Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 16
PETITIONER:
BHAWANI COTTON MILLS LTD.
Vs.
RESPONDENT:
STATE OF PUNJAB & ANR.
DATE OF JUDGMENT:
10/04/1967
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
RAO, K. SUBBA (CJ)
SHAH, J.C.
SIKRI, S.M.
RAMASWAMI, V.
CITATION:
1967 AIR 1616 1967 SCR (3) 577
CITATOR INFO :
RF 1970 SC1742 (3)
F 1972 SC1458 (40,43)
RF 1972 SC1760 (8,10,16,17)
D 1974 SC1111 (7)
RF 1976 SC 769 (3)
R 1985 SC1041 (11)
R 1989 SC1931 (3)
ACT:
Punjab General Sales Tax Act (46 of 1948),ss. 2(ff), 5(1)
second proviso and 5(2)(a)(vi) and Central Sales Tax Act (74
of 1956), s. 15(a)-Whether provisions of State Act in
conflict with those of Central Act.
Notification in 1958 under s. 5(1) prescribing rate of
purchase tax-Amendment of word "purchase"-No fresh
Notification-Legality of levy of purchase tax.
HEADNOTE:
The definition of the word "purchase" was first introduced
in the Punjab General Sales Tax Act, 1948, in 1958. As the
rate of tax to be levied was to be contained in a
Notification to be issued under s. 5(1) of the, Act, a
Notification was issued in April 1958 regarding the rate. of
tax on the purchase of goods "for use in the manufacture of
good,% for -.is per the then definition of "purchase". The
definition of "purchase" was amended twice in 1959 and again
by Punjab Act 19 of 1960. The definition after these
amendments has reference to the goods specified in Schedule
C to the Act an item of which relates to cotton, and, after
the 1960 amendment the clause "for use in the manufacture of
goods for sale" was omitted. After those amendments, no
fresh Notification prescribing the rate of tax on the
purchase of goods was issued till September 26, 1961.
The appellant was a cotton ginning factory and was a dealer
registered tinder the Act. Under s. 10, it had to send
quarterly returns within the time specified and when sending
the returns had to pay the amount of tax, in accordance with
the returns which should also show the gross turnover.
Failure to do so was an offence and subjected the dealer to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 16
heavy penalties. The appellant filed returns for the
assessment years 1960-61, 1961-62) and 1962-63 and paid
certain amounts of tax which, according to it were due from
it. The assessing authority passed order of assessment,
including in the appellant’s turnover the amounts repre-
senting the purchases of cotton made by the appellant for
each of the years. The appellant thereupon filed writ
petitions challenging the three assessment orders on the
ground that the -second proviso to s. 5(1) and s.
5(1)(a)(vi) of the Act, enabling the State to collect
purchase tax in respect of cotton, were opposed to s. 15(a)
of the Central Sales Tax Act, 1956 and that, in consequence,
it was not liable to pay any purchase tax far the assessment
years in respect of cotton. The High Court rejected the
petitions.
In appeal to this Court,
HELD : (1) (By Full Court) As no fresh Notification was
issued till September 26, 1961, the orders of’ assessment
for the two years 1960-61 and 1961-62 could not be
sustained. [592 H; 593 B]
The levy of tax could not be sustained under the
Notification of 1958 on the basis of s. 22 of the Punjab
General Clauses Act. That section has no application,
because the definition of "purchase" on the of Sup CI/67-7
578
which that Notification was issued is inconsistent with the
definition of "purchase" as it stood after its amendment in
1960. [592E-F]
Further, if the levy is to be sustained on the basis of the
Notification of 1958, the State could levy tax only on the
category of purchases "for use in the manufacture of goods
for sale". But it was not open to the State to make such a
choice. [592G]
(2) (Per Subba Rao, C.J., Shah and Vaidialingam, JJ.) Even
though there was a notification fixing the rate of tax for
the year 1962-63, the order of assessment for that year and
also for the two years 1960-61 and 1961-62 should be quashed
on the ground that the provisions of the State law under
which they were made violated s. 15 of the Central Act.
[591A]
Under s. 15(a) of the Central Act in respect of commodities
like cotton which come under the category of "declared
goods" is defined in s. 2(c) of the Central Act, the
purchase tax can be levied only at one stage. The essence
of one-stage taxation consists of fixation of a single point
or stage, either by the State Act or the rules framed
thereunder. A mere injunction by the Legislature, as
contained in the second proviso to S. 5(1) of the State Act,
that the rate should not be higher than the one fixed in the
Central Act, and that the levy must be at one stage as men-
tioned in the Central Act, will he of no avail, unless the
Act or the rules framed under it make it clear that them
will be no levy or collection of lax, except from the
persons who are bound to pay as per the Central Act. The
proviso doe,-, not serve any material purpose. because, even
if it did not exist the authorities cannot levy tax on
declared goods at a rate higher than that laid down in the
Central Act. [583H- 584G-H; 587F-H. 588]
Further, there can be no legal liability for payment of tax
unless the Act or the rules prescribe a single point for
taxation; but under s. 5(2)(a), in respect of the same item
of declared goods, more than one person is made liable to
pay tax. and the tax is levied at more than one stage. For
example, if A sells declared goods to B and B to C, (B and C
being registered dealers) and the sales are beyond the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 16
period of 6 months mentioned in s. 5(2) (a) (vi), both A and
B will be liable to pay purchase tax. [588A-B, G-H]
Moreover, in the final return sent by the dealer, it will
have to show in the taxable turnover all purchases of cotton
effected by it during the accounting year and the tax
payable will have to be paid. The dealer can get a
declaration from the dealer to whom the goods are re-sold
and claim exemption under s. 5(2) (a) (vi) and r. 27A of the
rules made under the Act. But these provisions apply only
to registered dealers, whereas s. 15 of the Central Act is
not restricted to registered dealers. Also, if a non-
registered dealer intervenes, there is no machinery by which
the dealer can ascertain whether his vendor of the declared
good,-,, has paid the tax already. [584B; 588B-D, G]
The orders of assessment could not be sustained on the basis
of the provisions for refund in s. 12 and the rules. These
provisions do not afford adequate relief. If the Central
Act makes it mandatory that the tax can be collected only at
one stage it is not enough for the State to say that a
person who is not liable to pay tax, must nevertheless pay
it in the first instance and then claim refund at a later
stage. If a person is not liable for payment of tax at all,
at any time, the collection of a tax from him with a
possible contingency of refund at a later stage will not
make the original levy valid. Besides. even in the matter
of obtaining refunds the appellant will have to place before
the officer concerned,
particulars of transactions connected with the commodity and
the basis on which it claims relief, and it would be
extremely difficult to collect the materials in this behalf,
because, there is no provision in the Act or the rules on
the basis of which it will be entitled to be supplied with
such relevant materials. [589C-G]
Modi Mills v. C.I.T., Punjab, [1965] 1 S.C.R. 592 and A. V.
