Full Judgment Text
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PETITIONER:
STATE OF MADRAS
Vs.
RESPONDENT:
R.NAND LAL & CO.
DATE OF JUDGMENT:
14/04/1967
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SIKRI, S.M.
RAMASWAMI, V.
CITATION:
1967 AIR 1758 1967 SCR (3) 645
CITATOR INFO :
R 1972 SC 845 (25)
ACT:
Central Sales Tax Act, 1956, s. 8(4)-Form ’C’ as prescribed
by Central Government to be filled by purchasing dealer for
selling dealer to get benefit of lower rate under s.
8(1)(b)-Central Sales Tax (Madras) Rules, 1957 Rule 10(1)
requiring each declaration in Form ’C’ to contain one
transaction only-Sale by Madras dealer to Punjab dealer-
Punjab dealer declaring more than one transaction in one
form-Whether contravenes Rule 10(1)-State Government does
not have power under s. 13(3) and s. 13(4)(e) of the Central
Act to place such restriction on outside dealer-Desirability
of Central Government making rules under s. 13(1)(d) in
this regard.
HEADNOTE:
The assessee firm was a ’dealer’ in Madras State. For the
year 1959-60 the firm was taxed at 7% on certain sales
effected to registered dealers in the Punjab on the ground
that the declarations taken from dealers in Punjab in Form
’C’ were not in accordance with r. 10(1) of the Central
Sales Tax (Madras) Rules, 1957. The latter rule required
,that there must be a separate declaration in respect of
each transaction whereas the declarations in the present
case were in respect of several transactions each. The
appellant firm claimed that on the turnover in question it
should have been assessed at one Per cent only, as laid down
in s. 8(1) of the Central Sales Tax Act, 1056. The claim
was turned down by the Sales-tax Authorities and the
Tribunal, but the High Court held that r. 10(1) of the
Central Sales Tax (Madras) Rules, 1957 applied only to
transactions of purchase by a dealer in the State of Madras
and not to the purchasing dealer in the State of Punjab,
that the Madras State was incompetent to frame rules
governing the conduct of the chasing dealers in the Punjab,
and that in any event r. 10(1) was tory and not mandatory.
The State appealed.
HELD: (i) Ex facie r. 10(1) imposes no obligation upon a
dealer in the State of Madras wishing to sell goods : It
applies to a clear wishing to purchase goods from another
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dealer. The High Court was further right in holding that
under the scheme of the Central Sales Tax Act and the Rules
framed under that Act by the State of Madras the injunction
against the purchasing dealers in r. 10(1) did not apply- to
dealers in the State of Punjab. [650B-651A]
Accordingly the proviso to r. 10(1) which,directs that no
single declaration shall cover more than one transaction of
sale except in certain cases has no application to a.
purchasing dealer outside the State of Madras. Nor does r.
10(2). impose any binding obligation upon the selling dealer
in Madras to obtain a separate declaration form in respect
of each sale transaction. [651C-F]
The appellants were therefore to be taxed at the rate of one
per cent and not seven per cent on the turnover in question.
(ii) A rule prescribing that a declaration by a purchasing
dealer shall not contain more than one transaction can only
be made by the Central Government under s. 13(1)(d) and the
State Governments do not have
646
power under s. 13(3) and s. 13(4)(e) to make any such rule.
The situation which had arisen in this case could have been
avoided if instead of each State making its rules requiring
that no single declaration shall cover more than one
transaction, the Central Government in exercise of the power
under s. 13(1)(d) of the Act had made the rule. [651G-H;
652A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 604 of 1966.
Appeal by special leave from the judgment and order dated
August 5, 1964 of the Madras High Court in Tax Case No. 131
of 1963 (Revision No. 87).
