Mahim Patram Private Ltd Vs.
India & Others
 Insc 197 (23 February 2007)
S.B. Sinha & Markandey Katju
[Arising out of S.L.P. (Civil) No. 12868 of 2006] W I T H CIVIL APPEAL NO.
923 OF 2007 [Arising out of S.L.P. (Civil) No.13129 of 2006] S.B. SINHA, J :
Appellant herein is engaged, inter alia, in the printing of questions papers
for examination boards, competitive examination boards, recruitment boards and
various universities and boards situate outside the State of Uttar Pradesh. It
carries on a highly specialized and secretive work. The activities of the
appellant admittedly amounts to a works contract in the course of inter-State
trade or commerce.
The Central Sales Tax Act, 1956 (for short, 'the 1956 Act) was enacted to
formulate principles for determining when a sale or purchase of goods takes
place in the course of inter-State trade or commerce or outside a State or in
the course of imports into or export from India, to provide for the levy,
collection and distribution of taxes on sales of goods in the course of
inter-State trade or commerce.
The said Act did not contain any provision to levy tax on works contract,
despite insertion of Clause 29A in Article 366 of the Constitution of India.
The question of levy of sales tax on works contract, iner alia, came up for
consideration before this Court in M/s Gannon Dunkerley and Co. and Others etc.
v. State of Rajasthan and Others etc. [(1993) 1 SCC 364]. While noticing that
the 1956 Act did not contain any definition of works contract, this Court held
"Since the question of levy of inter-State sales tax under Section
6 of the Central
Sales Tax Act is not in issue in these cases which only relate to
imposition of sales tax by the States, we do not propose to go into the
question, whether such a tax can be levied on deemed sales resulting from
transfer of property in goods involved in the execution of a works contract
without amending the definition of sale in Section 2(g) of the Central Sales Tax
Act, so as to include such transfers within its ambit. It is, however, made
clear that the absence of any amendment in the definition of sale contained in
Section 2(g) of the Central Sales Tax
so as to include transfer of property in goods involved in execution of a works
contract does not in any way affect the applicability of the Sections 3, 4 and
5 and Sections 14 and 15 of the Central Sales Tax
Act to such transfers."
It was, however, held while laying down that in the absence of law by
Parliament so providing, it was not permissible for the State Legislatures to
impose such a tax; it did not mean that the legislative power of the State
could not be exercised till the enactment of a law under sub-clause (b) of
clause (3) of Article 286 by Parliament, observing :
"It only means that in the event of a law having been made by
Parliament under Article 286(3)(b) the exercise of the legislative power of the
State under Entry 54 in List II to impose a tax of the nature referred to in
sub- clauses (b), (c) and (d) of clause (29-A) of Article 366 would be subject
to restrictions and conditions in regard to the system of levy rates and other
incidents of tax contained in the said law. The existence of a law enacted
under Article 286(3)(b) cannot, therefore, be regarded as a condition precedent
for the exercise of the taxing power of the State under Entry 54 in List II to
impose a tax of the nature referred to in sub-clauses (b), (c) and (d) of
clause (29-A) of Article 366. This does not, however, absolve Parliament from
enacting a law as envisaged by Article 286(3)(b). Keeping in view the grievance
of the contractors that there is wide disparity in the sales tax legislation of
the various States in the matter of imposition, mode of assessment, rates etc.
of the tax on deemed sales resulting from transfer of property in goods
involved in the execution of a works contract referred to in sub-clause (b) of
clause (29-A) of Article 366, the need for the law envisaged by Article
286(3)(b) cannot be minimised."
