Holding

Raw materials consumed in the construction of buildings are deemed to be "consumed otherwise" and attract purchase tax under Section 6‑A(ii)(a) of the Andhra Pradesh General Sales Tax Act, 1957.

Summary

Nandanam Construction Co., a builder of flats and houses, purchased raw materials such as sand, bricks and granite from unregistered dealers. The Assistant Commissioner of Commercial Taxes issued notices requiring the company to disclose details of these purchases under the Andhra Pradesh General Sales Tax Act, 1957. The company challenged the notice before the High Court, which held that Section 6‑A(ii)(a) of the Act did not apply because the goods were not consumed in the manufacture of other goods for sale. On appeal, the Supreme Court examined the meaning of the word "otherwise" in Section 6‑A(ii)(a) and held that raw materials used in construction are "consumed otherwise" and therefore attract purchase tax. The Court overruled the Pio Food Packers view, affirmed the Ganesh Prasad Dixit interpretation, set aside the High Court order and dismissed the writ petitions, allowing the revenue assessment to proceed.

Issues considered

Whether purchase of raw materials for construction of immovable property by a dealer from unregistered sellers attracts purchase tax under Section 6‑A(ii)(a) of the Andhra Pradesh General Sales Tax Act, 1957.
Interpretation of the term "otherwise" in Section 6‑A(ii)(a) – does it extend tax liability to goods consumed in activities other than manufacturing for sale?

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 28, s. 5, s. 6, s. 6-A(ii)(a)

Subjects

Sales taxPurchase taxRaw materialsConstructionSection 6-AInterpretation of "otherwise"Unregistered dealerTax liability

Judgment

ASSISTANT COMMISSIONER (INTELLIGENCE) A
v.
M/S. NANDANAM CONSTRUCTION COMPANY

SEPTEMBER 21, 1999

[S.P. BHARUCHA, B.N. KIRPAL, S. RAJENDRA BABU, SYED B
SHAH MOHAMMED QUADRI AND M.B. SHAH, JJ.)

.. 1>
Sales Tax:

Andhra Pradesh General Sales Tax Act, 1957-Section 6- C
A(ii)(a)-Purchase Tax-Levy of---Purchase of raw materials from un-
registered dealers for constrnction of buildings-imposition of purchase
ta:c-Validity of-Held, Section 6-A(ii)(a) of the Act is applicable to goods
consumed for manufacture of goods for sale or otherwise-Raw materials
consumed for constrnction of buildings covered-Thus, liable to tax.
D
Words and Phrases :

"Otherwise''-Meaning and Interpretation of in context of Section 6-
A(ii)(a) of Andhra Pradesh General Sales Tax Act, 1957.
E
Respondents, engaged in building of flats and houses, purchased
raw materials from unregistered dealers. Assistant Commissioner of
Commercial Taxes issued notices upon respondents to file details of the
said purchase of raw materials. Aggrieved, respondents filed a writ peti-
tion before High Court which was allowed holding that the provisions of
Section 6-A(ii) (a) of the Andhra Pradesh General Sales Tax Act, 1957 was F
• not attracted as there was no consumption of goods for the manufacture
of other goods for sale or otherwise. Hence the present appeal by Revenue.

The contentions of appellant revenue were that Section 6- A(ii)(a)
of the Act was attracted to consumption of original goods in the manufac- G
ture of other goods for sale or consumption of original goods otherwise;
the object of the provision under Section 6-A of the Act was to levy
purchase tax on the purchase of raw material used by a consumer be that
a manufacturer or otherwise.

Allowing the appeals, this Court H
13
14 SUPREME COURT REPORTS [1999] SUPP. 3 S.C.R.

A HELD : 1.1. The raw materials purchased by respondents were
covered by the provisions of Section 6-A(ii)(a) of the Andhra Pradesh
General Sales Tax Act, 1957 and thus liable to tax. [18-F]

1.2. The object of Section 6-A(ii)(a) of the Act is to levy purchase
tax on goods consumed either for the purpose of manufacture of other
B goods for sale or consumed otherwise. It postulates levy of tax on pur-
chase of goods from a person other than a registered dealer for consump-
tion or disposal or despatch of goods outside the State. So the scheme of
clause (ii) of Section 6-A of the Act is that when the goods cease to exist
in the original form or cease to be available in the State for sale or
C purchase, the purchasing dealer of such goods is liable to tax if the seller
is not or cannot be taxed. In the instant case, once the goods are utilised
in the construction of buildings the goods cease to exist or cease to be
available in that form for sale or purchase so as to attract the tax and,
therefore, the correct meaning to be attributed to the said provision would
be that tax will be attracted when such goods are consumed in the
D manufacture of other goods or are consumed otherwise. [18-F-G]
2. If the view in Pio Food Packers* case is accepted the result would
be that the expression "otherwise" will qualify the expression "sale" and
not the expression "manufacture" which is erroneous on a plain construc-
E tion of the provision. [18-G-H; 19-A]

Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh,
[1969] 3 SCR 490, affirmed.

*Deputy Commissioner, Sales Tax (Law) Board of Revenue, (taxes),
F Emakulam v. Pio Food Packers, (1980] 3 SCK 1271, overruled.

