20 of the Rules, in the present cases is
contrary to the mandate of Sections 14 and 15 of the CST Act.  The
submission of the Learned Special Standing Counsel of
Commercial Taxes, that levy of purchase tax under Section 4(4) of
the Act, and the restriction of input-tax credit under Section 13
and Rule 20, are two different and independent acts which do not
overlap, has considerable force.  In any event the question,
whether computation of input-tax credit in terms of Rule 20 is in
violation of Sections 14 and 15 of the CST Act, must be answered
on the facts and circumstances of each case.  It is for the assessee
to satisfy the assessing authority that computation of the eligible
input-tax credit, in terms of Rule 20, is in violation of Sections 14
and 15 of the CST Act.


XV: SUMMARY:  

111.    The conclusions afore-stated are summarised, briefly, as
under:

(i).    Section 4(4) of the VAT Act is the charging section and its main
object is to plug leakage of revenue, and prevent evasion of tax. In
interpreting such a provision, a construction which would defeat its
purpose and, in effect, obliterate it from the statute book should be
eschewed. If more than one construction is possible, that which
preserves its workability and efficacy is to be preferred to the one which
would render it otiose or sterile.

(ii).   The policy underlying Section 4(4) is to tax every transaction
either at the point of sale or purchase.  Where the seller is not taxed or
cannot be taxed, the purchaser is taxed. By the same reasoning, when
the seller is taxed, the purchases is not taxed.  If the goods are not
available in the State for subsequent taxation, by reason of the
circumstances mentioned in clauses (i) to (iii) of Section 4(4), then the
purchaser is made liable to tax under Section 4(4).

(iii).  The goods purchased are referred to in Section 4(4) as taxable
goods, and such purchases are in circumstances in which no tax is
payable by the seller.  The expression 'taxable goods', as used in Section
4(4), can be defined as goods, the sale of which is, liable to tax under the
Act.  The word "taxable qualifies the term 'goods' and excludes, by
necessary implication, goods the sale of which is exempt from tax under
the Act. The goods so exempt - not being 'taxable goods'  are not
brought to charge under Section 4(4) of the Act.

(iv).   It is only because the goods listed in the first schedule to the Act
are exempt from tax, the branch transfer or stock transfer of goods by a
VAT dealer to his consignee/agent is not taxable under the Act, and such
transactions attract the ingredients of clauses (i) to (iii) of Section 4(4), is
the input of such goods subjected to tax under Section 4(4) of the VAT
Act.

(v).    A farmer or an agriculturist would be a person as defined under
Section 2(22) of the AP General Clauses Act and consequently, as the
context does not otherwise provide, under Section 4(4) of the VAT Act
also.

(vi).   The tax levied under Section 4(4) is not on the sale of goods by a
farmer/agriculturist, but on the VAT dealer who purchases goods
(agricultural produce) from the farmer.


(vii).  It is not every purchase of taxable goods but only such goods,
which fall within the ambit of clauses (i) to (iii) of Section 4(4) and its
proviso, which attracts levy of tax at the stage of its purchase.  The
farmer/agriculturist is not even, indirectly, subjected to tax under
section 4(4) of the Act.

(viii).         Where a farmer grows raw cotton, paddy, raw dhal and soyabean
seed in his land, and sells these agricultural produce to others, he is not
liable to pay tax on the sale of such goods, as he is not a dealer under
Section 2(10) of the Act.  Purchase of such agricultural produce by a VAT
dealer is in circumstances in which no tax is payable by the seller.  In
such circumstances tax, at 4%/5% of the purchase value of such goods,
is liable to be paid by the VAT dealer who purchases the aforesaid goods
i.e., agricultural produce.

(ix).   Where goods, liable to tax under the VAT Act, are purchased by a
VAT dealer from other dealers who are not registered under the Act, and
the goods have not suffered value added tax, a liability is imposed on the
purchasing VAT dealer to the extent the goods purchased by him are
used/disposed of as specified in clauses (i) to (iii) of Section 4(4) of the
Act.

