# M/S Maiden Industries v. The Commissioner Of Trade Tax, U.P. Lucknow

- **Citation:** (2016) 7 ILRA 326
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2013-08-19
- **Bench:** Yashwant Varma
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-maiden-industries-v-the-commissioner-of-trade-tax-u-p-lucknow-47626
- **Pages:** 6

## Headnote

S.C.

The short and interesting issue involved in this revision is as to whether the tax which the assessee has paid
on the purchase of raw material and packing material which is ultimately used in the manufacture and packing
of goods is liable to be adjusted in full from the ultimate tax liability which a dealer may stand faced with or is
it liable to be adjusted only to the extent of the taxable turnover.

This Court finds the action of the assessing authority in reducing the set off which was claimed by the
revisionist to be unsustainable. The answer is thus entered in favour of the assessee and against the
Department.

This revision stands allowed. The assessee shall be entitled to all consequential reliefs as permissible in law.

Held: Para-

Case Law discussed:
Supreme Court in Commissioner of Sales Tax Vs. Bharat Petroleum Corporation Ltd,
Anglo-French Textiles Co. Ltd. V. CIT [(1954) 25 ITR 27: AIR 1954 SC 198]; Tata Iron & Steel Co. V. State of
Bihar [AIR 1963 SC 577 :1963 Supp (1) SCR 199 :(1963) 48 ITR 123],
CIT v. Best & Co. [(1966) 60 ITR 11: AIR 1966 SC 1325 :(1966) 2 SCR 480]

## Text

326 INDIAN LAW REPORTS ALLAHABAD SERIES

28. Great Glen, it may be noted, was rendered prior in point of time to Jagatjit and itself
followed an earlier judgment of the Court rendered in Lipton India Ltd. Vs. Commissioner of Sales
Tax8. Neither of these judgments were noticed or referred to in Jagatjit.

29. Having dwelt upon Jagatjit and the distinguishing backdrop in which the same came to be
rendered, the Court lastly takes note of what was held in Shadi Lal Enterprises where the learned Judge
held:-

"6. Batch number is only mentioned in only in Bill No. 25. In other papers accompanying
the disputed consignment Batch number is not mentioned. There is no finding of the Tribunal that the
goods despatched through the consignment in question there was omission, as shown in the accounts,
registers and other documents. Penalty under these circumstances, could be imposed only when a
categorical finding is recorded to this effect. There is nothing to show that the Tribunal examined the
matter with reference to these stipulations. It is undisputed that if goods are shown in the accounts,
registers and other documents, no penalty could be imposed. Consequently, the penalty imposed by the
Tribunal must be held to be illegal on the face of it, and it has to be quashed."

30. For all the aforesaid reasons, the Court has no hesitation to hold that the imposition of penalty
upon the assessee on account of a discrepancy in the batch numbers and date of manufacture was clearly
unjustified and unwarranted in the facts and circumstances of the case. The orders of the assessing
authority, the first appellate authority as also that of the Tribunal sustaining the levy of penalty upon the
revisionist, therefore cannot be sustained.

31. Accordingly this revision shall stand allowed. The order of the assessing authority dated 31
July 2009, the order of the first appellate authority dated 19 August 2013 and that of the Tribunal dated 15
January 2016 are hereby set aside. The revisionist shall be entitled to the refund of the amounts deposited
towards penalty. This claim of the revisionist shall be processed by the assessing authority in accordance
with the provisions of the VAT Act expeditiously.
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REVISIONAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 09.11.2022

BEFORE

THE HON'BLE YASHWANT VARMA, J.

Sales/Trade Tax Revision No.- 160 Of 2006

M/S Maiden Industries ...Applicant
Versus
The Commissioner Of Trade Tax, U.P. Lucknow ...Respondents

Counsel for the Applicant:
Ashok Kumar
7 All. M/S Maiden Industries Vs The Commissioner Of Trade Tax, U.P. Lucknow 327
Counsel for the Respondents:
S.C.

The short and interesting issue involved in this revision is as to whether the tax which the assessee has paid
on the purchase of raw material and packing material which is ultimately used in the manufacture and packing
of goods is liable to be adjusted in full from the ultimate tax liability which a dealer may stand faced with or is
it liable to be adjusted only to the extent of the taxable turnover.

