Bhawani Cotton Mills Ltd. Vs. State of
Punjab & ANR [1967] INSC 101 (10 April 1967)
10/04/1967 VAIDYIALINGAM, C.A.
VAIDYIALINGAM, C.A.
RAO, K. SUBBA (CJ) SHAH, J.C.
SIKRI, S.M.
RAMASWAMI, V.
CITATION: 1967 AIR 1616 1967 SCR (3) 577
CITATOR INFO :
RF 1970 SC1742 (3) F 1972 SC1458 (40,43) RF
1972 SC1760 (8,10,16,17) D 1974 SC1111 (7) RF 1976 SC 769 (3) R 1985 SC1041
(11) R 1989 SC1931 (3)
ACT:
Punjab General Sales Tax Act (46 of 1948),ss.
2(ff), 5(1) second proviso and 5(2)(a)(vi) and Central Sales Tax Act (74 of
1956), s. 15(a)-Whether provisions of State Act in conflict with those of
Central Act.
Notification in 1958 under s. 5(1)
prescribing rate of purchase tax-Amendment of word "purchase"-No
fresh Notification-Legality of levy of purchase tax.
HEADNOTE:
The definition of the word
"purchase" was first introduced in the Punjab General Sales Tax Act,
1948, in 1958. As the rate of tax to be levied was to be contained in a
Notification to be issued under s. 5(1) of the, Act, a Notification was issued
in April 1958 regarding the rate. of tax on the purchase of goods "for use
in the manufacture of good,% for -.is per the then definition of
"purchase". The definition of "purchase" was amended twice
in 1959 and again by Punjab Act 19 of 1960. The definition after these
amendments has reference to the goods specified in Schedule C to the Act an
item of which relates to cotton, and, after the 1960 amendment the clause
"for use in the manufacture of goods for sale" was omitted. After
those amendments, no fresh Notification prescribing the rate of tax on the
purchase of goods was issued till September 26, 1961.
The appellant was a cotton ginning factory
and was a dealer registered tinder the Act. Under s. 10, it had to send
quarterly returns within the time specified and when sending the returns had to
pay the amount of tax, in accordance with the returns which should also show
the gross turnover.
Failure to do so was an offence and subjected
the dealer to heavy penalties. The appellant filed returns for the assessment
years 1960-61, 1961-62) and 1962-63 and paid certain amounts of tax which,
according to it were due from it. The assessing authority passed order of
assessment, including in the appellant's turnover the amounts representing the
purchases of cotton made by the appellant for each of the years. The appellant
thereupon filed writ petitions challenging the three assessment orders on the
ground that the -second proviso to s. 5(1) and s.
5(1)(a)(vi) of the Act, enabling the State to
collect purchase tax in respect of cotton, were opposed to s. 15(a) of the Central
Sales Tax Act, 1956 and that, in consequence, it was not liable to pay any
purchase tax far the assessment years in respect of cotton. The High Court
rejected the petitions.
In appeal to this Court,
HELD : (1) (By Full Court) As no fresh
Notification was issued till September 26, 1961, the orders of' assessment for
the two years 1960-61 and 1961-62 could not be sustained. [592 H; 593 B] The
levy of tax could not be sustained under the Notification of 1958 on the basis
of s. 22 of the Punjab General Clauses Act. That section has no application,
because the definition of "purchase" on the of Sup CI/67-7 578 which
that Notification was issued is inconsistent with the definition of
"purchase" as it stood after its amendment in 1960. [592E-F] Further,
if the levy is to be sustained on the basis of the Notification of 1958, the
State could levy tax only on the category of purchases "for use in the
manufacture of goods for sale". But it was not open to the State to make
such a choice. [592G] (2) (Per Subba Rao, C.J., Shah and Vaidialingam, JJ.)
Even though there was a notification fixing the rate of tax for the year 1962-63,
the order of assessment for that year and also for the two years 1960-61 and
1961-62 should be quashed on the ground that the provisions of the State law
under which they were made violated s. 15 of the Central Act.
[591A] Under s. 15(a) of the Central Act in respect
of commodities like cotton which come under the category of "declared
goods" is defined in s. 2(c) of the Central Act, the purchase tax can be
levied only at one stage. The essence of one-stage taxation consists of
fixation of a single point or stage, either by the State Act or the rules
framed there under. A mere injunction by the Legislature, as contained in the
second proviso to S. 5(1) of the State Act, that the rate should not be higher
than the one fixed in the Central Act, and that the levy must be at one stage
as mentioned in the Central Act, will he of no avail, unless the Act or the
rules framed under it make it clear that them will be no levy or collection of
lax, except from the persons who are bound to pay as per the Central Act. The
proviso doe,-, not serve any material purpose. because, even if it did not
exist the authorities cannot levy tax on declared goods at a rate higher than
that laid down in the Central Act. [583H584G-H; 587F-H. 588] Further, there can
be no legal liability for payment of tax unless the Act or the rules prescribe
a single point for taxation; but under s. 5(2)(a), in respect of the same item
of declared goods, more than one person is made liable to pay tax. and the tax
is levied at more than one stage. For example, if A sells declared goods to B
and B to C, (B and C being registered dealers) and the sales are beyond the
period of 6 months mentioned in s. 5(2) (a) (vi), both A and B will be liable
to pay purchase tax. [588A-B, G-H] Moreover, in the final return sent by the
dealer, it will have to show in the taxable turnover all purchases of cotton
effected by it during the accounting year and the tax payable will have to be
paid. The dealer can get a declaration from the dealer to whom the goods are
re-sold and claim exemption under s. 5(2) (a) (vi) and r. 27A of the rules made
under the Act. But these provisions apply only to registered dealers, whereas
s. 15 of the Central Act is not restricted to registered dealers. Also, if a
nonregistered dealer intervenes, there is no machinery by which the dealer can
ascertain whether his vendor of the declared good,-,, has paid the tax already.