(x).    Tax, under Section 4(4), is not levied on goods which are exempt
from tax.  It is only because the goods listed in the first schedule to the
VAT Act are exempt from payment of VAT under the Act is purchase tax
levied, under Section 4(4)(i) of the VAT Act, on goods which are used as
inputs for those goods which are exempt from tax under the Act.

(xi).   Section 4(4)(i) & (ii) require that the manufactured/produced
goods should have been transferred to some person otherwise than by
way of sale.  If the manufactured goods are not sold within the State, but
are yet disposed of within the State, then no tax is payable on such
disposition. Again where such manufactured goods are taken out of the
State, to the manufacturers own depots or to the depots of his agents,
then no such tax is payable on such removal.

(xii).  Each transaction of purchase of goods, which is used or disposed
of in the manner contemplated under clauses (i) to (iii) of Section 4(4), is
distinct and is neither capable of being construed as overlapping or as
redundant.

(xiii).         The use of the word input, in clauses (i) and (ii) of Section
4(4),
brings within its ambit every item which is a raw material in the widest
sense, made wider by using the expression input. The purpose is to
broaden the meaning of raw material by including in it even those items
which could be placed in the goods to make it marketable as such.

(xiv).  The first proviso to Section 4(4) is not independent of the main
Section, and is attracted where a common input is used to produce one
or more outputs.  By the use of the word common, the legislative intent
is to tax the proportionate value of the common input to the extent one
or more of the outputs attract the ingredients of clauses (i) to (iii) of
Section 4(4).

(xv).   The first proviso to Section 4(4) requires the input to be
common to one or more outputs.  Paddy, as an input, is common both
to rice and husk; soyabean seed, as an input, is common both to
soyabean oil and soyabean deoiled cake; and cotton seed, as an input, is
common both to cotton seed oil and cotton seed deoiled cake.

(xvi).  The first proviso to Section 4(4) is attracted when a common input
is used to produce more than one goods, and when the output, or one of
the outputs, cannot be subjected to tax as they attract the ingredients of
clauses (i) to (iii) of Section 4(4).  In such cases tax is levied on the value
of the input proportionate to the value of such output/outputs.

(xvii). The first proviso to Section 4(4) prescribes the manner of
computation of tax on goods which are charged to tax under Section 4(4),
and cannot be so construed as to render Section 4(4) itself redundant.

(xviii).        The goods used as input/inputs are distinct and different from the
goods which constitute the output/outputs.  If cotton seed hull or cotton
seed oil or cotton seed de-oiled cake attract the ingredients of clauses (i)
to (iii) of Section 4(4) of the Act, and if cotton seed is purchased by a VAT
dealer from a person who is not a dealer, then the proportionate
purchase value of cotton seed can be subjected to tax under Section 4(4).

(xix).  The tax is imposed on the raw material purchased by the dealer (ie
cotton seed) for, if purchase tax is levied on the value of the end product
(ie oil cake), it would then be a tax imposed on the manufacture of goods
which would be beyond the competence of the State Legislature.

(xx).   That would, however, not justify raw-cotton, which is a commodity
distinct from cotton seed, being subjected to tax under the proviso to
Section 4(4), as raw-cotton is not the common input for cotton seed hull,
cotton seed oil and cotton seed de-oiled cake.

(xxi).  The use of the words used or disposed of in the manner as
prescribed under this section, in the proviso to Section 4(4), make it
clear that the common input, of the outputs which are used or disposed
of in the manner prescribed in clauses (i) to (iii) of Section 4(4), can alone
be subjected to tax.

(xxii). The proviso to Section 4(4) cannot be so extended as to bring
within its ambit goods whose derivatives are common inputs for other
goods (outputs) which attract the ingredients of clauses (i) to (iii) of
Section 4(4) of the Act.

(xxiii).        Where one of the outputs is dealt with in the manner specified in
clauses (i) to (iii) of Section 4(4), and the other output is not, it is only
the
output which is dealt with in the manner specified in clauses (i) to (iii) of
Section 4(4) which falls within the ambit of Section 4(4) of the Act.

