Full Judgment Text
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CASE NO.:
Appeal (civil) 2653 of 2006
PETITIONER:
M/s. Peekay Re-rolling Mills (P) Ltd
RESPONDENT:
The Assistant Commissioner & Anr
DATE OF JUDGMENT: 20/03/2007
BENCH:
ASHOK BHAN & DALVEER BHANDARI
JUDGMENT:
J U D G M E N T
With
CIVIL APPEAL NOS. 2654 & 4406 of 2006
BHAN, J.
Civil Appeal Nos. 2653 and 2654 of 2006 are
directed against the impugned final judgment dated
7.4.2006 of Kerala High Court at Ernakulam in Writ
Appeal No. 434 of 2000 and Writ Appeal No. 433 of
2000 by which the Division Bench dismissed the writ
appeals thereby upholding the order of the Single
Judge, rejected the challenge to the two show cause
notices issued to the appellant. Civil Appeal No. 4406
is arising out of judgment dated 7.7.2006 of the Kerala
High Court in Sales Tax Revision No. 9 of 2006 by
which the Division Bench dismissed the Revision
relying upon the judgment of the Division Bench in
Writ Appeal No. 434 of 2000 of the same High Court.
We propose to dispose of these appeals by a
common order, as the point involved in all these
appeals is the same.
Facts are taken from Civil Appeal No. 2653 of
2006.
FACTS
The appellant is a company registered under the
Companies Act, having its Registered Office at
Kozhkkode. It is a registered dealer under the Kerala
General Sales Tax Act, 1963 (for short ’the State Act’).
It carried on the business of steel re-rolling mills at
Nallalam, Kozhikode. The raw material used by the
appellant in the production of bars and rods, is steel
ingots, which the appellant either manufactures or
purchases from other manufacturers from within or
outside the State. Purchase of steel ingots effected by
the appellant within the State are from manufacturing
units, which are exempt from the payment of sales tax
on the sale of such ingots by virtue of an exemption
notification issued under Section 10 of the State Act.
For the Assessment Year 1994-95, appellant
submitted a return of turnover and was assessed to
tax declaring the taxable turnover at nil, by an order
dated 15.1.1998 by the assessing officer. In respect of
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the assessment year 1995-96 also, the appellant’s
assessment was completed determining the taxable
turnover at Rs. 21,85,550/- vide order dated
15.1.1998. While this was so, the appellant received a
show cause notice dated 11.1.2000 for the assessment
year 1994-95 and another notice dated 12.1.2000 on
the same date for the assessment years 1996-97 to
1999-2000. In the first show cause notice relating to
the assessment year 1994-95, the assessing officer
stated that the appellant had purchased ingots from
dealers within the State who were exempted from
payment of tax and consumed the same in the
manufacture of bars and rods during the year
1994-95. The notice further stated that the ingots
purchased were goods liable to tax under the State Act
and since the supply of such ingots did not suffer any
tax at the time of sale due to the exemption
notification under Section 10(1) of the State Act,
purchase turnover of the ingots during the year and
consumed in the manufacture by the appellant
attracted liability to tax under Section 5A of the State
Act. The notice alleged that the purchase turnover of
the ingots had escaped assessment under Section 5A
of the State Act and accordingly proposed to determine
the turnover liable to tax and assess the same at 4%.
It was stated that on the request of the appellant, a
hearing would be given to the appellant before
completing the assessment as proposed.
Notice relating to 1996-97 to 1999-2000 was
worded differently. The said notice stated that the
appellant had purchased ingots, scraps, mosrolls, etc.
from units within the State claiming tax exemption
and consumed the same in the manufacture of bars
and rods during this period. It was further stated that
since the goods had not suffered tax under Section 5A
of the State Act, they were liable to pay purchase tax
under Section 5A and called upon the appellant to
remit tax with interest under Section 22 (3) within 10
days of the receipt of notice failing which an action
would be taken to recover the tax.