Fernandez v. The State of Kerala, [1957] S.C.R. 837,
followed.
(Per Sikri and Ramaswami, JJ. dissenting) :
The assessment for the year 1962-63 is valid.
The second proviso to s. 5 serves one useful purpose,
namely, it gives immunity to the State Act from challenge on
the ground that its provisions infringe s. 15 of the Central
Act. The State Act is good and in -effect complies with the
requirements of s. 15 of the Central Act, because, it is
possible to find out the stage at which purchase tax become-
leviable on goods mentioned in Schedule C, both in cases
where the purchasers are registered dealers and in cases
where unregistered dealers intervene. Under ss. 4 and 5 of
the Act the stage is the first purchase which is not exempt
from taxation or which is not deductible from the taxable
turnover of a dealer under s. 5(2) of the State Act. For
example, if A buys cotton and sells it to B and B sells to
C, where all are registered dealers, if A is liable to pay
purchase tax, B and C could say to the assessing authority
that they are exempt from paying purchase tax. Since A
would be interested in obtaining the declaration from B for
claiming exemption under s. 5 (2) (a) (vi) and B would be
interested in knowing whether A’s was the first taxable
purchase, they will behave like ordinary businessmen and
know the true position is to whether A was liable or not.
If A’s sale was within and B’s sale beyond, the period of 6
months mentioned in s. 5(2)(a)(vi), B will be liable to pay
purchase tax and the purchaser from him would be exempt. If
in the illustration C is an unregistered dealer, B will ’be
liable to pay purchase tax because he cannot claim exemption
under s. 5(2)(a)(vi). If B is also an unregistered dealer,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 16
B would be liable and C would be exempt. If B is an
unregistered dealer, and C is a registered dealer, B will be
liable unless he obtains the prescribed declaration from C.
But if there is double taxation due to mischance in the case
of registered dealer,, or ignorance in the case of
unregistered dealers, the Act cannot be treated and void for
that reason especially when there is a suitable provision
for refund.
[593C-G; 594A-C, E-G]
Modi Mills v. C.I.T. Punjab, [1965] 1 S.C.R. 592, referred
to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Apppeals Nos. 2386 2388
of 1966.
Appeals from the judgment and order dated November 23. 1965
of the Punjab High Court in Civil Writ Nos. 1591 of 1963 and
1913 and 1914 of 1962 respectively.
S. T. Desai, A. N. Sinha, C. D. Garg and B. P. Jha, for
tile appellant (in C.A. No. 2386 of 1966).
H. L. Shibal, A. N. Sinha, C. D. Garg and B. P. Jha, for
the appellant (in C. As. Nos. 2387 and 2388 of 1966).
Bishan Narain, O. P. Malhotra and R. N. Sachthey, for the
respondents (in all the appeals).
580
The Judgment of SUBBA RAo, C.J., SHAH and VAIDIALINGAM, JJ.
was delivered by VAIDIALINGAM, J. SIKRI, J. on behalf of
himself and RAMASWAMI, J. delivered a partially dissenting,
Opinion.
Validialingam, J. In all these three appeals, on
certificate, the common judgment of the High Court of
Punjab, dismissing the three writ petitions filed by the
appellant, is under attack, by Mr. S. T. Desai, learned
counsel for the appellant.
The appellant, who is the same in all these appeals, is the
Bhawani Cotton Mills Ltd., running a cotton ginning factory,
and engaged in the business of manufacturing yarn from
cotton. It is a dealer, registered under the Punjab General
Sales Tax Act, 1948 (Punjab Act. No. XLVI of 1948),
hereinafter called the Act. The appellant filed returns for
the assessment years 1960-61, 1961-62 and 1962-63. It had-
’Paid a certain amount of tax which, according to it, was
alone due from it. But, according to the appellant, it was
not liable to pay Central sales tax on the purchase of
cotton during the relevant accounting years. The appellant
had taken various grounds of attack, before the assessing
authority, but the most important contention raised, appears
to have been that the material provisions in the Act,
particularly the second proviso to s. 5(1) and cl. (vi) of
s. 5 (2) (a), of the Act, enabling the State to collect
purchase tax, in respect of cotton, are opposed to the
material provisions of the Central Sales Tax Act, 1956 (Act
LXXIV of 1956) (hereinafter called the Central Act). The
appellant pleaded that it was not liable to pay, in
consequence, any, purchase tax, for the assessment years in
question, in respect of cotton.