Hotel Balaji & Ors. v. State of Andhra Pradesh & Ors., [1992] Supp. •
2 SCR 182 and Deputy Commissioner of Sales Tax (Law) Board of Revenue
(Taxes), Emakulam v.M/s. Thomas Stephen & Co. Ltd., [1988] 2 SCC 264,
cited.
G
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2064-66
of 1984. ·

WITH

H C.A. No. 895-903/89, 4858-68/91 and 97/90.
ASS'fT. C:OMMR. (INTELLIGENCE)"· NANDANAM CONSTRUCTION CO. [RAJENDRA BABU, J.] 15

From tht: Judgment and Order dated 24.9.82 of the Andhra Pradesh A
High Court in W.P. Nos. 2036, 3291 and 3696 of 1982.

J. Ramamurthy, B. Sridhar, K. Ram Kumar, Mrs. Asha Nair and Ms.
Shanti Narayan for the Appellant.

U.N. Bachawal, A.D.N. Rao and A. Subba Rao (L.K. Pandey) (NP) B
for the Respondents.

The Judgement of the Court was delivered by
_,. RAJENDRA BABU, J.: The respondents are engaged in building of
flats and houses for which purpose they buy materials such as sand, bricks c
and granite from persons other than registered dealers. These items have
not suffered any sales tax.

The Assistant Commissioner of Commercial Taxes, Enforcement,
called upon the respondents by a notice dated January 19, 1982 to appear
before him with their accounts relating to purchase of raw materials D
effected by them commencing from April 1, 1977. The respondents sent a
reply to him stating that they do not trade in any goods; that they construct
and sell flats; that they arc not regist<;,red dealers; that said purchases do
not attract tax under Section 6-A of the Andhra Pradesh General Sales
Tax Act, 1957 (hereinafter referred to as 'the Act'). Not being satisfied with E
the reply filed by the respondents, the Assistant Commissioner of Com-
mercial Taxes issued a notice on March 22, 1982 under Section 28 of the
Act calling upon the respondents to produce books of accounts and
purchase bills and to file the details relating to the purchase of raw
materials effected by them for the period commencing from April 1, 1977.
Aggrieved by the said notice the respondents filed writ petitions under F
Article 226 of the Constitution of India questioning the jurisdiction of the
appellants to assess them under the Act.
.I
Several contentions had been raised before the High Court such as
discrimination between registered and unregistered dealers and that the
respondents are not dealers and that in order to attract Section 6-A a
G
dealer must have purchased goods from unregistered dealers and con-
sumed such goods in the manufacture of other goods for sale or disposed
of such goods either within or outside the State. The first two contentions
stood rejected and that part of the order is not challenged before us.
-4'-- ~· Therefore, we have to confine ourselves to the question whether the B
/'
16 SUPREME COURT REPORTS [1999] SUPP. 3 S.C.R.

A respondents who purchased goods from persons other than registered
dealers fall within the scope of Section 6-A of the Act. Section 6-A of the
Act reads as follows :

"6-A. Levy of tax on tumover relating to purchase of certain goods:
Every dealer, who in the course of business -
B
(i) purchases any goods (the sale or purchase of which is liable to
tax under this Act) from a registered dealer in circumstances in
which no tax is payable under section 5 or under section 6, as the
case may be, or

C (ii) purchases any goods (the sale or purchase of which is liable
"'·
to tax under this Act) from a person other than a registered dealer,
and

(a) either consumes such goods in the manufacture of other
goods for sale or otherwise, or
D
(b) disposes of such goods in any manner other than by way
of sale in the State, or

(c) despatches them to a place outside the State except as a
direct result of sale or purchase in the course of inter-state
E trade or commerce,

shall pay tax on the turnover relating to purchase aforesaid at the
same rate at which but for the existence of the aforementioned
circumstances, the tax would have been leviable on such goods
under section 5 or section 6."
F
The respondents' contention is that the goods such as sand and
bricks purchased by them are not consumed in the manufacture of other
goods for sale inasmuch as they deal in the construction of flats which are
in the nature of immovable property. The respondents are also not
G manufacturing any other goods for sale or any other purposes. Thus, they
contend that Section 6-A of the Act is not attracted. The contention put
forth on behalf of the appellants is that even goods consumed for building
purposes otherwise than in the manufacture of other goods are also
covered by clause (ii)(a) of Section 6-A. The High Court found that there
is a conflict between the decisions in Ganesh Prasad Dixit v. Commissioner
'H of Sales Tax, Madhya Pradesh, [1969] 3 SCR 490, and Deputy Commis-
ASSTI. COMMR. (INTELLIGENCE)'· NANDANAM CONSTRUCTION CO. [RAJENDRA BABU, J.) 17

sioner, Sales Tax (Law) Board of Revenue (taxes), Emakulam v. Pio Food A
Packers, (1980] 3 SCR 1271. The High Court is of the view that the said
two decisions having been rendered by identical composition of Bench of
three Judges, the latter decision was binding upon them and held that in
order to attract the provisions of Section 6-A(ii)( a) of the Act there must
be consumption of the original goods for the purpose of manufacture of
other goods for sale or for purposes other than sale and in the absence of B
such consumption the respondents were not liable to tax. The matter is
brought up before this Court by way of appeal by special leave.

