Full Judgment Text
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PETITIONER:
THE UNION OF INDIA
Vs.
RESPONDENT:
THE COMMERCIAL TAX OFFICER, WESTBENGAL AND OTHERS(WITH CONNE
DATE OF JUDGMENT:
19/12/1955
BENCH:
DAS, SUDHI RANJAN
BENCH:
DAS, SUDHI RANJAN
BOSE, VIVIAN
BHAGWATI, NATWARLAL H.
JAGANNADHADAS, B.
SINHA, BHUVNESHWAR P.
CITATION:
1956 AIR 202 1955 SCR (2)1076
ACT:
Sales Tax-Sale of hessian to the Ministry of Industry and
Supplies of the Government of India-If exempt from payment
of sales tax-Bengal Finance (Sales Tax) Act, 1941 (Bengal
Act VI of 1941), s. 5(2)(a)(iii).
HEADNOTE:
Per S. R. DAS, ACTING C.j., VIVIAN BOSE, BHAGWATI AND
JAGANNADHADAS JJ., SINHA J. dissenting.-The exemption
created by the provisions of s. 5(2)(a)(iii) of the Bengal
Finance (Sales Tax) Act of 1941 must be construed strictly
and cannot be extended to sales to Government departments
other than those mentioned therein.
The Department of Industries and Supplies, which was subse-
quently redesignated as the Ministry of Industries and
Supplies, was not the same as the Indian Stores Department
or the Supply Department of the Government of India and,
consequently, sales made to the Ministry of Industries and
Supplies are not exempt from payment of sales tax under that
section.
In a welfare State with ever expanding activities in
different fields including trade and commerce, Government
departments are often entrusted with the performance of
well-defined activities and are authorised to deal with the
outside world and enter into transactions in the same way as
an ordinary person or a Company may do and may well be
regarded as distinct units or quasi-legal entities for the
purpose for which they are created.
Consequently, the sales of hessian made to the Ministry of
Industries and Supplies of the Government of India by the
appellant Mills were not exempt from payment of sales tax
under the Act and the State of West Bengal was entitled to
levy the same.
1077
Per SINHA J.-The language of a statute has sometimes to be
construed in a modified form in order to give effect to the
real intentions of the legislature where, as in the present
case, the language is only of a descriptive nature and not a
definitive one.
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Miller v. Salomons ([1852] 7 Exchequer 475), referred to.
Commissioners of Inland Revenue v. Forrest ([1890] 15 A. C.
334), held inapplicable.
The terms of s. 5(2)(a)(iii) indicate that the exemption
created attaches to a particular function of the Government
of India described by a certain name.
The change of nomenclature was, therefore, of no consequence
so long as a particular department continued to discharge
that function, namely, that of purchasing articles including
hessian for the Government of India.
History of the department shows that the Ministry of
Industry and Supply is a lineal descendant of the Indian
Stores Department and was at the time of the contract
discharging its function on behalf of the Government of
India and, consequently, the sales made to it must be held
to be exempt from payment of sales tax.
A department of the Government is neither a natural nor a
legal person but is one of the many functions of a
Government placed in charge of a hierarchy of officials with
the head of the department at the apex.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 9 and 10 of
1954.
On appeal from the Judgment and Order dated the 9th day of
June 1952 of the Calcutta High Court in Appeal No. 26 of
1952 arising out of the Order dated the 6th day of December
1951 of the said High Court exercising its Ordinary Original
Civil Jurisdiction in Matter No. 110 of 1950.
C.K. Daphtary, Solicitor-General of India, (R. Ganapathy
Iyer and R. H. Dhebar, with him) for the appellant in C. A.
No. 9 of 1954 and respondent No. 3 in No. 10 of 1954.
S. Chowdhury, (S. N. Mukherji, B. N. Ghosh and A. K.
Bose, with him) for the appellant in C. A. No. 10 of 1954.
S. M. Bose, Advocate-General of West Bengal, (B. Sen and P.
K. Bose, with him) for respondents Nos. I and 2 in both
appeals.
1078
1955. December 19.
DAS ACTING C. J.-The only question canvassed before us in
the above appeals, which have been beard together, is
whether certain sales of goods made by Shri Ganesh Jute
Mills, Ltd. (hereinafter referred to as the Mills) to the
Government of India, Ministry of Industry and Supplies are
to be deducted from the taxable turnover of the Mills so as
to be exempt from sales tax demanded by the Commercial Tax
Officer of the State of West Bengal. The relevant facts are
stated-below.