This Court finds the action of the assessing authority in reducing the set off which was claimed by the
revisionist to be unsustainable. The answer is thus entered in favour of the assessee and against the
Department.

This revision stands allowed. The assessee shall be entitled to all consequential reliefs as permissible in law.

Held: Para-

Case Law discussed:
Supreme Court in Commissioner of Sales Tax Vs. Bharat Petroleum Corporation Ltd,
Anglo-French Textiles Co. Ltd. V. CIT [(1954) 25 ITR 27: AIR 1954 SC 198]; Tata Iron & Steel Co. V. State of
Bihar [AIR 1963 SC 577 :1963 Supp (1) SCR 199 :(1963) 48 ITR 123],
CIT v. Best & Co. [(1966) 60 ITR 11: AIR 1966 SC 1325 :(1966) 2 SCR 480]

(Delivered by Hon'ble Yashwant Varma, J.)

1. Heard the learned counsel for the revisionist and Sri B.K. Pandey, learned standing
counsel for the respondent.

2. The short and interesting issue involved in this revision is as to whether the tax which
the assessee has paid on the purchase of raw material and packing material which is ultimately used
in the manufacture and packing of goods is liable to be adjusted in full from the ultimate tax
liability which a dealer may stand faced with or is it liable to be adjusted only to the extent of the
taxable turnover.

3. The issue itself arises on account of the fact that the revisionist in this case had paid a tax
of Rs.5,72,182/- on raw material which was admittedly used in the manufacture and packing of
goods. The case of the revisionist was that he had effected sales approximating to Rs.2.05 crores on
which he became liable to pay tax of Rs. 3.41 lacs in that year. Admittedly the revisionist had also
effected sales of Rs.61,56,650/- to certain units which enjoyed exemption from payment of tax by
virtue of the provisions of Section 3-B of the U.P. Trade Act 1948. What the assessing authority
has proceeded to do however is that while setting off the tax which had been pre-paid by the
assessee on the raw material, it has reduced the set off amount to Rs.4,21,406/- against what the
assessee originally paid namely Rs.5,72,182/-. The reasoning adopted by the assessing authority
was that on sales of Rs.61,56,650/-, the assessee had not levied or collected any tax. This because,
these sales were made in favour of entities which were exempt from tax by virtue of section 3-B.
He has accordingly proportionately reduced the benefit of the tax paid by the dealer on raw
328 INDIAN LAW REPORTS ALLAHABAD SERIES

material and restricted its offset to the taxable turnover only. It is the correctness of this action of
the assessing authority which falls for consideration.

4. Admittedly the set off of taxes paid on raw material and packing material stands covered
by the provisions of Section 4-BB of the U.P. Trade Tax Act 1948. The said provision reads as
under:

"Where tax has been paid on the purchases or sale of raw material or packing
material inside the State and such raw material or packing material has been used in manufacture or
packing of such goods as are notified by the State Government in this behalf and such goods are
sold in the State or in the course of inter-state trade or commerce, the amount of tax paid on the
purchase or sale of the raw material or packing material, subject to such conditions and restrictions
as may be specified in the said notification, be deducted from the tax payable on the sale of such
goods-

(a) inside the State to the extent the tax has been paid on the purchase or sale of
raw material or packing material from which the goods sold inside the State were manufactured or
packed.

(b) In the course of inter-state trade or commerce, to the extent the tax has been
paid on the purchase or sale of raw material or packing material, from which the goods sold in the
course of inter-state trade or commerce were manufactured or packed.

Provided that the amount of tax to be deducted under clause (a) or clause (b) shall
not exceed the amount of tax payable separately under this Act or the Central Sales Tax Act, 1956."

5. Learned counsel for the revisionist has contended that section 4-BB does not envisage or
mandate a proportionate reduction of the set off amount. It is his submission that the entire amount
of tax which has been paid on raw material or packing material as the case may be was liable to be
set off against the tax liability of the revisionist. He has, in aid of his submission, also placed
reliance upon the judgment rendered by the Supreme Court in Commissioner of Sales Tax Vs.
Bharat Petroleum Corporation Ltd.1

6. The learned standing counsel on the other hand has submitted that the set-off which was
claimed by the assessee is directly connected with the tax payable on the sale of goods. He submits
that the tax paid on raw or packing material to the extent used and utilized in the manufacture and
sale of goods to tax exempted entities must necessarily be proportionately reduced. He submits
therefore that to the extent that the raw material may have been used in the manufacture of goods
valued at Rs.61,56,650/- there has to necessarily be a reduction in the total set off claimed by the
assessee.