The appellant being aggrieved filed the two
separate writ petitions challenging the two show cause
notices issued to him. Learned Single Judge dismissed
the writ petitions in limine by observing that the case
involved disputed questions of fact which could not be
decided in a writ petition under Article 226 of the
Constitution and relegated the petitioner to avail of the
remedies provided under the State Act. It was held
that the writ petition was not the appropriate remedy
and the appellant was accordingly directed to avail of
the remedies provided under the State Act. Learned
Single Judge directed the appellant to file objections to
the notices before the assessing officer who shall
consider the same while framing the assessment.
Assessing Authority was directed to complete the
assessment in accordance with law after affording due
opportunity to the appellant.
Aggrieved by the above order of the learned Single
Judge, the appellant preferred two separate writ
appeals. The Division Bench dismissed the writ
appeals by a common order and held that the learned
Single Judge was in error in directing the appellant to
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avail the remedies provided under the State Act. The
Division Bench, however, rejected the main contention
of the appellant that in view of the provisions of Article
286(3) of the Constitution of India read with Section
15 of the Central Sales Tax Act (for short ’the Central
Act’), it was impermissible to levy purchase tax under
Section 5A of the State Act. In support of this
contention, it was submitted by the counsel for the
appellant that the iron ingots being declared goods
could be subjected to tax under Section 5 read with
Second Schedule of the State Act in the hands of the
seller only; that the declared goods like the one
involved in the present case could be subjected to levy
only at one point and that point had been specified by
the Statute as being ’first sale’. That goods could not
be subjected to purchase tax in the hands of the
purchaser under Section 5A of the State Act. The
Division Bench of the High Court relying upon a
judgment of this Court rejected these contentions and
held that the expression "levy" includes collection of
tax as well and not mere imposition. It was held that
in the absence of collection of tax, there is no levy and
since, the goods were exempted from payment of Sales
Tax, the goods could be subjected to levy of purchase
tax under Section 5A of the State Act. That the levy did
not mean imposition only, the same included the
collection of tax as well. Where there is no collection,
there is no levy and accordingly, the goods which are
not subjected to levy of tax at the point of sale could be
subjected to levy of purchase tax under Section 5A.
Learned counsel for the appellant has contented
before us that goods being declared goods, under
Section 14 of the Central Act are subjected to limits
placed by Section 15 of the Central Act, namely:
(1) the tax payable on the sale or purchase of
iron and steel under the law of a State
shall not exceed 4% and
(2) such tax shall not be levied at more than
one stage.
It follows that if, iron and steel are subjected to a
single point levy of tax at the first point of sale, then
there is no question of a second levy or charge at any
subsequent point of sale or purchase.
According to him, iron and steel which are the
goods in question were made liable to sales tax at the
stage of first sale at 4% under Section 5(1) read with
Second Schedule of the State Act. That in view of
Section 5(1) read with Second Schedule of the State
Act, the burden of tax could not be shifted to the
purchaser as the State Government had already
notified that the tax would be at the point of first sale
and the rate of tax would be 4%. That the High Court
erred in assuming that the word "levied" in Section
15(a) of the Central Act is used in the sense of imposed
and collection. According to him, the word levy could
cover both imposition and non-collection of tax
imposed will not cease to be a levy of tax.
It was further contended that the High Court
erred in distinguishing the judgment of this Court in
Shanmuga Traders & Ors. v. State of T.N. and Ors.,
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(1998) 5 SCC 349 and that of the Constitution Bench
judgment in Bhawani Cotton Mills Ltd. v. State of
Punjab", (1967) 3 SCR 577. According to him, the
reliance placed by the High Court in Town Municipal
Committee, Amravati v. Ramchandra Vasudeo
Chimote, (1964) 6 SCR 947 is unwarranted as in the
said case this Court was interpreting the expression
"continued to be levied" and "to be levied to the same
purposes" in Article 277 of the Constitution of India.
