Commnr.
of Sales Tax, Delhi & Ors Vs. M/S. Shri Krishna Engg. Co. & Ors [2005] Insc 56 (25 January 2005)
S.N.
Variava,Dr. Ar. Lakshmanan & S.H. Kapadia
With
Civil Appeal Nos. 308/2003, 313/2003, 314/2003, 315/2003 and SLP (c) No.1954/2003 Dr. AR. Lakshmanan, J.
The
appellants in the above appeals, namely, C.A.
Nos. 308, 313, 314, and 315 of 2003 and SLP No. 1954 of 2003 are selling
dealers. The respondents in Civil Appeal Nos. 1717-1719 of 1999 are the
purchasing dealers. This batch of appeals raises common question of law. The
facts are essentially similar.
We
shall now take Civil Appeal No. 314 of 2003 filed by one of the selling
dealers, namely, Simran Engineering Works. They filed the writ petition in the
High Court of Delhi seeking the following reliefs:-
"(a)
issue a writ of certiorari or any other writ, order or direction quashing Rule
8(4)(c) which is ultra vires to the provisions of Sec. 4(2)(a)(v) of the Delhi
Sales Tax Act, 1975.
(b)
issue a writ of certiorari or any other writ, order or direction quashing Rule
8(4)(c) as the same is beyond the powers of the Administrator conferred under
Section 71 of the Delhi Sales Tax Act, 1975 to the extent that prescribes a
condition that the declaration will only be issued if he deposits the amount of
tax.
(c)
Issue a writ of mandamus or any other writ, order or direction quashing Rule
8(4)(c) which is ultra vires to the provisions of the Delhi Sales Tax Act.
(d)
Issue a writ of mandamus or any other writ, order or direction directing
respondent Nos. 1 to 3 to issue the forms withheld vide deficiency memo dated
29.9.1999 and rejection order dated 13.10.1999 (Annexure 'c' (colly), to
respondent No. 4 without necessitating of deposit of arrears of Sales Tax who
in turn will issue forms to the petitioners and/or also issue direction
directing respondent No.5 to allow deduction on account of sales made to
respondent No.4 by the petitioner.
(e)
Issue any other appropriate writ, order or direction as this Hon'ble Court may deem fit and proper on the
facts and circumstances of the case."
Our
concern in this batch of matters is whether the selling dealers can canvass
that the Department has no authority to refuse to issue sales tax forms to
purchasing dealers or allow the deduction to the selling dealers and whether
any of the provisions of Rule 8 of the Rules empowers it to do so, if there is
such a power.
In the
present case the appellants had sold goods to registered dealers who are not
being issued the declaration form on account that they being in arrears of some
tax and thereby the selling dealers cannot claim the benefit of Section 4(2)(a)(v)
and the figure of sales become liable to be included in the figure of his
taxable turnover.
These
appeals also involve interpretation of Section 4(2)(a)(v) of the Delhi Sales
Tax Act, 1975 and Rules 7 and 8(4) of the Delhi Sales Tax Rules, 1975.
As
already noted the appellants filed writ petitions in the High Court praying for
an order or direction be issued quashing Rule 8(4)(c) of the Delhi Sales Tax
Rules, 1975 (herein after referred to as the "Rules") on the ground
that it is ultra vires the provision of Section 4(2)(a)(v) of the Delhi Sales
Tax Act, 1975 (hereinafter referred to as the "Act").
The
grievance of the appellants (selling dealers) pertains to the non-issuance of
Sales Tax Forms (ST-I). In the instant case, a legal question has arisen
because the appellants as the selling dealers sold goods to the
respondents-purchasing dealers on the latter's assurance that they will supply
requisite ST-I forms to the former. Instead it had transpired that the Sales
Tax Department has declined to issue ST-I forms to the purchasing dealers, in
this batch of appeals either for the reason that they have relinquished their
registration or because they have not complied with the provisions of the Act
and the Rules. The consequence of Department's declining to issue ST-I form is
that the appellant (Selling dealers) would become liable to deposit the sales
tax in respect of transactions in which they are the selling dealers. The
further consequence would be that unless the appellants deposit the sales tax
payable on these transactions they would render themselves liable for
non-issuance of ST-I forms in other transactions where they may wear mantle of
purchasing dealers. They may also encounter the extreme penalty of facing derecognition
under the Act.
Mr.
Rajesh Mahna, learned counsel for the appellant contended that the appellants
are being made to suffer the consequence of failure and defaults on the part of
purchasing dealers in which they have played no part whatsoever and that under
the scheme of the Act they are precluded from charging sales tax from other
registered dealers since such a demand would invite prosecution under the Act.
