Full Judgment Text
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PETITIONER:
STATE OF ORISSA
Vs.
RESPONDENT:
M.A. TULLOCH AND CO.
DATE OF JUDGMENT:
21/04/1964
BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.
CITATION:
1966 AIR 365 1964 SCR (7) 816
ACT:
Sales Tax-Sale to Registered dealer-Claim for deduction-
Production of declaration under r. 27(2) if obligatory-
Orissa Sales Tax Act, 1947 (Orissa 14 of 1947), s. 5(2)(a)
(ii), Orissa Sales Tax Rules, 1947 r. 27(2)-Orissa Sales Tax
(Amendment) Act (Orissa 10 of 1957).
HEADNOTE:
Assessment orders were passed by the Sales Tax Officer
allowing the deductions of two amounts claimed by the
respondent-dealer under s. 5(2)(a)(ii) of the Orissa Sales
Tax Act in respect of goods sold to a registered dealer.
The respondent-dealer filed appeals to the Assistant
Collector Sales Tax, challenging the assessment on grounds
which were not relevant and against those decisions
revisions were filed by the dealer. While the revisions
were pending the Orissa Sales Tax Act was amended by Orissa
Sales Tax (Amendment) Act (Orissa Act, 10 of 1957) with the
result that revisions were treated as appeals to the Sales
Tax Tribunal, and it enabled the Government to file cross-
objections. In pursuance, the State filed cross-objections
challenging the deductions on the ground that the dealer had
not produced any declaration as required under r. 27(2) of
the Orissa Sales Tax Rules, 1947. The Tribunal upheld this
objection and directed that fresh assessments be made. On
statement of the case, the High Court answered that the
assessing officer was not wrong in allowing the deductions.
On appeal by special leave).
Held:(i) There is nothing in s. 5 (2) (a) (ii) itself
that disentitles a selling dealer to a deduction, but if the
contingency provided in the proviso occurs, then the price
of goods is included in the taxable turnover of the buying
dealer.
(ii)The production of a declaration under r. 7(2) is not
always obligatory on the part of a selling dealer when
claiming the exemption. It is open to him to claim
exemption by adducing other evidence so as to bring the
transaction within the scope of s. 5(2)(a)(ii). Rule 27(2)
must be reconciled with the section and the rule can be
reconciled by treating it as directory. But the rule must
be substantially complied with in every case. It is for the
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Sales-tax Officer to be satisfied that, in fact. the
certificate of registration of the buying dealer contains
the requisite statement, and if he has any doubts about it,
the selling dealer must satisfy his doubts. But if he is
satisfied from other facts on the record, it is not
necessary that the selling dealer should produce a
declaration in the form required in r. 27(2). before being
entitled to a deduction.
Member Sales-tax Tribunal, Orissa v. Mls. S. Lai & Co.
(1961) 12 S.T.C. 25, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 507-508 of
1963. Appeal by special leave from the judgment and order
dated November 4, 1950, of the Orissa High Court in Special
Jurisdiction Cases Nos. 38 and 39 of 1958.
R.Ganapathy Iyer and R. N. Sachthey, for the appellant
(in both the appeals).
817
B.Sen and S. N. Mukherjee, for the respondents (in both
the appeals).
April 21, 1964. The Judgment of the Court was delivered by
SIKRI, J.-The respondent, hereinafter referred to as the the
dealer, filed a return for the quarter ending June 30, 1951,
under the Orirsa Sales Tax Act (Orissa Act XIV of 1947)
(hereinafter referred to as the Act). He claimed a
deduction of Rs. 2,40,000/- under s. 5(2)(a)(ii) in respect
of the goods sold to a registered dealer, named M/s. Lal &
Co. Ltd., BA 1335. Similarly, for the quarter ending
September 30. 1951, he claimed a deduction of Rs.
15,677/1/3. By two assessment orders passed under s. 12(2)
of the Act, the Sales Tax Officer, Cuttack III circle,
Jaipur, Orissa, determined the tax payable allowing the
deduction of Rs. 2,40,000/- and Rs. 15,677/l/3, under s.
5(2)(a)(ii). The dealer filed appeals to the Assistant
Collector, Sales Tax, challenging the assesment on grounds
which are not relevant. The dealer later filed revisions
against the decision of the Assistant Collector. While the
revisions were pending, the legislature amended the Orissa
Sales Tax Act, in 1957, by Orissa Sales Tax (Amendment) Act
(Orissa Act XX of 1957). The effect of this amendment was
that revisions were treated as appeals to Sales Tax
Tribunal, and it enabled the Government to file cross-objec-
tions. The State of Orissa, in pursuance of this amendment,
filed memorandum of cross-objections challenging the deduc-
tion of Rs. 2,40,000/- and Rs. 15,677/l/3, on the ground
that the dealer had not produced any declaration, as
required under r. 27(2) of the Orissa Sales Tax Rules, 1947,
as evidenced from the Check Sheet kept on record. The
Tribunal upheld this objection and directed that fresh
assessments be made. Certain other questions were raised
before the Tribunal by the dealer, but as nothing turns on
them as far as these appeals are concerned, they are not
being mentioned. The Tribunal stated a case to the High
Court and one of the questions referred to was "whether the
assessing officer was not wrong in allowing deduction of Rs.
