State of Tamil Nadu Vs. M. K
Kandaswami [1975] INSC 130 (15 July 1975)
SARKARIA, RANJIT SINGH SARKARIA, RANJIT SINGH
KRISHNAIYER, V.R.
GUPTA, A.C.
CITATION: 1975 AIR 1871 1976 SCR (1) 38 1975
SCC (4) 745
CITATOR INFO :
R 1979 SC1475 (30) D 1981 SC1055 (13) R 1981
SC1206 (12) R 1988 SC1487 (46) D 1990 SC 781 (3,5,21,22,23,31,34,81)
ACT:
Interpretation of Statutes-Provision
susceptible of two constructions-Construction defeating purpose of provision,
if can be resorted to.
Tamil Nadu General Sales-tax Act 1959 Section
7-A(1)- interpretation-Sale or purchase of certain goods generally taxable
under the Act-Act prescribing circumstances when no tax be attracted-
Provisions of section charging such goods to tax, if workable.
HEADNOTE:
Section 7-A(1 ) of Tamil Nadu General
Sales-tax Act, 1959, provides that every dealer who in the course of his
business purchases from registered dealer or from any other person, any goods
(the sale or purchase of' which is liable to tax under this Act) in
circumstances in which no tax is payable under section 3, 4 or 5, as the case
may be, and either, (a) consumes such goods in the manufacture of other goods
for sale or otherwise; or (b) disposes of such goods in any manner other than
by way of sale in the State. Or (c) dispatches them to a place outside the
state except as a direct result of sale or purchase in the course of inter-
State trade or commerce shall pay tax on the turnover relating to the purchase
aforesaid at the rate mentioned in s. 3, 4 or 5 as the case may be whatever be
the quantum of such turnover in a year: The proviso to this sub-section exempts
dealer (other than a casual trader or agent of a non resident dealer), if his
turnover for a year is less than Rs. 25,000/-.
All the respondents are dealers against whom
either pre-assessment proceedings have been initiated or assessments have been
made under s. 7-A of the Act on the purchase turnover of goods like arecanuts,
Gingelly seeds, butter turmeric and grams and castor seeds. All the respondents
filed writ petitions under Art. 226 of the constitution in the High court of
Madras challenging the validity of the pre-assessment proceedings assessments
and the demand notices. The High court allowed the writ petitions and quashed
the impugned proceedings and assessments. The State has preferred this appeal
on the basis of the certificate granted by the High Court under Art. 133(1)(c)
of the Constitution It was contended for the appellant that the High Court was
wrong in taking the view that the expression "goods the sale or purchase
of which is liable to tax under this Act" and the phrase "purchases..
in circumstances in which no tax is payable under section 3, 4 or 5" are a
contradiction in terms and therefore, s. 7-A(1) being far from clear as to its
intention, the Joint-commercial Tax officer was not justified in involving this
section.
Accepting the contention and allowing the
appeal,
HELD: (1) Section 7-A at once a charging as
well as a remedial provision. its main object is to plug leakage and prevent
evasion of tax. In interpreting such a provision, a construction which would
defeat its purpose and, in effect, obliterate it from the statute book, should
be eschewed. If more than one construction is possible, that which preserves
its workability and efficacy is to be preferred to the one which would render
it otiose or sterile. [46F-G] (ii) The scheme of the Act involves three
inter-related but distinct concepts namely, taxable person', 'taxable goods'
and 'taxable event'. All the three must be satisfied before a person can be
saddled with liability under the Act.
The ingredients of-section 7-A(1) are: (1)
The person who purchases the goods is a dealer: (2) The purchase is made by him
in the course of his business; (3) Such purchase is either from "a
registered dealer or from any other person;
(4) The goods purchased are goods the sale or
purchase of 39 which is liable to tax under this Act." (5) Such purchase
is "in circumstances in which no tax is payable under s. 3, 4 or 5 as the
case may be", and (6) The dealer either. (a) consumes such goods in the
manufacture of other goods for sale or otherwise or (b) dispatches all such
goods in any manner other than by way of sale in the State or (c) dispatches
them to place outside the State except as a direct result of sale or purchase
in the course of inter state trade or commerce. Section 7-h can be involved
only if all these ingredients are cumulatively satisfied [43F; 42G- H; 43A-B]
(iii) Ingredients (4) and (5) are not mutually exclusive and the existence of
one does not necessarily negate the other. Both can co-exist and in harmony.