[584B; 588B-D, G] The orders of assessment could not be sustained on the basis
of the provisions for refund in s. 12 and the rules. These provisions do not
afford adequate relief. If the Central Act makes it mandatory that the tax can
be collected only at one stage it is not enough for the State to say that a
person who is not liable to pay tax, must nevertheless pay it in the first
instance and then claim refund at a later stage. If a person is not liable for
payment of tax at all, at any time, the collection of a tax from him with a
possible contingency of refund at a later stage will not make the original levy
valid. Besides. even in the matter of obtaining refunds the appellant will have
to place before the officer concerned, particulars of transactions connected
with the commodity and the basis on which it claims relief, and it would be
extremely difficult to collect the materials in this behalf, because, there is
no provision in the Act or the rules on the basis of which it will be entitled
to be supplied with such relevant materials. [589C-G] Modi Mills v. C.I.T.,
Punjab, [1965] 1 S.C.R. 592 and A. V.
Fernandez v. The State of Kerala, [1957]
S.C.R. 837, followed.
(Per Sikri and Ramaswami, JJ. dissenting) :
The assessment for the year 1962-63 is valid.
The second proviso to s. 5 serves one useful
purpose, namely, it gives immunity to the State Act from challenge on the
ground that its provisions infringe s. 15 of the Central Act. The State Act is
good and in -effect complies with the requirements of s. 15 of the Central Act,
because, it is possible to find out the stage at which purchase tax become leviable
on goods mentioned in Schedule C, both in cases where the purchasers are
registered dealers and in cases where unregistered dealers intervene. Under ss.
4 and 5 of the Act the stage is the first purchase which is not exempt from
taxation or which is not deductible from the taxable turnover of a dealer under
s. 5(2) of the State Act. For example, if A buys cotton and sells it to B and B
sells to C, where all are registered dealers, if A is liable to pay purchase
tax, B and C could say to the assessing authority that they are exempt from
paying purchase tax. Since A would be interested in obtaining the declaration
from B for claiming exemption under s. 5 (2) (a) (vi) and B would be interested
in knowing whether A's was the first taxable purchase, they will behave like
ordinary businessmen and know the true position is to whether A was liable or
not.
If A's sale was within and B's sale beyond,
the period of 6 months mentioned in s. 5(2)(a)(vi), B will be liable to pay
purchase tax and the purchaser from him would be exempt. If in the illustration
C is an unregistered dealer, B will 'be liable to pay purchase tax because he
cannot claim exemption under s. 5(2)(a)(vi). If B is also an unregistered
dealer, B would be liable and C would be exempt. If B is an unregistered
dealer, and C is a registered dealer, B will be liable unless he obtains the
prescribed declaration from C.
But if there is double taxation due to
mischance in the case of registered dealer,, or ignorance in the case of
unregistered dealers, the Act cannot be treated and void for that reason
especially when there is a suitable provision for refund.
[593C-G; 594A-C, E-G] Modi Mills v. C.I.T.
Punjab, [1965] 1 S.C.R. 592, referred to.
CIVIL APPELLATE JURISDICTION : Civil Apppeals
Nos. 2386 2388 of 1966.
Appeals from the judgment and order dated
November 23. 1965 of the Punjab High Court in Civil Writ Nos. 1591 of 1963 and
1913 and 1914 of 1962 respectively.
S. T. Desai, A. N. Sinha, C. D. Garg and B.
P. Jha, for tile appellant (in C.A. No. 2386 of 1966).
H. L. Shibal, A. N. Sinha, C. D. Garg and B.
P. Jha, for the appellant (in C. As. Nos. 2387 and 2388 of 1966).
Bishan Narain, O. P. Malhotra and R. N.
Sachthey, for the respondents (in all the appeals).
580 The Judgment of SUBBA RAo, C.J., SHAH and
VAIDIALINGAM, JJ.
was delivered by VAIDIALINGAM, J. SIKRI, J.
on behalf of himself and RAMASWAMI, J. delivered a partially dissenting,
Opinion.
Validialingam, J. In all these three appeals,
on certificate, the common judgment of the High Court of Punjab, dismissing the
three writ petitions filed by the appellant, is under attack, by Mr. S. T.
Desai, learned counsel for the appellant.
The appellant, who is the same in all these
appeals, is the Bhawani Cotton Mills Ltd., running a cotton ginning factory,
and engaged in the business of manufacturing yarn from cotton. It is a dealer,
registered under the Punjab General Sales Tax Act, 1948 (Punjab Act. No. XLVI
of 1948), hereinafter called the Act. The appellant filed returns for the
assessment years 1960-61, 1961-62 and 1962-63. It had'Paid a certain amount of
tax which, according to it, was alone due from it. But, according to the
appellant, it was not liable to pay Central sales tax on the purchase of cotton
during the relevant accounting years. The appellant had taken various grounds
of attack, before the assessing authority, but the most important contention
raised, appears to have been that the material provisions in the Act,
particularly the second proviso to s. 5(1) and cl. (vi) of s. 5 (2) (a), of the
Act, enabling the State to collect purchase tax, in respect of cotton, are
opposed to the material provisions of the Central Sales Tax Act, 1956 (Act
LXXIV of 1956) (hereinafter called the Central Act). The appellant pleaded that
it was not liable to pay, in consequence, any, purchase tax, for the assessment
years in question, in respect of cotton.