A strong reliance was placed by him on the
decisions of this Court in Assistant Collector of Central
Excise, Calcutta Division v. National Tobacco Co. of
India Ltd.", (1972) 2 SCC 560, Somaiya Organics
(India) Ltd. v. State of U.P., (2001) 5 SCC 519, Pine
Chemicals Ltd. v. Assessing Authority, (1992) 2 SCC
683 and Associated Cement Companies Ltd. v. State of
Bihar, (2004) 7 SCC 642.
As against this, learned counsel appearing for the
respondent contended that Section 5A was introduced
in the State Act with effect from 1.4.1970 which is an
independent charging as well as a remedial section.
The main object of Section 5A of the State Act is to
plug leakage and prevent evasion of tax. According to
him, it created a liability against the dealer on his
purchase turnover, with regard to goods, the sale or
purchase of which though generally liable to tax under
the State Act has not due to circumstances of
particular sales, suffer tax and which after the
purchase, have been dealt by him in any of the modes
indicated in clauses (a) (b) and (c). It was conceded
that in the case of declared goods, the conditions
imposed by Section 15 of the Central Act have to be
complied with and the levy could not be at more than
one stage but Section 5A of the State Act operates by
its own force in cases where taxable goods did not
suffer tax under Section 5 and purchaser does not use
the goods in any of the three modes specified in
clauses ’a to c’. That the purchase tax in the State of
Kerala is capable of being levied only where no sales
tax is levied on the taxable goods, thus only a single
point levy or one stage levy takes place, i.e., either
sales tax or purchase tax and not both. According to
him, in view of the provisions of the State Act, the
expression levy would include collection or payment as
well and not mere authorization of levy.
Counsels for the parties have been heard at
length.
Section 5 and Second Schedule of Section 5 of the
State Act, as it stood at the relevant time, read as
under:
"S.5-Levy of tax on sale or purchase of
goods \026(1) Every dealer (other than a
casual trader or agent of a non-resident
dealer) whose total turnover for a year is
not less than (two lakh rupees) and every
casual trader or agent of a non-resident
dealer, whatever be his total turnover for
the year, shall pay tax on his taxable
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turnover for that year,-
(i) in the case of goods specified in
the First or Second Schedule, at
the rates and only at the points
specified against such goods in
the said Schedules;
(ii) XXXXXXXXXXXXX
(iii) XXXXXXXXXXXXX
(iv) XXXXXXXXXXXXX"
Second Schedule of Section 5 of the State Act, as it
stood at the relevant time, reads as under:
"Second Schedule
Declared goods in respect of which a single point
tax only is leviable under sub-section (1) or sub-
section (2) of Section 5
SL. Description of Goods Point of levy Rate of Tax
No. per cent
(1) (2) (3) (4)
1. Oil seeds as defined in At the point of
Sec.14 of the Central first sale in the
Sales Tax Act, 1956 State by a dealer
(Central Act 74 of who is liable to
1956), other than tax under
groundnut, coconut Section 5 4
and copra
2. (i) Coal including coke
in all its forms but
excluding charcoal -do- 4
(ii)Iron and steel that is
to say -do- 4
xx xxxx xx xx
Section 5A of the State Act, as it stood at the
relevant time, reads as under: -
"5A. Levy of purchase tax:
(1) Every dealer who, in the course of his
business, purchases from a registered
dealer or from any other person any
goods, the sale or purchase of which is
liable to tax under this Act, in
circumstances in which no tax is payable
under Sub-sections (1), (3), (4) or (5) of
Section 5 and either,
(a) consumes such goods in the
manufacture of other goods for
sale or otherwise; or
(b) uses or disposes of such
goods in any manner other
than by way of sale in the State;
or
(c) despatches them to any
place outside the State except
as a direct result of sale or
purchase in the course of inter-
State trade or commerce; shall,
whatever be the quantum of the
turnover relating to such
purchase for a year, pay tax on
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the taxable turnover relating to
such purchase for the year at
the rates mentioned in Section
5."