The Excise & Taxation Officer, Ferozepore, did not accept
the pica of the petitioner-appellant regarding its non-
liability to the purchase tax on cotton. He, accordingly,
passed orders of assessment, including the turnover
representing the purchases of cotton made by the appellant.
The assessment orders for the years 1960-61 and 1961-62, are
’dated November 15, 1962, and for the assessment year 1962-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 16
63, is dated July 30, 1963.
The appellant, thereupon, filed Civil Writ Petitions, Nos.
1913 and 1914 of 1962 and 1591 of 1963, challenging the
assessment orders for the years 1961-62 and 1960-61, and
1962-63 respectively. The High Court, by its common order,
rejected the writ petitions filed by the appellant and
confirmed the orders of assessment, passed by the assessing
authority.
The common question, that arises for consideration in these
three appeals, is as to whether the second proviso to s.
5(1) and cl. (vi) of s. 5 (2) (a) of the Act, are opposed to
any of the relevant provisions of the Central Act. A
further question arise,;
581
in Civil Appeals Nos. 2387 and 2388 of 1966, regarding the
validity of a Notification, issued by the State Government,
under s. 5 of the Act, on September 26, 1961. We shall
consider this further question, after expressing our
opinion, on the more important question, which is common to
all the appeals.
In order to appreciate the contentions that have been taken
before us, by Mr. S. ’F. Desai, learned counsel for the
appellant, and Mr. Bislian Narain, learned counsel for the
State, it is necesarily to refer to the relevant provisions
in both the Acts. It is only necessary to refer to the
provisions of the Act, as they stood on April 1, 1960. The,
Act of 1948, has been amended from time to time, and it may
not ’be necessary to refer to those amendments, excepting on
one aspect, when we deal with the validity of the
Notification, referred to earlier.
Corning to the Act, according, to its preamble, it is an Act
to provide for the levy of a general tax on the sale or
purchase of goods in Pun ab. The expressions "dealer",
"goods", "prescribed", "purchase", " sale", "turnover" and
"year" are defined in cls. (d), (e), (f), (ff), (h), (i) and
(j) of S. 2. Particularly, s. 2(ff), defining "purchase", is
as follows
"2.(ff) In this Act, unless there is anything
repugnant in the subject or context-
purchase’ with all its grammatical or cognate
expressions, means the acquisition of goods
specified in Schedule C for cash or deferred
payment or other valuable consideration
otherwise, than under a mortgage,
hypothecation, charge or pledge."
In Schedule C to the Act, the item with which
we are concerned, relates to, cotton, and it
is as follows :-
"Cotton, that is to say, all kinds of cotton
(indigenous or imported) in its unmanufactured
state, whether _ginned or unpinned, baled,
pressed or otherwise, but not including cotton
waste."
Therefore, the definition of the expression "purchase", has
reference to the goods specified in Schedule C. The
expression "turnover", in s. 2(i), will include the
aggregate of the amounts of sales and purchases and parts of
sales and purchases actually made by any dealer, during the
given period. No, doubt, certain deductions are also
mentioned in the definition of that expression. In these
appeals, since we ire concerned only with tax on purchases,
it is not necessary for us to advert to the definition of "
sale", in s. 2(h) except to note that it excludes goods
specified in Schedule C.
Section 4 deals with the incidence of taxation, and it makes
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 16
a dealer, whose gross turnover, during the year, in
question,
582
exceeded the taxable quantum, being liable to pay tax on all
sales and purchases, subject to the provisions of ss. 5 and
6. In fact, the purchases, for being made liable, should
have been effected after the commencement of the Amendment
Act of 1958, amending the original Act. Section 4(2-A)
provides that no tax on the sale of any goods shall be
levied, if a tax on their purchase is payable under the Act,
and this is notwithstanding anything contained in sub-ss. (
1) and (2) of s. 4. The effect of this provision is that if
a tax on purchase is payable, then, in respect of the same
goods, no tax shall be levied on their sale. Sub-s. (5) of
s. 4 defines the expression "taxable quantum". Section 5
deals with the rate of tax and it provides for levying a
tax, on the taxable turnover of a dealer, at rates not
exceeding six naye paise in a rupee, is the State Government
may, by notification, direct, and the levy must be subject
to the provisions of the Act. The second proviso to s. 5
(1) is, as follows :-
"Provided further that the rate of tax shall
not exceed two naye paise in a rupee in
respect of any declared goods as defined in
clause (e) of section 2 of the Central Sales
Tax Act, 1956, and such tax shall not be
levied on the purchase or sale of such goods
at more than one stage."
The expression "taxable turnover" is defined in s. 5(2),
but, in arriving at the taxable turnover, the various
deductions, mentioned in the sub-clauses of s. 5 (2) (a) and
s. 5 (2) (b), ire exempt. Sub-cl. (vi), of s. 5 (2) (a),
which mentions one of the items which is deductible in
arriving at the taxable turnover ’is as follows :-
turnover during that period on the purchase of
goods which ire sold not later than six months
after the close of the year, to a registered
dealer, or in the course of inter-State trade
or commerce, or in the course of export out of
the territory of India :
Provided that in the case of such a sale to a
registered dealer, a declaration, in the
prescribed form and duly filled and signed by
the registered dealer to whom the g
oods ire
sold, is furnished by the dealer claiming
deduction.!’