Learned
counsel also argued that they are in a helpless position and would be compelled
to incur sales tax liability for events which are not within their control. Mr.
Mahna submitted that as per Rule 8(4)(c ) tax assessed must be paid as a
condition for issuance of forms. The condition to deposit assessed amount of
tax is a substantive provision of law going to the root of the right of the
dealer to receive forms. The Rule laying down to deposit the assessed amount
and therefore it affects the statutory right of the dealer to receive the forms.
It was further contended that the impugned rule has been passed beyond the
powers conferred under Section 71(2) (b) of the Act and therefore the rule is
in excess of the jurisdiction and authority of law and as such is liable to be
quashed. It was also urged that the Administrator cannot take upon himself the
power of the Parliament in making any substantive amendments in the Act or the
Rules.
This
Rule directly affects the vested rights conferred upon the dealers to receive
forms under Section 4. He further submitted that the legislature lays down the
guidelines for issuance of forms in exercise of powers delegated to the
Executive. Any Rule made depriving the dealers for obtaining the forms which is
in excess of powers is violative of the constitutional rights, free trade and
commerce. The power has to be exercised with the strict limits of authority
conferred by the Statute.
It was
also contended that Rules whittle down the rights for the registered dealers to
buy goods without tax on the strength of their registration certificate. The
said Rule undo the substantive law for which the Administrator has no
authority. The Rule 8(4)(c) overrides the provisions of the Act itself and undo
the Act for the functioning for which the Rules have been framed.
Learned
counsel has also invited our attention to a similar case which came up before
the Delhi High Court in the case of M/s. Shri Krishna Engg. Co. vs. Commissioner of Sales Tax Delhi and Ors. in CWP No.3304 of 1997,
whereby the High Court held that the Rules which are meant for carrying out the
provisions of the Act cannot take away what is conferred by the Act or whittle
down its effect. It is to be noted that against the above judgement, the State
has preferred Civil Appeal Nos.1717- 1719 of 1999. We shall deal with the
correctness of the above judgment of the Delhi High Court while considering
Civil Appeal Nos. 1717-1719 of 1999 in the later part of our judgment.
Mr. Ravi
P. Mehrotra, learned counsel for the Commr. Of Sales Tax while arguing the
State's appeal in Civil Appeal No.1717-1719 of 1999 and also replying to the
arguments of counsel for the appellants in the other bunch of appeals made the
following submissions:-
a.
Section 71(1) gives the Administrator the power to make Rules for carrying out
the purposes of the Act.
b.
Mischief Rule is to be applied to appreciate the true scope of the amendment.
c.
Rule 8(4)(c) provides for ample safeguards.
d.
Section 72 of the Act is directory in nature since it provides for a negative
procedure.
e.
Equity has no role to play in tax matters.
Mr. Ravi
P. Mehrotra while arguing further submitted that the purpose of Act is not
merely to levy but also to collect tax and in pursuance to that objective, to
provide for safeguards to protect the interest of the Revenue. Recovery of tax
is as much a purpose under any tax law as levy of tax is, since without an
effective process for recovery of tax there is no purpose for levy of tax.
According to learned counsel for the State a measure which is intended to check
the evasion of tax is undoubtedly a valid measure and it is in public interest
to see that in the guise of freedom of trade, they do not evade the payment of
tax. Explaining the scope of the power of Administrator the learned counsel
submitted that the power of the Administrator to provide for further safeguards
to prevent evasion of tax and to enable the Revenue to check such evasion and
collect tax is liable to be upheld so long as it does not contravene any
specific/express provision of the Act. In the present case, so long as the
impugned rule does not violate any provision of the Act, it should be upheld as
having been framed for carrying out the purposes of the Act unless it is so
remote to the purposes of the Act that no rational nexus exists between the
two. According to the submissions of the learned counsel that is not the
situation in the present case.
He
also made the following further submissions:-
a)
What was the law before the making of the Act? ? Unamended Rule 8(4)(c)(ii)
provided that the appropriate assessing authority could withhold the issue of
Form ST-1 if the applicant had, at the time of the application, defaulted in
making the payment of the amount of tax assessed or the penalty imposed which
the applicant admits to be due from him and which is not in dispute.
b)
What was the mischief or defect for which the law did not provide? ? The defect
came to be reflected in the Delhi High Court judgment in Gee Gee Exports Pvt.
Ltd. V. Commissioner of Sales Tax, (reported in [1997] 105 STC 36 (Del)
delivered on 08.11.1996) (Y.K. Sabharwal, J. (as he then was) and D.K. Jain,J.)