This Court noticed the matters which are envisaged for imposition of tax on
sale or purchase of goods after the Constitution 46th Amendment. It furthermore
considered the deductions which were required to be made from the value of the
entire contract in order to arrive at the value of the goods involved in the
execution of a works contract. It was held :
"The value of the goods involved in the execution of a works contract
will, therefore, have to be determined by taking into account the value of the
entire works contract and deducting therefrom the charges towards labour and
services which would cover -
Labour charges for execution of the works;
amount paid to a sub-contractor for labour and services;
charges for planning, designing and architect's fees;
charges for obtaining on hire or otherwise machinery and tools used for
the execution of the works contract;
cost of consumables such as water, electricity, fuel, etc. used in the
execution of the works contract the property in which is not transferred in the
course of execution of a works contract; and (f)cost of establishment of the
contractor to the extent it is relatable to supply of labour and services;
other similar expenses relatable to supply of labour and services;
profit earned by the contractor to the extent it is relatable to supply
of labour and services.
The amounts deductible under these heads will have to be determined in the
light of the facts of a particular case on the basis of the material produced
by the contractor."
In deference to the aforementioned judgment of this Court, the Parliament
amended Section 2(g) of the 1956 Act by Finance Act, 2002.
No rule, however, has till date been framed in regard to the manner in which
sales price of such transfer is to be calculated. The Assessing Authority,
however, relying on or on the basis of Section 9(2) of the 1956 Act applied the
provisions of the Uttar Pradesh Trade Tax Act, 1948 (for short, 'the 1948 Act')
and the rules framed thereunder for calculating the sale price of the transfer
of property in goods involved in the execution of the works contract in the
course of inter-State trade and commerce for the Assessment Years 2002-03 and 2003-04.
Writ petitions were filed by the appellant questioning the said orders of
assessment before the High Court of Judicature at Allahabad. It is not in
dispute that a writ petition had also been filed by the appellant contending
that its activities did not come within the purview of the works contract as
envisaged under Section 2(g) of the 1956 Act. The said writ petition, however,
is pending. We, therefore, are not called upon to answer the said question. By
reason of the impugned judgments and orders dated 03.05.2006 and 05.05.2006,
the Allahabad High Court dismissed the said writ petitions relying on the
decision of this Court in Gannon Dunkerley (supra).
Mr. Dhruv Agrawal, the learned counsel appearing on behalf of the appellant,
would submit that in the absence of any rule for determination of the sale
price in respect of transfer of property in goods involved in the execution of
the works contract as envisaged under Section 2(h) of the 1956 Act, the taxable
turnover under Section 8A of the said Act cannot be computed for the purpose of
levy of tax on the transfer of property in goods involved in the execution of
works contract in the course of inter-State trade and commerce.
It was submitted that in absence of any rule required to be prescribed in terms
of the provisions of the 1956 Act, the determination of sale price of such
goods cannot be left to the whims and fancies of the Assessing Authority.
Mr. Kabin Gulati, the learned counsel appearing on behalf of the State, on
the other hand, submitted that the 1956 Act having provided for the charging
section, the deductions could be granted for the purpose of determination of
quantum of tax and furthermore by reason of the provisions of Sections 9 and 13
of the 1956 Act, the mode and manner having been provided in terms whereof the
quantum of tax is required to be determined, the impugned judgments are
Our attention, in this connection, has been drawn to Section 3-F of the 1948
Act and Rule 44B of Uttar Pradesh Trade Tax Rules, 1948. It was urged that only
because no rules have been framed, the same by itself would not lead to the
conclusion that the provisions of the Act cannot be given effect to.
Before embarking on the questions raised at the Bar, we may notice the
legislative background and history. A Constitution Bench of this Court in State
of Madras v. Gannon Dunkerley & Company (Madras) Ltd. [(1959 SCR 379],
inter alia, held that in an indivisible contract no sales tax could be imposed
on the supply of materials used therein treating it as a sale, as the same did
not involve any sale of goods.