Ingredient (4) would be satisfied if it is
shown that the particular goods were 'taxable goods' i.e.., the goods the sale
or purchase of which is generally taxable under the Act. Notwithstanding the
goods being 'taxable goods' there may be circumstances in a given case, by
reason of which the particular sale or purchase does not attract tax under 9.
3, 4 or S. Section 7-A provides for such a situation and makes the purchase of
such goods taxable in the hands of the purchasing dealer on his purchase
turnover if any of the conditions (a), (b) and (c) of sub-section (1) of s. 7-A
is satisfied. [44G-H] (iv) The goods in question are 'taxable goods. The sales
of arecanuts, Gingelly Seeds, turmeric and gram were not liable to tax in the
hands of the sellers as they were agriculturists and the goods were the produce
of the crops raised by them. Similarly , butter was purchased by the assessee
concerned directly from the house holders whose sales are not liable to tax
under the Act. Caster-seeds are said to have been purchased by the assessee
concerned from unregistered dealers under bought notes If this is a fact, then
such sales may not be liable to tax under the Act. In all these cases, the purchases
have been made by the dealers of goods, the sale or purchase of which is
generally liable to tax under the act, but because of the circumstances
prescribed under the Act no tax was suffered in respect or the sale of these
goods by the sellers. If it is a tact that the Gingelly seeds and Castor seeds
were crushed into oil and the butter was converted into ghee by the purchasers
dealers concerned. the condition in clause (a) of section 7- A(1) would be
satisfied and s. 7-A would be attracted. If in the case of are canuts, turmeric
and gram, the purchasers dealers transported these goods outside the State for
sale on consignment basis, their case would also be covered by clause (b) or
(c) of s. 7-A(1) and such dealers would be liable to tax on the purchase-turnover
of these goods.
[46B-F] Ganesh Prasad Dixit v. Commissioner
of Sales-tax [1969] 3 S.C.R. 490, applied Malaba. Fruit Products Company
Bharananganam Kottayam and ors. v The Sales Tax officer Palci and ors.
30 S.T.C. 537, Yusuf Shabeer and ors. v.
State of Kerala and ors. 32 S.T.C. 359, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos 1040 to 1072 of 1973.
From the Judgment and order dated the 23rd
April, 1971 of the Madras High Court in W.Ps. Nos. 585, 860, 861, 864.
3349,, 4149/1970 and 508, 577, 578, 605-609,
629, 694- 697.797,838,884, 894-897, 902, 909, 934-936, 1015 & 1049 of 1971.
5 . Govind Swaminathan, A. V. Rangam, A.
Subhashini, K. Venkataswami and N.S. Sivam, for the appellant.
Ashok Sen, Y. S. Chitlay, C. Natarajan and S.
Gopalakrishnan, for respondents (In C.As.
Nos.1043,1046- 1048,1062-1064,1068-1070, 1049-1050, 1054, 1057-1058, 1061,
1067, 1055, 1065 & 1059/75).
40 T. A. Ramachandran, for the respondents in
C.As. 1060- 1061 & 1066/73 The Judgment of the Court was delivered by
SARKARIA, J.-These appeals by the State of Tamil Nadu on a certificate granted
by the High Court under Art. 133(1) (c) of the Constitution raise a question as
to the interpretation and scope of s. 7-A of the Madras General Sales-tax Act,
1959 (hereinafter called, the Madras Act).
All the respondents are dealers against whom
either pre-assessment proceedings have been initiated or assessments have been
made under s. 7-A of the Act on the purchase turnover of certain goods.