In this case, the assessee had filed a revision petition and stay application
against the assessment order which were pending. It was held that since the
amount was in dispute and not admitted, therefore, it was directed that the
forms be issued to the assessee. Therefore, a dealer to avoid payment of tax
and at the same requiring the issuance of Form ST-1, had to merely file a
revision petition along with stay application and easily bypass the requirement
of Rule 8(4)(c)(ii). The law therefore did not provide for any mechanism to
check this kind of evasion of tax, which was the purpose of Rule 8(4)(c).
c.
What is the remedy that the Act has provided? ? Rule 8(4)(c) (ii) was amended
to provide that issuance of forms may be withheld if the applicant had
defaulted in making the payment of the amount of tax assessed or the penalty
imposed by the assessing authority in respect of which no orders for instalment
/ stay have been obtained from the competent authority under the provisions of
law.
d.
What is the reason of the remedy? ? The judgement in the Gee Gee Exports amply
demonstrated the possibility of a dealer to avoid payment of tax by merely
filing a revision petition along with a stay application and at the same time,
demanding from the authorities Form ST-1. To avoid this situation and to
effectuate the purpose of the Act to collect tax and further, to prevent
evasion of tax, the impugned amendment was brought in.
Elaborating
his submissions that Rule 8(4)(c) provides for ample safeguards, Mr. Ravi P Mehrotra,
submitted:
Rule
8(4)( c) provides for ample safeguards
(a)
That the requirements of Rule 8(4)(c) are not harsh or unreasonable.
Rather,
on the other hand, they comply with the rules of natural justice.
The
appropriate assessing authority has to afford the applicant an opportunity of
being heard and only after recording his reasons in writing, can withhold the
issue of declaration forms to the applicant and therefore, is required to make
a report to the Commissions of such withholding within a period of three days
from the date of its order.
(b)
Order passed by the appropriate assessing authority is appealable under Section
43 of the Act.
Before
considering the rival submissions made by the counsel appearing on either side,
it is beneficial to reproduce the relevant provisions under the Delhi Sales Tax
Act, 1975 and the Rules made thereunder :
(i)
That under the Delhi Sales Tax Act, 1975, Section 3 is the charging Section, it
provides for the incidence of tax. It is laid down that every dealer whose
turnover exceeds the taxable quantum shall be liable to pay tax on all sales effected
by him.
Sub
clause 7 defines taxable quantum. Section 4 lays down the rate of tax. Sub-
clause 2(a) defines taxable turnover. For ready reference the provisions are
set out hereunder:
Section
4 Rate of tax (1) The tax payable by a dealer under this Act shall be levied (a)
------- (b) -------- (c) ------ (cc) ------- (d) ------- (2) For the purposes
of this Act, "taxable turnover" means that part of a dealer's
turnover during the prescribed period in any year which remains after deducting
therefrom - (a) his turnover during that period on
(i) sale
of goods, the point of sale at which such goods shall be taxable is specified
by the Administrator under section 5 and in respect of which due tax is shown
to the satisfaction of the Commissioner to have been paid;
(ii) sale
of goods declared tax-free under Section 7;
(iii) sale
of goods not liable to tax under Section 8;
(iv)
sale of goods which are proved to the satisfaction of the Commissioner to have
been purchased within a period of twelve months prior to the date of
registration of the dealer and subjected to tax under the Bengal Finance (Sales
Tax) Act, 1941, as it was then in force, or under this Act;
(v) sale
to a registered dealer
(A) ..
(1) .
(2) ..
(3)
(B) ..
(C) .
(vi) Provided
.
Provided
(b) .
(ii) ..
Rule 7
Condition subject to which a dealer may claim deduction from his turnover on
account of sales to registered dealers (1) A dealer who wishes to deduct from
his turnover the amount in respect of sales on the ground that he is entitled
to make such deduction under the provisions of sub-clause (v) of clause (a) of
sub-section (2) of section 4, shall produce:
(a)
copies of the relevant cash memos or bills according as the sales are cash
sales or sales on credit, and (b) a declaration in form ST-I duly filled in and
signed by the purchasing dealer or a person authorised by him in writing:
Provided
.
Provided
..
(1 (A)..
(2) (3)
(4) .
Rule 8
provides as to from whom the declarations have to be obtained and the procedure
for obtaining the same. The said rule is set out hereunder :
Rule 8
Authority from whom the declaration form may be obtained, and use, custody and
maintenance of records of such forms and matters incidental thereto
(1)
The declaration referred to in the second proviso to clause (a) of sub-section(2)
of Section 4 shall be in form ST-I which shall be obtained from the appropriate
assessing authority by the registered dealer intending to purchase goods on the
strength of his certificate of registration.