Section 15 of the Central Act, as it stood at the
relevant time, reads as under: -
"15. Restrictions and conditions in
regard to tax on sale or purchase of
declared goods within a State - 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 any sale or
purchase of such goods inside
the State shall not exceed four
per cent of the sale or purchase
price thereof;
(b) XXXXXXXXXXXXX
(c) XXXXXXXXXXXXX
(ca) XXXXXXXXXXXXX
(d) XXXXXXXXXXXXX"
(These provisions have been modified later on or have
been done away with as of now.)
DISCUSSION
Article 286(3) of the Constitution of India places
restriction on the power of every State to impose or
authorize the imposition of tax on sale or purchase of
declared goods. Article 286 and Section 14/15 of the
Central Act are solely concerned with the declared
commodities. We are concerned with the taxation of
goods which under Section 14 of the Central Act have
been declared to be of special importance in inter-state
trade or commerce. In case turnover of such goods is
subjected to tax under the sales tax laws, Section 15
prescribes the maximum rate at which such tax shall
be levied and the same could not be levied at more
than one stage. The two conditions have been imposed
in order to ensure that inter-state trade or commerce
in such goods is not subjected to heavy taxation within
the State occasioned by excessive rate of tax or by
multipoint taxation. If either of the two conditions are
not satisfied, the imposition of sales tax will not be
valid.
Section 5 of the State Act provides that in the case
of goods specified in the First and Second Schedule,
the tax could be at the rates and points specified
against such goods in the said Schedules which in the
present case is at the point of first sale in the State by
a dealer. The liability to tax and the rate of tax under
Section 5 is prescribed at 4%. As far as this section is
concerned, the conditions specified under Section 15
of the Central Act are prima facie complied with.
Further, under Section 10 of the State Act the State
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Government granted certain exemptions by way of
S.R.O.No.1729/93, within the purview of which the
goods in the present case fall.
The controversy in the instant case arises when a
tax is sought to be levied under section 5A of the State
Act on the same goods that are taxable under section
5, but exempted. The essential question that we are
required to adjudicate upon is whether the tax sought
to be levied under section 5A on these goods, would
amount to tax at a second stage and therefore violate
Section 15 of the Central Act.
It is clear that by virtue of Section 15 of the
Central Act, declared goods once made liable to tax
cannot be made to suffer an additional tax liability. In
the present case, the goods have already been made
liable to tax under Section 5 of the State Act and
exempted by a notification under Section 10; and the
same goods are sought to be taxed under Section 5A in
the hands of the purchaser.
What we are required to examine is the impact of
this exemption to ascertain whether the second levy
made under Section 5A of the State Act violates
Section 15 of the Central Act. In other words, we need
to find out whether not collecting the tax amount
pursuant to the exemption necessarily implies that
there was never any levy to begin with, as has been
contended by the respondent. For if this is indeed the
position, then there would be no infirmity with the levy
of tax made under Section 5A of the State Act in
respect of the declared goods, since the exemption
would negate the levy and the consequent liability to
pay tax. However, if the exemption does not affect the
liability to tax and operates subsequent to the levy, as
the counsel for the appellant has contended, then the
tax under Section 5A of the Sate Act would fall foul of
the conditions of Section 15 of the Central Act.
It is an accepted position before us today that
Section 5 and Section 5A of the State Act are
independent sections and this is acknowledged by
both parties, in the light of the observations made in
State of Tamil Nadu v. M.K. Kandaswami, (1975) 4
SCC 745. This case involved the interpretation and
validity of Section 7A of the Madras General Sales Tax
Act, 1959 which is in pari materia to Section 5A of the
Kerala General Sales Tax Act, 1963 . Although this
case did not deal with declared goods under Section 14
of the Central Act and the resulting applicability of the
condition of single-stage levy under Section 15 of the
Central Act, it did make certain observations relevant
to the present discussion. The Court observed that:
"In our opinion, the Kerala High Court
has correctly construed Section 5A of the
Kerala Act which is in pari materia with
the impugned Section 7A of the Madras
Act. "Goods the sales or purchase of
which is liable to tax under this Act in
Section 7A(1)" means ’taxable goods’,
that is, the kind of goods, the sale of
which by a particular person or dealer
may not be taxable in the hands of seller
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but the purchase of the same by a dealer
in the course of his business may
subsequently become taxable. We have
pointed out and it needs to be
emphasised again that Section 7A itself
is a charging section. It creates a liability
against a dealer on his purchase
turnover with regard to goods, the sale or
purchase of which though generally
liable to tax under the Act, have not due
to the circumstances of particular sales,
suffered tax\005.