The assessee-respondents in Civil Appeals
Nos. 1040, 1041, 1042 and 1044 of 1973 are said to have purchased arecanuts
from agriculturists, and thereafter transported those goods outside the State
for sale on consignment basis.
The twenty assessees in Civil Appeals Nos.
1046-48, 1054-1057, 1059-1060, 1061 to 1066, 1068 to 1072 of 1973 are alleged
to have purchased Gingelly seeds from agriculturists. Gingelly seeds so
purchased were crushed into oil by them.
The four respondents in Civil Appeals Nos.
1045, 1050, 1058 and 1067 of 1973 are alleged to have purchased butter from
householders and then converted it into Ghee.
The three assessees in Civil Appeals Nos.
1051, 1052 and 1053 of 1973 purchased turmeric and grams from agriculturists
and then transported those goods outside the State for sale on consignment
basis.
The assessees in Civil Appeal No 1043 of 1973
are alleged to have purchased castor seeds from (unregistered) dealers on
bought notes and thereafter crushed them into oil.
It will be convenient to take tile last mentioned
case as a model. Therein, the Joint Commercial Tax officer, Leigh Bazar, and
Gugai Division, Salem issued a notice dated 11-2- 1970 to the assessee in these
terms:
"You are liable to pay purchase tax
under s. 7-A of the 'TNGST Act 1959, on the purchase price of the Castor Seeds
purchased and which was consumed in the manufacture of other goods for sales or
disposed of otherwise. ' The turnover of such purchases made from 27-11- 1969
II lo 31-1-1970 amounts to Rs. 3,303.323.67 and the tax due works out to Rs.
9,099,69.
41 You are hereby requested to pay the amount
as stated above within 10 days of the receipt of this notice." This was
followed by a Memorandum dated 5-3-1970 in which it was inter alia stated:
"Admittedly you have purchased the castor
seeds through your own bought notes from registered dealers whose transactions
are not verifiable. As per section 10 the burden of proof that any dealer or
any of his transactions is not liable to tax under this Act shall lie on such
dealer. Therefore, the purchases effected by you have suffered tax already,
should be proved by you." All the aforesaid dealers (hereafter referred to
as the assesses filed writ petitions under Art. 226 of the Constitution in the
High Court of Madras challenging the validity of the pre-assessment
proceedings/assessments and the demand notices. The High Court accepted the
contention of the assesses that "the circumstances contemplated by that
provision (s. 7-A) did not include the possibility or impossibility of verifiability
of the transactions with the dealers from whom the petitioner had
purchased," and further observed:
" ... that if the purpose of Section 7-A
is as obviously it is, to check evasion, the phraseology has fallen short of
achieving that purpose. Section 7-A could have detailed the circumstances in
which the tax liability under Section 7-A would arise. But, instead, the
circumstances have been related by the section to sales or purchases which are
liable to tax under the Act, but for some reason no tax is payable in respect
of them. It appears to be a contradiction in terms, and we are unable to
visualise the circumstances except what we have noticed above in which Section
7-A could be applied. In fact, we are unable to visualise the circumstances in
which the two-fold requirement of the sale being liable to tax but for some
reason no tax is payable under Sections 3, 4 or 5 can arise, except in cases of
exemption. Even there the difficulty arises whether one can say that the sale
which is exempted is liable to tax, and then assume that because of exemption,
the tax is not payable. To our minds the language of Sec. 7-A is far from clear
as to its intention, and we think that the Joint Commercial Tax officer was not
Justified in invoking Section 7-A." With regard to the purchases of
butter, the learned Judges said:
"We fail to see how this could be done
under Section 7-A. Butter is taxable to multi-point talc and is levied on the
sales. That being the case, we do not understand how purchase tax can also be
levied at the purchase point of the sales which were also the subject matter of
charge. If the purchases were made from householders or other persons who 42
are not dealers, even so, inasmuch as the transactions were not liable to tax
at all under the Act, on that ground, Section 7-A could not be invoked."