The constitutional provision was amended by the Constitution (Forty- sixth
Amendment) Act, pursuant to the recommendations of the Law Commission of India
in its 61st report whereby and whereunder a new clause 29A was inserted in
Article 366 thereof, which, inter alia, lays down :
"Definitions In this
Constitution, unless the context otherwise requires, the following expressions
have the meanings hereby respectively assigned to them, that is to say "
'tax on the sale
or purchase of goods' includes (a) (b) a tax on the transfer of property in
goods (whether as goods or in some other form) involved in the execution of a
(c) (d) (e) (f) and such transfer, delivery or supply of any
goods shall be deemed to be a sale of those goods by the person making the
transfer, delivery or supply and a purchase of those goods by the person to
whom such transfer, delivery or supply is made;"
Clause 3 of Article 286 of the Constitution was also amended to enable the
Parliament to specify by law restrictions and conditions in regard to the
system of levy rates and other incidents of the tax on the transfer of goods
involved in the execution of works contract. Pursuant to or in furtherance of
the said enabling provision, as noticed hereinbefore, and in deference to
observations made in Gammon Dunkerley (supra), clause (g) of Section 2 was
substituted by a new clause defining 'sale' in the following terms :
"Sale" with its
grammatical variations and cognate expressions means any transfer of property in
goods by one person to another for cash or deferred payment or for any other
valuable consideration and includes,
a transfer, otherwise than in
pursuance of a contract, of property in any goods for cash, deferred payment or
other valuable consideration;
a transfer of property in goods
(whether as goods or in some other form) involved in the execution of a works
a delivery of goods on hire-purchase
or any system of payment by installments;
a transfer of the right to use any
goods for any purpose (whether or not for a specified period) for cash, deferred
payment or other valuation consideration;
a supply of goods by any incorporated
association or body of persons to a member thereof for cash, deferred payment or
other valuable consideration;
a supply, by way of or as part of any
service or in any other manner whatsoever, of goods, being food or any other
article for human consumption or any drink (whether or not intoxicating), where
such supply or service, is for cash, deferred payment or other valuable
consideration, but does not include a mortgage or hypothecation of or a charge
or pledge on goods;"
However, no corresponding amendments in other provisions of the 1956 Act
were made. By reason of Section 89 of the Finance Act, 2005, Section 2 of the
1956 Act was amended incorporating clause (ja) defining 'works contract' in the
following terms :
means a contract for carrying out any work which includes assembling,
construction, building, altering, manufacturing, processing, fabricating,
erection, installation, fitting out, improvement, repair or commissioning of any
movable or immovable property."
Section 13 of the 1956 Act was also amended. The amended provision reads
"Amendment of Section 13,-In Section 13 of the Central Sales Tax
Act, in sub-section (1), clause (aa) shall be re-lettered as clause (ab)
thereof, and before clause (ab) as so re-lettered, the following clause shall
be inserted, namely :
“the manner of
determination of the sale price and the deductions from the total consideration
for a works contract under the proviso to clause (h) of section 2."
Section 6 is the charging provision making a dealer liable to pay tax under
the said Act on all sales of goods other than electrical energy effected by him
in the course of inter-State trade or commerce during any year on and from the
date so notified therefor. Section 8A provides for determination of turnover.
We may at this juncture notice the provisions of Sections 9(2) and 13(3) of the
1956 Act, which read as under :
"9. Levy and collection of tax and penalties.- (1) (2) Subject to
the other provisions of this Act and the rules made thereunder, the authorities
for the time being empowered to assess, re-assess, collect and enforce payment
of any tax under general sales tax law of the appropriate State shall, on
behalf of the Government of India, assess, re-assess, collect and enforce
payment of tax, including any interest or penalty, payable by a dealer under
this Act as if the tax or interest or penalty payable by such a dealer under
this Act is a tax or interest or penalty payable under the general sales tax
law of the State; and for this purpose they may exercise all or any of the
powers they have under the general sales tax law of the State; and the
provisions of such law, including provisions relating to returns, provisional
assessment, advance payment of tax, registration of the transferee of any
business, imposition of the tax liability of a person carrying on business on
the transferee of, or successor to, such business, transfer of liability of any
firm or Hindu undivided family to pay tax in the event of the dissolution of
such firm or partition of such family, recovery of tax from third parties,
appeals, reviews, revisions, references, refunds, rebates, penalties, charging or
payment of interest, compounding of offences and treatment of documents
furnished by a dealer as confidential, shall apply accordingly.