On the first of September 1948 the Government of India,
Ministry of Industry and Supplies, in Calcutta, placed with
the Mills a confirmatory order in writing bearing No. Cal/J-
1/2001/103 for the supply to the Government of India of a
large quantity of hessian cloth of different descriptions at
different prices ,therein mentioned. It was stipulated that
the contract would be governed by the conditions of contract
specified in Form WSB 133 as amended up-to-date. It was
specifically mentioned that the goods ordered were required
to meet an international obligation of the Government of
India and as such the execution of the contract in
accordance with the programme of deliveries as given in the
schedule attached thereto was essential. The agreed prices
were stated to be exclusive of the Bengal Sales Tax and it
was stipulated that the Government of India would arrange
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direct payment of sales tax to the Government of West Bengal
if it was ultimately found that Sales Tax was payable in
respect of that contract. Pursuant to the aforesaid
contract, the Mills supplied goods to the Government of
India of the aggregate value of Rs. 2,10,040 calculated at
the prices agreed upon.
The Commercial Tax Officer, Beadon Street, District If
Charge, claimed that the aforesaid sales should be included
in the taxable turnover of the Mills and assessed to sales
tax. The Mills, on the ,other hand, claimed exemption under
section 5 of the Bengal Finance (Sales Tax) Act, 1941.
(Bengal Act VI of 1941). The relevant portion of section 5
ran as follows;-
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"5. (1) The tax payable by a dealer under this Act shalL be
levied at the rate of one quarter of an anna in the rupee on
his taxable turnover;
(2) In this Act the expression "taxable turnover" means
that part of a dealer’s gross turnover during any period
which remains, after deducting therefrom-
(a) his turnover during that period on--
(i).............
(ii)............
(iii) sales to the Indian Stores Department, the Supply
Department of the Government of India, and any railway or
water transport administration;
(iv)...........
(v)............
(vi)............
(b)............"
The Mills further contended that if any sales tax was at all
payable the same was payable by the Government of India and
not by them. The Commercial Tax Officer overruled both
these objections and on the 8th November 1950 he assessed
the Mills to sales tax in respect of the supplies made by
the Mills to the Government of India under the aforesaid
contract and demanded a sum of Rs. 9,401-10-6.
On the 6th December 1950 the Mills filed a petition under
article 226 of the Constitution of India before the High
Court at Calcutta. In the petition the Mills impleaded as
respondents the Commercial Tax Officer, the State of West
Bengal and the Union of India. The Mills prayed for a writ
of mandamus on the respondents to cancel and/or recall
and/or forbear from acting or giving effect to the demand
dated the 8th November 1950 and from realising the sum of
Rs. 9,401-10-6 and for a writ of certiorari for production
of the records and proceedings before the Commercial Tax
Officer and for quashing the same and for other incidental
reliefs. On the same day a rule was issued on the
respondents to show cause why the orders prayed for should
not be made.
The Commercial Tax Officer filed an affidavit in opposition
disputing the contentions put forward by
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the Mills in support of their claim for exemption and
maintaining that sales tax was due and had been legitimately
assessed and demanded. On behalf of the Union of India was
filed an affidavit affirmed by one M. -P. Pai, the then
Joint Secretary in the Ministry of Works, Production &
Supply. It was therein stated that a department of the
Government of India named the Department of Supply came into
existence in the month of September 1939 immediately on the
commencement of World War II and before the enactment of the
Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of
1941). It was averred that before the 7th January 1946 the
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said Department of Supply was charged with the procurement
of Stores from all places in India including Bengal and that
it also directed the work of Indian Stores Department in the
United Kingdom and of the India Supply Mission in the United
States of America. It was added that by Resolution No.
227/45-Pub(c) dated the 31st December 1945 the Governor-
General in Council announced the creation with effect from
the 7th January 1946 of the Department of Industries &
Supply in place of the existing Department of Supply and of
Industries and Civil Supplies. It was claimed that the
powers and functions of the Department of Industries and
Supplies were the same as those of the Department of Supply
and that there was no variation in the nature of the said
functions whatsoever.