[Emphasis supplied]
The Court also analyzed the Section and indicated
the conditions necessary for the applicability of the
Section and reaffirmed its validity. It has been
contended that since these conditions are fulfilled, the
levy under section 5A of the State Act is valid.
However, while these observations are relevant for the
understanding of the section and its validity, this case
has no real bearing on the present one since it never
involved a question of tax on declared goods under
Section 14 of the Central Act and the conditions laid
down in this regard, specifically that of a single point
levy. Satisfying the conditions laid down in
Kandaswami’s case (supra) therefore does not validate
the present levy, which is on declared goods under
Section 14 of the Central Act.
The impugned judgment of the Division Bench has
distinguished the case of Shanmuga Traders (supra).
The Shanmuga’s case (supra) involved the sale of iron
and steel by the Tamil Nadu Electricity Board and later
made exempt from tax under the State Act pursuant to
an exemption notification. These goods were declared
goods under Section 14 of the Central Act and
therefore could only be subject to a single-stage levy.
However, by a circular issued by the Commissioner of
Commercial Taxes, the person who purchased from
the Board and sold the metal was made liable to tax,
on the ground that "he was effectively the first seller
liable for tax". The circular placed reliance on two
Madras High Court judgments, Vasu General Traders
v. State of T.N. [(1987) 66 STC 358] in which the goods
involved were not declared goods. Vasu’s case (supra)
was followed by the Madras High Court in the case of
Royal Steel Traders, Madras [(1992) 1 MTCR 580]
wherein the goods involved were declared goods under
Section 14 of the Central Act. The circular under
challenged was issued in supersession of the earlier
circulars in view of the fact that the Madras High
Court in Royal Traders case (supra) had held that
declared goods could also be subjected to tax at a later
stage because no tax had been paid on it. The High
Court accepted the submission of State and upheld
the validity of the circular. This Court, however, did
not accept the reasoning of the Madras High Court
and set aside the Judgment. Overturning the
judgment, it was held that the circular was bad in law
because if there was a condition of a single stage levy,
and there was an exemption, then, no subsequent
sales could be taxed. The Court observed as follows:
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Para 12
"\005.The goods with which we are
concerned being declared goods, they
can only be taxed at a single point, that
is, only one sale in the State can be
subjected to tax. It is for the State to
determine whether the single point
should be the point of first sale in the
State or the last sale in the State or any
intermediate sale in the State. If the
single point is fixed by the State at, say,
the point of first sale and the State
exempts the first sale from payment of
tax, either by a general provision or a
specific provision applicable to a class of
seller, the particular seller or the goods
sold may not be subjected to tax at
either that point of first sale or any
subsequent sale in the State.
Para 13
The Second Schedule of the State Act
specifies the single point; it is "the point
of first sale in the State". The first sale in
the State was the sale by the said Board
to the appellants/petitioners. That sale
was exempt from tax by reason of the
notification dated 1-12-1982
aforementioned. The iron and steel sold
by the said Board to the
appellants/petitioners was, therefore,
not liable to tax either at the point of
first sale or any subsequent sale in the
State.
Para 14
There is no warrant for the emphasis
that would appear to have been "placed
by the Madras High Court on the phrase
"taxable sale". The State Act does not fix
the single point of the levy at the first
taxable sale; it fixes it at "the point of
first sale". The impugned circular cannot
validly shift the point of levy from the
first sale to a subsequent sale and it is,
therefore, bad in law.