(2)
[Provided Provided further [(2)(A) [(3) For obtaining declaration form ST-1,
a registered dealer shall apply in writing to the appropriate assessing
authority;] [Provided that the declaration shall be issued to a registered
dealer only after he has rendered satisfactory account of the forms, if any,
issued to him on previous occasions.] (4)(a) [If, for reasons to be recorded in
writing] the appropriate assessing authority is satisfied that the declaration
forms have not been used bona fide by the applicant or that he does not require
such Forms bona fide, the appropriate assessing authority may reject the
application or it may issue such lesser number of forms as it may consider
necessary.
(b) if
the applicant for declaration forms has, at the time of making the application,
failed to comply with an order demanding security from him under sub-section
(1) of section 18, the appropriate assessing authority shall reject the
application.
(c) If
the applicant for declaration forms has, at the time of making the application –
(i)
defaulted in furnishing any return or returns in accordance with the provisions
of the Act or these Rules, or in payment of tax due according to such return or
returns; or
(ii)
defaulted in making the payment of the amount of tax assessed or the penalty
imposed by an appropriate assessing authority, which the applicant admits to be
due from him and which is not in dispute; or
(iii) been
found by an appropriate assessing authority having some adverse material
against him, suggesting any concealment of sale or purchase or of furnishing
inaccurate particulars in the returns ;
the
appropriate assessing authority shall, after affording the applicant an
opportunity of being heard, withhold, for reasons to be recorded in writing,
the issue of declaration forms to him and the appropriate assessing authority
shall make a report to the Commissioner about such withholding within a period
of three days, from the date of its order:
Provided
that the appropriate assessing authority may, instead of withholding
declaration forms, issue to the applicant, with the previous approval of the
Assistant Commissioner appointed under sub-section (2) of Section 9 of the Act,
such forms in such numbers and subject to such conditions and restrictions as
it may consider reasonable;
Provided
further that notwithstanding the provisions of any other rule, the issue of
declaration forms to an applicant to whom a certificate of registration under
the Act has been granted for the first time, shall be withheld by the
appropriate assessing authority, until such time as all the returns for the
return period commencing from the date of validity of this certificate of
registration are furnished and tax due according to such returns is paid by
him.
(d)
Where the appropriate assessing authority does not proceed under clause (a),
clause (b), or clause (c), it shall issue the requisite number of declaration
forms to the applicant.
(5) .
(6) .
(7) .
(8) .
(9) (10)
.
(11) (12)
.
Provided
." Rule 9 .
The
Delhi Sales Tax Act, 1975 confers power under Section 71 of the Act on
administrator to make the rules. Section 71 provides for power to make rules
and the same reads as follows:
"Section
71 Power to make rules (1) The Administrator may make rules for carrying out
the purposes of this Act.
(2) In
particular and without prejudice to the generality of the foregoing power, such
rules may provide for
(a)
the further period after the date of expiry of three consecutive years referred
to in sub-section (3) of Section 3 for which liability to pay tax of a dealer
shall continue;
(b)
the particulars to be contained in a declaration under sub-clause (v) of clause
(a) of sub-section (2) of section 4, or under section 5, as the case may be the
form of such declaration, the authority from whom such forms shall be
obtainable and the manner in which and the time within which such declaration
is to be furnished;
(c) (d)
(e) (f) (g) the intervals at which, and the manner in which, the tax under
this Act shall be payable under Section 21;
xxxxxx
(s) Any other matter which is required to be, or may be prescribed;
That
from the above provisions of law, it emerges that powers have been conferred
upon the Administrator to make such, rules as may provide for carrying out the
purposes of the Act. Sub-rule (2) provides for
(i) the
particulars to be contained in a declaration under sub-clause (v) of clause (a)
of sub-section (2) of Section 4 or under Section 5;
(ii) the
form of such declaration;
(iii) the
authority from whom such forms shall be obtainable; and
(iv) the
manner and the time within which such declaration is to be furnished."
Scheme of the Delhi Sales Tax Act, 1975 The avowed objective of the Act is to
levy a tax on the sale of goods in the National Capital Territory of Delhi,
which is evident from a reading of its preamble. This objective is achieved by
the charging section Section 3 of the Act, which stipulates that every dealer
whose turnover exceeds the taxable quantum shall be liable to pay tax on all
sales effected by him. Section 4(2) of the Act refers to 'taxable turnover'
which means that part of a dealer's turnover which remains after deduction therefrom
the sundry transactions mentioned in sub-section (a) thereof. None of the said
transactions, however, postulate that all sales to registered dealers per se
qualify as deductions. There are three provisos to section 4(2)(a) of the Act,
the second proviso of which declares that no deduction in respect of any sale
referred to in sub-clause (v) shall be allowed unless a true declaration in the
prescribed form, duly filled and signed by a dealer, is furnished to the
selling dealer.