The rule came up for hearing before Bose, J., who took the
view that the newly created Department of Industries &
Supplies was charged with the same work of procurement of
stores for Government as had been entrusted to the
Department of Supply and certain additional works and that
later on the name was again changed to Ministry of Industry
and Supply. The learned Judge pointed out that although
there was a change in the designation of the Indian Stores
Department and the Supply Department of the Government of
India, section 5 (2) (a) (iii) was not amended in any way
until 1949 when by an amending Act (West Bengal Act X of
1949) the exemption
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granted under section 5(2)(a)(iii) was withdrawn. The
learned Judge appears to have regarded this con-, tinuance
of section 5(2) (a) (iii) in the Bengal Finance (Sales Tax)
Act, 1941 as indicative of the fact that in view of the
State of West Bengal the Ministry of Industry & Supply was
the same as the Indian Stores Department and the Supply
Department of the Government of India referred to in the
section. The learned Judge accordingly held that the Mills
were entitled to the benefit of the exemption and were not
liable to pay sales tax in respect of the supplies in
question. He accordingly, on the 3rd January 1952, made the
rule absolute.
The Commercial Tax Officer and the State of West ’Bengal
went up on appeal from the said judgment and order of Bose,
J. The appeal came up for hearing before & Bench consisting
of K.C. Das Gupta, J. and P. N. Mookerjee, J. In separate
but concurring judgments both the learned Judges rejected
the preliminary objection taken by the Mills and the Union
of India as to the maintainability of the appeal. On the
merits both of them held that the Department of Industries &
Supplies was not the same as the Indian Stores Department or
the Supply Department of the Government of India. The old
departments ceased to exist and a new department combining
some of the functions of these departments and some new
functions was created and that, therefore, sales to the
newly created department could not be deducted from the
taxable turnover under section 5(2) (a) (iii). In the
result, the Appeal Court allowed the appeal with costs, set
aside the order of Bose, J. and dismissed the application of
the Mills under Article 226. The Mills as well as the Union
of India have now come up on appeal before us with a
certificate of fitness granted by the High Court.
In view of the decision of this Court in National Sewing
Thread Co. Ltd. v. James Chadwick & Bros. Ltd.(1), the
question of maintainability of the appeal before the High
Court has not been raised before us. The appeals have been
fought out on the merits only.
(1) [1953] S.C.R. 1028.
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1082
The appeals came up before this Court for bearing on the
22nd and 23rd September 1955. After going through the
records it was felt that the materials on record were not
sufficient to enable the Court to determine the real point
of controversy between the parties. The appeals were
accordingly adjourned and directions were given for the
filing of supplementary affidavits setting out the facts
relied on by the parties respectively. Fresh affidavits
have since been filed.
It appears from the affidavit of one A. R. Iyer, Deputy
Director, Directorate General of Supplies and Disposals,
under the Ministry of Works, Housing & Supply, that in 1918
a department called the Contracts Directorate had been
constituted as a purchasing Organisation for the needs of
the Army. With effect from the 1st January 1922 the Indian
Stores Department was constituted as a result of the recom-
mendations of the Stores Purchase Committee. The functions
of this department were to act as a purchasing and
inspection agency in respect of certain commodities
including textile goods for all Central departments and
minor Local Governments and such other authorities as might
desire to avail themselves of the services of this
department. Annexure III to the affidavit of Iyer indicates
that it was not obligatory on the other departments to make
purchases through the Indian Stores Department. Originally
this department was constituted for a period of two years
but by Resolution No. S. 217 of the Government of India,
dated the 6th May 1924, it was placed on a permanent basis
and continued to discharge the same functions. Rules 5 and
6 attached to this Resolution show that purchases could also
be made locally by other departments in case of emergency or
for convenience.
