Parvatiya Sahkari Bhaisaj Vikas Evem Kray Vikray Sangh Ltd. Sales ...

VATLaws (Readable Version) - Wednesday, March 06, 2013 

[2012] 55 VST 180 (Utk) 

[IN THE UTTARAKHAND HIGH COURT] 

Parvatiya Sahkari Bhaisaj Vikas Evem Kray Vikray Sangh Ltd. 

V. 

Sales Tax Officer, Khand I, Rishikesh and Others 

BARIN GHOSH , C.J. AND DHYANI U.C. , J. 

April 25, 2012 

HF ♦ Assessee, including dealer (Registered or Unregistered) 

TRADE TAX — SALE — ROYALTY — ASSESSEE LICENSED BY FOREST DEPARTMENT TO ENTER 

FOREST FOR COLLECTION OF LICHEN TO BE STORED IN DEPARTMENT’S GODOWN AND 

TRANSFERRED TO ASSESSEE UPON PAYMENT OF CONSIDERATION INCLUDING ROYALTY AND 

TRADE TAX — INTENTION OF PARTIES NOT TO GRANT A RIGHT OR PRIVILEGE BUT TO SELL 

COLLECTED LICHEN TO ASSESSEE — ROYALTY NOTHING BUT CONSIDERATION FOR TRANSFER OF 

PROPRIETARY RIGHT IN MOVABLE PROPERTY — REOPENING OF ASSESSMENT ON GROUND 

ASSESSEE LIABLE ON SUBSEQUENT SALE BY IT AS MANUFACTURER NOT JUSTIFIED — U.P. TRADE 

TAX ACT (15 OF 1948). 

The petitioner, an association of registered co-operative societies of people, who resided in or around forest 

areas was granted a licence by the Forest Department by which permission was granted for the people 

associated with the associated co-operative societies of the petitioner, to enter the forest upon deposit of 

security, for collection of jhula ghas (a variety of lichen). The jhula ghas so collected were stored in the 

warehouse/godown of the State Forest Department and weighed after which the property in such lichen 

passed on to the petitioner upon obtaining delivery thereof from the Forest Department and payment of the 

consideration therefor, termed as royalty, trade tax and other taxes. The petitioner sold such lichen in the same 

condition as it received from the Forest Department not collecting any trade tax in relation thereto. The 

petitioner in its returns showed this and it was also accepted by the Department for a few assessment years. 

Later, on the ground that the collection of lichen was being done by the assessee upon payment of royalty and, 

accordingly, the activity of the assessee in collecting lichen was manufacture/production, requiring the 

petitioner to pay trade tax, the case was reopened under section 21(2) of the U. P. Trade Tax Act, 1948 and 

assessment orders were passed. The appellate authority upheld the order of assessment and the Tribunal also 

upheld the order of the appellate authority. On revision petitions: 

Held, allowing the petitions, that the petitioner who was licensed to enter the earmarked forest for the purpose 

of collection of lichen, also earmarked for being transferred to the petitioner, was duty bound to collect such 

lichen and keep it in the godown of the Forest Department before it was transferred by the Forest Department 

to the petitioner upon payment of consideration fixed by the Department. In such circumstances, the intention 

of the parties was not to grant a right or privilege to the petitioner, but to make the petitioner work for the 

Department to collect lichen on behalf of the Department in order to enable it to transfer the proprietary right 

therein to the petitioner upon obtaining appropriate consideration in respect thereof. Therefore, though the 

word “royalty” was used, it was nothing but consideration for transfer of proprietary right in the movable 

property of lichen upon payment of consideration fixed by the Forest Department. Knowing that it was a 

consideration for transfer of proprietary right in the movable property of lichen by the Forest Department to the 

petitioner, the Forest Department, as duty bound, charged trade tax as it was liable under the U.P. Trade Tax 

Act. Therefore the original assessment orders which were sought to be reopened on the ground that the 

petitioner was liable on its subsequent sale as a manufacturer were to be restored. 

Gyaneshwar Nath and Brothers v. Commissioner of Sales Tax [1998] 1 UPTC 618 (para 4) and State of H.P. v. 