(xxiv). The proviso to Section 4(4) enables tax to be levied not on the
goods which constitute the output, but on the proportionate value of the
purchased goods which are used as inputs for producing other goods
(outputs) where one of the goods so produced attracts the ingredients of
clauses (i) to (iii) of Section 4(4) of the Act.

(xxv).  It is neither possible nor is it required, for the application of
the
proviso to Section 4(4), that a specific formula be uniformly prescribed
for arriving at the proportionate value of goods under Section 4(4) of the
Act.  As the first proviso would apply to different goods, the proportionate
value of which may vary from one to another, no uniform formula can or
need be prescribed.

(xxvi). The mere fact that no uniform formula is prescribed does not
disable the assessing authority from giving effect to the first proviso to
Section 4(4) of the Act, and in subjecting the proportionate value of the
purchase price of taxable goods to tax.

(xxvii).  The proviso, which enables the liability under Section 4(4) to be
quantified and, when quantified, to be enforced against the subject, is a
machinery provision as it relates to the mode and manner in which the
taxable turnover, under Section 4(4) of the Act, should be determined
where a common input is used to produce goods.  Courts construe
machinery provisions in such a manner that a charge to tax is not
defeated.

(xxviii).       When a provision sets out the method or formula for
determining the taxable turnover, it can only be considered to be
procedural and not substantive.  Procedural law is applicable to pending
cases as no suitor can be said to have a vested right in procedure.

(xxix).         The CST Act firstly specifies the declared goods and,
secondly, imposes conditions and restrictions subject to which the State
government can impose tax on the internal trade in these goods.

(xxx).          Section 14 of the CST Act declares certain goods to be of
special importance in inter-state trade or commerce. Such goods are
commonly known as declared goods.

(xxxi).         The goods in this batch of Writ Petitions on which purchase
tax under Section 4(4) of the Act has been levied, i.e., paddy, dhal, raw
cotton and soyabean seed, are all declared goods under Section 14 of the
CST Act.

(xxxii).        Section 15 of the CST Act places restrictions and imposes
conditions which are essential to the validity of an impost by the State on
such goods. If the conditions prescribed therein are not satisfied, the
impost will be invalid.

(xxxiii).       The intention of Article 286(3) of the Constitution is not to
destroy all charging sections in the sales tax acts of the States, which are
discrepant with Section 15 of the CST Act, but to modify them in
accordance with Section 15. The law of the State is declared to be subject
to the restrictions and conditions contained in the law made by
Parliament, and the provisions of the State Act would pro-tanto stand
modified.

(xxxiv).        Where the turnover, of declared goods under Section 14 of
the CST Act, are subjected to tax under the sales tax law of a State,
Section 15(a) of the CST Act prescribes the maximum rate at which such
tax may be imposed so as to ensure that inter-state trade or commerce in
such goods is not hampered by heavy taxation within the State
occasioned by an excessive rate of tax.

(xxxv). As a result of Article 286 (3) of the Constitution, and Section
15(a)
of the CST Act, the rate of tax under Section 4(4) of the VAT Act, as in the
case of sale or purchase of declared goods, is limited to the rate of
four/five per cent.

(xxxvi).        The whole idea, underlying Section 15(a) of the CST Act, is
that declared goods should not, in the aggregate, suffer tax at more than
four/five per cent both in intra-state and inter-state trade.

(xxxvii).       Cotton, whether ginned or unginned, is treated as a single
commodity or a single species of declared goods for the purpose of
Section 15(a) of the CST Act.   To put a commodity in such a state, that it
can be more readily used for manufacture, is almost the same thing as
making a commodity marketable; the commodity remains the same and  
does not alter its character in any respect.  Selling unginned cotton and
ginned cotton are two transactions dealing with the same commodity.

(xxxviii).      After the amendment of Section 15(a), by Act 20 of 2002
with effect from 13.05.2002, tax under the State sales tax law can be
imposed at more than one stage.  Consequently, tax can be levied both
on the sale or purchase of cotton i.e., tax can be imposed both on the
purchase of raw cotton (kapas) and again on the sale of ginned cotton
i.e., cotton lint.