2,40,000/- for the quarter ending on 30-6-51 and Rs.
15,677/1/3 for the quarter ending on 30-9-51 from the
respective gross turnover of the applicant." The High Court,
following its earlier decision in Member, Sales-tax
Tribunal, Orissa v. Messrs S. Lal & Co. Limited (1) answered
the question in the affirmative. The State of Orissa having
obtained special leave from this Court, these appeals are
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now before us for disposal.
Mr. Ganapathy lyer, on behalf of the State of Orissa, has
contended before us that it is clear that r. 27(2) was not
complied with, and, therefore, the Sales Tax Officer was
wrong
(1) (1961) 12 S.T.C. 25.
818
in allowing the said deduction. The answer to the question
referred depends on the correct interpretation of s.
5(2)(a)(ii), Co. and r. 27(2). They read thus: -
"s. 5(2)(a)(ii)-sales to a registered dealer
of goods specified in the purchasing dealer’s
certificate of registration as being intended
for resale by him in Orissa and on sales to a
registered dealer of containers or other
materials for the packing of such goods.
Provided that when such goods are used by the
registered dealer for purposes other than
those specified in his certificate of
registration, the price of goods so utilised
shall be included in his taxable turnover."
"Rule 27(2). Claims for deduction of turnover
under sub-clause (ii) of clause (a) of sub-
section (2) of section 5-
A dealer who wishes to deduct from his gross
turnover on sales which have taken place in
Orissa the amount of a sale on the ground that
he is entitled to make such deduction under
sub-clause (ii) of clause (a) of sub-section
(2) of section 5 of the Act, shall produce a
copy of the relevant cash receipt ,or bill
according as the sale is a cash sale or a
sale .on credit in respect of such sale and a
true declaration in writing by the purchasing
dealer or by such responsible person as may be
authorised in writing in this behalf by such
dealer that the goods in question are
specified in the purchasing dealer’s
certificate of registration as being required
for resale by him or in the execution of any
contract:
Provided that no dealer whose certificate of
registration has not been renewed for the year
during which the purchase is made shall make
such a declaration and that the selling dealer
shall not be entitled to claim any deduction
of sales to such a dealer."
It is, plain from the terms of s. 5(2)(a)(ii) that a selling
,dealer is entitled to a deduction in respect of sales to a
registered dealer of goods, if the goods are specified in
the purchasing dealer’s certificate of registration as being
intended for re-sale by him in Orissa. No other condition
is imposed by the above section. The proviso deals with
consequences that follow if the purchasing dealer uses them
for purposes other than those specified in his certificate
of registration, and ,directs that, in that event, the price
of goods so utilised shall
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be included in his turnover. Therefore, there is nothing in
the section itself that disentitles a selling dealer to a
deduction, but if the contingency provided in the proviso
occurs, them the price of goods is included in the taxable
turnover of the buying dealer. But Mr. Ganapathy lyer says,
be it so, but the rule making authority is entitled to make
ruler, for carrying out the purposes of the Act, and r.
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27(2) is designed to ensure that a buying dealer’s
certificate of registration does, in fact, mention that the
goods are intended for resale by him, and for that purpose
it has chosen one exclusive method of proving the fact
before a Sales Tax Officer. He further urges that no other
method of proving that fact is permissible. Rule 27(2) is
mandatory and if there is breach of it the selling dealer is
not entitled to deduction. The learned counsel for the res-
pondent, on the other hand, contends that r. 27(2) is
directory. He points out that the word ’shall’ should be
read as ’may’, in the context. He further says that
supposing the selling dealer brought the original
certificate of registration of a buying dealer and produced
it before the Sales Tax Officer, according to the appellant,
this would not be enough, but this could never have been
intended. In our opinion, r. 27(2) must be reconciled with
the section and the rule can be reconciled by treating it as
directory. But the rule must be substantially complied with
in every case. It is for the Sales Tax Officer to be
satisfied that, in fact, the certificate of registration of
the buying dealer contains the requisite Statement, and if
he has any doubts about it, the selling dealer must satisfy
his doubts. But if he is satisfied from other facts on the
record, it is not necessary that the selling dealer should
produce a declaration in the form required in r. 27(2),
before being entitled to a deduction.
We are, therefore, of the opinion that the High Court came
to a correct conclusion. The High Court is correct in
holding that the production of a declaration under r. 27(2)
is not always obligatory on the part of a selling dealer
when claiming the exemption. It is open to him to claim
exemption by adducing other evidence so as to bring the
transaction within the scope of s. 5(2)(a)(ii) of the Act.
In this case, the Sales Tax Officer was satisfied by a mere
statement of the dealer and it has not been shown that in
fact the registration certificate of the buying dealer, M /
s S. Lal & Co., did not contain the statement that the goods
were intended for resale by him in Orissa.
The appeals accordingly fail and are dismissed with costs.
One set of hearing fee.
Appeals dismissed.
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