G. Ramanujam and A. V. Rangam, for the appellant.
K. Srinivasan and R. Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by
Shah, J. M/s. R. Nand Lal & Company-hereinafter called ’the
assessee are dealers in wool at Vaniyambadi in North Arcot
District in’ the State of Madras. In proceedings for
assessment of sales-tax for the year 1959-60 the assessees
were assessed to pay tax at the rate, of seven per cent. on
a turnover of Rs. 2,08,343-05 from sales effected by them to
certain registered dealers in the State of Punjab. The
assessing authority declined to assess the turnover at one
per cent. as prescribed by s. 8(1) of the Central Sales Tax
Act, 1956, because in his view the assessees had submitted
declarations in Form ’C’ covering two or more transactions
contrary to the first proviso to r. 10(1) of the Central
Sales Tax (Madras) Rules, 1957. The Appellate Assistant
Commissioner and the Sales Tax Appellate Tribunal, Madras
confirmed the order of the assessing authority. The High
Court of Madras, in exercise of its revisional jurisdiction,
set aside the order of the Sales Tax Appellate Tribunal, and
declared that the ass s were liable to pay tax on the
turnover in dispute at the lower rate. The State of
Madras has appealed to this Court with special leave.
Section 8 of the Central Sales Tax Act, 1956 (as amended by
Act’31 of 1958) insofar as it is material provided
"(1) Every dealer, who in the course of inter-
State trade or commerce-
(a)
(b) sells to a registered dealer other than
the Government goods of the description
referred to in sub-section (3);
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shall be liable to pay tax under this Act, which shall be
one per cent. of his turnover.
(2) The tax payable by any dealer on his turnover in so far
as the turnover or any part thereof relates to the sale of
goods
647
in the course of inter-State trade or commerce not falling
within sub-section (1)-
(a)...............
(b) in the case of goods other than declared
goods, shall be calculated at the rate of
seven per cent. or at the rate applicable to
the sale or purchase of such goods inside the
appropriate State, whichever is higher;
(2A)
(3)
(4) The povisions of sub-section 1) shall
not apply to any sale in the course of inter-
State trade or commerce unless the dealer
selling the goods furnishes to the prescribed
authority in the prescribed manner-
(a) a declaration duly filed and signed by
the registered dealer to whom the goods are
sold containing the prescribed particulars in
a prescribed form obtained from the prescribed
authority; or
(b)...............
(5)
It is common ground that the turnover was in respect of
goods of the class specified in the certificate of
registration of the registered dealer purchasing the goods
as being intended for resale by him or for use by him in the
process of manufacture of goods for sale. A registered
dealer selling goods in the course of inter-State trade or
commerce of the description referred to in sub-s. (3) is
viable under s. 8 ( 1 ) of the Central Sales Tax Act, to pay
tax only if the rate of one per cent. on his turnover. But
to qualify himself for that rate of tax he has to furnish to
the prescribed authority a declaration duly filled and
signed by the registered dealer to whom the goods are sold.
Such a declaration must contain the Prescribed particulars
in the prescribed form obtained from the Prescribed
authority. If the selling dealer fails to furnish the
declaration in the prescribed form, he is liable to pay tax
at the higher rate mentioned in sub-s. (2) (b) of s. 8.
The respondents did furnish declarations in Form ’C’ pres-
cribed under the Rules framed’ by the Central Government in
exercise of the, powers vested by S. 1 3 (1) (d) of the
Central Sales Tax Act. But each such declaration covered
more transactions of sale than one and the aggregate value
of the transactions recorded in each declaration exceeded
Rs. 5,0001- The sales-tax authorities and the Tribunal were
of the view that these declarations contravened the express
direction of the rule made by
648
the Madras State in exercise of the powers under s. 13 (4)
(e) of the Central Sales Tax Act. The High Court held that
r. 10(1) of the Central Sales Tax (Madras) Rules, 1957,
applied only to a transaction of purchase by a dealer in the
State of Madras, and not to the purchasing dealer in the
State of Punjab; that the Madras State was incompetent to
frame rules governing the conduct of the purchasing dealers
in the Punjab- that since the corresponding rules framed by
the State of Punjab under s. 13 (4) (e) of the Central Sales
Tax Act did not include a provision requiring separate form
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to be used for each sale transaction, the purchasing dealers
were not obliged to comply with r. 10(1) of the Madras
Rules, and that since the Madras selling dealers could not
compel the purchasing dealers to comply with the rules
relating to furnishing of separate declaration forms
ordained by the Madras Rules, the declarations were not
defective. In any event, the High Court held, r. 10(1) of
the Madras Rules was directory and not mandatory.