On the above reasoning, the High Court by a common judgment dated 28-5-1971,
allowed all the writ petitions and quashed the impugned proceedings and
assessments. Hence these appeals by the State.
Section 7-A was inserted by the Tamil Nadu
Amendment Act 2 of 1970 with effect from 27-11-1969. At the relevant time the
material part of s. 7-A read as under:
"(1) Every dealer who in the course of
his business purchases from a registered dealer or from any other person, any
goods (the sale or purchase of which is liable to tax under this Act) in
circumstances in which no tax is payable under "section 3, 4 or 5, as the
case may be, and either,- (a) consumes such goods in the manufacture of other
goods for sale or otherwise; or (b) disposes of such goods in any manner other
than by way of sale in the State; or (c) dispatches them to i place outside the
State except as a direct result of sale or purchase in the course of
inter-State, trade or commerce shall pay tax on the turnover relating to the
purchase aforesaid at the rate mentioned, in section 3, 4 or 5 as the case may
be whatever be the quantum of such turnover in a year:
Provided that a dealer (other than a casual
trader or agent of a non-resident dealer) purchasing goods the sale of which is
liable to tax under sub-section (1) of section 3 shall-not be liable to pay tax
under this sub-section, if his total turnover for a year is less than twenty
five thousand rupees.
(2) . .
(3) . .
On analysis, Sub-section (1) breaks up into
these ingredients:
(1) The person who purchases the goods is a
dealer;
(2) The purchase is made by him in the course
of his business;
(3) Such purchase is either from "a
registered dealer or from any other person". - (4) The goods purchased are
"goods the sale or purchase of which is. liable to tax: under this
Act." 43 (5) Such purchase is "in circumstances in which no tax is
payable under section 3, 4 or 5 as the case may be", and (6) The dealer
either (a) consumes such goods in the manufacture of other goods for sale or
otherwise or (b) despatches all 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 trade or
commerce.
Section 7-A(1) can be invoked if the above
ingredients are cumulatively satisfied. The Proviso to the sub-section exempts
a dealer (other than a casual trader or agent of a non-resident dealer), if his
turnover for a year is less than Rs. 25,000/- (which by a subsequent amendment
was raised to Rs. 50,000/-).
The assesses prima facie fall within the
definition of 'dealer' in Section 2(g) which includes not only a person who
carries on the business of "selling, supplying or distributing" goods
but also the one who carries on the business of "buying" only.
Difficulty in interpretation has been experienced only with regard to that part
of the sub- section which relates to ingredients (4) and (5). The High Court
has taken the view that the expression "goods the sale or purchase of
which is liable to tax under this Act" and the phrase "purchase in
circumstances in which no tax is payable under section 3, 4 or 5,
"are" a contradiction in terms".
We are unable to accept this interpretation
which would render Section 7-A (1) wholly nugatory. With due respect, it seems
to us that in arriving at this erroneous interpretation, the learned Judges
mixed up concept of goods liable to tax with the transactions liable to tax
under the Act. The scheme of the Act involves three interrelated but distinct
concepts which may conveniently be described as 'taxable person', 'taxable
goods' and 'taxable event'. All the three must be satisfied before a person can
be saddled with liability under that' Act.. Nevertheless, the distinction
between them, is overlooked. may lead to serious error in the construction and
application of the Act.
'Goods' Is defined in s. 2(j) as:
"all kinds of movable property (other
than newspapers, actionable claims, stocks and shares and securities) and
includes all materials. commodities, and articles (including those to be used
in the fitting out, improvement or repair of movable property); and all growing
crops, grass or things attached to, or forming part of the land which are
agreed to be severed before sale or under the contract of sale".
"Taxable person' is a 'dealer' as
defined in s. 2(g).
"Taxable event' is the sale or purchase
of `goods' effected during the accounting 44 period although the tax liability
is enforced only after quantification is effected by assessment proceedings.
'Sale' is defined in s. 2(n) as .