In 1939 when the outbreak of World War 11 was imminent the
necessity for creating a new department was keenly felt and
the Governor-General in Council by a Resolution of the Home
Department dated the 26th August 1939 (Annexure V to Iyer’s
affidavit) announced the creation from that date of a
department of Supply "to deal directly with ques-
1083
tions concerning supplies of all kinds required for the
prosecution of war". Annexure VIII to Iyer’s affidavit
shows that the control of the Indian Stores Department and
all other matters relating to the purchase of stores in
India which were being then dealt with in the Department of
Commerce were to be dealt with in the department of Supply
as a temporary measure for the duration of the war. That
the Indian Stores Department and the Contracts Directorate
did not lose their identity is shown by the Office
Memorandum dated the 3rd August 1940 (Annexure X, Clause 4)
and Office Memorandum dated the 2nd December 1941 (Annexure
XI, Clause I (a) and Clause 4). It is thus clear that up to
the end of the year 1940 purchases used to be made for and
on account of the Government of India by the Contracts
Directorate, the Indian Stores Department and the Department
of Supply and that purchases were also made locally by other
departments. It was then that on the 1st July 1941 the
Bengal Legislature passed the Bengal Finance (Sales Tax)
Act, 1941 which by section 5(2) (a) (iii) exempted sales to
the Indian Stores Department, the Supply Department of the
Government of India and any railway or water transport
administration from sales tax. Sales to other departments
of the Government of India were not so exempted.
By a Press Note dated the 2nd September 1941 issued by the
Government of India in the Supply Department (Annexure XIII
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to Iyer’s affidavit) a purchase branch of the Supply
Department for the duration of the war was created with
effect from the 1st August 1941 and it shows that the
Contracts Directorate and the Indian Stores Department bad
then "ceased to exist as separate entities" for the duration
of the war and a new branch was being organised in their
place.
Then came the Office Memorandum dated the 23rd December 1941
issued by the Government of India in the Department of
Supply (Annexure XIV) which superseded the previous office
memorandum dated the 13th December 1940 (Annexure XII). The
137
1084
authorities under the Central Government concerned with the
production, manufacture and purchase of supplies were shown
in Statement I annexed thereto. It is clearly mentioned
therein that departments other than the ones referred to
therein were and, in the absence of orders to the contrary,
would remain independent of the department though working in
close touch with it (Clause 3). Powers of local purchase
were also not disturbed in any way (Clause 4). Statement I
indicates that purchases of various supplies, e.g., medical
and veterinary supplies, coal and coke for Railway and other
civil and military authorities in India, etc., and Printing
and Stationery stores, were independent of the Supply
Department. It is thus clear that the Indian Stores
Department and the Supply Department of the Government of
India were not the only departments which bad authority to
make purchases for and on behalf of the Government of India
in its various departments.
On the 21st April 1943 came Notification No. 209No. 107/43-
Pub(c) whereby the Governor-General in Council announced the
creation, from the 22nd April 1943, of a Department of
Industries and Civil Supplies to deal with (i) Statistics
and Research, (ii) Development and (iii) Controls. Shortly
thereafter Office Memorandum No. E4(179) dated the 14th May
1943 issued by the Department of Supply intimated that the
Governor-General in Council bad decided that the Department
of Industries and Civil Supplies would, with effect from the
15th May 1943, take over responsibility for the procurement
of cotton textiles and cotton textile stores (Annexure XVI
to Iyer’s affidavit). So this Department of Industries and
Civil Supplies became another purchasing organisation of the
Government of India apart from the Department of Supply.
The Government of India Resolution dated the 31st December
1945 announced the creation, with effect from the 7th
January 1946, of the Department of Industries and Supplies
in place of the existing Department of Supply and the
Department of Industries and Civil Supplies. By this
Resolution the Indian
1085
Stores Department and the Contracts Directorate which during
the war had been brought under the Supply Department, were
incorporated in the newly created department. It will be
noticed that this newly created department had assigned to
it the work of the procurement of stores for the Government
of India which was formerly assigned to the Department of
Supply and the Department of Industries and Civil Supplies.
In addition to these duties this department was authorised
also to deal with other things, namely, development of
industries, administration of Government factories not
allocated to specialised departments, Disposals of Surplus
and Civil Supplies. The nature and volume of the purchases
made by this newly created department became obviously
different from and larger than those of the two departments
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it replaced. It is also noteworthy that the Department of
Supply which was created for the prosecution of war was
abolished as soon as the war was over (Annexure XVII to the
affidavit of Iyer).
The Resolution of the Government of India dated the 2nd
September 1947 published in the Gazette of India dated the
6th September 1947 (Annexure XVIII) announced, amongst other
things, that with effect from the 29th August 1947 the
Department of Industries and Supplies would be re-designated
as the Ministry of Industries and Supply.