Section 7 deals with the registration of dealers. Section
10 relates to payment of tax and the filing of returns. Its
sub-s. 1 provides that the tax payable, under the Act,
shall be noticed in the manner provided, it such intervals
as may be prescribed. It may be mentioned here that there
is no dispute that the appellant is one of those types of
dealers who his to send quarterly returns, within the time
specified. Sub-s. (4) of s. 10 makes it
583
obligatory on the registered dealer to pay the full amount
of tax due from him, under the Act, according to his
returns, before the returns are furnished, and it provides
for the returns being accompanied by the Treasury or Bank
receipts evidencing such payment. It is only necessary to
note that the appellant, when sending its quarterly returns,
during the middle of a year, has to pay the amount of tax,
in accordance with that return, and that return should also
show the gross turnover, in accordance with the Act. Sub-s.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 16
(6) of s. 10 makes a dealer liable for penalty, in the
circumstances mentioned therein.
Section 11 of the Act deals with assessment of tax. Section
12 deals with refunds and, in the circumstances mentioned
therein, a registered dealer can claim refunds from and out
of the :Amounts which he has already paid. Section 23
provides for offences and penalties; and, particularly, cl.
(b) of s. 2 3 ( 1. ) makes failure, without sufficient
cause, to submit a return, as required. by s.10(3), an
offence. Section 27 enables the State Government to make
rules under the Act.
Rules have been framed, by the State Government, and it is
only necessary to refer to some of the rules. Rule 20 makes
it obligatory on the dealers concerned, other than those
referred to in rr. 17, 18 and 19, to furnish returns._
quarterly, within thirty days from the expiry of each
quarter. We have already referred to the fact that the
appellant is liable to send quarterly returns, Rule 27-A is
as follows :-
"A dealer who wishes to deduct from his gross
turnover the amount in respect of a purchase
on the ground that he is entitled to make such
deduction under sub-clause (vi) of clause (a)
of sub-section (2) of section 5 of the Act.
shall append to his return in form STVIIIA, a
list in form STXXVILB or form STXXVIIC as the
case may be, and produce on demand by the
Assessing Authority a declaration in writing
in form........ by the de-,tier to whom such
goods are sold or by his agent."
Rules 48 to 55 deal with the procedure to be adopted for
obtain a refund of tax paid, under s. 12 of the Act.
Coming to the Central Act, one of the purposes sought to be
achieved by that Act is to specify the restrictions and
conditions to which State laws, imposing taxes on the sale
or purchase of certain goods, which ,ire declared to be of
special importance, shall be subject. The expressions
"dealer" and "declared goods" are defined in ss. 2(b) and
2(c). respectively. "Declared goods" means goods declared,
under s.14, to be. of special importance in inter-State
trade or commerce. Section 14
enumerates the
584
various goods which are declared to be of special importance
in inter-State trade or commerce. One of the items, so
declared, is "cotton", under item (ii), which is described
as follows :-
"cotton, that is to say, all kinds of cotton
(indigenous or imported) in its unmanufactured
state, whether ginned or unginned, baled,
pressed or otherwise, but not including cotton
waste. "
Section 15, imposing restrictions and conditions in regard
to tax on sale or purchase of declared goods, within a State
is as follows:-
"15. Every sales tax law of a State shall, in
so far as it imposes or authorises the
imposition of a tax on
the sale or- purchase of declared goods, be
subject to the following restrictions and
conditions, namely :-
(a) the tax payable under that law in
respect of an), sale or purchase of such goods
inside tile State shall not exceed three per
cent of the sale or purchase price thereof,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 16
and such tax shall not be levied at more than
one stage;
(b) where, a tax has been levied under that
law in respect of the sale or purchase inside
the State of any declared goods and such goods
are sold in the course of inter-State trade or
commerce, the tax so levied shall be refunded
to such person in such manner and subject to
such conditions as may be provided in any law
in force in that State."
Pausing here for a minutes it may be stated that the attack,
regarding the validity of some of the provisions of the Act,
by the appellant, is rested on s.15(a) of the Central Act,
on the ground that such a levy of purchase tax, regarding
cotton, is neither definite nor ascertainable in the Act and
that, as the provisions now stand, there is a possibility of
the tax being levied at more than one stage. According to
the appellant, the State legislation, which deals with the
imposition of tax in respect of a sale or purchase of
declared goods, must conform to the provisions of s.15(a) of
the Central Act. The ingredients of those provisions are :
(i) In respect of "declared goods", a tax, either Oil sale
or purchase, alone, can be levied; and it cannot be on both
sale and purchase. (ii) The rate of tax should not exceed
the maximum limit fixed by the Central Act, and (iii) The
tax can be levied only at one -stage. The essence of a one-
stage taxation consists of fixation of a single point or
stage, either by the State Act or the rules framed
thereunder. In this case’, according to the appellant, it
has to send quarterly returns, even during the accounting
year and, as per S. 10(4) of the Act, it
585
has to pay also tax, in accordance with the returns
submitted by it for every quarter. In the returns that are
being sent, the dealer will have to include all purchases’
of cotton, effected by him during the quarter for which the
return is sent. There is no indication, either in the Act
or in the rules or the forms prescribed, as to whether the
persons, from whom the appellant purchased cotton, have paid
tax or not. Section 15 of the Central Act is not restricted
only to registered dealers. There will also be nothing to
guide the appellant to know as to whether the goods,
purchased by it, have been sold to it by its vendor within
the period mentioned in cl. (vi) of s. 5 (2) (a) of the Act.
Under those circumstances, there is always a possibility, or
even a certainty, of more persons than one having paid tax
or being made liable to pay tax in respect of the same goods
at different stages. That is quite opposed to the
provisions of s.15(a) of the Central. Act. Even otherwise,
it is pointed out that if a person has purchased cotton and
sells it after the period provided for in S. 5 (2) (a) (vi),
that party is liable to pay sales tax and would have also
paid the same. Another purchaser from the said party will
also be, liable to pay tax, on the same commodity, if he
sells the goods, after the period mentioned in cl. (vi).