Provided that if in any State or part thereof there is no general sales tax
law in force, the Central Government may, by rules made in this behalf make
necessary provision for all or any of the matter specified in this sub-
may make rules, not inconsistent with the provisions of this Act and the rules
made under sub-section (1) to carry out the purposes of this Act."
Sections 9(2) and Section 13(3) of the 1956 Act refer to the State Act.
The State of Uttar Pradesh inserted Section 3F of the 1948 Act, sub-section
(1) whereof reads as under :
"Tax on the right
to use any goods or goods involved in the execution of works contract :
Notwithstanding anything contained in section 3 or section 3AAA or
section 3D but subject to the provisions of sections 14 and 15 of the Central Sales Tax Act, 1956,
every dealer shall, for each assessment year, pay a tax on the net turnover of
transfer of the right to use any
goods for any purpose (whether or not for a specified period) for cash, deferred
payment of other valuable consideration; or
transfer of property in goods
(whether as goods or in some other form) involved in the execution of a works
contract, at such rate not exceeding twenty per cent as the State Government
may, by notification, declare and different rates may be declared for different
goods or different classes of dealers."
Sub-section (2) of Section 3F of the 1948 Act provides for the amounts which
were to be deducted from the total amount received or receivable by a dealer in
respect of a transfer referred to n clause (a) of sub- section (1), where such
transfer occurred during that assessment year or also for the purpose of
determining net turnover referred to in sub-section (1).
The State of Uttar Pradesh framed Central Sales Tax (U.P.) Rules, 1957 in
exercise of its power conferred upon it under sub-sections (3) and (4) of
Section 13 of the 1956 Act; Rule 9 whereof reads as under :
" Application to
State Act and Rules : the provisions of UP Sales Tax Act, 1948 and the UP Sales
Tax Rules, 1948, as amended from time to time shall in so far as they are not
inconsistent with the Act, or the rules made thereunder apply to the dealers
liable to assessment under the Act."
The State has also framed Uttar Pradesh Trade Tax Rules, 1948, Rules 44B and
44C whereof read as under :
turnover of goods involved in the execution of works contracts.- The tax under
Section 3-F on the turnover relating to the business of transfer of property in
goods (whether as goods or in some other form) involved in the execution of a
works contract shall be computed on the net turnover relating to works
contracts. In determining the net turnover, the amounts specified below shall be
deducted if they are included in the gross turnover
the amounts representing the purchase
price of such goods, involved in the execution of such works contract, on the
sale or purchase whereof the tax under the Act is shown to the satisfaction of
the assessing authority to have been paid;
the amounts representing the purchase
price of such goods, involved in the execution of such works contract, as are
exempt from tax under Section 4 or have been purchased from an industrial unit
which is exempt from tax under Section 4-A;
the amounts representing the value of such of the goods, involved in the
execution of such works contract, as were supplied to the contractor by the contractee himself; provided the property in such goods remains under the terms
of the contract throughout with the contractee and the contractor is bound to
return the unused goods to the contractee.
Explanation.-For the purposes of this rule, gross turnover shall mean the
aggregate of the amounts received or receivable by a dealer in an assessment
year as valuable consideration for the transfer of property in goods used in
the execution of a works contract after the commencement of this rule, whether
or not the amount receivable as valuable consideration for such transfer is
separately shown in the works contract, and whether the execution of such works
contract commenced during the year or earlier, and includes any advance
received by the dealer towards valuable consideration for the works
of turnover relating to the transfer of right to use goods.- The tax under
Section 3-F on the turnover relating to the business of transfer of the right to
use any goods for any purpose shall be computed on the net turnover. In
determining the net turnover, the amounts specified below shall be deducted if
they are included in the gross turnover
the amount representing the valuable
consideration received for such transfer in respect of goods exempt from tax
under Section 4;
the amounts received as penalty for
defaults in payment or as damages for any loss or damage caused to the goods by
the person to whom such transfer was made.