Gujarat Ambuja Cement Ltd. [2005] 142 STC 1 (SC) (para 5) referred to. 

This copy was printed from VATLaws licensed to: R.S. Goyal


Commercial Tax Revision Nos. 3, Commercial Tax Revision Nos. 4, Commercial Tax Revision Nos. 

5, Commercial Tax Revision Nos. 6, Commercial Tax Revision Nos. 7, Commercial Tax Revision 

Nos. 8, Commercial Tax Revision Nos. 9, Commercial Tax Revision Nos. 10, Commercial Tax 

Revision Nos. 11, Commercial Tax Revision Nos. 12, Commercial Tax Revision Nos. 13, 

Commercial Tax Revision Nos. 14 of 2010 decided on April 25, 2012 

S.K. Posti and B.S. Negi for the petitioner 

K.P. Upadhyaya, Additional Chief Standing Counsel, for the respondent 

Cases referred to : 

Gyaneshwar Nath and Brothers v. Commissioner of Sales Tax [1998] 1 UPTC 618 referred to 

State of H.P. v. Gujarat Ambuja Cement Ltd. [2005] 142 STC 1 (SC) referred to 

-------------------------------------------------- 

JUDGMENT 1 

The judgment of the court was delivered by 

BARIN GHOSH C.J.—We have considered the averments made in the 

applications for condonation of delay in preferring these revision applications 

and, being satisfied with the reasons furnished therein, allow the 

applications for condonation of delay and, thereby, condone the delay in 

preferring these revision applications. 

The revisionist, in these revision applications, is an association of 

registered co-operative societies of people, who reside in or around forest 

areas. On a licence granted by the Forest Department to the revisionist, 

people associated with the associated co-operative societies of the revisionist 

enter the forest permitted to be entered by such licence upon 

deposit of a sum of Rs. 10,000, as and by way of security, for the purpose of 

collection of jhula ghas (a variety of lichen). The licence, thus granted by 

the Forest Department, permits those people to collect such lichen with 

obligation to store the same in the warehouse/godown of the Forest 

Department of the State. The Forest Department of the State, thereupon, 

weighs such lichen and makes the same over to the revisionist upon the 

revisionist paying consideration therefor, termed as royalty, trade tax and 

other taxes. The property in such lichen passes on to the revisionist upon 

obtaining delivery thereof from the Forest Department after making 

payment of the consideration as mentioned above. The revisionist, thereupon, 

sells such lichen in the same condition as it receives from the Forest 

Department in the manner indicated above. In relation to such sale, no 

trade tax is collected by the revisionist. The revisionist, in its returns to the 

Department, held out so and the same was also accepted by the Trade Tax 

Department for a few of the assessment years. Later, at one point of time, it 

transpired that the assessee is selling such lichen at a very high price than 

the price of acquisition of the same. The assessing authority felt that the 

assessee must be adding value to lichen obtained by it from the Forest 

Department. After being convinced that the revisionist is not doing so, it 

felt that the collection of lichen is being done by the assessee upon payment 

of royalty and, accordingly, the activity of the assessee in collecting 

lichen is manufacture/production requiring the revisionist to pay trade tax. 

The Department, accordingly, re-opened the case under section 21(2) of 

the U.P. Trade Tax Act. 

The show-cause notice was not replied by the revisionist, nor the revi- 



sionist appeared before the assessing officer on the date fixed for hearing. 

1 Oral. 

Page No: 182 

The assessing officer, taking note of the fact that it was the assessee, who 

was collecting lichen from the earmarked forest and paying royalty on the 

basis of weight of removed lichen, held that the licensee was carrying out 

manufacturing/production activity and one of the cost thereof was royalty 

and that, therefore, when such produce was sold by the revisionist, Trade 

Tax Act required the revisionist to pay trade tax thereon. 