The Excise & Taxation Officer,
Ferozepore, did not accept the pica of the petitioner-appellant regarding its
nonliability to the purchase tax on cotton. He, accordingly, passed orders of
assessment, including the turnover representing the purchases of cotton made by
the appellant.
The assessment orders for the years 1960-61
and 1961-62, are 'dated November 15, 1962, and for the assessment year 196263,
is dated July 30, 1963.
The appellant, thereupon, filed Civil Writ
Petitions, Nos.
1913 and 1914 of 1962 and 1591 of 1963,
challenging the assessment orders for the years 1961-62 and 1960-61, and
1962-63 respectively. The High Court, by its common order, rejected the writ
petitions filed by the appellant and confirmed the orders of assessment, passed
by the assessing authority.
The common question, that arises for
consideration in these three appeals, is as to whether the second proviso to s.
5(1) and cl. (vi) of s. 5 (2) (a) of the Act,
are opposed to any of the relevant provisions of the Central Act. A further
question arise,;
581 in Civil Appeals Nos. 2387 and 2388 of
1966, regarding the validity of a Notification, issued by the State Government,
under s. 5 of the Act, on September 26, 1961. We shall consider this further
question, after expressing our opinion, on the more important question, which
is common to all the appeals.
In order to appreciate the contentions that
have been taken before us, by Mr. S. 'F. Desai, learned counsel for the
appellant, and Mr. Bislian Narain, learned counsel for the State, it is
necesarily to refer to the relevant provisions in both the Acts. It is only
necessary to refer to the provisions of the Act, as they stood on April 1,
1960. The, Act of 1948, has been amended from time to time, and it may not 'be
necessary to refer to those amendments, excepting on one aspect, when we deal
with the validity of the Notification, referred to earlier.
Corning to the Act, according, to its
preamble, it is an Act to provide for the levy of a general tax on the sale or
purchase of goods in Pun ab. The expressions "dealer",
"goods", "prescribed", "purchase", "
sale", "turnover" and "year" are defined in cls. (d),
(e), (f), (ff), (h), (i) and (j) of S. 2. Particularly, s. 2(ff), defining
"purchase", is as follows "2.(ff) In this Act, unless there is
anything repugnant in the subject or context purchase' with all its grammatical
or cognate expressions, means the acquisition of goods specified in Schedule C
for cash or deferred payment or other valuable consideration otherwise, than
under a mortgage, hypothecation, charge or pledge." In Schedule C to the
Act, the item with which we are concerned, relates to, cotton, and it is as
follows :"Cotton, that is to say, all kinds of cotton (indigenous or
imported) in its unmanufactured state, whether _ginned or unpinned, baled,
pressed or otherwise, but not including cotton waste." Therefore, the
definition of the expression "purchase", has reference to the goods
specified in Schedule C. The expression "turnover", in s. 2(i), will
include the aggregate of the amounts of sales and purchases and parts of sales
and purchases actually made by any dealer, during the given period. No, doubt,
certain deductions are also mentioned in the definition of that expression. In
these appeals, since we ire concerned only with tax on purchases, it is not
necessary for us to advert to the definition of " sale", in s. 2(h)
except to note that it excludes goods specified in Schedule C.
Section 4 deals with the incidence of
taxation, and it makes a dealer, whose gross turnover, during the year, in
question, 582 exceeded the taxable quantum, being liable to pay tax on all
sales and purchases, subject to the provisions of ss. 5 and
6. In fact, the purchases, for being made
liable, should have been effected after the commencement of the Amendment Act
of 1958, amending the original Act. Section 4(2-A) provides that no tax on the
sale of any goods shall be levied, if a tax on their purchase is payable under
the Act, and this is notwithstanding anything contained in sub-ss. ( 1) and (2)
of s. 4. The effect of this provision is that if a tax on purchase is payable,
then, in respect of the same goods, no tax shall be levied on their sale.
Sub-s. (5) of s. 4 defines the expression "taxable quantum". Section
5 deals with the rate of tax and it provides for levying a tax, on the taxable
turnover of a dealer, at rates not exceeding six naye paise in a rupee, is the
State Government may, by notification, direct, and the levy must be subject to
the provisions of the Act. The second proviso to s. 5 (1) is, as follows :"Provided
further that the rate of tax shall not exceed two naye paise in a rupee in
respect of any declared goods as defined in clause (e) of section 2 of the Central
Sales Tax Act, 1956, and such tax shall not be levied on the purchase or sale
of such goods at more than one stage." The expression "taxable
turnover" is defined in s. 5(2), but, in arriving at the taxable turnover,
the various deductions, mentioned in the sub-clauses of s. 5 (2) (a) and s. 5
(2) (b), ire exempt. Sub-cl. (vi), of s. 5 (2) (a), which mentions one of the
items which is deductible in arriving at the taxable turnover 'is as follows :turnover
during that period on the purchase of goods which ire sold not later than six
months after the close of the year, to a registered dealer, or in the course of
inter-State trade or commerce, or in the course of export out of the territory
of India :
Provided that in the case of such a sale to a
registered dealer, a declaration, in the prescribed form and duly filled and
signed by the registered dealer to whom the g oods ire sold, is furnished by
the dealer claiming deduction.!' Section 7 deals with the registration of
dealers. Section 10 relates to payment of tax and the filing of returns. Its
sub-s. 1 provides that the tax payable, under the Act, shall be noticed in the
manner provided, it such intervals as may be prescribed. It may be mentioned
here that there is no dispute that the appellant is one of those types of
dealers who his to send quarterly returns, within the time specified. Sub-s.