Explanation.- For the purpose of this rule, gross turnover shall mean the
total amount received or receivable by a dealer in an assessment year as
valuable consideration for the transfer of the right to use the goods whether
such transfer was agreed to during that assessment year or earlier :
Provided that in cases where the transfer of the right to use goods was agreed
to before the date of commencement of this rule and the right to use has been
continued after the said date, only the amount received or receivable after the
said date shall form part of the gross turnover."
Sales tax is an indirect tax. It is leviable on transfer of goods. It is,
however, well-settled that while construing a taxing statute one has to look
merely at what is clearly said. [See speech of Viscount Simon referred to in
State of West Bengal v. Kesoram Industries Ltd. & Others (2004) 10 SCC
201], wherein it was noticed :
"105. Justice G.P. Singh in Principles of Statutory Interpretation (8th
Edn., 2001) while dealing with general principles of strict construction of
taxation statutes states:
A taxing statute is to be strictly construed. The well-established rule in
the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord
Simonds, means: The subject is not to be taxed without clear words for that
purpose; and also that every Act of Parliament must be read according to the
natural construction of its words.
In a classic passage Lord Cairns stated the principle thus: If the person
sought to be taxed comes within the letter of the law he must be taxed, however
great the hardship may appear to the judicial mind to be. On the other hand, if
the Crown seeking to recover the tax, cannot bring the subject within the
letter of the law, the subject is free, however apparently within the spirit of
law the case might otherwise appear to be. In other words, if there be
admissible in any statute, what is called an equitable construction, certainly,
such a construction is not admissible in a taxing statute where you can simply
adhere to the words of the statute. Viscount Simon quoted with approval a
passage from Rowlatt, J. expressing the principle in the following words: In a
taxing Act one has to look merely at what is clearly said. There is no room for
any intendment. There is no equity about a tax. There is no presumption as to
tax. Nothing is to be read in, nothing is to be implied. One can only look
fairly at the language used. (at p. 635)"
The 1956 Act contains the charging provision. Upon amendment of the
definition of 'sale' in the year 2002, the transfer of property in goods
involved in the execution of works contract would be treated to be a sale. It
may be true that further amendments had been made in the year 2005 and for
certain purposes, the subsequent legislations may also be considered for the
construction of a statute, but in our opinion, it is not necessary to do so.
A taxing statute indisputably is to be strictly construed. [See J.
Srinivasa Rao v. Govt. of Andhra Pradesh & Another - 2006 (13) SCALE
27]. It is, however, also well-settled that the machinery provisions for
calculating the tax or the procedure for its calculation are to be construed by
ordinary rule of construction. Whereas a liability has been imposed on a dealer
by the charging section, it is well-settled that the court would construe the
statute in such a manner so as to make the machinery workable.
In J. Srinivasa Rao (supra), this Court noticed the decisions of this Court
in Gursahai Saigal v. Commissioner of Income-tax, Punjab [(1963) 3 SCR 893] and
M/s Ispat Industries Ltd. v. Commissioner of Customs, Mumbai [2006 (9) SCALE
"In Gursahai Saigal v. Commissioner of Income Tax, Punjab [(1963) 3
SCR 893], the question which fell for consideration before this Court was
construction of the machinery provisions vis-`-vis the charging provisions.
Schedule appended to the Motor Vehicles Act is not machinery provision. It is a
part of the charging provision.
By giving a plain meaning to the Schedule appended to the Act, the machinery
provision does not become unworkable. It did not prevent the clear intention of
the legislature from being defeated. It can be given an appropriate meaning.
In a case of doubt or dispute, it is well-settled, construction has to be
made in favour of the taxpayer and against the Revenue. [See Sneh Enterprises
Commissioner of Customs, New Delhi, (2006) 7 SCC 714] In M/s. Ispat
Industries Ltd. v. Commissioner of Customs, Mumbai [JT 2006 (12) SC 379 : 2006
(9) SCALE 652], this Court opined:
"In our opinion if there are two possible interpretations of a rule,
one which subserves the object of a provision in the parent statute and the
other which does not, we have to adopt the former, because adopting the latter
will make the rule ultra vires the Act."