Against the assessment orders, appeals were preferred. The appellate 

authority also proceeded on the basis that it was the assessee, who was 

collecting lichen and, for that purpose, as was required, was also paying 

royalty. On that premise and by noting a judgment of the learned single 

judge of the honourable Allahabad High Court rendered in the case of 

Gyaneshwar Nath and Brothers v. Commissioner of Sales Tax reported in 

[1998] 1 UPTC 618 (All), upheld the order of assessment. In that case, in 

the revision application filed by the assessee, the order of the Tribunal, 

remitting the matter back to the assessing authority to ascertain whether 

tendu leaves dealt with by the assessee were being purchased by the assessee 

from the Forest Department or the same were being collected by the 

assessee from the forest on being licensed to do so having been declared 

the highest bidder in an auction, was challenged. The honourable court 

held that, where the material on record is not sufficient to take an effective 

decision in one way or the other in a given case and a further enquiry is 

called for, the concerned authority or the court may set aside the matter in 

exercise of its power of remand directing a fresh order after the necessary 

inquiry is made. Holding thus, the honourable court dismissed the revision 

application. In the circumstances, the conclusion would be that the said 

judgment had no relevance to the questions that were required to be gone 

into by the appellate authority. 

The revisionist, then, approached the Tribunal, when the Tribunal also 

upheld the order of the appellate authority based on the said judgment of 

the honourable Allahabad High Court and also a judgment of the 

honourable Supreme Court rendered in the case of State of H.P. v. 

Gujarat Ambuja Cement Ltd. reported in [2005] 142 STC 1 (SC); [2005] 6 

SCC 499, and also proceeding on the basis that the privilege to collect 

lichen having been parted with in consideration of payment of royalty, 

which is not purchase price, the revisionist was liable to pay trade tax 

whether trade tax was or was not collected on the royalty. 

In view of the pronouncement made by the honourable Supreme Court 

in the case referred to above, there cannot be any dispute that royalty is not 

the purchase price. Royalty is consideration for grant of a right or a 

privilege. Therefore, in the instant case, in the event a concession to enter 

the jungle to collect lichen was granted by the Forest Department, then of 

course, what the Forest Department charged was in fact royalty; but, if the 

Forest Department intended to transfer lichen, though collected by the 

revisionist, but on account of the Forest Department, then, the Forest 

Department never intended to part with any privilege. It only intended to 

This copy was printed from VATLaws licensed to: R.S. Goyal 

Page No: 183


sell collected lichen to the revisionist, though collection of such lichen 

would be made by the revisionist on behalf of the Forest Department. 

The facts as above, which are not in dispute, suggest that the Forest 

Department licensed the revisionist, upon deposit of security money of 

Rs. 10,000, to enter the earmarked forest for the purpose of collection of 

lichen, which was also earmarked for being transferred to the revisionist; 

but the revisionist was duty bound to collect such lichen, keep the same in 

the godown of the Forest Department before the same was transferred by 

the Forest Department to the revisionist upon payment of an agreed consideration. 

In such circumstances, the intention of the parties was not to 

grant a right or privilege to the revisionist, but to make the revisionist work 

for the Forest Department to collect lichen for and on behalf and for the 

use of the Forest Department in order to enable the Forest Department to 

transfer the proprietary right therein to the revisionist upon obtaining 

appropriate consideration in respect thereof. In the circumstances, the conclusion 

would be that, though the word "royalty" was used in the instant 

case, in fact, the same was nothing but consideration for transfer of 

proprietary right in the movable property of lichen upon payment of 

consideration fixed by the Forest Department. Knowing that it was a consideration 

for transfer of proprietary right in the movable property of lichen 

by the Forest Department to the revisionist, the Forest Department, as duty 

bound, charged trade tax as it was liable to do under the U.P. Trade Tax 

Act. 

We, accordingly, allow the revision applications, set aside the judgment 

and order of the Tribunal as well as of the appellate authority and the 

assessing authority, and restore the original assessment orders, which were 

sought to be re-opened under section 21(2) of the U.P. Trade Tax Act and 

also set aside those assessment orders, which have been passed on 

premises contrary to what has been stated above and direct the assessment 

thereof on the basis of the pronouncement as above. 

Page No: 184

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