[Emphasis supplied]
The Division Bench however in the present
impugned judgment distinguished the Shanmuga’s
case (supra) by observing:
"We find that the observations made by
the Supreme Court in Shanmugha
Trader’s case supra, in paragraph 12,
came to be made in the facts of the case.
The single point of levy was at the point
of first sale and not at the point of first
taxable sale. The impugned Circular,
the Court held, could not validly shift the
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point of levy from the first sale to a
subsequent sale."
We are of the opinion that the Division Bench
erroneously distinguished the Shanmuga’s case
(supra) from the present circumstances. We find that
there is no substantial difference between Shanmuga’s
case (supra) and the present one. Both cases involve
the condition of a single stage tax fixed at the point of
first sale, which was exempted and the subsequent
sale being taxed. The distinction sought to be brought
in by the impugned judgment is that Shanmuga’s case
involved the "point of first sale" and not the "point of
first taxable sale". It is true that the Second Schedule
of the state Act fixes the point of tax at "the point of
first sale in the state by a dealer who is liable to tax
under Section 5". However, the addition of the words
’liable to tax under Section 5’ does not make any
difference because in our opinion exemption does not
negate the liability to tax, which as we shall presently
discuss, continues regardless. The only other
difference is that in Shanmuga’s case (supra), it was a
circular which clarified that the subsequent sale would
be taxed, whereas the present case does not involve
any such clarification by way of a circular, but a direct
claim for tax under Section 5A of the State Act. In our
opinion, this difference is insignificant as well.
Shanmuga’s case (supra) has made it clear that
exemption at the point of first sale does not affect the
liability to tax and any subsequent levy on the goods
would fall foul of the conditions of the Central Act.
This position is equally true whether the subsequent
levy is by way of a circular or directly under Section 5A
of the State Act \026 since both are required to comply
with the conditions of the Central Act. With this view
of the matter, we find that the reasoning of this court
in the Shanmuga’s case (supra) is equally applicable to
the present facts.
It might be pertinent to mention here that the
decision taken by the Division Bench in the impugned
judgment is in conformity with the minority decision in
the Bhawani Cotton Mills case (supra). In his
dissenting judgment, Sikri J. observed as follows:
"\005.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\005.."
However, the majority decision took a different,
much stricter view of the matter, which is the law of
the land today. The majority in Bhawani Cotton Mills
(supra) was of the opinion that the Act in question did
not identify the specific stage for the levy on declared
goods and that it was possible for the goods to be
taxed at more than one stage, which was contrary to
the condition in the Central Act. The Court observed
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as follows:
"Pausing here for a minute, 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.l5(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\005.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\005Under 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.
XXXX XXXX XXXX XXXX
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;
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."
Thus, the Court finally concluded that the
conditions of Section 15 of the Central Act had not
been complied with.
The view taken in Shanmuga’s case (supra) as well
as the majority decision in Bhawani Cotton Mills
(supra) is reiterated in a number of other cases, which
make it clear that exemption operates after the levy
and does not negate the liability to tax.
The arguments raised by the respondent before us
have two aspects. They contend that since the goods
in question were exempt from tax at the first sale, no
liability to tax attached on the seller. Additionally,
they also argue that since there was no collection of
tax, there could be no ’levy’ of tax. In both cases, the
obvious implication that the respondent seeks to
establish is that at the point of first sale, the seller was
not liable to tax and therefore if a subsequent tax were
to be levied on these goods, as Section 5A of the State
Act seeks to do, there is no violation of Section 15 of
the Central Act.
IMPACT OF EXEMPTION ON THE LIABILITY TO TAX
The first aspect of the argument of the respondent
is with respect to the impact of exemption upon the
liability to tax. In our opinion, exemption can only
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operate when there has been a valid levy, for if there
was no levy at all, there would be nothing to exempt.
