K. R. C. S. Balakrishna Chetty &
Sons & Co. Vs. The State of Madras  INSC 241 (29 November 1960)
CITATION: 1961 AIR 1152 1961 SCR (2) 736
CITATOR INFO :
RF 1988 SC 6 (17)
Sales-Tax--Claim of exemption by licensee--If
conditional upon observance of conditions and restrictions--Madras General
Sales Tax Act, 1939 (Mad. IX of 1939), s. 5.
The appellants, who were dealers in Cotton
yarn, obtained a license under the Madras General Sales Tax Act, 1939 (IX of
1939). Section 5 of that Act exempted such dealers from payment of sales tax
under s. 3 of the Act subject to such restrictions and conditions as might be
prescribed, including the conditions as to licenses and license fees.
Section 13 required a licensee to keep and
maintain true and correct accounts of the value of the goods sold and paid by
him. Rule 5 of the General Sales Tax Rules provided that any person seeking
exemption under S. 5 of the Act must apply for license in Form 1 which made the
license subject to the provisions of the Act and the rules made there under.
The appellants on surprise inspection were
found to maintain two separate sets of accounts, on the basis of one of which
they submitted their returns and the other 737 showed black-market activities.
The question for determination in the appeal was whether the appellants who had
been refused exemption and were assessed to tax, could claim exemption under
Held, that the question must be answered in
the negative. Section 5 of the Madras General Sales Tax Act, 1939, properly
construed, leaves no manner of doubt that an exemption from assessment
thereunder is clearly conditional upon the observance by the assessee of the
conditions and restrictions imposed by the Act, either in the rules or in the
license itself, and the words 'subject to' used by the section means
It was not correct to say that licensee was
exempt from assessment so long as he held the license notwithstanding any
breach of the provision of the law and that the only penalty he could be
subjected to was the cancellation of his license or criminal prosecution.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 490 and 491 of 1958.
Appeals from the judgment and decree dated
February 18, 1955, of the Madras High Court in Second Appeals Nos. 2038 and
2039 of 1950.
N. R. Raghavachariar, M. R. Krishnaswami and
T. V. R. Tatachari, for the appellant.
R. Ganapathi Iyer and D. Gupta, for the
1960. November 29. The Judgment of the Court
was delivered by KAPUR, J.-Two suits were brought by the appellants for a
declaration against the levy of sales tax by the State of Madras and an
injunction was also prayed for. Both the suits were decreed by the Subordinate
Judge of Salem and the decrees were confirmed on appeal by the District Judge
of Salem. Two appeals were taken to the High Court by the State of Madras
against those decrees and by a judgment dated February 18, 1955, the decrees
were set aside by a common judgment. Against these decrees the appellants have
brought these appeals by a certificate of that Court.
The appellants are merchants dealing in
cotton yarn. They obtained a license under s. 5 of the Madras General Sales Tax
Act (Act IX of 1939), hereinafter referred to as the 'Act'. This license
exempted 738 them from assessment to sales tax under s. 3 of the Act on the
sale of cotton yarn and on handloom cloth "subject to such restrictions
and conditions as may be prescribed including conditions as to license and
license fees". The license was issued on March 31,1941, and was renewed
for the following years. On September 20, 1944, the Commercial Tax Authorities
made a surprise inspection of the premises of the appellants and discovered
that they were maintaining two separate sets of account on the basis of one of
which the appellants submitted their returns to the Department.
Because the other set of account books showed
black-market activities of the firm Balakrishna Chetty was prosecuted and
sentenced to six months' imprisonment for an offence connected with the breach
of Cot. ton Yarn Control Order.
During the pendency of those proceedings the
Deputy Commercial Tax Officer made assessments for the years. 194344 and
1944-45, the tax for the former was Rs. 37,039 and for the latter Rs. 3,140.
The appellants unsuccessfully appealed against these assessments and their
revisions also failed. On August 24, 1945, the appellants brought a suit for a
declaration and injunction in regard to the first assessment alleging that the
assessment was against the Act.
On September 2, 1946, a similar suit was
brought in regard to the second assessment. It is out of these suits that the
present appeal has arisen.
The controversy between the parties centers
round the interpretation of the words "subject to" in s. 5 of the
The High Court has held that on a true
interpretation of the provisions of the Act and the rules made thereunder, the
observance of conditions of the license was necessary for the availability of
exemption under s. 5; that as the appellants had contravened those conditions
they were liable to pay tax for both the years notwithstanding the license
which had been issued to them under s. 5 of the Act.
it will be convenient at this stage to refer
to the provisions of the Act which are relevant for the purpose of this appeal.
