industrial Minerals and Metals and anr. Vs. Sales Tax Officer and anr. - Court Judgment

SooperKanoon Citationsooperkanoon.com/672934
SubjectSales Tax
CourtSupreme Court of India
Decided OnJul-18-1994
Case NumberCivil Appeal No. 654 of 1991
Judge Kuldip Singh and; A.S. Anand, JJ.
Reported in1994(3)SCALE381; [1994]95STC99b(SC)
ActsConstitution of India - Articles 14, 19(1) and 286; Orissa Sales Tax Act, 1947 - Sections 5(2)(A); Orissa Sales Tax (Amendment) Act, 1978; Central Sales Tax Act
Appellantindustrial Minerals and Metals and anr.
RespondentSales Tax Officer and anr.
DispositionAppeal dismissed
Cases ReferredMis. Industrial Minerals & Metals and Anr. v. The Sales Tax Officer and Anr. Even
Excerpt:
- sections 80-ib, 80-i & 80-ia: [s.h. kapadia & aftab alam, jj] deduction under profit from duty entitlement passbook scheme and duty drawback scheme the assessee, a partnership firm, owns a small scale industrial undertaking engaged in manufacturing of fabrics out of yarns and also various textile items such as cushion covers, pillow covers etc., out of fabrics/yarn purchased from the market - during the relevant previous year corresponding to assessment year 2001-2001, assessee claimed deduction under section 80-ib on the increased profits of rs.22,70,056.00 as profit of the industrial undertaking on account of duty entitlement pass book (depb) and duty drawback scheme credited to the profit & loss account - assessing officer (a.o.) denied deduction under section 80-ib of the act on the ground that the said two benefits constituted export incentives, and that they did not represent profits derived from industrial undertaking - held, the order of assessing officer was proper and he was justified in denying deduction under section 80-ib. duty drawback receipt/depb benefits do not form part of the net profits of eligible industrial undertaking for the purposes of sections 80-i/80-ib of the act. the trade discounts, rebate, duty drawback, and such similar items are deducted in determining the costs of purchase. therefore, duty drawback, rebate etc. should not be treated as adjustment (credited) to cost of purchase or manufacture of goods. they should be treated as separate items of revenue or income and accounted for accordingly. analyzing the concept of remission of duty drawback and depb, the remission of duty is on account of the statutory/policy provisions in the customs act/ scheme (s) framed by the government of india. in the circumstances, profits derived by way of such incentives did not fall within the expression profits derived from industrial undertaking in section 80-ib. depb/duty drawback are incentives which flow from the schemes framed by central government or from section 75 of the customs act, 1962, hence, incentives profits are not profits derived from the eligible business under section 80-ib. they belong to the category of ancillary profits of such undertakings. reliance placed on as-2 by assessee was unsustainable. as-2 deals with valuation of inventories. inventories are assets held for sale in the course of business; in the production for such sale or in form of materials or supplies to be consumed in the production. inventory should be valued at the lower of cost and net realizable value (nrv). the cost of inventory should comprise all costs of purchase, costs of conversion and other costs including costs incurred in brining the inventory to their present location and condition. for the purposes of as-2, cenvat credits should not be included in the cost of purchase of inventories. even institute of chartered accountants of india (icai) has issued guidance note of accounting treatment for cenvat/modvat under which the inputs consumed and the inventory of inputs should be valued on the basis of purchase cost net of specified duty on inputs (i.e. duty recoverable from the department at large stage) arising on account of rebates, duty drawback, depb benefit etc. profit generation could be on account of cost cutting, cost rationalization, business restructuring, tax planning on sundry balances being written back, liquidation of current assets etc. therefore, duty drawback depb benefits, rebates etc., cannot be credited against the cost of manufacture of goods debited in the profit & loss account for purposes of sections 80-ia/80-ib as such remissions would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking. - the high court by its well reasoned judgment dated july 30, 1990 dismissed the writ petition.order1. the appellants challenged the validity of section 5(2)(a)(a)(ii) of the orissa sales tax act, 1947 (the ost act) as amended by section 2(c) of the orissa sales tax (amendment) act, 1978 by way of a writ petition under article 226 of the constitution of india before these orissa high court. the order of the sales tax officer, cuttack iii circle pertaining to the assessment year 1982-83 was also sought to be quashed in the writ petition. the challenge to the validity of section 5(2)(a)(a)(ii) of the ost act was on the following grounds; (i) that it is beyond the legislative competence of the state legislature to enact the provision since the tax relates to inter-state sale/export sale in respect of which the parliament has the exclusive competence to legislate. in this connection reliance is placed on article 286 of the constitution and entry 54 of list ii of the seventh schedule of the constitution; (ii) that the provision is repugnant to sections 3, 4 and 5 of the cst act_ and hence it is hit by article 254 and 269 of the constitution; (iii) that the levy of tax is discriminatory and therefore hit by article 14 of the constitution; and(iv) that it affects the petitioners' right of freedom of trade and commerce embodied in article 19(1)(g).in addition to the above grounds it was also contended that while selling the goods in the course of inter state sale the appellants-petitioners did not contravene the declaration in as much as the sale took place within the state of orissa and, as such, could not be exigible to tax under the ost act but for the supervening-circumstance of the constitutional bar as provided under the central sales tax act. the high court by its well reasoned judgment dated july 30, 1990 dismissed the writ petition. this appeal by way of special leave is against the judgment of the high court.2. we have been taken through the judgment of the high court wherein all the points raised by the appellants-petitioners have been dealt with by giving detailed reasons in respect of each of the points. we see no ground to interfere with the judgment of the high court. we agree with the reasoning and the conclusions reached therein.3. we have today pronounced judgments in civil appeals nos. 1811-15 (nt) of 1977 titled state of orissa vs minerals and metals trading corporation of india limited, and also in civil appeals nos. 343-347 of 1987 titled mis. industrial minerals & metals and anr. v. the sales tax officer and anr. even on the force of the reasoning and conclusions in these judgments, this appeal has to be dismissed. we, therefore, dismiss the appeal with costs. we quantify the costs as rs. 5000/-.
Judgment:
ORDER