That is, two, persons are made liable for payment of tax, in
respect of the same commodity. In other works, the
purchases of the same item of declared goods, by the persons
indicated above, are made liable for tax, whereas under the
Central Act, there can be only one levy and collection of
tax at one stage, either on sale or on purchase.
Further, it is argued that the second proviso to s. 5(1) of
the Act, is contrary to s.15(a) of the Central Act, inasmuch
as the main section, which levies the rate of tax viz., s.
5(1), as well as the Notification issued under it, Clearly
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 16
show that the Act levies tax at a far higher rate than the
maximum provided under S. 15 (a) of the Central Act. Under
these circumstances, it is pointed out. that both the second
proviso to s. 5 (1 ), and cl. (vi) of s. 5 (2) (a). of the
Act, will have to be struck down.
Counsel has also drawn our attention, to the relevant pro-
visions in the Sales-tax Acts in force ’in’ the States of
Madras, Mysore Andhra Pradesh and Uttar Pradesh, where the,
stage. -,it which the tax is to be levied either on purchase
or on sale, his been definitely and clearly indicated. Such
a provision, it is pointed out, has not been made in the
Act.
On behalf of the State, it is urged that the provisions of
the Act are quite consistent with s. 15(a) of the Central
Act. Counsel points out that the second proviso to s. 5 ( 1
) of the Act, makes it very clear that the rate of tax, in
respect of declared goods, ,-,hall not exceed the rate
mentioned in s.15(a) of the Central
586
Act, either on purchase or on sale. Counsel also points Out
that the said proviso further reiterates that the levy of
tax, either on purchase or on sale, shall not be at more
thin one stage.
Counsel further developed his argument by stating that the,
normal rule, under the Act, in respect of declared goods, is
to levy the tax, on sale or purchase, it the very first
stage, that is, when the first sale or first purchase takes
place. Therefore, the stage is definitely fixed, but the
Act itself gives, as will be seen by sub-s. (2) of s. 5,
various types of transactions which are to be excluded, in
arriving at the. dealer’s taxable turnover. It is open to a
dealer to claim exemption, in respect of any particular-
transaction, under one or other of the various clauses in S.
5(2). When that is so, the stage at which the tax is
levied, gets changed,
able to claim any exemption. But, ultimately, it is only
one transaction, of sale or purchase, that is made liable to
tax. Counsel also points out that the first proviso to S.
5(1), of the Act, which is quite in conformity with s.15(a)
of the Central Act, is perfectly valid. It is pointed out
that in respect of persons claiming exemption, under cl.
(vi) of S. 5 (2) (a), the procedure to be adopted is
indicated in r. 27A, of such a purchaser getting a
declaration, in the form mentioned therein, from the dealer,
to whom such goods are sold, or by his agent. Therefore,
tinder those circumstances, if once a dealer gives a
declaration to his vendor, -the former will clearly know
that the latter is exempt from taxation, and the liability
to pay tax is his, unless lie is able to pass it on to
others. There is no uncertainty, in the matter of fixing
the stage, regarding the levy of sale or purchase tax.
Therefore, that provision also is not violative of the
Central Act. Counsel also urges that in case a party is
eligible for refund, on the ground that he is not liable to
pay, in respect of any particular purchase, ample provision
is made for obtaining, refund, under s. 12 of the Act.
Therefore, under those cirCumstances, the State presses for
the decision of the Punjab High Court, being upheld.
We are not impressed with the contentions of the counsel for
the State. A perusal of the judgment, under attack, shows
that tile learned Judges themselves were very much impressed
by the various aspects presented before them, on behalf’ (if
the appellant. In fact, the learned Judges observe that the
various difficulties, pointed out by the petitioner before
them, did exist in the actual working of the Act, but the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 16
view of the The Court was that s.12 of the Act provided for
obtaining a refund and, therefore, though the petitioner
might have to deposit. initially, the tax in respect of the
purchases, when the quarterly returns were being submitted,
it was open to it to obtain refunds ,it the appropriate
stage.
The provisions of the statutes, in question, have been
referred to by us earlier. Section 15(a), of, the Central
Act, makes it mandatory that the tax shall not be levied at
more than one stage. In this case, the State does not levy
any tax, both on the sale and purchase, of the same declared
goods. The second proviso to s. 5 ( 1 ) is, no doubt,
substantially in accordance with the provisions of s. 15(a),
of the Central Act. That proviso was absolutely necessary,
because. without it, it would have been prima facie open to
the State to levy tax under s. 5, it a higher rate than that
indicated in the, Central Act, in which case it would
certainly have been illegal. The mere existence of the
second proviso, to s. 5 (1 ) of the Act, does not materially
advance the case of the State.
That same proviso, came up for consideration, before this
Court, in Modi Mills v. C.I.T., Punjab( 1 ). In dealing with
the proviso, Hidayatullah, J., speaking for the Court,
observed, at 600
"The meaning or the intention of cl.(3) of
Art. 286 is not to destroy all charging
sections in the Sales
Tax Acts of the States which are discrepant
with s.t5 (a) of the Central Sales Tax Act,
but to modify them
in accordance therewith. The law of the State
is declared to be subject to the restrictions
and conditions contained in the law made by
Parliament and the rate in the State Act would
pro tanto stand modified. The effect of Art.
286(3) is now brought out by the second
proviso, to s. 5 ( 1 ). But this proviso is
enacted out of abundant caution and even
without it the result was tile same."