"every transfer of the property in goods
by one person to another in the course of business for cash or for deferred
payment or other valuable consideration, but does not include a mortgage
hypothecation, charge or pledge." Section 3(2) which is the main charging
provision, enjoins that in the case of goods mentioned in the First Schedule,
the tax under this Act shall be payable by a dealer, at the rate and only at
the point specified therein on the turnover in each year relating to such goods
whatever be the quantum of turnover in that year The focal point in the
expression, "goods the sale or purchase of which is liable to tax under
the Act," is the character and class of goods in relation to their
exigibility. In a way this expression contains a definition of 'taxable goods',
that is, goods mentioned in the First Schedule of the Act, the sale or purchase
of which is liable to tax at the rate and at the point specified in the
schedule. The words, "the sale or purchase of which is liable to tax under
the Act" qualify the term "goods", and exclude by necessary
implication goods the sale or purchase of which is totally exempted from tax at
all points, under s. 8 or s 17(1) of the Act. The goods so exempted-not being
taxable goods"-cannot be brought to charge under s. 7-A.
The words "under the Act" will
evidently include a charge created by s. 7-A, also. It is to be noted that s.
7- A is not subject to s. 35 it is by itself a charging provision. Section 7-A
brings to tax goods the sale of which would normally have been, taxed at some
point in the State, subsequent to their purchase by the dealer if those goods
are not available for taxation, owing to the act of the dealer in (a) consuming
them in the manufacture of other goods for sale or other- wise, or (b)
despatching them in any manner other than by way of sale in the State, or (c)
despatching them to a place outside the State except as a direct result of sale
or purchase in the course of inter State trade or commerce.
Ingredients (4) and (5) are not mutually
exclusive and the existence of one does not necessarily negate the other.
Both can co-exist and in harmony. Ingredient
(4) would be satisfied if it is shown that. the particular goods were 'taxable
goods; i.e., the goods the sale or purchase of which is generally taxable under
the Act. Notwithstanding the goods being 'taxable goods', there may be
circumstances in a given case, by reason of which the particular sale or purchase
does not attract tax under s. 3, 4 or 5. Section 7- A provides for such a
situation and makes the purchase of such goods taxable in, the hands of the
purchasing dealer on his purchase turnover if any of the conditions (a), (b)
and (c) of sub-section (1) of s. 7-A is satisfied.
45 The meaning and scope of the phrase
"purchases .
circumstances in which no tax is payable
under Section 3, 4 or S" and its co-existence with ingredient (4) can be
best understood by applying it to the cases in hand.
In all the forty appeals under consideration,
the goods in question. namely, arecanuts, Gingelly Seeds, turmeric, grams,
castor-seeds and butter are "goods, the sale or purchase of which is
generally taxable under the Act." That is to say, they are 'taxable goods'.
The sales of arecanuts, Gingelly seeds, turmeric and gram were not liable to
tax in the hands of the sellers as they were agriculturists and the goods were
the produce of the crops raised by them.
Similarly, butter was purchased by the
assesses concerned directly from the house-holders whose sales are not liable
to tax under he Act. Caster-seeds are said ' to have been purchased by the
assessee concerned from unregistered dealers under bought-notes. If this is a
fact, then such sales may not be liable to tax under the Act Thus in all these
cases, the purchases have been made by the dealer, of "goods, the sale or
purchase of which is generally liable to tax under the Act", but because
of the circumstances aforesaid no tax was suffered in respect of the sale of
these goods by the sellers. If it is a fact that the Gingelly seeds (vide,
Civil Appeals Nos. 1046 to 1048, 1054 to 1057, 1059 to 1069/1973) and
Caster-seeds (vide Civil Appeal 1043/73) were crushed into oil and the butter
(vide Civil Appeals Nos. 1049, 1050, 1059, 1067/73) was converted into Ghee by
the purchasers-dealers concerned, the condition in clause (a) of sub-section
(1) of s. 7-A would be satisfied and s. 7-A would be attracted. If in the case
of are canuts (vide Civil Appeals Nos. 1040 to 1044/73), turmeric and gram
(vide Civil Appeals Nos. 1051 to 153/73), the purchasing dealers transported
these goods outside the State for sale on consignment basis, their case would
also be covered by clause (b) or (c) of s. 7-A (1) and such dealers would be
liable to tax on the purchase-turnover of these goods.