The
preamble of the Delhi Sales Tax Act, 1975 reads as under:
An Act
to consolidate and amend the law relating to the levy of tax on sale of goods
in the National Capital Territory of Delhi.
The
undisputed objective of the Act is to levy and collect tax on the sale of goods
in the National Capital Territory of Delhi. Levy to tax is meaningless if the
tax is not collected. It can never be the intention of the lawmakers to keep on
levying tax without any effort to collect the tax so levied. This Court in Indo
International Industries vs. Commissioner of Sales Tax, Uttar Pradesh [1981] 47
STC 359 held that "It is well settled that in interpreting items in
statutes like the Excise Tax Acts or Sales Tax Acts, whose primary stipulated
object is to raise revenue." Needless to stress that the object of every
taxing statute is to raise revenue.
In The
State of Tamil Nadu vs. M.K. Kandaswami and Others, [1975] 36 STC 191, this
Court held that where the object of a provision is to plug leakage and prevent
evasion of tax. In interpreting such 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.
Further
a Division Bench of the Karnataka High Court in N.V. Bagi vs. Commissioner of
Commercial Taxes in Karnataka, [1991] 83 STC 449 has held "in matters
which deal with provisions to prevent evasion of tax which is due to the State
the construction of the provision must be strict and in favour of the
enforcement of the provision".
Thus,
in our view, the entitlement to deduction under the Act, for purposes of the
present controversy, postulates two requirements
1. Sale to a registered dealer and
2. a
true declaration filled and signed by the registered dealer in the prescribed
forms (ST- 1) is submitted by the dealer who sells the goods.
Selling/Purchasing dealers, as the case may be, are liable to pay sales tax on
every sale, and would be entitled to deduct the value of only those
transactions in respect of which they are in a position to provide ST-1 Forms.
In the event of the said forms being unavailable to them for whatever reason,
they are responsible for payment of the tax. The State cannot lose its tax
entitlement, in the light of the purpose and object of the Sales Tax Act.
Section
71 stipulates that rules may be made for carrying out the purposes of the Act.
The modalities for claiming deduction and obtaining declaration forms and
withholding of the same, are contained in Rules 7 and 8 of the Delhi Sales Tax
Rules.
The
intent behind the devising of ST-1 Forms/C Forms is to avoid multipoint
taxation and enable a dealer passing on the burden of sales tax in such a way
that it ultimately reaches the buyer-consumer.
Section
2(e) defines a 'dealer' to mean any person who carries on the business of
selling goods in Delhi. Thereafter sub-section (k) of Section 2 defines
'registered' to mean registered under the Act. Significantly, although the
nomenclature 'registered dealer' has been used in the Act, this term has not
been defined in Section 2. However, it does not create any controversy in
assuming it to mean any dealer who has been accorded registration under the
Act. Section 2(e) define 'turnover' as the aggregate of the amounts of sale
price receivable or actually received by any dealer in respect of any sale of
goods. As in the case of the term 'registered dealer', the definition of
'taxable turnover' is not contained in Section 2 of the Act. For the meaning of
'taxable turnover', we must travel to Section 4(2) of the Act which clarifies
that for the purposes of the Act, taxable turnover means that part of a dealers
turnover which remains after deducting therefrom the sundry transactions
mentioned in sub-section (a) thereof. None of these, however, postulates that
all sales to registered dealers per se qualify as deductions.
There
are three provisos to Section 4(2)(a) of the Act, the penultimate declares that
no deduction in respect of any sale referred to in sub-clause (v) shall be
allowed unless a true declaration in the prescribed form duly filled and signed
by a dealer is furnished to the selling dealer. The last proviso is also of
immense import as it specifies that where goods are not utilised by the
purchasing dealer for the purposes mentioned in sub-clause (v), the price of
such goods shall nonetheless be deductible from the turnover of the selling
dealer and instead, shall be included in the taxable turnover of the purchasing
dealer.
Benefits
of registration: Registration confers certain benefits, privileges and
concessions.
1) it
gives the registered dealer a right to collect tax. (Section 22). An
unregistered dealer cannot collect or charge tax. But:- a) liability to pay is
not dependent upon whether you have collected or not;
2) a
registered dealer can purchase goods specified in his registration certificate
on the strength of such registration without payment of tax by furnishing the
prescribed declaration.
It is
not a vested right but in the nature of concession or privilege or at best a
statutory right. Being a statutory right, it is not an absolute right but
conditional one.
Considering
the full effect of the provisions, we are fortified in our conclusion that
exemption from including the total turnover of the selling dealer is possible
only where the requisite ST-1 form is produced. The embargo on charging tax
under the Act is only in those instances where the purchasing dealer
contemporaneously offers ST-1 Form to the selling dealer. The Sales Tax
Department neither privy to nor is it concerned with any assurances that might
have been exchanged inter se these parties. As observed by the High Court quite
frequently ST-1 Forms are obtained from Sales Tax Department by the purchasing
dealer, but for sundry reasons are not forwarded to the selling dealer.