(4) of s. 10 makes it 583 obligatory on the registered dealer to pay the full
amount of tax due from him, under the Act, according to his returns, before the
returns are furnished, and it provides for the returns being accompanied by the
Treasury or Bank receipts evidencing such payment. It is only necessary to note
that the appellant, when sending its quarterly returns, during the middle of a
year, has to pay the amount of tax, in accordance with that return, and that
return should also show the gross turnover, in accordance with the Act. Sub-s.
(6) of s. 10 makes a dealer liable for
penalty, in the circumstances mentioned therein.
Section 11 of the Act deals with assessment
of tax. Section 12 deals with refunds and, in the circumstances mentioned therein,
a registered dealer can claim refunds from and out of the :Amounts which he has
already paid. Section 23 provides for offences and penalties; and,
particularly, cl.
(b) of s. 2 3 ( 1. ) makes failure, without
sufficient cause, to submit a return, as required. by s.10(3), an offence.
Section 27 enables the State Government to make rules under the Act.
Rules have been framed, by the State
Government, and it is only necessary to refer to some of the rules. Rule 20
makes it obligatory on the dealers concerned, other than those referred to in
rr. 17, 18 and 19, to furnish returns._ quarterly, within thirty days from the
expiry of each quarter. We have already referred to the fact that the appellant
is liable to send quarterly returns, Rule 27-A is as follows :"A dealer
who wishes to deduct from his gross turnover the amount in respect of a
purchase on the ground that he is entitled to make such deduction under
sub-clause (vi) of clause (a) of sub-section (2) of section 5 of the Act.
shall append to his return in form STVIIIA, a
list in form STXXVILB or form STXXVIIC as the case may be, and produce on
demand by the Assessing Authority a declaration in writing in form........ by
the de-,tier to whom such goods are sold or by his agent." Rules 48 to 55
deal with the procedure to be adopted for obtain a refund of tax paid, under s.
12 of the Act.
Coming to the Central Act, one of the
purposes sought to be achieved by that Act is to specify the restrictions and
conditions to which State laws, imposing taxes on the sale or purchase of
certain goods, which ,ire declared to be of special importance, shall be
subject. The expressions "dealer" and "declared goods" are
defined in ss. 2(b) and 2(c). respectively. "Declared goods" means goods
declared, under s.14, to be. of special importance in inter-State trade or
commerce. Section 14 enumerates the 584 various goods which are declared to be
of special importance in inter-State trade or commerce. One of the items, so
declared, is "cotton", under item (ii), which is described as follows
:"cotton, that is to say, all kinds of cotton (indigenous or imported) in
its unmanufactured state, whether ginned or unginned, baled, pressed or
otherwise, but not including cotton waste. " Section 15, imposing
restrictions and conditions in regard to tax on sale or purchase of declared
goods, within a State is as follows:"15. Every sales tax law of a State
shall, in so far as it imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the following restrictions
and conditions, namely :(a) the tax payable under that law in respect of an),
sale or purchase of such goods inside tile State shall not exceed three per
cent of the sale or purchase price thereof, and such tax shall not be levied at
more than one stage;
(b) where, a tax has been levied under that
law in respect of the sale or purchase inside the State of any declared goods
and such goods are sold in the course of inter-State trade or commerce, the tax
so levied shall be refunded to such person in such manner and subject to such
conditions as may be provided in any law in force in that State." Pausing
here for a minutes it may be stated that the attack, regarding the validity of
some of the provisions of the Act, by the appellant, is rested on s.15(a) of
the Central Act, on the ground that such a levy of purchase tax, regarding
cotton, is neither definite nor ascertainable in the Act and that, as the
provisions now stand, there is a possibility of the tax being levied at more
than one stage. According to the appellant, the State legislation, which deals
with the imposition of tax in respect of a sale or purchase of declared goods,
must conform to the provisions of s.15(a) of the Central Act. The ingredients
of those provisions are :
(i) In respect of "declared goods",
a tax, either Oil sale or purchase, alone, can be levied; and it cannot be on
both sale and purchase. (ii) The rate of tax should not exceed the maximum
limit fixed by the Central Act, and (iii) The tax can be levied only at one
-stage. The essence of a one stage taxation consists of fixation of a single
point or stage, either by the State Act or the rules framed there under. In
this case', according to the appellant, it has to send quarterly returns, even
during the accounting year and, as per S. 10(4) of the Act, it 585 has to pay
also tax, in accordance with the returns submitted by it for every quarter. In
the returns that are being sent, the dealer will have to include all purchases'
of cotton, effected by him during the quarter for which the return is sent.
There is no indication, either in the Act or in the rules or the forms
prescribed, as to whether the persons, from whom the appellant purchased
cotton, have paid tax or not. Section 15 of the Central Act is not restricted
only to registered dealers. There will also be nothing to guide the appellant
to know as to whether the goods, purchased by it, have been sold to it by its
vendor within the period mentioned in cl. (vi) of s. 5 (2) (a) of the Act.
Under those circumstances, there is always a
possibility, or even a certainty, of more persons than one having paid tax or
being made liable to pay tax in respect of the same goods at different stages.
That is quite opposed to the provisions of s.15(a) of the Central. Act. Even
otherwise, it is pointed out that if a person has purchased cotton and sells it
after the period provided for in S. 5 (2) (a) (vi), that party is liable to pay
sales tax and would have also paid the same. Another purchaser from the said
party will also be, liable to pay tax, on the same commodity, if he sells the
goods, after the period mentioned in cl. (vi).