From the observations, noted above, it will be clearly seen
that the proviso, in question, does not serve any material
purpose, because, even, if that proviso did not exist in the
State Act, the authorities cannot levy tax, on declared
goods, at a rate higher than that laid down in the Central
Act. Therefore, the mere injunction, by the Legslature, is
contained in the second proviso to S. 5(1), that the rate
should not be higher than the one fixed in the Central Act,
and that the levy must be ,it one stage, as again mentioned
in the Central Act, will be of, no avail, unless the Act, or
the rules framed under it, make ’it very clear that there
will be no levy or collection of tax, except from the
persons who are bound to pay, is per the Central Act. It is
here that there considerable difficulty caused by the
absence, of any provision, either in the Act or in the rules
or the forms, indicating the stage at which the tax is to be
levied. In the case or commodities
(1) [1965] 1 S.C.R. 591.
588
like cotton, which come under the category of "declared
goods", tax can be levied only at a single point, as is made
clear by s. 15 (a) of the Central Act, and, in our opinion,
there can be no legal liability for payment of tax accruing,
until and unless the Act, or the rules framed thereunder,
prescribe a single point for taxation. For the matter of
that, even in the final return to be sent by a dealer, under
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 16
the Act, the dealer will have to show, in the taxable
turnover, all purchases of cotton effected by him during the
accounting year. We have already referred to the fact that,
along with the returns, the tax payable on the basis of
those returns, will have to be paid. At that stage the
question naturally arises, as to whether there is anywhere
in the Act or the rules any provision, by which the person,
sending the return, ’will be able to know that the tax, in
respect of the declared ,goods purchased by him, has already
been paid by another dealer and that the value of the
Purchases, effected by him, need not be shown in his return.
He cannot take, an off hand chance, in this matter, because
there are very heavy penalties imposed on a dealer, for
failure to include, in the returns sent by him. .any
transactions in respect of which he is liable to pay tax.
If that is the position a,, the end of a year, when the
final return is sent, the position becomes still worse when
the quarterly returns accompanied by payment of taxes, are
’to be sent during the course of the accounting year itself.
Counsel, for the respondent, has pointed out that, if a
dealer wants to claim exemption, under sub-cl. (vi) of s. 5
(2) (1), r. 27A provides for his getting a declaration from
the dealer, to whom the goods are resold, in which case, the
dealer is absolved from the liability to pay tax. We have
gone through the various statements contained in the said
Rule, as well as the Forms, to which it refers, but they are
not decisive, either way. There also be cases where a non-
registered dealer may have intervened and, even if such
dealers intervene, it is clear that tinder s. 15(a) of the
Central Act, the tax cannot be levied at more than one
stage. There is no machinery by which a dealer can
ascertain whether his vendor, of the declared goods, has
paid the tax already. Even otherwise, it will be seen, that
if a dealer, A, the declared goods, to B, six months after
the close of the (B being a registered dealer), A becomes
liable to purchase tax. But, if B sells the identical
declared goods, again, after the period, mentioned in sub-
cl. (vi), he will also be liable to pay purchase tax. That
means, inspect of the, same item of declared goods more than
one person is made liable to pay tax and the tax is also
levied at more than one stage. That is not permissible,
under s. 15(a) of the Central Act. If goods are resold to a
nonregistered dealer, within the period, sub-cl. (vi), will
not help tile original purchaser. We may also point out, it
this stage,
589
that sub-cl. (vi), of s. 5 (2) (a), negatives the assumption
that the normal rule, under the Act, in respect of declared
goods, is to levy the tax on the first purchaser.
Mr. Bishan Narain, counsel for the State, faced with these
difficulties, no doubt referred us to the provisions
contained in s. 12 of the Act, relating to refunds. Counsel
pointed out that the manner in which a purchaser can claim
refunds, is also elaborately indicated in rr. 48 to 55 of
the Rules. If persons, like the appellants, satisfied the
authorities concerned that they had paid amounts, by way of
tax, which they were not legally bound to pay, it was open
to them to ask for refunds of such excess amounts paid.
Therefore, even assuming that, in the first instance, the
appellant has paid the purchase tax and, later on, it is
found that it is not liable for the same, S. 12 of the Act
would afford adequate relief. We are not impressed with
this argument. The position is not so simple. Even in the
matter of obtaining refunds, there can be no controversy,
that the appellant will have to place, before the officer
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 16
concerned, particulars of transactions connected with the
commodity, in question and also the basis on which it claims
the relief. It will be absolutely difficult, if not
impossible, for persons like the appellant, to collect
materials in this behalf, because, there is no provision,
contained either in the Act or the rules, on the basis of
which it will be, entitled to be, supplied with all the
material information, relevant, for sustaining a request for
refund. If the Central Act makes it mandatory that the tax
can be collected only at one stage, in our opinion,it is not
enough for the State to say that a person, who is not liable
to pay tax, must, nevertheless, pay it in the first
instance,and then claim refund, at a later stage. We may
state that the,questionas to how far a party can ask for
refund, without the order of assessment being set aside, by
appropriate proceedings, is highly doubtful; because, at the
time when the actual order of assessment is passed, in
certain cases, it may not be possible for a party to say
whether he is entitled to exemption, or not, under Sub-cl.
(vi) of s. 5(2)(a) of the Act. If a person is not liable
for payment of tax at all, at any time, the collection of a
tax front bim. with a possible contingency of refund at a
later stage, will not make the original levy valid; because,
if particular sales or purchase are exempt from taxation
altogether, they can never be taken into account, at any
stage, for the purpose of calculating or arriving at the
taxable turnover and for levying tax.
In this connection, we may refer to the observations of this
Court in A. V. Fernandez v. The State of Kerala(1). This
Court. after reffering to the observations-made earlier in
Messrs. Chatturam. Horilram Ltd. v. Commissioner of Income-
tax, Bihar &
(1) [1957] S.C.R. 837.
590
Orissa(1), regarding the three stages in the imposition of
tax, being the declaration of liability, assessment, and
recovery, said, at p. 852 :
"If there is a liability to tax, imposed under
the terms of the taxing statute, then follow
the provisions in regard to the assessment of
such liability. If there is no liability to
tax there cannot be any assessment either.