The
only legal recourse is for the selling dealer to file a suit for the recovery
of the sales tax from the purchasing dealer. There is no reason to deviate from
this position. It should be recalled that, for the benefit of the assessee, the
Rules permit the filing of exemption Forms till the time of assessment, this is
probably the reason why dealers postpone their obtainment. There is no reason
for the consequences of the dealers acts of omission or commission to visit the
Department. The Act and the Rules do not prohibit the simultaneous furnishing
of ST-1 Forms. They, in fact, envisage it.
The
Sales Tax department has adopted the following Application Form for issue of
declaration in Form ST-1. We are reproducing the application form herein below:
"Application
Form for Issue of Declarations in Forms ST-1.
To The
Assessing Authority, Ward No 1. Name and style of the business:
2.
Full address:
3.
Local R.C.No.:
4. No.
of unutilised forms in hand:
5. No.
of forms now required:
6.
Return period quarterly/monthly:
7. The
period/year upto which the assessment has been last made:
8.
Whether all returns due till date since the last assessment have been furnished
and the tax due according to them paid? If not, state the defaults and reasons therof.
9.
Whether the amount of arrears of tax still remains payable. If so, state the
year and the amount of arrears and reasons for non-payment.
I do
hereby solemnly affirm and declare that the above information is true and
correct to the best of my knowledge and belief.
Signature
of the dealer Status Please deliver . Forms to Shri an employee of my firm. His
signatures are as attested below:
Signature
of dealer Signature of Shri..
Signature
attested Signature" As already noticed in this batch of writ petitions
filed by the selling dealers, the challenge is directed to the vires of Rule
8(4)(c) of the Rules, on the ground that they traverse beyond the ambit of
Section 4(2)(a)(v) of the Act. The grievance of the appellant is not that they
have requested the Sales Tax Department for issuance of the Forms in advance
and this has been turned down, but that their purchasing dealers should be
supplied with ST-1 Forms regardless of whether such dealers have relinquished
their registered status, or have committed other infractions of the Act and the
Rules. Even if a purchasing dealer has applied for ST-1 Forms but has not
received them for any reason, the selling dealer is not automatically
exonerated from liability. It is their statutory duty to collect tax, since the
ST-1 Form is not forthcoming. Likewise, no reason for the State to lose its
revenue merely because the purchasing dealer is unable to obtain such forms
because of its falling in arrears. It is the dealer, because of its own acts of
omission, who has broken the chain whereby tax is arranged and devised by the
Department to be collected at a single point only.
It is
settled law that equity plays only a minuscule role in fiscal matters, even if
such considerations were to be applied, there would still be no justification
for an application adverse to the interest of the State. The dealer who has
chosen to trust the other dealer must suffer for his mercantile recklessness.
This is the risk they run and if for any reason, including a subsequent
decision of the Sales Tax Department to withhold the supply of ST-1 forms to a
purchasing dealer they are put in an uncomfortable position of having to pay
the tax and initiate appropriate legal action for recovering it from the
purchasing dealer. The state is entitled to its tax, where the requisite ST-1
Form is unavailable for any reason.
The
scheme of the Act is that either ST-1 Form should be available or tax should be
collected. If a dealer shows such indulgence as to delivery of ST-1 Forms for a
particular period, he takes the risk. It would have been further the best
advised to insist on their supply even for the transaction intended to be
completed by them.
This
Court in A.V. Fernandez vs. The State of Kerala, AIR 1957 SC 657 opined that,
however great the hardship may appear to the judicial mind, "In construing
fiscal statutes and in determining the liability of a subject to tax one must
have regard to the strict letter of the law and not merely to the spirit of the
statute or the substances of the law. If the revenue satisfies the Court that
the case falls strictly within the law, the subject can be Taxed. "A few
years later another Constitution Bench in the case of Commissioner of Sales
Tax, U.P. vs. Modi Sugar Mills Ltd., AIR 1961 SC 1047 observed thus "In
interpreting a taxing statute, equitable consideration are entirely out of
place. Nor can taxing statutes be interpreted on any presumptions or
assumptions.
The
court must look squarely at the words of the statute and interpret them. It
must interpret a taxing statute in the light of which is clearly expressed; it
cannot imply anything which is not expressed it cannot import provisions in the
statute so as to supply any assumed deficiency." It was urged by learned
counsel for the appellant that dues are recoverable as arrears of land revenue,
the department should proceed against the purchasing dealers and not penalise
the selling dealers. We find no substance in this argument as the said
sub-section does not obliterate the selling dealers duties under the Act, namely,
to collect tax where the purchasing dealer fails to furnish the requisite form.