The assumption made by the High Court that no rule was
framed by the State of Punjab under S. 13 (4) (e) of the
Central Sales Tax Act requiring the purchasing dealers in
the State of Punjab to issue a separate declaration form in
respect of each individual transaction is erroneous. It is
conceded before us that the Punjab Government had in
purported, exercise of the powers under sub-ss. (3) & (4) of
S. 13 of the Central Sales Tax, 1956, made r. 7(2-A) with
effect from February 17, 1958 that:
"No single declaration in Form ’C’ prescribed
under the Central. Sales Tax (Registration
and Turnover) Rules ’ 1957, shall cover more
than one transaction of sale except when the
total amount of sales does not exceed five
thousand rupees."
But, for reasons which we will presently set out, the
judgment of the-High Court must still be, affirmed.
Sub-section (4) of s. 8 of the Central Sales Tax Act
provides that in order to, qualify himself for the lower
rate of tax it, respect of sales in the course of inter-
State trade or commerce, the dealer selling goods has to
furnish to the prescribed authority in the prescribed manner
a declaration duly filled and signed by the registered
dealer to whom the goods are sold. The expressions
"prescribed authority" and "prescribed manner" mean the
authority and manner prescribed by rules under the Act.
Section 13(1) of the Central Sales Tax Act, 1956, authorises
the Central Government to make rules, providing, inter alia,
the form in which and the particulars to be contained in any
declaration of certificate to be given under the Act. By
sub-s. (3) of S. 13 the State Government is authorised to
make rules not inconsistent with the provisions of the Act
and the rules made under sub-s. (1) to
64 9
carry out the purposes of the Act, and by sub-s (4) of s. 13
the State Government is, in particular and without prejudice
to the powers conferred by sub-s. (3), authorised to make
rules for all or any of the purposes set out therein
including "the authority from whom, the Conditions subject
to which and the fees subject to payment of which any form
of declaration prescribed under sub-s. (4) of section 8 may
be obtained, the manner in which the form shall be kept in
custody and records relating thereto maintained, the manner
in which any such form may be used and any such declaration
may be furnished."
In exercise of the power conferred by S. 131 (d) the Central
Government has prescribed the form of declaration to be
furnished by the purchasing dealer under s. 8 (4). That is
Form ’C’. The form is in three sections-the "counterfoil",
the "duplicate" and the "original". The "original" contains
at the foot of the Form the following Note:-
"(To be furnished to the prescribed authority
in accordance with the rules framed under
section 13(4) (e) by the appropriate State
Government.)"
The Madras State Government presuming to act in exercise of
authority under S. 13(3) and S. 13(4)(e) framed the Central
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-Sales Tax (Madras) Rules, 1957, r. 10(1) of which reads as
follows’:
"A registered dealer, who wishes to purchase
goods from another such dealer on payment of
tax at the rate applicable under the Act to
sales of goods by one registered dealer to
another, for the purpose specified in the
purchasing dealer’s certificate of
registration, shall obtain from the assessing
authority in the City of Madras and the
registering authority at other places a blank
declaration form prescribed under rule 12 of
the Central Sales Tax (Registration and
Turnover) Rules, 1957 for furnishing it to the
selling dealer. Before furnishing the
declaration to the selling dealer, the
purchasing dealer,or any responsible person
authorized by him in this behalf shall fill in
all the required particulars in the form and
shall also affix his usual signature in the
space provided in the form for this purpose.
Thereafter the counterfoil of the form shall
be retained by the purchasing dealer and the
other two portions marked "original" and
"duplicate" shall be made over by him to the
selling dealer
Provided that no single declaration shall cover more than
one transaction of sales except-
650
(a) in cases where the total amount covered
by one declaration is equal to or less than
Rs. 5,000 or such other amount as the State
Government may, by a general order, notify in
the Fort. St. George Gazette, and
(b)
Ex facie, this rule imposes no obligation upon a dealer in
the State of Madras wishing to sell goods : it applies to a
dealer wishing to purchase goods from another dealer. The
argument that cl. (1) of r. 10 is intended to apply to a
registered dealer in the State of Punjab is negatived by the
scheme of the Central Sales Tax Act and the Rules framed
thereunder. By s. 7 of the Central Sales Tax Act, every
dealer liable to pay tax under the Act has to make an
application for registration under the Act to such authority
in the appropriate State as the Central Government may by
general order specify. The authority to be specified is
designated in the Central Sales Tax (Registration and Turn-
over) Rules, 1957, framed by the Central Government under s.