Sales or purchases in respect of which there
is no liability to tax imposed by the statute
cannot at all be included in the calculation
of turnover for the purpose of assessment and
the exact sum which the dealer is liable to
pay must be ascertained without any reference
whatever to the same.
There is a broad distinction between the
provisions contained in the statute in regard
to the exemptions of tax or refund or rebate
of tax on the one hand and in regard to the
non-liability to tax or non-imposition of tax
on the other. In the former case, but for the
provisions as regards the exemptions or refund
or rebate of tax, the sales or purchases would
have to be included in the gross turnover of
the dealer because they are prima facie liable
to tax and the only thing which the dealer is
entitled to in respect thereof is the
deduction from the gross turnover in order to
arrive at the net turnover on which the tax
can be imposed. In the latter case, the sales
or purchases are exempted from taxation
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 16
altogether. The Legislature cannot enact a
law imposing or authorising the imposition of
a tax thereupon as they are not liable to any
such imposition of tax. If they are thus not
liable to tax, no tax can be levied or imposed
on them and they do not come within the pur-
view of the Act at all. The very fact of
their nonliability to tax is sufficient to
exclude them from the calculation of the gross
turnover as well as the net turnover on which
sales tax can be levied or imposed."
The above observations clearly lay down that the provisions
contained in a statute, with respect to exemptions of tax or
refund or rebate, on the one hand, must be distinguished
from the total non-liability or non-imposition of tax, on
the other. These observations, also, in our opinion,
effectively provide In answer to the stand taken by the
State, in this case that s. 12 of the Act provides -,in
adequate relief, by way of refund, even if tax is collected
at an earlier stage.
Having due regard to the various matters mentioned above.
we are satisfied that the decision of the High Court.
upholding
(1) [1955] 2 S. C.R. 290, 297.
591
the orders of assessment passed by the Officer, in question,
cannot be sustained.
We have already indicated that there is one other point,
arising for decision, in Civil Appeals Nos. 2387 and 2388 of
1966. That relates to the validity of the Notification,
issued by the State Government, under s. 5 of the Act, on
September 26, 1961. The assessment periods, covered by
these two appeals, relate to 1960-61 and 1961-62. At the
material time, the definition of the expression "purchase,"
as contained in s. 2(ff), has been already referred to by
us. The definition of the word "purchase" was first
introduced in the Act, by Punjab Act VII of 1958. According
to that definition, it was as follows :-
" ’Purchase’, with all its grammatical or
cognate expressions, means the acquisition of
goods other than sugarcane, foodgrains, and
pulses for use in the manufacture of goods for
sale, for cash or deferred payment or other
valuable consideration, otherwise than under a
mortgage, hypothecation, charge or pledge."
By Punjab Act XIII of 1959, the words "other than sugarcane,
foodgrains and pulses", were omitted. Then there was a
further amendment, by -Punjab Act XXIV of 1959 and, after
the said amendment, cl. (ff) stood as follows :-
" ’Purchase’, with all its grammatical or
cognate expressions, means the acquisition of
goods specified in Schedule C for use in the
manufacture of goods for sale, for cash or
deferred payment or other valuable consi-
deration, otherwise than under a mortgage,
hypothecation, charge or pledge."
This definition was again amended by Punjab Act XVIII of
1960. The rate of tax, provided by the Act, was 4% and, we
have already indicated that the Central Act was enacted in
1956; and we have also adverted to the material provisions
therein.
We have adverted to the fact that, under 5 of the Act, the
rate of tax that is to be levied,, is to be contained in the
notification that is to be issued under S. 5 ( 1 ).
Accordingly, on April 19, 1958, the State Government issued,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 16
under s. 5(1), a.,; amended by the Punjab Act VII of 1958, a
Notification regarding the rate of tax. in that
Notification, the rate of tax on the purchase of goods, by a
dealer, for use in the manufacture of goods for sale was
fixed at 2 naye paise in the rupee. Section 2(ff) was,
later on amended in 1960, by Punjab Act XVIII of 1960, and
the definition of "Purchase", as contained in this
provision, has already been referred to by us. The State
Government issued a Notification under S. 5(1) of the Act,
on September 26, 1961.
592
Under this Notification, it was provided that the rate of
tax on the purchase of goods specified in Schedule C,
appended to the Act, would be 2 naye paise in the rupee.
The contention that was taken by the appellant was that,
notwithstanding the fact that the definition of the
expression "purchase", was changed with effect from April 1,
1960, the Notification fixing the rate of tax, under that
amended definition, was not issued until September 26, 1961,
and it was further urged that, in consequence, no assessment
could be made of any tax on declared goods, mentioned in
Schedule C, prior to September 26, 1961.
It was not disputed by the State that no fresh notification
was issued, after the expression "purchase" was amended in
1960, till September 26, 1961. But the State attempted to
sustain the levy on the ground that the original
notification, of April 19, 1958, would be valid even after
the amended definition in S. 2(ff), ,is it now stands. It
is open to the State to tax all purchases which conic within
the definition of s. 2(ff) as it now stands, but the State,
it is pointed out, must be considered to have chosen to levy
tax only if the purchases have been made for use in the
manufacture of goods for sale. Alternatively, it was also
pointed out that the notification, issued in 1958, must be
considered to have validity, even after the amendment, by
virtue of S. 22 of the Punjab General Clauses Act. We are
not impressed by these contentions, advanced on behalf of
the, State.