That is, two, persons are made liable for
payment of tax, in respect of the same commodity. In other works, the purchases
of the same item of declared goods, by the persons indicated above, are made
liable for tax, whereas under the Central Act, there can be only one levy and
collection of tax at one stage, either on sale or on purchase.
Further, it is argued that the second proviso
to s. 5(1) of the Act, is contrary to s.15(a) of the Central Act, inasmuch as
the main section, which levies the rate of tax viz., s. 5(1), as well as the
Notification issued under it, Clearly show that the Act levies tax at a far
higher rate than the maximum provided under S. 15 (a) of the Central Act. Under
these circumstances, it is pointed out. that both the second proviso to s. 5 (1
), and cl. (vi) of s. 5 (2) (a). of the Act, will have to be struck down.
Counsel has also drawn our attention, to the
relevant provisions in the Sales-tax Acts in force 'in' the States of Madras,
Mysore Andhra Pradesh and Uttar Pradesh, where the, stage. -,it which the tax
is to be levied either on purchase or on sale, his been definitely and clearly
indicated. Such a provision, it is pointed out, has not been made in the Act.
On behalf of the State, it is urged that the
provisions of the Act are quite consistent with s. 15(a) of the Central Act.
Counsel points out that the second proviso to s. 5 ( 1 ) of the Act, makes it
very clear that the rate of tax, in respect of declared goods, ,-,hall not
exceed the rate mentioned in s.15(a) of the Central 586 Act, either on purchase
or on sale. Counsel also points Out that the said proviso further reiterates
that the levy of tax, either on purchase or on sale, shall not be at more thin
one stage.
Counsel further developed his argument by
stating that the, normal rule, under the Act, in respect of declared goods, is
to levy the tax, on sale or purchase, it the very first stage, that is, when
the first sale or first purchase takes place. Therefore, the stage is
definitely fixed, but the Act itself gives, as will be seen by sub-s. (2) of s.
5, various types of transactions which are to be excluded, in arriving at the.
dealer's taxable turnover. It is open to a dealer to claim exemption, in
respect of any particular transaction, under one or other of the various
clauses in S.
5(2). When that is so, the stage at which the
tax is levied, gets changed, able to claim any exemption. But, ultimately, it
is only one transaction, of sale or purchase, that is made liable to tax.
Counsel also points out that the first proviso to S.
5(1), of the Act, which is quite in
conformity with s.15(a) of the Central Act, is perfectly valid. It is pointed
out that in respect of persons claiming exemption, under cl.
(vi) of S. 5 (2) (a), the procedure to be
adopted is indicated in r. 27A, of such a purchaser getting a declaration, in
the form mentioned therein, from the dealer, to whom such goods are sold, or by
his agent. Therefore, tinder those circumstances, if once a dealer gives a
declaration to his vendor, -the former will clearly know that the latter is
exempt from taxation, and the liability to pay tax is his, unless lie is able
to pass it on to others. There is no uncertainty, in the matter of fixing the
stage, regarding the levy of sale or purchase tax.
Therefore, that provision also is not
violative of the Central Act. Counsel also urges that in case a party is
eligible for refund, on the ground that he is not liable to pay, in respect of
any particular purchase, ample provision is made for obtaining, refund, under
s. 12 of the Act.
Therefore, under those circumstances, the
State presses for the decision of the Punjab High Court, being upheld.
We are not impressed with the contentions of
the counsel for the State. A perusal of the judgment, under attack, shows that
tile learned Judges themselves were very much impressed by the various aspects
presented before them, on behalf' (if the appellant. In fact, the learned
Judges observe that the various difficulties, pointed out by the petitioner
before them, did exist in the actual working of the Act, but the view of the
The Court was that s.12 of the Act provided for obtaining a refund and,
therefore, though the petitioner might have to deposit. initially, the tax in
respect of the purchases, when the quarterly returns were being submitted, it
was open to it to obtain refunds ,it the appropriate stage.
The provisions of the statutes, in question,
have been referred to by us earlier. Section 15(a), of, the Central Act, makes
it mandatory that the tax shall not be levied at more than one stage. In this
case, the State does not levy any tax, both on the sale and purchase, of the
same declared goods. The second proviso to s. 5 ( 1 ) is, no doubt,
substantially in accordance with the provisions of s. 15(a), of the Central
Act. That proviso was absolutely necessary, because. without it, it would have
been prima facie open to the State to levy tax under s. 5, it a higher rate
than that indicated in the, Central Act, in which case it would certainly have
been illegal. The mere existence of the second proviso, to s. 5 (1 ) of the
Act, does not materially advance the case of the State.
That same proviso, came up for consideration,
before this Court, in Modi Mills v. C.I.T., Punjab( 1 ). In dealing with the
proviso, Hidayatullah, J., speaking for the Court, observed, at 600 "The
meaning or the intention of cl.(3) of Art. 286 is not to destroy all charging
sections in the Sales Tax Acts of the States which are discrepant with s.t5 (a)
of the Central Sales Tax Act, but to modify them in accordance therewith. The
law of the State is declared to be subject to the restrictions and conditions
contained in the law made by Parliament and the rate in the State Act would pro
tanto stand modified. The effect of Art.
286(3) is now brought out by the second
proviso, to s. 5 ( 1 ). But this proviso is enacted out of abundant caution and
even without it the result was tile same." From the observations, noted
above, it will be clearly seen that the proviso, in question, does not serve
any material purpose, because, even, if that proviso did not exist in the State
Act, the authorities cannot levy tax, on declared goods, at a rate higher than
that laid down in the Central Act. Therefore, the mere injunction, by the
Legslature, is contained in the second proviso to S. 5(1), that the rate should
not be higher than the one fixed in the Central Act, and that the levy must be
,it one stage, as again mentioned in the Central Act, will be of, no avail,
unless the Act, or the rules framed under it, make 'it very clear that there
will be no levy or collection of tax, except from the persons who are bound to
pay, is per the Central Act. It is here that there considerable difficulty
caused by the absence, of any provision, either in the Act or in the rules or
the forms, indicating the stage at which the tax is to be levied. In the case or
commodities (1) [1965] 1 S.C.R. 591.