13(1), the "notified authority" : vide r. 2(c). Rule 3
provides that an application for registration under S. 7
shall be made by a dealer to the notified authority in Form
’A’. In exercise of the powers conferred by sub-s. (1) of
s. 7 of the Central Sales Tax Act, 1956, the Central
Government issued a notification No. S.R.O. 643 dated
February 22, 1957, specifying the persons mentioned in Col.
(3) of the Schedule thereto as the authorities to whom the
dealers of the description in Col. (2) shall make the
application for registration. Item 1 of the Schedule
requires a dealer having a single place of business in a
State to make an application to the authority competent to
register him under the general sales tax law of the State if
he were liable to, be so registered : and item 2 provides
that the dealer having more than one place of business in a
State shall make an application to the authority competent
to register him in respect of the principal place of
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business under the general sales tax law of the State if he
were liable to be so registered. A registered dealer
contemplated by r. 10 is therefore registered in the State
where he has his place of business. The expression
"assessing authority" is defined in the Central Sales Tax
(Madras) Rules, 1957, as meaning any person authorized by
the State Government to make any assessment under the Madras
General Sales Tax Act, 1959 (Madras Act 1 of 1959). The
dealer has again to obtain the form of declaration from the
assessing.authority in the State of Madras. These are clear
indications that the rules framed by the Madras Government
were intended to apply to dealers within the State of
Madras. The High Court was, in our judgment, right in
holding that under the scheme of the Central Sales Tax Act
and the Rules framed under that Act by the State of Madras,
the injunc-
651
tion against the purchasing dealers in r. 10(1) did not
apply to, dealers in the State of Punjab. It is unnecessary
on that view to, express any opinion on the question whether
the State Government could, in exercise of the powers under
S. 13 (4), impose upon dealers not within the State,
obligations to comply with conditions relating to the
contents of the ’C’ Form declarations.
Since, r. 10 ( 1 ) requiring that a separate declaration
form in respect of each individual transaction shall be
furnished was intended only to apply to dealers in the State
of Madras, and not to dealers outside the State, proviso to
r. 10(1) which directs that no single declaration shall
cover more than one transaction of sale except in certain
cases has no application to a purchasing dealer outside the
State of Madras. Rule 10(2), provides :
"A registered dealer who claims to have made a
sale to another registered dealer shall, in
respect of such claim attach to his return in
Form the portion marked "original" of the
declaration received by him from the
purchasing dealer. The assessing authority
may, in its discretion, also direct the
selling dealer to produce for inspection the
portion of the declaration marked "duplicate".
"
But this rule does not direct that a declaration covering
more than one transaction of sale shall not be given. The
rules framed by the Madras Government do not otherwise
impose any binding obligation upon the selling dealer in the
State of Madras to obtain a separate declaration form in
respect of each sale transaction, nor do the rules visit him
with a penalty on failure to comply with the requirement.
We are constrained to observe that the rule making authori-
ties have failed to appreciate the scheme of S. 13 of the
Central Sales Tax Act. We are of the opinion that it was
not within the competence of the State authorities under S.
13(3) & (4) of the Central Sales Tax Act to provide that a
single declaration covering more than one transaction shall
not be made. Authority to prescribe such an injunction
cannot have its source in s. 13(3) or s. 13 (4) (e) : it can
only be in the authority conferred by cl. (d) of s. 13(1) by
the Central Government. The Central Government has, in
exercise of the power under s. 1 3 (1) (d), prescribed the
form of declaration and the particulars to be contained in
them declaration. A direction that there shall be a
separate declaration in respect of each individual
transaction may appropriately be made in exercise of the
power conferred under s. 13 (1) (d). The State Government
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is undoubtedly empowered to make rules under sub-ss. (3) and
(4) of s. 13 but the rules made by them
652
State Government must not be inconsistent with the
provisions of ,the Act and the rules made under sub-s. (1)
of s. 13 to carry out the purposes of the Act. If the
authority to make a rule prescribing that the declaration
shall not contain more than one transaction can be made only
under s. 13 (1) (d), the State Government cannot exercise
that authority. The situation which has arisen in this case
could have been avoided, if instead of each State making its
rules requiring that no single declaration shall ,cover more
than one transaction, the Central Government in exercise of
the power under s. 13 (1) (d) of the Act had made the rules.
The appeal fails and is dismissed with costs. G.C. Appeal
dismissed.
653