It should also be noted that the right to file an appeal bestowed by Section 43
stipulates in sub- section (v) that it shall be entertained only if it is
accompanied by satisfactory proof of the payment of tax with or without
penalty. These provisions appear not to have been highlighted before the Bench
of the High Court which decided Shri Krishna Engineering Co. case in C.W.P.
3304 of 1997 dated 30.11.1998. Learned counsel for the appellant heavily relied
upon the judgment of the Division Bench in Shri Krishna Engineering Co. case.
In that case, sub-clause (ii) inserted in clause (c) of sub-rule (4) of Rule 8
of the Delhi Sales Tax Rules, 1975 by Notification dated 11.02.1997 was
declared ultra vires the authority of the Lt. Governor of the NCT of Delhi and
was consequently struck down. In our view, the said judgment does not cover the
present controversy on all fours and, therefore, the contention of the learned
counsel for the appellant is misplaced. The only similarity is that the
appellants in those batch matters had assailed the said provisions because of
refusal by the respondent Department to issue Sales Tax Forms on the grounds
that arrears of Sales Tax existed against the applicants therein. The
applicants, in the above case, were the purchasing dealers themselves and
arrears of Sales Tax were assignable to their account. As has already been
pointed out, in the present bunch of cases, it is the selling dealers who have
approached the High Court because of the department's refusal to issue Forms to
their purchasing dealers, for the reason that the latter had large outstandings
of sales tax.
In the
Shri Krishna Engineering Co. case (CWP 3304 of 1997 dated 30.11.1998 Civil
Appeal Nos. 1717-19 of 1999) as already noticed, the purchasing dealers had
challenged the 1997 amendment in the Delhi Sales Tax Act Rules, 1975 in
exercise of powers under Section 71 of Delhi Sales Tax Act, 1975 whereby Rule
8(4)(c)(ii) of the said Rules was substituted.
Existing
Rule 8(4)(c)(ii) defaulted in making the payment of amount of tax assessed or
the penalty imposed by an appropriate Assessing Authority, which the
application admits to be due from him and which is not in dispute.
Substituted
Rule 8(4)(c)(ii) defaulted in making the payment of the amount of tax assessed
or penalty imposed by the Assessing Authority in respect of which no orders for
instalment or stay have been obtained from the competent authority under the
provisions of the law.
According
to the purchasing dealers the amended rule is in excess of the rule making
power under Section 71 of the Act. The Division Bench allowed the writ
petitions and held substituted Rule 8(4)(c)(ii) ultra vires the rule making
power of the Lt. Governor of Delhi under
Section 71 of the Act.
The
reasoning by the Division Bench is that the Act nowhere provides for
withholding of the issuance of form in the eventuality of the applicant dealer
being a defaulter or in arrears of tax. A denial on the part of the Sales Tax
Authorities to issue the requisite declaration form takes away the substantive
right conferred by the Act on the dealer for which act itself does not provide.
In the instant batch of Civil Appeal Nos. 308, 313, 314 and 315 of 2003 both
the selling and purchasing dealers had challenged the 2001 amendments in the
second proviso to Section 4 (2)(a)(v) of the Act and the Rules to insert
sub-clause (ii) in Rule 8(4)(c). We have already extracted the prayer in the
writ petition in paragraphs supra.
We
shall now reproduce the existing second proviso to Section 4(2)(a)(v) and the
amended second proviso to the said section.
Existing
second proviso to Section 4(2)(a)(v) Provided further that no deduction in
respect of any sale referred to in sub-clause (v) shall be allowed unless a
true declaration duly filled and signed by the registered dealer to whom the
goods are sold and containing the prescribed particulars in the prescribed form
obtainable from the prescribed authority is furnished in the prescribed manner
and within the prescribed time, by the dealer who sells the goods.
Amended
second proviso to Section 4(2)(a)(v) Provided further that no deduction in
respect of any sale referred to in sub-clause (v) shall be allowed unless a
true declaration duly filled and signed by the registered dealer to whom the
goods are sold and containing the prescribed particulars in the prescribed form
obtainable from the prescribed authority in the manner and subject to such
conditions as may be prescribed is furnished in the prescribed manner and
within the prescribed time, by the dealer who sells the goods.
Inserted
Rule 8(4)(c)(ii) Defaulted in making the payment of the amount of tax assessed
or penalty imposed by the Assessing Authority in respect of which no orders for
instalment or stay have been obtained from the competent authority under the
provisions of law.