We are, however, not oblivious of the decision of this Court wherein the
measure or value to which the rate will be applied for computing the tax
liability is considered to be one of the components of tax Messrs Govind Saran
Ganga Saran v. Commissioner of Sales Tax and Others [See (1985) Supp. SCC 205 para
6]. But then measure or value to which rate would be applied is one thing, but
how the turnover would be determined is another.
Computation provisions may bear a relationship with the nature of charge and
charging section and computation provisions together constitute an integrated
code as was held in C.I.T., Bangalore etc. v. B.C. Srinivasa Setty etc. [(1981)
2 SCC 460 at 465]; but it is equally well-settled that only because rules had
not been framed under the Central Act, the same per se would not mean that no
tax is leviable.
In Sudhir Chandra Nawn v. Wealth Tax Officer [1969 (1) SCR 108], this Court
rejected the contention that Section 7(1) of the Wealth Tax Act was
unconstitutional as no rules had been framed to value the asset for the purpose
of the Act, stating :
"The plea that s. 7(1) of the Wealth Tax Act is ultra vires the
Parliament is also wholly without substance. That clause provides :
"Subject to any rules made in this behalf, the value of an asset, other
than cash, for the purposes of this Act shall be estimated to be the price
which in the opinion of the Wealth Tax Officer it would fetch if sold in the
open market on the valuation date" :
It was urged that no rules were framed in respect of the valuation of land
and buildings. But s. 7 only directs that the valuation of any asset other than
cash has to be made subject to the rules. It does not contemplate that there
shall be rules before an asset can be valued.
Failure to make rules for valuation of a type of asset cannot therefore
affect the vires of s. 7. It was also said that s. 7 (1) which requires that
the asset shall be valued at the price which it would fetch if sold in the open
market on the valuation date, was expropriatory. This contention was not raised
in the petition, and no ground is made out for holding that the rate at which
wealth-tax is levied is expropriatory."
The question which, in our opinion, is required to be posed and answered, is
as to whether there exist sufficient guidelines for determination of the
turnover in the hands of the Assessing Authority for the purpose of levy of
tax. The 1956 Act provides for levy of tax. Works contract has been brought
within the purview of sale. Wherever the said words have been used, the new
definition, therefore, would be applied. Section 8 provides for rates of tax on
sales in the course of inter-State trade or commerce. Section 8A provides for
determination of turnover. Section 9 provides for levy and collection of tax
and penalties. The said provision would, thus, be applied in respect of
transfer of property in goods involved in the execution of works contract. The
1956 Act provides for grant of exemptions and various provisions e.g. proviso
appended to Section 6(1) and 6(2) of the Act.
Section 9(2) of the Act is of wide amplitude. It confers powers on the
officers of the State to make assessment or re-assessment, which the officers
of the State have, under the general sales tax laws, to carry on assessment
under the 1956 Act, as if it is an assessment under the State Act. The
expression 'as if' is of some significance. The powers conferred and the
procedures laid down under the State sales tax laws would, therefore, be
applicable also for the purpose of carrying out assessment under the State Act.
Sub-section (2) of Section 9 provides that the authorities under the State Act
for the purpose of making assessment and re-assessment under the 1956 Act shall
have all the powers which they have under the general sales tax law of the
State. Assessment would mean the entire process of computation and levy of tax.
[See Additional ITO v. Alfred - 1962 Supp. 1 SCR 143 at 149 and S. Sankappa v.
ITO 168 2 SCR 674 at 678].
The expression 'assessment', therefore, comprehends the power to even
compute the amount chargeable to tax in terms of the procedure prescribed under
the State Act. Furthermore, Section 13(1) provides that the Central Government
'may' by notification make rules for computation of turnover. It is an enabling
provision. It is not obligatory for the Central Government to do so. When one
looks at the language of Section 3 of the 1956 Act, it becomes clear that the
State Government has also been given a power to make rules, which are not
inconsistent with the provisions of the Act and any rules which may have been
made under sub-section (1) of Section 13 by the Central Government to carry out
the purposes of the 1956 Act. So long as there exists no inconsistency between
the rules made by the State Government and the rules framed by the Central
Government, the rules of the State Government may be made applicable. The
statute does not impose any fetter on the part of the State Government to make
rules. The State rules would be independent of the Central Government rules.