It may be remembered that s. 7-A is at once a
charging as well as a remedial provision. Its main object is to plug leakage
and prevent evasion of tax. In interpreting such a provision, a construction
which would defeat its purpose and, in effect, obliterate it from the statute
book, should be eschewed. If more than one construction is possible, that which
preserves its workability and efficacy is to be preferred to the one which
would render it otiose or sterile. The view taken by the High Court is
repugnant to this cardinal canon of interpretation.
In Ganesh Prasad Dixit v. Commissioner of
Sales-tax(1) s. 7 of the Madhya Pradesh General sales Tax Act, 1959 (for short,
Madhya Pradesh Act) was under challenge. That section was as follows:
"Every dealer who in the course of his
business purchases any taxable goods, in circumstances in which no tax under
section 6 is payable on the sale price of such goods and 46 either consumes
such goods in the manufacture of other goods for sale or otherwise or disposes
of such goods in any manner other than by way of sale in the State or
despatches them to a place outside the State except as a direct result of sale
or purchase in the course of inter-State trade or commerce, shall be liable to
pay tax on the purchase price of such goods at the same rate at which it would
have been leviable on the sale price of such goods under section 6:
Provided................." The assessee
therein was a firm of building contractors and was registered as a dealer under
the Madhya Pradesh Act.
The firm were purchasing building materials
which were taxable under the Act and were using them in the course of their
business. The Sales-tax officer served a notice upon them to snow cause why
'best-judgment assessment' should not be made against them. The assesses did
not offer any explanation. The Sales-tax officer assessed the turnover in
respect of the sales as 'nil' and assessed the firm to purchase tax under s. 7
on the purchase turnover one of the questions that fell for decision was,
whether in the facts and circumstances of the case the applicant was a dealer
during the assessment period under the Act and the imposition of purchase tax
on him under s. 7 of the Act was in order. Answering the question in the
affirmative, this Court observed:
"The phraseology used in that section is
somewhat involved, but the meaning of the section is fairly plain. Where no
sales tax is payable under s. 6 on the sale price of the goods, purchase tax is
payable by the dealer who buys taxable goods in the course of his business, and
(1) either consumes such goods in the manufacture of other goods for sale, or
(2) consumes such goods otherwise; or (3) disposes of such goods in any manner
other than by way of sale in the State; or (2) despatches them to a place
outside the State except as a direct result of sale or purchase in the course
of inter State trade or commerce. The assesses are registered as dealers and
they have purchased building materials in the course of their business. the
building materials are taxable under the Act, and the appellants have consumed
the materials otherwise than in the manufacture of goods for sale and for a
profit motive.
On the plain words of s. 7 the purchase price
is taxable.
The impugned s. 7-A is based on s 7 of the
Madhya Pradesh Act Although the language of these two provisions is not
completely identical yet their substance and object are the same. Instead of
the longish phrase, "the goods, the sale or purchase of which is liable to
tax under this Act" employed in s. 7-A of the Madras Act, s. 7 of the
Madhya Pradesh Act conveys the very connotation by using the convenient, terse
expression, "taxable goods". The ratio decidendi of Ganesh Prasad (supra)
is therefore, an apposite guide for construing s. 7-A. Unfortunately, that
decision.
it seems. was not brought to the notice of
the learned Judges of the High Court.