From the summary of the annexures to the affidavit of Iyer
filed in these proceedings it is quite clear that while the
Ministry of Industries and Supply was a new designation of
the Department of Industries and Supplies, the Department of
Industries and Supplies cannot be regarded merely as a new
designation of the Department of Supply and the Department
of Industries and Civil Supplies. Indeed, the Resolution
announced the "creation" of the Department of Industries and
Supplies in place of the two existing departments mentioned
above. This newly created department had wider powers and
was a new department altogether. The exemption granted by
the Bengal Finance (Sales-Tax) Act, 1941 was given to two
departments by name. It was not given to the
1086
sales to the Government of India in all its departments. It
is true that the Indian Stores Department and the Supply
Department of the Government of India were not corporate
bodies but they evidently were sufficiently well defined
organisations to be referred to as "entities" in some of the
Press Notes and Resolutions mentioned above and even in the
affidavits filed in these proceedings. Further, the Bengal
Finance (Sales Tax) Act, 1941 by section 5 (2) (a) (iii)
certainly dealt with these two departments as if they were
distinct entities. The Act, in a manner, conferred on these
two departments the status, as it were, of well defined and
distinct entities at least for the purposes of that Act,
namely for making sales to them exempt from the tax. If it
were the object of the Bengal Legislature to give exemption
to all sales to all departments of the Government of India
it would have been quite easy for it to frame sub-clause
(iii) in a general way as sub-clause (iv) had been flamed.
Further, if sales to these two departments were to be
regarded as covering sales to all departments of the
Government of India then the sales to the railways which at
that time mostly, if not wholly, belonged to the Government
of India need not have been separately mentioned in the way
it has been in sub-clause (iii). As already stated, there
were, at the date when the Act was passed, various other
departments of the Government of India which were concerned
with purchase of stores but quite clearly the exemption
conferred by the section was not intended to extend to the
sales to those departments. Therefore, the reference to
these two particular departments in the section cannot
possibly be read as a reference to the Government of India
generally.
It has been urged that the real object of section
5(2)(a)(iii) was to give exemption not to the particular
departments but to the sales of such goods as, at the date
of the Act, used to be made to those departments and,
therefore, sales of those goods made to any department of
the Government of India which came to be charged with the
duty of purchasing those
1087
goods should also come within the purview of the section and
be entitled to the benefit of the exemption conferred by it.
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We are unable to accept this line of reasoning. This
interpretation will unduly narrow the scope and ambit of the
exemption by limiting it to sales of only those goods as, at
the date of the Act, used to be sold to those two
departments and sales of other goods even to those two
departments, however necessary for the prosecution of the
war, would not get the benefit of the exemption. Such could
not possibly be the intention of the legislature as
expressed by the language used by it in framing the section.
According to the section the exemption is given to all sales
made to those two departments, no matter whether the sales
were only of the kind of goods which used to be sold to them
at the date of the Act or of other kinds of goods. The
suggested interpretation involves the addition of qualifying
words to the section which ordinarily it is Dot permissible
for the court to do. Further, the press notes and the
resolutions of the Government of India summarised above
clearly indicate that there were other purchasing
departments which were independent of the Indian Stores
Department or the Supply Department of the Government of
India and that the authority of other departments of making
local purchases was not interfered with by the creation of
these two departments. Therefore it may well have been
that, at the date of the passing of the Act, same or similar
kinds of goods used to be sold to these two departments as
well as to other departments but surely it cannot be
contended, in view of the language of the section, that the
exemption was intended to extend to the sales of the same or
similar kinds of goods to those other departments also. It
is not necessary for us to pronounce any opinion as to the
validity or soundness of the extreme position taken up by
the learned Advocate-General of West Bengal namely that as
the exemption is given by a statute to sales made to two
departments eo nomine it will not extend to sales made to
the same department redesignated by a new name. It is
enough for our present
1088
purpose to say that the Department of Industries and
Supplies which was subsequently re-designated as the
Ministry of Industries and Supply was not the same as the
Indian Stores Department or the Supply Department of the
Government of India under a different name. The scope and
volume of the work entrusted to the Department of Industries
and Supplies was much wider and larger than that with which
the two departments which it replaced bad been charged.
Unlike those of the two departments, its purchases were not
confined to goods necessary for the prosecution of the war.