The only fetter is that the State Rules should not be inconsistent with the
provisions of the Central Rules or the Act. [See Hanuman Prasad Singhania v.
CTO - 27 STC 289 at 301].
If the State Rules have been made applicable using Rule 9 of the State
Rules, it makes not only the original rule duly applicable in the case of
assessment of Central sales tax law, but also as amended from time to time.
So long as, therefore, the Central Government does not make any rules, the
determination of turnover may be carried out by the Assessing Authority in
terms of the State Rules, in view of Section 13(3) of the 1956 Act read with
Rule 9 of the Central Sales Tax Act (U.P.) Rules, 1957. The rules made by the
State Government as also the provisions of the Act are incorporated by
reference. When a provision is incorporated by reference, it need not be so
stated again and again. [See Nagpur Improvement Trust etc.
v. Vasantrao and Others etc. (2002) 7 SCC 657 and Sneh Enterprises (supra)]
Validity of Rule 9 of the Central Tax Act (U.P.) Rules, 1957 is not under
challenge. Furthermore, it is not necessary that the charging provision and the
machinery provisions must be found at the same place in the same section, as
the machinery provisions may be found elsewhere. If the rules of the State are
applicable, Rule 44-B of the Uttar Pradesh Trade Tax Rules, 1948 would apply,
which provides for computation of net turnover by providing for deduction under
Section 3F(2)(b) of the 1948 Act from the gross turnover. Section 3F(2)(b) of
the 1948 Act in turn provides for all the deductions as has been directed by
this Court in M/s Gannon Dunkerley (supra).
In the aforementioned background, the submission of Mr. Agrawal that the
matter has to be considered from the point of view of amendments of Section 2
and Section 13 of the 1956 Act by Finance Act, 2005 must be held to be not
applicable in the instant case. Even if they are, they provide only for an
A proviso inserted subsequently cannot be the determinative factor for
restricting the operation of the Act. The proviso would be applicable subject
to the other provisions of the Act. If in absence of any rules, the
determination of turnover becomes payable, an assessee or a dealer cannot
derive any benefit by reason of non-framing of any rule which is contemplated
under the Act. Strong reliance has been placed by Mr.
Agrawal on a decision of this Court in M/s Khemka & Co. (Agencies) Pvt.
Ltd. V. State of Maharashtra [(1975) 2 SCC 22]. Therein, this Court observed
"It is only tax as well as penalty payable by a dealer under the
Central Act which can be assessed, reassessed, collected and enforced in regard
to payment. The words as if the tax or penalty payable by such a dealer under
the Central Act is a tax or penalty payable under the general Sales Tax law of
the State have origin and root in the words payment of tax including any
penalty payable by dealer under the Central Act. Just as tax under the State
Act cannot be payable and collected and enforced, similarly penalty under the
State Act cannot be assessed, collected and enforced.
The words and for this purpose they
may exercise all or any of the powers they have under the general Sales Tax law
of the State in Section 9(2) of the Central Act are important. The words and for
this purpose relate to assess, reassess, collect and enforce payment of tax
including any penalty payable by dealer under this Act.
In that context, the last limb of Section 9(2) of the Central Act viz. and
the provisions of such law ... shall apply accordingly mean that the provisions
of the State Act are applicable for the purpose of assessment, reassessment,
collection and enforcement of payment of tax including penalty payable under
the Central Act. The words of the last part of Section 9(2) viz. shall apply
accordingly relate clearly to the words and for this purpose with the result
that the provisions of the State Act shall apply only for the purpose of
assessment, reassessment, collection and enforcement. The doctrine of ejusdem
generis shows that the genus in Section 9(2) of the Central Act is for this
purpose. In other words, the genus is assessment, reassessment, collection and
enforcement of payment. The genus is applicable in regard to the procedure for
assessment, reassessment, collection and enforcement of payment. The genus is
from whom to collect and against whom to enforce. It is apparent that the extent
of liability for tax as well as penalty is not attracted by the doctrine of
ejusdem generis in the application of the provisions of the State Act in regard
to assessment, reassessment, collection and enforcement of payment of tax
including any penalty payable under the Central Act.