(xxxix).        The restriction under Section 15(a) of the CST Act is now
limited only to the rate of tax which before 08.04.2011 was 4%, and is
5% thereafter.  In view of Section 15(a) of the CST Act the rate of tax,
both on the purchase and sale of cotton, cannot together exceed 4%/5%.

(xl).   If VAT is levied on cotton lint at 4%/5%, then purchase tax under
Section 4(4) cannot be imposed on that quantity of raw cotton which,
after being ginned, is sold as cotton lint, for it would then result in tax,
exceeding 4%/5%, being levied on the sale and purchase of the very
same goods.

(xli).  Section 14(vi-a) of the CST Act relates to pulses (dhal).  Section
15(d) of the CST Act stipulates that each of the pulses referred to in
Section 14(vi-a), whether whole or separated and with or without husk,
shall be treated as a single commodity for the purpose of levy of tax
under the VAT Act. Consequently the VAT Act has, in its IV Schedule,
listed under a common entry i.e., Entry 82 all kinds of pulses and dhals.

(xlii). In view of both Section 15(d) of the CST Act, and Entry 82 of the
IV Schedule to the Act, raw dhal (whole dhal) must be held to be the
same commodity as finished dhal even after it is dehusked.  Section 15(a)
of the CST Act is attracted and, consequently, purchase tax on the
purchase of raw dhal and tax of the sale of the resultant quantity of
finished dhal together cannot exceed 4%/5%.

(xliii).        The restriction under Section 15(a) of the CST Act would apply
only to goods falling under one item or entry under Section 14 of the CST
Act, and the IV Schedule to the Act.  Commodities, other than those
specified, cannot be introduced into the relevant provisions/schedules on
the ground that they are derived from the primary commodities.

(xliv).         Cotton kapas, in its unginned or unmanufactured state, contain
cotton-seed. But it is by a manufacturing process that cotton and seed
are separated, and the seed so separated is neither cotton nor part of
cotton. They are two distinct commercial goods though, before the
manufacturing process, the seed might have been a part of cotton itself.

(xlv).  The restriction under Section 15(a), of the maximum rate of
4%/5% tax being imposed, would not disable tax at 4%/5% being levied
on purchase of raw cotton and tax again being levied at 4%/5% on the
sale of cotton seed as both Parliament and the State Legislature have
treated them as two different and distinct goods.

(xlvi). When paddy is dehusked, and rice is produced, there is a change
in the identity of the goods, and paddy does not continue to be paddy
thereafter. Rice and paddy, in ordinary parlance, are two distinct and
different commodities.  However, in view of Section 15(c) of the CST Act,
the tax levied on the sale of rice must be reduced by the amount of
purchase tax levied, under Section 4(4) of the Act, on paddy.

(xlvii).        Taxable goods, sold in the course of inter-state trade or commerce
under Section 3 of the CST Act, are zero rated sales under Section 8 of
the VAT Act and, consequently, no tax is levied under the VAT Act on
taxable goods sold in the course of inter-state trade or commerce.

(xlviii).       In addition, such inter-state sales are also eligible for input
tax credit under the VAT Act.  The tax paid by a VAT dealer, on the
purchase of goods from another VAT dealer, can be claimed as input-tax
credit when the said taxable goods are sold by him in the course of inter-
state trade or commerce.

(xlix).         While Section 15(b) of the CST Act is applicable only where
declared goods are sold in the course of inter-state trade or commerce,
Section 4(4) of the VAT Act is attracted on the purchase of taxable goods
used or disposed of otherwise than by way of sale in the course of inter-
State trade or commerce.

(l).    Tax, under Section 4(4)(i) and (ii) of the Act and its proviso, can be
imposed only where the goods, which constitute the input, is different
from the goods which constitute the output.  While raw cotton can be
treated as the input for cotton seed and cotton yarn, it cannot be treated
as the input for cotton lint as both raw cotton and cotton lint are treated
as the same commodity both under the CST Act and the VAT Act.  