The matter is set down before us as a Bench of three Judges referred
the matter to larger bench in view of the conflict between two decisions of
this Court.
c

]
The appellants contend that Section 6-A(ii)( a) of the Act is attracted
to consumption of original goods in the manufacture of the other goods
for sale or consumption of original goods otherwise and placed reliance
upon the decision in Ganesh Prasad Dixit (supra). The learned counsel also D
referred to the decision in Hotel Balaji & Ors. v. State of Andhra Pradesh
& Ors., (1992] Supp. 2 SCR 182, to contend that the object of the provision
under Section 6-A of the Act is to levy purchase tax on the purchase of
raw material used by a consumer be that a manufacturer or otherwise. He
also sought to place reliance on the amendment made in the enactment in
1985 as clarificatory and covering the present case also.
E

The learr-ed counsel for the respondents submitted that the view
taken in Pio Food Packers (supra) which has been followed in Deputy
Commissioner of Sales Tax (Law), Board of Revenue(Taxes), Emakulam v.
Mis Thomas Stephen & Co. Ltd., (1988] 2 SCC 264, must be accepted and F
at any rate if two views are possible, the assessee should get the benefit of
doubt and tax ought not be imposed. The subsequent amendment to the
enactment would make the position clear and, therefore, the expression
"otherwise" cannot be read as "in any other manner".

Construing identical provisions in Madhya Pradesh Sales Tax G
Act, this Court in the decision in Ganesh Prasad Dixit (supra) stated as
follows :

"Mr. Chagla, for the appellants urged that the expression 'or
otherwise' is intended to denote a conjunctive introducing a H
18 SUPREME COURT REPORTS [1999] SUPP. 3 S.C.R.

A specific alternative to the words 'for sale' immediately preceding.
The clause in which it occurs means, says Mr. Chagla, that by
section 7 the price paid for buying goods consumed in the
manufacture of other goods, intended to be sold or otherwise
· disposed of, alone is taxable. We do not think that that is a
reasonable interpretation of the expression 'either consumes such
B goods in the manufacture of other goods for sale or otherwise'. It
is intended by the Legislature that consumption of goods renders
the price paid for their purchase taxable, if the gopds are used in
the manufacture of other goods for sale or if the goods are
consumed otherwise."
c
Subsequently this Court in Pio Food Packers (supra) considered
identical words in Kerala General Sales Tax Act in another manner as

D
follows:

"Learned counsel for the Revenue contends that even if no
manufacturing process is involved, the case still falls within section
5A(l)(a) of the Kerala General Sales Tax Act, because the
I
statutory provision speaks not only of goods consumed in the
manufacture of other goods for sale but also goods consumed
otherwise. There is a fallacy in the submission. The clause, truly
E read, speaks of goods consumed in the manufacture of other goods
for sale or goods consumed in the manufacture of other goods for
purposes other than sale."

We arc concerned in this case only with clause (a) of sub-section (ii)
F of Section 6-A, that is, either consumption of such goods in the manufac-
ture of other goods for sale or otherwise. Clause (ii) of Section 6-A of the
Act postulates levy of tax on purchase of goods from a person other than
a registered dealer for consumption or disposal or despatch of goods
outside the State. So the scheme of clause (ii) of Section 6-A of the Act is
that when the goods cease to exist in the original form or cease to be
G available in the State for sale or purchase, the purchasing dealer of such
goods is liable to tax if the seller is not or cannot be taxed. To our mind,
it appears that the object of Section 6-A(ii)( a) of the Act is to levy purchase
tax on goods consumed either for the purpose of manufacture of other
goods for sale or consumed otherwise. If the view in Pio Food Packers
H (supra) is accepted the result would be that the expression "otherwise" will
ASSTI. COMMR. (INTELLIGENCE) '" NANDANAM CONSTRUCTION CO. [RAJENDRA BABU, J. J 19

qualify the expression "sale" and not the expression "manufacture'', which A
appears to us to be erroneous on a plain construction of the provision. The
intention of the legislature, it appears to us, is to bring to purchase tax in
either event of consumption of goods in the manufacture of goods for sale
or consumption of goods in any other manner. Once the goods are utilised
in the construction of buildings the goods cease to exist or cease to be
available in that form for sale or purchase so as to attract the tax and,
B
therefore, the correct meaning to be attributed to the said provision would
be that tax will be attracted when such goods are consumed in the manufac-
ture of other goods or are consumed otherwise. Therefore, while agreeing
with the view in Ganesh Prasad Dixit (supra) on this aspect, we overrule
to this extent the view expressed in Pio Food Packers (supra). c
Consequently, we set aside the impugned Qrder made by the High
r Court and dismiss the writ petitions. It is now up to the department to
'
proceed with the assessment after giving due opportunity to the respon-
dents to file their objections. Considering the nature and circumstances of
the case, there shall be no order as to costs. D

.,_ .. S.V.K. Appeals allowed.