47 Section 5-A of the Kerala General Sales
Tax Act, 1963 (for short, the Kerala Act) which is identical with the impugned
provision, runs thus:
"5A. "Levy of purchase tax- (1)
Every dealer who ill the course of his business purchases from a registered
dealer or from ally other per son any goods, the sale or purchase of which is
liable lo tax under this Act, in circumstances in which no tax is payable under
section S, and either- (a) consumes such goods in the manufacture of other
goods for sale or otherwise; or (b) disposes of such goods in any manner other
than by way of sale in the State; or (c) despatches them to any place Outside
the State except as a direct result of sale or purchase in the course of
inter-State trade or commerce.' The validity of s. 5-A was challenged by a writ
petition before a learned Judge (Subramaniam Poti J.) of the Kerala High Court
in Malabar Fruit Products Company, Bharananganam Kottayam and or . v The Sales
Tax officer , Palai and ors.(1) It was contended, inter alia:
(1) The object sought to be achieved by the
introduction of s. 5-A of the Act had not been accomplished because the section
is vague (2) Assuming that the section is clear enough and can be treated as a
charging section, the section imposes tax not on the sale or purchase of goods
but on its use or consumption;
(3) That the Sate Legislature had no
competency to impose tax on the use and consumption of goods and so section is
ineffective:
Holding that s. 5-A was valid and intra vires
the State Legislature, the learned Judge explained the scheme of the section,
thus:
"Though normally a sale by a registered
dealer or by a dealer attracts tax, there may be circumstances under which the
seller may not be liable as, for example, when his turn over is below the
specified minimum. In such cases the "goods" are liable to be taxed,
but the sales take place in circumstances in which no tax is payable at the
point at which tax is levied under the Act. If the goods are not available in
the State for subsequent taxation by reason of one or other of the
circumstances mentioned in. clauses (a), (b) and (c) of section 5A(1) of the
Act then the purchaser is sought to be made liable under section 5A".
48 "Another instance I can conceive of
is a case of a dealer selling agricultural or horticultural produce grown by
him or grown in any land in which he has interest, whether as owners
usufructuary mortgagee, tenant or otherwise. From the definition of 'turnover '
in section 2(xxvii) of the Act it is evident that the proceeds of such sale
would be excluded from the turnover of a person who sells goods produced by him
by manufacture agriculture, horticulture or otherwise, though merely by such
sales he satisfies the definition of a "dealer" in the Act. Thus,
such a person selling, such produce is t treated as a dealer within the meaning
of the Act and the sales are of goods which are taxable under the Act but when
he sells these goods, it is not part of his turnover. Therefore, it is a case
of a dealer selling goods liable to tax under the Act in circumstances in which
no tax is payable under the Act.
In such a case, the purchaser is sought to be
taxed under section 5A provided the conditions are satisfied.
The case of growers selling goods to persons
to whom section SA thus applies is covered by this example." The judgment
of the learned judge was affirmed in appeal by a Division Bench of the same
High Court (vide, Yusuf Shabeer and ors. v. State of Kerala and ors.(1) The
Bench expressly dissented from the view taken by the Madras High Court in the
judgment now under appeal.
In our opinion, the Kerala High Court has
correctly construed s. 5A of the Kerala Act which is in pari materia with the
impugned s. 7A of the Madras Act. "Goods the sale or purchase of which is
liable to tax under this Act in s.
7A(1)" means 'taxable goods', that is,
the kind of goods, the sale of which by a particular person or dealer may not
be taxable in the hands of seller but the purchase of the same by a dealer in
the course of his business may subsequently become taxable. We have pointed out
and it needs to be emphasised again that Section 7A itself is a charging
section. It creates a liability against a dealer on his purchase turnover with
regard to goods, the sale or purchase of which though generally liable to tax
under the Act, have not due to the circumstances of particular sales, suffered
tax under Section 3, 4 or 5, and which after the purchase, have been dealt by
him in any of the modes indicated in clauses (a),(b) and (c) of Section 7-A (1)
.
For the foregoing reasons, we allow these
appeals, set aside the judgment of the High Court and dismiss to writ
petitions. In the circumstances, we would leave the parties to bear their own
costs. All the cases will now go back to the taxing authority concerned for
such further investigation, proceedings or action as may be necessary in the
particular case, in accordance with law as clarified above.
V.M.K. Appeals allowed.
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