In this regard two cases decided by this Court are
relevant. The first is the Pine Chemicals case (supra),
which involved questions of sales tax and exemption
under the Jammu and Kashmir General Sales Tax Act,
1962. While examining certain exemption orders
made by the government, the Court observed as
follows:
"Under Section 4(1) of Jammu &
Kashmir General Sales Tax Act the goods
are taxable only once, that is it could be
taxed only at one point of sale. We have
already held that the Government Orders
159 and 414 are exemption orders and
exempt the sale by appellants of their
manufactured products. The exemption
would not arise unless the goods are
taxable at the point of their sale. Thus
the effect of exempting their sale is that
the said goods manufactured by them
could not be taxed at the second or
subsequent sales also as that would
offend Section 4(1) which provides for
single point levy. In cases where there
are no exemption orders and the state
fixed the second or subsequent sale as
point of taxation the first or prior or
subsequent sales are not exempted sales
but are not taxable sales\005."
[Emphasis supplied]
Thus the Court was of the opinion that when certain
goods were subjected to the single-stage tax condition,
and the stage identified for the levy was exempted,
subsequent sales could not be taxed by the authorities
despite the exemption.
This position has been reaffirmed in Associated
Cement (supra). In Associated Cement (supra) the
Court was faced with an argument very similar to the
one made before us today. The case involved an
exemption notification issued by the State Government
reduced the liability to tax under the Bihar Finances
Act, 1981 to the extent of tax paid under an earlier
Ordinance in respect of entry of goods. The appellant
claimed that it was entitled to adjust the entry tax paid
under the Entry Tax Act while computing the tax
payable under the Bihar Finances Act. The respondent
however argued that such adjustment could not be
made since the same was exempted, which meant that
there was no liability to tax. The Court rejected the
argument of the respondent, holding as follows:
"Crucial question, therefore, is whether
the appellant had any "liability" under
the Act\005. The question of exemption
arises only when there is a liability.
Exigibility to tax is not the same as
liability to pay tax. The former depends
on charge created by the Statute and
latter on computation in accordance with
the provisions of the Statute and rules
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framed thereunder if any. It is to be
noted that liability to pay tax chargeable
under Section 3 of the Act is different
from quantification of tax payable on
assessment. Liability to pay tax and
actual payment of tax are conceptually
different. But for the exemption the
dealer would be required to pay tax in
terms of Section 3. In other words,
exemption presupposes a liability.
Unless there is liability question of
exemption does not arise. Liability arises
in term of Section 3 and tax becomes
payable at the rate as provided in
Section 12. Section 11 deals with the
point of levy and rate and concessional
rate."
[Emphasis supplied]
A reading of the above judgments make it amply
clear that exemption does negate a levy of tax
altogether. Despite an exemption, the liability to tax
remains unaffected, only the subsequent requirement
of payment of tax to fulfill the liability is done away
with.
DISTINCTION BETWEEN LEVY AND COLLECTION
The second aspect of the argument is that an
absence of collection means an absence of levy or
liability. This question has already been examined in
certain earlier cases, and this Court has consistently
maintained a distinction between levy and collection.
In National Tobacco case (supra), this Court was
faced with certain questions relating to the refund of
excise duty on the manufacture of cigarettes. In this
context, the Court examined the scope of the term
’levy’ and made the following observations:
"The term "levy" appears to us to be
wider in its import than the term
"assessment". It may include both
"imposition" of a tax as well as
assessment. The term "imposition" is
generally used for the levy of a tax or
duty by legislative provision indicating
the subject matter of the tax and the
rates at which it has to be taxed. The
term "assessment", on the other hand, is
generally used in this country for the
actual procedure adopted in fixing the
liability to pay a tax on account of
particular goods or property or whatever
may be the object of the tax in a
particular case and determining its
amount. The Division Bench appeared to
equate "levy" with an ’’assessment" as
well as with the collection of a tax when
it held that "when the payment of tax is
enforced, there is a levy". We think that,
although the connotation of the term
"levy" seems wider than that of
"assessment", which it includes, yet, it
does not seem to us to extend to
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"collection". Article 265 of the
Constitution makes a distinction
between "levy" and "collection"\005."
[Emphasis supplied]
The Court made it very clear that levy and collection
are not synonymous and that collection of the tax is
not a necessary facet of a ’levy’.