To extend the benefit of the statutory exemption to the
sales made to the newly created department of Industries and
Supplies, of goods not required for war purposes but, say,
for meeting international obligations as in the present
case, will necessarily widen the scope of the exemption and
impose greater loss of revenue on the State of West Bengal
than what the Act by its language intends to do. In view of
the ever expanding activities of the modern welfare State
indifferent fields including that of trade and commerce, the
Government departments are often entrusted with the
performance of well defined activities and are authorised to
deal with the outside world and to enter into contracts of
sale and purchase and other transactions in the same way as
an ordinary person or company may do. Such Government
departments, therefore, may well be regarded as distinct
units or quasi legal entities, at least for the particular
purposes for which they are created. At any rate, the
Bengal Finance (Sales Tax) Act, 1941 by providing for the
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deduction of the sales to the two named departments from the
taxable turnover certainly treated those two departments as
distinct entities. This exemption is the creation of the
statute and must be construed strictly and cannot be ex-
tended to sales to other departments. The fact that the
section was not amended until 1949 does not at all indicate
that the Bengal Legislature intended to extend the benefit
of the section to any but the departments specifically
mentioned in the section. In our opinion the conclusion
arrived at by the Appeal
1089
Court, namely that the sales tax is payable on the sale in
question is correct and these appeals must be dismissed with
costs.
SINHA J.-I regret to have to differ from my learned brethren
in the determination of the only question involved in these
appeals, namely, whether the sales by the appellant in Civil
Appeal No. 10 of 1954 (Messrs Shree Ganesh Jute Mills Ltd.)
to the appellant in Civil Appeal No. 9 of 1954, the Union of
India (the Government of India at the time of the
transactions in question) were liable to payment of sales
tax under the Bengal Finance (Sales Tax) Act, 1941 (Bengal
Act VI of 1941), to be referred to hereinafter as "The Act".
The facts leading up to these appeals may shortly be stated
as follows: The Government of India in the Ministry of
Industry and Supply (which for the sake of brevity may be
called "The Government" entered into a contract on the 1st
September 1948 with Messrs Shree Ganesh Jute Mills Ltd.,
which may be designated "The Mills", for the supply of
hessian at certain rates and of certain description
appearing in Exhibit A to the affidavit filed on behalf of
the Mills. With reference to the question of sales tax the
contract contains the following stipulation:-
"The prices shown above are exclusive of the Bengal Sales
Tax. The Government of India will arrange direct payment of
sales tax to the Government of West Bengal if it is
ultimately found that sales tax is payable in respect of
this contract".
It is also provided that "This contract will be governed by
the conditions of contract specified in Form WSB. 133 as
amended up to date". This contract was entered into and
signed by "A Huq, Deputy Director of Supplies, for and on
behalf of the Governor-General of India". In pursuance of
the aforesaid contract the Mills supplied hessian goods to
the Government of India of a certain valuation on which the
Commercial Tax Officer of Bengal, the main contesting
respondent, made a demand of Rs. 9,401-10-6 as sales tax
from the Mills. The Mills demurred to the
1090
payment and contended that the sales in question were exempt
from payment of the sales tax demanded in view of the
provisions of section 5 (2) (a) (iii) of the Act.
Eventually the Mills moved the High Court of Calcutta for an
appropriate writ under article 226 of the Constitution
against the contesting respondents. The matter was heard by
a Single Judge of that Court who by his judgment dated the
6th December 1951 held that the Mills were not liable to pay
the sales tax demanded and cancelled the notice of demand
and directed the respondents 1 and 2 to forbear from
enforcing the demand. Respondents I and 2 went up in appeal
under the Letters Patent. The appeal was heard by a
Division Bench which came to the contrary conclusion. The
major portion of the judgment of the Letters Patent Bench
was devoted to the discussion of the question whether the
judgment of the learned Single Judge in the writ matter was
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amendable to the appellate jurisdiction under the Letters
Patent. That question has not been pressed during the
arguments and is therefore no more in controversy. The only
question that was canvassed before us was the applicability
of section 5 (2) (a) (iii) of the Act which contains the
exemption, the benefit of which is being sought by the
appellants in each case. The exemption is in these terms:-
"Sales to the Indian Stores Department’, the Supply
Department of the Government of India, and any railway or
water transport administration".
It has been contended on behalf of the appellants that the
sale of hessian by the Mills to the Government of India in
the Ministry of Industry and Supply is within the terms of
the exemption quoted above. On the other hand, it is
contended on behalf of the Sales Tax Department of the
Government of West -Bengal that the sales in question were
not covered by the aforesaid exemption clause. It is
therefore necessary to go into some detail of the formation
and development of the Department in question.