1. The appellants challenged the validity of Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947 (the OST Act) as amended by Section 2(c) of the Orissa Sales Tax (Amendment) Act, 1978 by way of a writ petition under Article 226 of the Constitution of India before these Orissa High Court. The order of the Sales Tax Officer, Cuttack III Circle pertaining to the assessment year 1982-83 was also sought to be quashed in the writ petition. The challenge to the validity of Section 5(2)(A)(a)(ii) of the OST Act was on the following grounds;

(i) that it is beyond the legislative competence of the State legislature to enact the provision since the tax relates to inter-State sale/export sale in respect of which the Parliament has the exclusive competence to legislate. In this connection reliance is placed on Article 286 of the Constitution and Entry 54 of List II of the Seventh Schedule of the Constitution;

(ii) that the provision is repugnant to Sections 3, 4 and 5 of the CST Act_ and hence it is hit by Article 254 and 269 of the Constitution;

(iii) that the levy of tax is discriminatory and therefore hit by Article 14 of the Constitution; and

(iv) that it affects the petitioners' right of freedom of trade and commerce embodied in Article 19(1)(g).

In addition to the above grounds it was also contended that while selling the goods in the course of inter State sale the appellants-petitioners did not contravene the declaration in as much as the sale took place within the State of Orissa and, as such, could not be exigible to tax under the OST Act but for the supervening-circumstance of the constitutional bar as provided under the Central Sales Tax Act. The High Court by its well reasoned judgment dated July 30, 1990 dismissed the writ petition. This appeal by way of special leave is against the judgment of the High Court.

2. We have been taken through the judgment of the High Court wherein all the points raised by the appellants-petitioners have been dealt with by giving detailed reasons in respect of each of the points. We see no ground to interfere with the judgment of the High Court. We agree with the reasoning and the conclusions reached therein.

3. We have today pronounced judgments in Civil Appeals Nos. 1811-15 (NT) of 1977 titled State of Orissa vs Minerals and Metals Trading Corporation of India Limited, and also in Civil Appeals Nos. 343-347 of 1987 titled Mis. Industrial Minerals & Metals and Anr. v. The Sales Tax Officer and Anr. Even on the force of the reasoning and conclusions in these judgments, this appeal has to be dismissed. We, therefore, dismiss the appeal with costs. We quantify the costs as Rs. 5000/-.