(li).   Likewise if finished dhal is sold in the course of inter-State trade
or commerce, then Section 15(b) of the CST Act would require purchase
tax, levied under Section 4(4) of the Act on raw dhal, to be reimbursed to
the person selling finished dhal in the course of inter-state trade and
commerce.

(lii).  As a tax period is one month, and the return is required to be filed
on or before the 20th of the succeeding month, the four year period of
limitation, stipulated under Section 21(3), would commence from the last
date of filing the return for a particular month, and would end four years
thereafter.

(liii). As Rule 23(6)(a) of the Rules enables a VAT dealer to submit an
application in Form VAT 213, within a period of six months from the end
of the relevant tax period, the limitation for making assessment under
Section 21(3), in such cases, would be four years from the date of filing
the said return.

(liv).  The period of limitation of four years must be computed for each
tax period i.e., for each month and, unlike the APGST Act, not for an
assessment year.

(lv).   The prescribed authority gets jurisdiction to assess the VAT dealer
to tax, within the extended period of limitation of six years under Section
21(5) of the VAT Act, only if the said dealer has committed wilful evasion
of tax.

(lvi).  As the assessment order is required, under Rule 25(5) of the
Rules, to be preceded by a notice in Form VAT 305-A, it would not suffice
for the assessing authority to state, for the first time in the assessment
order, that the assessee has committed wilful evasion of tax.  The show
cause notice should contain factual details to show the basis on which
the assessing authority has arrived at the tentative conclusion that the
VAT dealer has committed wilful evasion of tax.

(lvii). It is mandatory that the show-cause notice must contain
allegations against the assessee falling within the four corners of Section
21(5).  Unless the assessee is put to notice, he would have no
opportunity to meet the case of the department. In the absence of any
such allegations in the show-cause notice, the Revenue cannot sustain
the notice or the order passed under Section 21(5) of the Act.

(lviii).        If the allegations in the show-cause notice, accepted as true, show
that the dealer had committed wilful evasion of tax, and the findings
recorded in the assessment order establish that the assessee had wilfully
evaded tax, it would suffice to extend the period of limitation in terms of
Section 21(5) of the Act notwithstanding that the show-cause notice does
not explicitly refer to Section 21(5) and does not specifically use the
words wilful evasion of tax.

(lix).  As the fact of commission of wilful evasion is a jurisdictional
fact,
the dealer is entitled to satisfy the prescribed authority, on being given
the opportunity to show cause, that such jurisdictional facts are non-
existent, and jurisdiction under Section 21(5) of the Act should not be
exercised. It is necessary, therefore, for the prescribed authority to detail
these jurisdictional facts in the show-cause notice proposing to assess
the dealer to tax under Section 21(5) of the Act.

(lx).   Levy of purchase tax under Section 4(4) of the Vat Act, and the
restriction of input-tax credit under Section 13 thereof and Rule 20 of the
Rules, are two different and independent acts.

(lxi).  The question, whether computation of input-tax credit in terms of
Rule 20 is in violation of Sections 14 and 15 of the CST Act, must be
answered on the facts and circumstances of each case.  It is for the
assessee to satisfy the assessing authority that computation of the
eligible input-tax credit, in terms of Rule 20, is in violation of Sections 14
and 15 of the CST Act.

XVI. CONCLUSION:  

112.    We have, in the aforesaid paragraphs, elaborately considered
the contentions urged by Learned Counsel on either side on the
scope, purport and application of Section 4(4) of the Act, and its
first proviso, to declared goods falling within the ambit of Sections
14 and 15 of the CST Act.  It would be wholly inappropriate for us
to examine the validity of each of the orders, impugned in this
batch of Writ Petitions, in proceedings under Article 226 of the
Constitution of India, as these are matters for examination by the
concerned authorities exercising powers under the Act.  The
impugned orders are set aside.  The concerned authorities shall, in
the light of this judgment, pass orders afresh and in accordance
with law, after giving the petitioners an opportunity of being heard.
The Writ Petitions are, accordingly, disposed of.  No costs.

RAMESH RANGANATHAN, J      
M.SATYANARAYANA MURTHY,J        
Date:  04.03.2015

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