588 like cotton, which come under the
category of "declared goods", tax can be levied only at a single
point, as is made clear by s. 15 (a) of the Central Act, and, in our opinion,
there can be no legal liability for payment of tax accruing, until and unless
the Act, or the rules framed thereunder, prescribe a single point for taxation.
For the matter of that, even in the final return to be sent by a dealer, under
the Act, the dealer will have to show, in the taxable turnover, all purchases
of cotton effected by him during the accounting year. We have already referred
to the fact that, along with the returns, the tax payable on the basis of those
returns, will have to be paid. At that stage the question naturally arises, as
to whether there is anywhere in the Act or the rules any provision, by which
the person, sending the return, 'will be able to know that the tax, in respect
of the declared ,goods purchased by him, has already been paid by another
dealer and that the value of the Purchases, effected by him, need not be shown
in his return.
He cannot take, an offhand chance, in this
matter, because there are very heavy penalties imposed on a dealer, for failure
to include, in the returns sent by him. .any transactions in respect of which
he is liable to pay tax.
If that is the position a,, the end of a
year, when the final return is sent, the position becomes still worse when the
quarterly returns accompanied by payment of taxes, are 'to be sent during the
course of the accounting year itself.
Counsel, for the respondent, has pointed out
that, if a dealer wants to claim exemption, under sub-cl. (vi) of s. 5 (2) (1),
r. 27A provides for his getting a declaration from the dealer, to whom the
goods are resold, in which case, the dealer is absolved from the liability to
pay tax. We have gone through the various statements contained in the said
Rule, as well as the Forms, to which it refers, but they are not decisive,
either way. There also be cases where a nonregistered dealer may have
intervened and, even if such dealers intervene, it is clear that tinder s.
15(a) of the Central Act, the tax cannot be levied at more than one stage.
There is no machinery by which a dealer can ascertain whether his vendor, of
the declared goods, has paid the tax already. Even otherwise, it will be seen,
that if a dealer, A, the declared goods, to B, six months after the close of
the (B being a registered dealer), A becomes liable to purchase tax. But, if B
sells the identical declared goods, again, after the period, mentioned in subcl.
(vi), he will also be liable to pay purchase tax. That means, inspect of the,
same item of declared goods more than one person is made liable to pay tax and
the tax is also levied at more than one stage. That is not permissible, under
s. 15(a) of the Central Act. If goods are resold to a nonregistered dealer,
within the period, sub-cl. (vi), will not help tile original purchaser. We may
also point out, it this stage, 589 that sub-cl. (vi), of s. 5 (2) (a), negatives
the assumption that the normal rule, under the Act, in respect of declared
goods, is to levy the tax on the first purchaser.
Mr. Bishan Narain, counsel for the State,
faced with these difficulties, no doubt referred us to the provisions contained
in s. 12 of the Act, relating to refunds. Counsel pointed out that the manner
in which a purchaser can claim refunds, is also elaborately indicated in rr. 48
to 55 of the Rules. If persons, like the appellants, satisfied the authorities
concerned that they had paid amounts, by way of tax, which they were not
legally bound to pay, it was open to them to ask for refunds of such excess
amounts paid.
Therefore, even assuming that, in the first
instance, the appellant has paid the purchase tax and, later on, it is found
that it is not liable for the same, S. 12 of the Act would afford adequate
relief. We are not impressed with this argument. The position is not so simple.
Even in the matter of obtaining refunds, there can be no controversy, that the
appellant will have to place, before the officer concerned, particulars of
transactions connected with the commodity, in question and also the basis on
which it claims the relief. It will be absolutely difficult, if not impossible,
for persons like the appellant, to collect materials in this behalf, because,
there is no provision, contained either in the Act or the rules, on the basis
of which it will be, entitled to be, supplied with all the material
information, relevant, for sustaining a request for refund. If the Central Act
makes it mandatory that the tax can be collected only at one stage, in our
opinion it is not enough for the State to say that a person, who is not liable
to pay tax, must, nevertheless, pay it in the first instance and then claim
refund, at a later stage. We may state that the question as to how far a party
can ask for refund, without the order of assessment being set aside, by
appropriate proceedings, is highly doubtful; because, at the time when the
actual order of assessment is passed, in certain cases, it may not be possible
for a party to say whether he is entitled to exemption, or not, under Sub-cl.
(vi) of s. 5(2)(a) of the Act. If a person is
not liable for payment of tax at all, at any time, the collection of a tax
front bim. with a possible contingency of refund at a later stage, will not
make the original levy valid; because, if particular sales or purchase are
exempt from taxation altogether, they can never be taken into account, at any
stage, for the purpose of calculating or arriving at the taxable turnover and
for levying tax.
In this connection, we may refer to the
observations of this Court in A. V. Fernandez v. The State of Kerala(1). This
Court. after referring to the observations-made earlier in Messrs. Chatturam.
Horilram Ltd. v. Commissioner of Income tax, Bihar & (1) [1957] S.C.R. 837.
590 Orissa(1), regarding the three stages in
the imposition of tax, being the declaration of liability, assessment, and
recovery, said, at p. 852 :
"If there is a liability to tax, imposed
under the terms of the taxing statute, then follow the provisions in regard to
the assessment of such liability. If there is no liability to tax there cannot
be any assessment either.