Section 22 of the Punjab General Clauses Act has no applica-
tion, whatsoever, to these cases. Apart from the fact that
there is no question of the 1958 Act being repealed, or re-
enacted, it is also clear that the definition of the
expression, under S. 2(ff), as it stood in 1958, on the
basis of which the notification of 1958 was issued, is quite
inconsistent with the amended definition of the expression
"purchase", in S. 2(ff), in 1960. The High Court has
sustained the levy of tax under the original ’notification
of 1958, on the basis of S. 22 of the Punjab General Clauses
Act, which, in our opinion, does not assist the State. It
is not open to the State to urge that it is entitled, in the
matter of levying tax, on transactions by way of purchase,
to tax only the category of purchases for use in the
manufacture of goods for sale. Further, the State has not
been able to satisfy us that there is any reasonable
classification made, which will enable this Court to sustain
the Notification. Inasmuch as no fresh notification had
been issued, under s. 5(1), till September 26, 1961, the
assessment for the years 1960-61 and 1961-62, on the basis
of the Notification issued in 1958, cannot be sustained, on’
this additional ground also
593
We therefore allow the appeals, in the manner indicated
above. The State will pay costs to the appellant in Civil
Appeal No. 2386 of 1966.
Sikri, J. I have read the judgment prepared by my brother,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 16
Vaidialingam, J. I agree with him that assessments for the
years 1960-61 and 1961-62 on the basis of notification
issued cannot be sustained and Civil Apeals Nos. 2387 and
2388 of 1966 have to be allowed. But, with respect, I
regret I cannot agree with him that the assessments in
question have to be quashed on the ground that they violate
s. 15 of the Central Sales Tax Act. My brother has set out
the relevant statutory provisions and it is not necessary to
extract them here. In my opinion the Punjab Act does in
effect comply with the requirements of s. 15 of the Central
Sales Tax Act because it is possible to find out the stage
at which purchase tax becomes leviable on goods mentioned in
Schedule C. This stage is the first purchase by a dealer,
which is not exempted from taxation or which is not
deductible from the taxable turnover of a dealer under s. 5
(2) of the Punjab Act. In my view, this follows. from ss. 4
and 5 of the Punjab Act. Subject to the provisions of ss. 5
and 6, s. 4 makes a dealer liable in respect of all
purchases, first purchases, second purchases and last
purchases, but the second proviso to s. 5 provides, in
effect, that the purchase tax shall not be levied at more
than one stage. Which stage does the proviso cut out? It
seems to me that every purchase except the first purchase
has been eliminated. Take the following illustration:
Dealer A buys cotton, A sells it to dealer B, and B sells it
to dealer C. If dealer A is liable to pay purchase tax under
s. 4, by virtue of the proviso no other dealer is liable,
because otherwise this would amount to imposing tax at more
than one stage. Could not dealer B or C say to the
assessing authority that it is A who is liable, and if he is
liable, the proviso exempts them from paying purchase tax ?
But it is said that B and C may not know that A is liable.
While buying goods, B has only to enquire from A whether his
is the first taxable purchase. Indeed A, in order to claim
exemption under s. 5 (2) (a) (vi) will ask B to give him a
declaration form. Therefore, both A and B will know the
true position, and A will claim the exemption and B will pay
purchase tax unless he sells to another dealer. If B
sells to another dealer D after the expiry of six months
after the close of the year, the period mentioned in s. 5
(2) (a) (vi), B will be liable to purchase tax. B may not
asked for the prescribed declaration form for it may be
useless for him, but D will find out whether he is buying
goods liable to purchase tax or not. B will tell D that he
has not to pay purchase tax and will perhaps include
purchase tax in the price. It seems to me that if dealers
behave like businessmen, which they will ordinarily do,
there will be no difficulty in working the provisions.
L7Sup.Cl/67-8
594
of the Punjab Act. But if by mischance there is double
taxation the State can only make a suitable provision for
refunds.
In my view, the Punjab Act is in consonance with S. 15 of
the Central Act, and if there is a possibility of taxation
at more than one stage, the Punjab Act cannot for this
reason be treated as void. My brother does not say that the
Punjab Act is void but in effect he implies it.
Let me now deal with the case when an unregistered dealer
intervenes. In the illustration I have given above let us
deem C to be an unregistered dealer. A sells to B, and B
sells to C. B will be liable to pay purchase tax because he
cannot claim exemption under s. 5 (2) (a) (vi). Suppose B
in the above illustration is an unregistered dealer. Here B
is liable to purchase tax unless he sells to C, a registered
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 16
dealer and obtains the prescribed declaration. If C is an
unregistered dealer, then B would be liable and not C.
If an unregistered dealer wants to escape taxation and his
transactions are not known to the Sales Tax authorities till
he is assessed under s. 11 (6) of the Punjab Act, the only
way of complying with the second proviso to S. 5 and S. 15
of the Central Act is to give refund to a dealer who has
been taxed in the meantime. The same thing would happen as
far as I can see, under the State Acts which fix in terms a
specific stage.
I may here mention that according to me the second proviso
to s. 5 serves one useful purpose. It makes the Punjab Act
immune from challenge on the ground that its provisions
-infringe s. 15 of the Central Act. The Punjab Act being
good, it is only the assessments that can be challenged on
the ground that they violate the second proviso to S. 5 of
the Punjab Act. This aspect was not apparently brought to
the notice of this Court in Modi Mills v. C.I.T. Punjab(1).
Accordingly I would dismiss Civil Appeal No. 2386 of 1966
with costs, and allow Civil Appeals Nos. 2387 of 1966 and
2388 -of 1966, with costs.
ORDER
In accordance with the opinion of the majority the appeals
are allowed in the manner indicated in the judgment. The
State will pay costs to the appellant in Civil Appeal No.
2386 of 1966.
V.P.S.
(1) [1965] S.C.R. 592.
595