7. The submission advanced by the learned standing counsel cannot be accepted for more
than one reason. While it is true that the language of Section 4-BB does enjoin the set-off of the tax
7 All. M/S Maiden Industries Vs The Commissioner Of Trade Tax, U.P. Lucknow 329
paid on purchase and sale of raw material from the tax payable on the sale of such goods, the
section, as the learned counsel for the revisionist has rightly contended, does not make any
distinction between tax exempted sales and sales on which taxes have been levied and collected.
From the plain and unambiguous language of Section 4-BB, this Court finds no indication that set
off which is claimed by the assessee is liable to be reduced and restricted only to such sales which
have suffered or have been subjected to tax. The set off which is claimed is of all taxes that have
been paid on the purchase of raw material. The set off is not restricted in any manner to only those
sales upon which tax has been levied or collected. This becomes further evident from the language
of sub clause (a) which while specifying the extent of set off relates it to solely to the tax paid on
the packing or raw material "from which the goods sold within the State were manufactured and
packed". Here also the emphasis of the legislative author as is evident is upon two factors only (a)
the pre-paid tax on raw or packing material and (b)their utilisation in the manufacture and packing
of goods sold in the State. The words "tax payable on the sale of such goods" as used in the
substantive part of 4BB firstly cannot be read in isolation. Secondly, they stand duly explained by
sub clause (a) which follows.

8. In order to appreciate the dictum laid down by the Supreme Court in Bharat Petroleum,
it would first be apposite to consider what was actually urged from the side of the revenue therein.
This is how the Supreme Court recorded the submission: -

"14. Shri Dholakia, learned counsel for the State of Maharashtra, submits that the
issue in these appeals is a very simple one. Rules 41 and 41-A are intended to give relief to a dealer
in respect of purchase of goods which are used in the manufacture of taxable goods for sale, the
clear idea being that where the manufactured goods will also be liable to sales tax in the hands of
the manufacturer there should be a relief of the taxes paid by him on the goods purchased by him
for use in such manufacture, so as to avoid double taxation. In the Bharat Petroleum case [ The
words "or export" were inserted by a notification dated August 31, 1970] , the manufactured goods
viz., pure kerosene were neither sold by the respondent so as to attract sales tax in his hands nor,
indeed, liable to sales tax at all for the first three months. ..............Even assuming that the sulphuric
acid or cotton purchased can be said to have been used for the manufacture of two commodities
(viz. kerosene and acid sludge in the one case and cloth and cotton waste in the other), the set-off
under the rules relied upon should be split up proportionately and allowed only to a proportionate
extent, the proportion being decided on the basis of the respective turnovers of the taxable and nontaxable goods. He submits that though the rules do not specifically provide for such a bifurcation,
an apportionment of such nature is almost invariably implicit in a tax law and is also consonant
with the object and purpose of the rules........"

9. Ultimately it held as under: -

17. Turning now to the main question, we are inclined to agree with respondents'
counsel that they are entitled to a set-off of the entire tax paid by them on the purchases of
sulphuric acid and cotton respectively. The only condition under the rule is that the goods
purchased on payment of tax should have been used in the manufacture of taxable goods for sale.
330 INDIAN LAW REPORTS ALLAHABAD SERIES