Sales or purchases in respect of which there
is no liability to tax imposed by the statute cannot at all be included in the
calculation of turnover for the purpose of assessment and the exact sum which
the dealer is liable to pay must be ascertained without any reference whatever
to the same.
There is a broad distinction between the
provisions contained in the statute in regard to the exemptions of tax or
refund or rebate of tax on the one hand and in regard to the non-liability to
tax or non-imposition of tax on the other. In the former case, but for the
provisions as regards the exemptions or refund or rebate of tax, the sales or
purchases would have to be included in the gross turnover of the dealer because
they are prima facie liable to tax and the only thing which the dealer is
entitled to in respect thereof is the deduction from the gross turnover in
order to arrive at the net turnover on which the tax can be imposed. In the
latter case, the sales or purchases are exempted from taxation altogether. The
Legislature cannot enact a law imposing or authorising the imposition of a tax
thereupon as they are not liable to any such imposition of tax. If they are
thus not liable to tax, no tax can be levied or imposed on them and they do not
come within the purview of the Act at all. The very fact of their nonliability
to tax is sufficient to exclude them from the calculation of the gross turnover
as well as the net turnover on which sales tax can be levied or imposed."
The above observations clearly lay down that the provisions contained in a
statute, with respect to exemptions of tax or refund or rebate, on the one
hand, must be distinguished from the total non-liability or non-imposition of
tax, on the other. These observations, also, in our opinion, effectively
provide In answer to the stand taken by the State, in this case that s. 12 of
the Act provides -,in adequate relief, by way of refund, even if tax is
collected at an earlier stage.
Having due regard to the various matters
mentioned above.
we are satisfied that the decision of the
High Court.
upholding (1) [1955] 2 S. C.R. 290, 297.
591 the orders of assessment passed by the
Officer, in question, cannot be sustained.
We have already indicated that there is one
other point, arising for decision, in Civil Appeals Nos. 2387 and 2388 of 1966.
That relates to the validity of the Notification, issued by the State
Government, under s. 5 of the Act, on September 26, 1961. The assessment
periods, covered by these two appeals, relate to 1960-61 and 1961-62. At the
material time, the definition of the expression "purchase," as contained
in s. 2(ff), has been already referred to by us. The definition of the word
"purchase" was first introduced in the Act, by Punjab Act VII of
1958. According to that definition, it was as follows :" 'Purchase', with
all its grammatical or cognate expressions, means the acquisition of goods
other than sugarcane, food grains, and pulses for use in the manufacture of
goods for sale, for cash or deferred payment or other valuable consideration,
otherwise than under a mortgage, hypothecation, charge or pledge." By
Punjab Act XIII of 1959, the words "other than sugarcane, food grains and
pulses", were omitted. Then there was a further amendment, by -Punjab Act
XXIV of 1959 and, after the said amendment, cl. (ff) stood as follows :"
'Purchase', with all its grammatical or cognate expressions, means the
acquisition of goods specified in Schedule C for use in the manufacture of
goods for sale, for cash or deferred payment or other valuable consideration,
otherwise than under a mortgage, hypothecation, charge or pledge." This
definition was again amended by Punjab Act XVIII of 1960. The rate of tax,
provided by the Act, was 4% and, we have already indicated that the Central Act
was enacted in 1956; and we have also adverted to the material provisions therein.
We have adverted to the fact that, under 5 of
the Act, the rate of tax that is to be levied,, is to be contained in the
notification that is to be issued under S. 5 ( 1 ).
Accordingly, on April 19, 1958, the State
Government issued, under s. 5(1), a.,; amended by the Punjab Act VII of 1958, a
Notification regarding the rate of tax. in that Notification, the rate of tax
on the purchase of goods, by a dealer, for use in the manufacture of goods for
sale was fixed at 2 naye paise in the rupee. Section 2(ff) was, later on
amended in 1960, by Punjab Act XVIII of 1960, and the definition of
"Purchase", as contained in this provision, has already been referred
to by us. The State Government issued a Notification under S. 5(1) of the Act,
on September 26, 1961.
592 Under this Notification, it was provided
that the rate of tax on the purchase of goods specified in Schedule C, appended
to the Act, would be 2 naye paise in the rupee.
The contention that was taken by the
appellant was that, notwithstanding the fact that the definition of the
expression "purchase", was changed with effect from April 1, 1960,
the Notification fixing the rate of tax, under that amended definition, was not
issued until September 26, 1961, and it was further urged that, in consequence,
no assessment could be made of any tax on declared goods, mentioned in Schedule
C, prior to September 26, 1961.
It was not disputed by the State that no
fresh notification was issued, after the expression "purchase" was
amended in 1960, till September 26, 1961. But the State attempted to sustain
the levy on the ground that the original notification, of April 19, 1958, would
be valid even after the amended definition in S. 2(ff), ,is it now stands. It
is open to the State to tax all purchases which conic within the definition of
s. 2(ff) as it now stands, but the State, it is pointed out, must be considered
to have chosen to levy tax only if the purchases have been made for use in the
manufacture of goods for sale. Alternatively, it was also pointed out that the notification,
issued in 1958, must be considered to have validity, even after the amendment,
by virtue of S. 22 of the Punjab General Clauses Act. We are not impressed by
these contentions, advanced on behalf of the, State.
