Diamond Cement v. Additional Commissioner Commercial Tax

What happened

The petitioner is a registered dealer under the M.P. Commercial Tax Act, 1994 manufacturing cement at the Narsinghgarh plant. The Assistant Commissioner, Sagar assessed it on 26 April 1999 and the Additional Commissioner, Jabalpur dismissed the revision under section 62(1) on 1 February 2003. The items in dispute were iron scrap sold for ₹73,81,789 to Jagdamba Castings Private Limited and Quality Welding, coal purchased from M/s Vikas Trading Company, Rajnandgaon (purchase tax of ₹27,48,270), canteen sales of ₹11,41,409 and set-off of ₹1,38,325 on tyres, tubes, lubricants and batteries. The petitioner said the scrap was only leftover cuttings of tax-paid iron and steel rods and sheets used in the plant and that cutting is not manufacture, relying on M.P. Traders and Agents v. C.S.T.; that the coal seller was registered and the cancellation of its registration was retrospective and unpublished; that the canteen is required by section 46 of the Factories Act, 1948 and is run on a no-profit-no-loss basis; and that the consumables were for dumpers and earth-moving machines. The State said the burden of proving tax-paid status was on the assessee, that retrospective cancellation of a seller's registration makes the purchase one from an unregistered dealer, that the definition of 'sale' is wide enough to cover food supplied for a price, and that tyres and lubricants are not raw material.

Questions before the court

• Which of the disputed items were rightly taxed in the assessment for 1995-96?

Why the court ruled this way

On scrap, the petitioner sold cut pieces of iron and steel to small industries that can use them as raw material, so it was rightly treated as a sale and the revisional authority's finding was not disturbed (paragraph 15). On canteen sales, the petitioner did not give food free or against coupons but supplied food, tea and snacks at subsidised rates as a labour welfare measure under the Factories Act, as held by the Full Bench of this Court in Commissioner of Sales Tax, and it is not in the business of sale of food by canteen or restaurant, so the levy was not permissible (paragraph 18). On coal, a declared good chargeable to tax, no documents were filed to show the registration of the seller or that it had paid tax, and the seller's registration had been cancelled on 6 March 1993, so a tax-paid sale in 1995-96 could not be presumed and double taxation was not shown (paragraph 19). Tyres, tubes and lubricants are not directly related to manufacture of cement and are not raw material, so the set-off disallowance was maintained (paragraph 20).

Controlling point

Only the canteen-sale demand and penalty were unsustainable.

Order and next steps

The petition was partly allowed. The recovery and demand of commercial tax and penalty on the canteen sale of ₹11,41,409 were quashed, and the rest of the assessment was maintained.

Practical implications

A manufacturer running a statutory welfare canteen at subsidised rates can resist tax on it; for scrap, coal and set-off claims it should keep dealer registration proofs and invoices showing tax paid.

Limits of this ruling

• The result depends on the evidence available in 1995-96; the Court expressly maintained tax on the scrap, coal and set-off items.