Their concurrent user for the manufacture of another item of goods which may or may not be
taxable is immaterial though we may point out that in the Bharat Petroleum case, the kerosene was
also taxable for nine months in the year and in the case of Phulgaon Cotton Mills, yarn was also
manufactured and it was subject to tax. Sri Dholakia contends for an implicit principle of
apportionment on the basis of turnovers of various items of goods manufactured and restriction of
the quantum of set-off to a proportion based on the turnover of taxable goods to the total turnover.
He cited certain decisions under the Income Tax and Sales Tax Acts in support of this contention:
Anglo-French Textiles Co. Ltd. v. CIT [(1954) 25 ITR 27 : AIR 1954 SC 198] ; Tata Iron & Steel
Co. v. State of Bihar [AIR 1963 SC 577 : 1963 Supp (1) SCR 199 : (1963) 48 ITR 123] and CIT v.
Best & Co. [(1966) 60 ITR 11 : AIR 1966 SC 1325 : (1966) 2 SCR 480] We do not think these
cases are of assistance............ The rules do not require that the purchased goods must have been
used only for the manufacture of taxable goods for sale. In this situation, it is not possible to cut
down the quantum of relief clearly outlined in the rule on the basis of some general principle
claimed to underlie the provision. As Sri Bobde rightly pointed out, the basis for the relief provided
is not very clear cut. Various reliefs have been provided in a group of rules which come in for
application in various situations. The relief may be based on the principle that the manufactured
product is taxed either in the hands of the same assessee or in someone else's hands, or that the
manufactured goods are exported which may yield no tax but earn foreign exchange, or even that
the purchases are utilised for manufacture of goods in the State thus contributing to the industrial
development of the State. It is, therefore difficult to read into the provision a quantitative
correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which
tax has been paid. In this background, the straightforward answer to the question raised lies in the
literal interpretation of the language of the rules without straining to discover some doubtful
principle for denying relief." (emphasis supplied)

10. Applying the ratio of Bharat Petroleum to the facts of the present case and the language
of section 4BB, this Court finds the clear absence of a "quantitative correlation" to the total tax
paid on the raw or packing material and their utilisation in the manufacture of taxable goods.

11. Secondly this Court notes that the tax free sales effected by the revisionist was not of
its own accord. These were sales effected in favor of units which had been granted exemption from
payment of tax under section 4B. Surely the benefit of tax already paid by the revisionist could not
be denied adjustment based upon the liability or otherwise of another dealer.

12. Thirdly, the Court notes that the revisionist has effected a sale of goods to entities
within the State. However since these enjoyed exemption under Section 4-B, no tax was collected
on these sales. The mere fact that tax has not been collected, does not detract from the position that
a sale of goods took place.

13. Lastly, the Court notes that the section itself provided a facility of set off of tax already
paid by a dealer in respect of input goods. It was therefore in the nature of a beneficial provision. It
must, therefore, be accorded an interpretation which is in favour of the assessee.
7 All. Amit Pachauri Vs Smt. Ram Beti & Ors.
331
14. For the aforesaid reasons, this Court finds the action of the assessing authority in
reducing the set off which was claimed by the revisionist to be unsustainable. The answer is thus
entered in favour of the assessee and against the Department.

15. This revision stands allowed. The assessee shall be entitled to all consequential reliefs
as permissible in law.
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ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 13.07.2016

BEFORE

THE HON'BLE PANKAJ MITHAL, J.

Transfer Application (Civil) No.- 226 Of 2016

Amit Pachauri ...Applicant
Versus
Smt. Ram Beti & Ors. ...Opposite Parties

Counsel for the Applicant:
Sri Veer Bhagat Singh Kushwaha, Sri Vijay Prakash Singh Kushwaha

PROCEDURE:
Application under Section 24 of the Code of Civil Procedure, 1908 seeking transfer of Civil Appeal No. 18
of 2015 (Smt. Ram Beti & Ors. v. Amit Pachauri & Ors.) pending before the Court of Additional District Judge,
Court No. 3, Etah, to another competent court within the district.
The office objected to the maintainability of the transfer application on the ground that a similar application
under Section 24 C.P.C. had earlier been rejected by the District Judge, Etah, relying upon 1998 (1) ARC
305, Jagdish Kumar v. District Judge, Badaun & Ors.

CASE LAW DISCUSSED:
Jagdish Kumar v. District Judge, Badaun & Ors., 1998 (1) ARC 305

HELD
Section 24 C.P.C. - Transfer of Cases - Concurrent Jurisdiction of High Court and District Judge
- Maintainability.
Section 24 C.P.C. confers concurrent jurisdiction upon the High Court and the District Judge to transfer
suits, appeals or proceedings pending before courts subordinate to them.
The jurisdiction of one is not to the exclusion of the other.
If an application under Section 24 C.P.C. fails before the District Judge, the party is not barred from
approaching the High Court under the same provision.
An order passed under Section 24 C.P.C. is neither appealable nor revisable, though it may be examined
under Article 227 of the Constitution.
The decision in Jagdish Kumar does not prohibit filing of a fresh application before the High Court after
rejection by the District Judge; rather, it affirms the concurrent jurisdiction.