The deeming provision in the Central
Act that the tax as well as penalty levied under the Central Act will be deemed
as if payable under the general Sales Tax law of the State cannot possibly mean
that tax or penalty imposed under any State Act will be deemed to be tax or
penalty payable under the Central Act. The entire authority of the State
machinery is that for this purpose meaning thereby the purpose of assessing,
reassessing, collecting and enforcing payment of tax including any penalty
payable under the Central Act, they, meaning the State agencies, may exercise
powers under the general Sales Tax law of the State. The words for this purpose
cannot have the effect of enlarging the content of tax and the content of
penalty payable under the Central Act.
Liability to pay tax as well as liability to pay penalty is created by the
Central Act. One of the reasons why tax as well as penalty is the substantive
provision in the Central Act and is not incorporated by reference to the State
Act is illustrated by the history of Section 9(2) of the Central Act. The
present Section 9(2) of the Central Act was formerly Section 9(3) of the
Central Act. The Madras High Court in D.H. Shah & Co. case pointed out that
the imposition of penalty under Section 12(3) of the Madras Act, 1959 could not
be attracted for levy of penalty. The Madras High Court gave the reason that
the then Section 9(3) of the Central Act only adopted the procedure of the
State Act for assessment, reassessment, collection and enforcement of tax as
well as penalty payable under the Central Act."
The said decision does not run counter to what we have said hereinbefore.
What is being emphasized is application of the State Rules for the purpose of
assessment or re-assessment. Therein, the question which arose for
consideration was as to whether the assessee under the 1956 Act could be made
liable for penalty under the provisions of the State Sales Tax Act. Such a
penalty was sought to be imposed for default in payment of tax within the
prescribed time. The source of power to impose penalty under the 1956 Act
cannot be drawn from the State Act and in that view of the matter, the
contention in regard to the application of sub-section (2) of Section 9 of the
1956 Act in that case did not find favour with this Court. The said decision,
however, clearly is an authority for the proposition that the recourse to the
State Act and the rules framed thereunder can be resorted, inter alia, for the
purpose of assessment or re-assessment.
Reliance by Mr. Agrawal on Yogendra Nath Naskar v. CIT, Calcutta [(1969) 1
SCC 555] for the proposition that a subsequent legislation can be relied upon
as the Parliamentary exposition of earlier Act has no application in the
instant case. Recourse to a subsequent legislation is permissible if there
exists any ambiguity in the earlier legislation for the purpose of ascertaining
as to whether by a subsequent legislation proper interpretation has been fixed
which is to be put upon the earlier Act. Therein the question was as to whether
an individual included a deity. There was no ambiguity in the definition of
works contract as contained in Section 2(g) of the Act.
Application of proviso to an Act is well-known. [See Sadashiv Dada Patil v.
Purushottam Onkar Patil (D) by L.Rs. - 2006 (10 SCALE 21], wherein it was
"As in 1957 the right of the respondent to purchase the land became a
vested right, proviso appended to Section 8 of the 1962 Act could not be read
to mean that such right stood divested. Proviso appended to Section 8 refers to
the application of the provisions of the relevant tenancy laws as the same does
not abrogate a vested right. Proviso, it is well known, has a limited role to
play. It may create an exception. It ordinarily does not create a right or
takes away a vested or accrued right.
Proviso to Section 8 of the 1962 Act, in our considered opinion, does not
take away a vested right conferred under the Tenancy Act."
We have noticed hereinbefore that the 2005 amendments are not retrospective
in operation. Furthermore, they provide merely for an enabling provision. If
enough machinery provisions can be found in the existing Act, it is not
necessary to construe the provisions having regard to the subsequent
For the reasons aforementioned, we do not find any merit in these appeals,
which are dismissed accordingly. However, in the facts and circumstances of the
cases, there shall be no order as to costs.
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