Referring to the above case, the Court made similar
observations in the case of Somaiya Organics (supra).
It observed:
"\005.The words used in Article 265 are
"levy" and "collect". In taxing statute the
words "levy" and "collect" are not
synonymous terms, (refer to Assistant
Collector of Central Excise, Calcutta
Division vs. National Tobacco Co. of
India Ltd. at page 572, while "levy" would
mean the assessment or charging or
imposing tax, "collect" in Article 265
would mean the physical realisation of
the tax which is levied or imposed.
Collection of tax is normally a stage
subsequent to the levy of the same\005."
The distinction between levy and collection has also
been emphasized in Collector of Central Excise,
Hyderabad v. Vazir Sultan Tobacco Company Limted,
Hyderabad (1996) 3 SCC 434. The crux of this case
involved the levy of a special excise duty, the liability
for which did not exist on the date of manufacture and
only on the date of removal of goods. The excise duty
however was normally collected on the date of removal,
and it was contended that since the liability to pay the
special duty existed on the date of collection of duty,
the same must be paid as well. Rejecting this
argument, the Court held that the stage of removal
was identified for collection of duty only for
administrative convenience, and that this did not
affect the nature of the levy, which was on the
manufacture of goods. In this context, the Court
distinguished levy and collection. It observed:
"\005.Once the levy is not there at the time
when the goods are manufactured or
produced in India, it cannot be levied at
the stage of removal of the said goods.
The idea of collection at the stage of
removal is devised for the sake of
convenience. It is not as if the levy is at
the stage of removal; it is only the
collection that is done at the stage of
removal. Admittedly, the special excise
duty is an independent duty of excise
separate and distinct from the duties of
excise levied by the Central Excises and
Salt Act, 1944. This levy came into effect
only on and from March 1, 1978 which
means that the goods produced prior to
that date were not subject to such levy. If
that is so, the levy cannot attach nor can
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it be realised because such goods are
removed on or after March 1, 1978. The
provisions of the Central Excise Act and
the Rules, in our opinion, do not say
otherwise.
XXXX XXXX XXXX XXXX
\005.The levy is and remains upon the
manufacture or production alone. Only
the collection part of it is shifted to the
stage of removal. Once this is so, the fact
that the provisions of the Central Excise
Act are applied in the matter of levy and
collection of special excise duty cannot
and does not mean that wherever the
Central Excise duty is payable, the
special excise duty is also payable
automatically. That is so as an ordinary
rule. But insofar as the goods
manufactured or produced prior to
March 1,1978 are concerned, the said
rule cannot apply for the reason that
there was no levy of special excise duty
on such goods at the stage and at the
time of their manufacture/production.
The removal of goods is not the taxable
event. Taxable event is the manufacture
or production of goods."
[Emphasis supplied]
In the light of the above two cases, it is evident that
collection and levy are distinct and that collection is
not an essential facet of levy. It is true that collection
of a tax may some times be indicative of a lawful levy
of tax, but in our opinion it does not logically follow
that absence of collection means an absence of
liability. We are also of the opinion that the reliance
on the Town Municipal Committee (supra) by the
Division Bench which involved an interpretation of
"continued to be levied" and "to be applied to the same
purposes" in Article 277 of the Constitution was
misplaced. While that case did hold that in the
circumstances before them ’levy’ was intended to
include ’collection’, in our opinion the logic or ratio of
that case cannot be extended so far as to say that
every ’levy’ must include collection and without such
collection no levy can be said to have been made.
CONCLUSION
Thus, after an examination of the relevant case
law, we find that the liability to tax or taxability under
Section 5 of the State Act remains unaffected by an
exemption under Section 10 of the State Act.
Consequently, the respondent cannot validly shift the
burden of tax to the purchaser under Section 5A of the
State Act for the same would violate the condition of
single-stage tax under Section 15 of the Central Act.
For the reasons stated above, these appeals are
allowed. There will be no orders as to costs.