It is
the contention of the selling/purchasing dealers that selling dealers are made
to suffer the consequences of failures and defaults on the part of the
purchasing dealers in which they have played no part whatsoever they are in
hapless position and would be compelled to incur Sales Tax liability for events
which are not within their control and that Rule 8(4)(c) travels beyond the
ambit of Section 4 (2)(a)(v) of the Act.
A
Division Bench of the Delhi High Court, by their judgment dated 12.07.2002,
which is impugned in these civil appeals dismissed the challenge in regard to
the vires of Rule 8(4)(c).
We
have carefully gone through the judgment of the Division Bench in Simran
Engineering Works etc. The reasoning given by the Bench in rejecting the
challenge in regard to the vires of Rule 8(4)(c) are very sound. As rightly
pointed out by the Division Bench, the Sales Tax Department is neither privy to
nor is it concerned with any assurances that might have been exchanged inter se
between the selling and purchasing dealers in the matter of furnishing ST-1
Forms. There is no reason for the consequences of the dealers acts of omission
or commission to visit the Department.
The
Act and the Rules do not prohibit the simultaneous furnishing of ST-1 Forms,
they, in fact, envisage it. Supply of ST-1 Forms by the Department under the
Rules is an advance, however, the actual practice may be different (para 7
onwards of page 36 of the judgment).
In our
opinion, the generality of the provision of Section 71 (1) should be given its
full effect so as to enable the making of Rules for the full implementation of
any provisions of the Act. The impugned rule also gives effect to Section 43(5)
of the Act which deals with appeals and contains the requirement of pre-deposit
of tax and penalty. Other situations where the Commissioner has the discretion
to cancel the dealers registration for failure to pay tax including penalty,
furnishing a false declaration etc. which must be borne in mind while
considering the sweep of Section 71 (1) of the Act. Thus, the primary
intendment of the Act is to levy and collect tax and every devise, including of
stipulations pertaining to the dealer friendly declaration forms are
incorporated to implement the objective of the Act itself as pointed out by the
High Court they cannot be conceived as ultra vires the statute (pages 63-64 of
the judgment).
In Shri
Krishna Co. case, the Court had to investigate firstly whether there was any
provision in the Act which authorise the withholding of forms on the grounds of
the applicant being in arrears of tax. The Court perused sub-section (2) of
Section 71 of the Act but could not locate any power contained therein. It was
in those circumstances that it arrived at the conclusion that the newly added
clause (2) in clause (c) of sub-rule (4) of Rule 8 of the Rules was ultra vires
the powers of Lt. Governor.
We are
of the opinion that the judgment and order of the High Court in Shri Krishna
Engineering Co. case (CWP 3304 of 1997) is passed on a mis-construction of the
clear statutory provisions contained in Section 4, 71(1), 71 (2)(b) and (s) of
the Delhi Sales Tax Act, 1975 and that the High Court has also not appreciated
the true scope of the rule making power which has been conferred on the Lt.
Governor of Delhi by Section 71 (1) of the Act which lays down that the
administrator may make rules for carrying out the purposes of the Act. A
general power has thus been conferred upon the administrator to make
appropriate rules to carry out the purposes of the Act. The purpose of the Act
is not just to fix liability but also to recover the liabilities which are so
fixed. The High Court also has not noticed that Section 71 (2)(s) of the Act
which confers a residual power on the administrator to make rules in respect of
any other matter which is required to be or may be prescribed. We are,
therefore, of the opinion that the impugned amendment was within the rule
making power of the Lt. Governor of Delhi under Section 71 (2)(b) read in
conjunction and harmoniously with Section 71 (2)(s).
We,
therefore, hold that the Civil Appeal Nos. 308, 313, 314 and 315 of 2003 and
SLP No. 1954 of 2003 are without merit and are dismissed and the common
judgment and order passed by the High Court in the writ petitions dated
12.07.2002 is confirmed.
In
view of the judgment now passed by this Court in Civil Appeal No. 314 of 2003
batch, we hold that the judgment and order passed by the High Court in CWP NO.
3304 of 1997 M/s Shri Krishna Engineering Co. case is no longer good law.
Consequently,
Civil Appeal Nos. 1717-1719 of 1999 stands allowed. Other consequences will
follow. Before parting with this case, we also place on record the statement
made by Shri Ravi P. Mehrotra, learned counsel appearing for the Department
that if a purchasing dealer applies for Form ST-1 in advance he will be
supplied with the forms within one week subject to the rules and regulations
and if it is in order under the Act and Rules. The same shall be furnished by
the Department to the applicant not later than one week.
However,
in view of the understandable mis-construction by the parties to these appeals
of the decision of Shri Krishna Engineering Co. case, we desist from awarding
costs.
Back