Section 22 of the Punjab General Clauses Act
has no application, whatsoever, to these cases. Apart from the fact that there
is no question of the 1958 Act being repealed, or reenacted, it is also clear
that the definition of the expression, under S. 2(ff), as it stood in 1958, on
the basis of which the notification of 1958 was issued, is quite inconsistent
with the amended definition of the expression "purchase", in S.
2(ff), in 1960. The High Court has sustained the levy of tax under the original
'notification of 1958, on the basis of S. 22 of the Punjab General Clauses Act,
which, in our opinion, does not assist the State. It is not open to the State
to urge that it is entitled, in the matter of levying tax, on transactions by
way of purchase, to tax only the category of purchases for use in the
manufacture of goods for sale. Further, the State has not been able to satisfy
us that there is any reasonable classification made, which will enable this
Court to sustain the Notification. Inasmuch as no fresh notification had been
issued, under s. 5(1), till September 26, 1961, the assessment for the years
1960-61 and 1961-62, on the basis of the Notification issued in 1958, cannot be
sustained, on' this additional ground also 593 We therefore allow the appeals,
in the manner indicated above. The State will pay costs to the appellant in
Civil Appeal No. 2386 of 1966.
Sikri, J. I have read the judgment prepared
by my brother, Vaidialingam, J. I agree with him that assessments for the years
1960-61 and 1961-62 on the basis of notification issued cannot be sustained and
Civil Apeals Nos. 2387 and 2388 of 1966 have to be allowed. But, with respect,
I regret I cannot agree with him that the assessments in question have to be
quashed on the ground that they violate s. 15 of the Central Sales Tax Act. My
brother has set out the relevant statutory provisions and it is not necessary
to extract them here. In my opinion the Punjab Act does in effect comply with
the requirements of s. 15 of the Central Sales Tax Act because it is possible
to find out the stage at which purchase tax becomes leviable on goods mentioned
in Schedule C. This stage is the first purchase by a dealer, which is not
exempted from taxation or which is not deductible from the taxable turnover of
a dealer under s. 5 (2) of the Punjab Act. In my view, this follows. from ss. 4
and 5 of the Punjab Act. Subject to the provisions of ss. 5 and 6, s. 4 makes a
dealer liable in respect of all purchases, first purchases, second purchases
and last purchases, but the second proviso to s. 5 provides, in effect, that
the purchase tax shall not be levied at more than one stage. Which stage does
the proviso cut out? It seems to me that every purchase except the first
purchase has been eliminated. Take the following illustration:
Dealer A buys cotton, A sells it to dealer B,
and B sells it to dealer C. If dealer A is liable to pay purchase tax under s.
4, by virtue of the proviso no other dealer is liable, because otherwise this
would amount to imposing tax at more than one stage. Could not dealer B or C
say to the assessing authority that it is A who is liable, and if he is liable,
the proviso exempts them from paying purchase tax ? But it is said that B and C
may not know that A is liable.
While buying goods, B has only to enquire
from A whether his is the first taxable purchase. Indeed A, in order to claim
exemption under s. 5 (2) (a) (vi) will ask B to give him a declaration form.
Therefore, both A and B will know the true position, and A will claim the
exemption and B will pay purchase tax unless he sells to another dealer. If B
sells to another dealer D after the expiry of six months after the close of the
year, the period mentioned in s. 5 (2) (a) (vi), B will be liable to purchase
tax. B may not asked for the prescribed declaration form for it may be useless
for him, but D will find out whether he is buying goods liable to purchase tax
or not. B will tell D that he has not to pay purchase tax and will perhaps
include purchase tax in the price. It seems to me that if dealers behave like
businessmen, which they will ordinarily do, there will be no difficulty in
working the provisions.
L7Sup.Cl/67-8 594 of the Punjab Act. But if
by mischance there is double taxation the State can only make a suitable
provision for refunds.
In my view, the Punjab Act is in consonance
with S. 15 of the Central Act, and if there is a possibility of taxation at
more than one stage, the Punjab Act cannot for this reason be treated as void.
My brother does not say that the Punjab Act is void but in effect he implies
it.
Let me now deal with the case when an unregistered
dealer intervenes. In the illustration I have given above let us deem C to be
an unregistered dealer. A sells to B, and B sells to C. B will be liable to pay
purchase tax because he cannot claim exemption under s. 5 (2) (a) (vi). Suppose
B in the above illustration is an unregistered dealer. Here B is liable to
purchase tax unless he sells to C, a registered dealer and obtains the
prescribed declaration. If C is an unregistered dealer, then B would be liable
and not C.
If an unregistered dealer wants to escape
taxation and his transactions are not known to the Sales Tax authorities till
he is assessed under s. 11 (6) of the Punjab Act, the only way of complying
with the second proviso to S. 5 and S. 15 of the Central Act is to give refund
to a dealer who has been taxed in the meantime. The same thing would happen as
far as I can see, under the State Acts which fix in terms a specific stage.
I may here mention that according to me the
second proviso to s. 5 serves one useful purpose. It makes the Punjab Act
immune from challenge on the ground that its provisions -infringe s. 15 of the
Central Act. The Punjab Act being good, it is only the assessments that can be
challenged on the ground that they violate the second proviso to S. 5 of the
Punjab Act. This aspect was not apparently brought to the notice of this Court
in Modi Mills v. C.I.T. Punjab(1).
Accordingly I would dismiss Civil Appeal No.
2386 of 1966 with costs, and allow Civil Appeals Nos. 2387 of 1966 and 2388 -of
1966, with costs.
ORDER In accordance with the opinion of the
majority the appeals are allowed in the manner indicated in the judgment. The
State will pay costs to the appellant in Civil Appeal No.2386 of 1966.
V.P.S.
(1) [1965] S.C.R. 592.
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