S. 2(b) " dealer" means any person
who carries on the business of buying or selling goods;" 739 S. 2(f)
" "prescribed" means prescribed by rules made under this
S. 3(1) "Subject to the provisions of
this Act, every dealer shall pay in each year a tax in accordance with the
scale specified below:(a).................................
(b) if his turnover ex One half of I per ceeds
twenty cent of such turn thousand rupees. over".
S. 5 "Subject to such restrictions and
conditions as may be prescribed, including the conditions as to licenses and
license fees, the sale of bullion and specie, of cotton, of cotton yarn and of
any cloth woven on handlooms and sold by persons dealing exclusively in such
cloth shall be exempt from taxation under Section 3".
S. 13 "Every dealer and every person
licensed under section 8 shall keep and maintain a true and correct account
showing the value of the goods sold and paid by them; and in case the accounts
maintained in the ordinary course, do not show the same in an intelligible
form, he shall maintain a true and correct account in such form as may be
prescribed in this behalf.".
The following rules are relevant for the
purpose of this appeal and we quote the relevant portions:
R. 5 "(1) Every person who(a)..........................
(b) deals with cotton and/or cotton yarn,
(e) shall if he desires to avail himself of the
exemption provided in sections 5 and 8 or of the concession of single point
taxation provided in section 6, submit an application in Form-I for a licence
and the relevant portion of Form III is as follows:
"Form III Cotton Licence to a dealer in
Cotton yarn cloth woven on handlooms 740 See rule 6(5).
Licence No. dated having paid a licence fee
of Rs. (in words) hereby licensed as a dealer in Cotton/Cotton yarn Cotton
woven on handlooms for the year ending at (place of business) subject to the
provisions of the Madras General Sales Tax Act, 1939, and the rules made
thereunder and to the following conditions:".
R. 8 "Every licence granted or renewed
under these rules shall be liable to cancellation by the Deputy Commercial Tax
Officer in the event of a breach of any of the provisions of the Act, or of the
Rules made there under or of the conditions of the licence." The
contention raised on behalf of the appellants was that as long as they held the
licence it was immaterial if they were guilty of any infraction of the law and
that they were not liable to any assessment of sales-tax under the provisions
of the Act and the only penalty they incurred was to have their licence
cancelled and/or be liable to the penalty which under the criminal law they had
already suffered. The contention comes to this that in spite of the breaches of
the terms and conditions of the licence, having a licence was sufficient for
the purpose of exemption under the Act. This contention, in our opinion, is
wholly untenable. Section 3 is the charging section and s. 5 gives exemption
from taxation but that section clearly makes the holding of a licence subject
to restrictions and conditions prescribed under the provisions of the Act and
the rules made there under because the opening words of that section are
"subject to such restrictions and conditions as may be prescribed."
Under B. 13 an important condition imposed under the Act is the keeping by the
dealer and every person licensed of true and correct accounts showing the value
of the goods sold and paid by him. Next there is r. 5 of the General Sales Tax
Rules which provided 741 that if any person desired to avail himself of the
exemption provided in s. 5, he had to submit an application in Form I for a
licence and the Form of the licence shows that the licence was subject to the
provisions of the Act and the rules made there under which required the
licensee to submit returns as required and also to keep true accounts under s. 13.
This shows that the giving of the licence was subject to certain conditions
being observed by the licensee and the licence itself was issued subject to the
Act and the rules.
But it was contended that the words
"subject to" do not mean "conditional upon" but
"liable to the rules and the provisions" of the Act. So -construed s.
5 will become not only inelegant but wholly meaningless. On a proper
interpretation of the section it only means that the exemption under the
licence is conditional upon the observance of the conditions prescribed and
upon the restrictions which are imposed by and under the Act whether in the
rules or in the licence itself ; that is, a licensee is exempt from assessment
as long as he conforms to the conditions of the licence and not that he is
entitled to exemption whether the conditions upon which the licence is given
are fulfilled or not. The use of the words "subject to" has reference
to effectuating the intention of the law and the correct meaning, in our
opinion, is "conditional upon".
The appellants have been found to have
contravened the provisions of the Act as well as the rules and therefore it
cannot be said that they have observed the conditions upon which the exemption
under the licence is available. In that view of the matter, it was rightly held
that they were not exempt from assessment under the Act. The appeals are
therefore dismissed with costs.