The supplementary affidavit filed on behalf of the
Government and sworn to by Shri A. R. Iyer, Deputy Director
of Directorate General of Supplies &
1091
Disposals, discloses the following facts. The Indian Stores
Department was constituted with effect from the 1st January
1922 as a result of the recommendations of the Stores
Purchase Committee which had been constituted by the
Government of India to examine the whole question of the
constitution of an expert agency to carry out on a large
scale purchase of supplies required for the public services,
as recommended by the Indian Industrial Commission, with the
object of encouraging the purchase of articles made in India
for Government requirements. The scope and functions of the
Department, inter alia, were to act as a purchasing and
inspection agency, and in an advisory capacity in all
matters connected with the purchase of stores for the public
services, on behalf of all Central Departments of the
Government and of the minor local Governments and also on
behalf of such major local Governments, Company worked
Railways, Corporations, Port Trusts, Municipalities and
quasi public bodies and Indian States as might desire to
avail themselves of the Department’s assistance. The
activities of the Department consisted in the purchase and
inspection in India of a large variety of goods and articles
including "textile goods", so that the purchase of hessian
which is the particular commodity involved in this case,
would be included in the activities of the Department. The
Department had been constituted in the first instance for a
period of two years. But by a Resolution. of the Government
of India dated the 6th May 1924 it was placed on a permanent
basis. It continued to discharge the same functions as
before. It made purchases not only for the needs of the
civilian departments of the Government of India but also of
all the requirements of the Army. Hessian which had been
purchased from the Mills in this case was one of the
products which the Government of India used to purchase only
through the Indian Stores Department whenever needed for
Government purposes. A Department called the "Contracts
Directorate" had been constituted in 1918 as a, purchasing
organization for the needs of the Army. But after the
constitution of the Indian
138
1092
Stores Department in 1922 the Army authorities also began to
utilize the services of the Indian Stores Department for
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procurement of several categories of stores required by
them. By a Resolution of the Home Department dated the 26th
August 1939, apparently to meet the demands of the imminent
second world war, the Contracts Directorate and the Indian
Stores Department were in 1940 amalgamated with the
Department of Supply so that in 1941, when the Act was
passed, the position was that the Department of Supply as
reorganized on the 3rd August 1940 included amongst its
activities and functions the purchase of stores for the
needs of the Government. This branch of its activity was
administered by the Directorate General, Supply Branch,
located at New Delhi. Jute products and textiles including
hessian had to be purchased only by placing indents by the
department concerned with the Directorate General of Supply,
New Delhi. Thus this Department absorbed for the duration
of the war the purchasing sections of the Indian Stores
Department and the Contracts Directorate which were placed
under completely self-contained organizations empowered to
procure all supplies, whether for war purposes or otherwise.
All authorities requiring supplies to be procured in India
had to place their indents or demands on the Directorate
General concerned. With effect from the 1st August 1941 the
Contracts Directorate and the Indian Stores Department
ceased to exist as separate entities in the Supply
Department and became one purchasing organization in the
said Department. This Organisation arranged for supply of
all classes of stores for purposes of Government, such as
textiles, leather goods, etc. Thus hessian which came under
the bead of "textiles" which was being purchased in the
first instance only by the Indian Stores Department
continued to be purchased by the Supply Department when the
Indian Stores Department came under the control of the
Supply Department. By a notification dated the 21st April
1943 issued by the Government of India in the Home
Department, another Department called the Industries and
1093
Civil Supplies Department was created. This Department was
primarily concerned with statistics and. research and
development of industries, as also’ controls on civil
supplies (other than foodstuffs). When this Department was
first created, it had no purchasing activity. But with
effect from the, 15th May 1943 the Government directed that
the new department should take over responsibility for the
procurement of cotton textiles and cotton textile stores
which till then were being dealt with by the Indian Stores
Department which later came under the Supply Department as
aforesaid. Purchase of jute and woollen textiles continued
to be the responsibility of the Supply Department. By a
Resolution of the Government of India dated the 31st
December 1945 the Department of Industries and Supplies in
place of the existing Departments of Supply and of
Industries and Civil Supplies was created with effect from
the 7th January 1946. From that date the Department of
Industries and Supplies became responsible for the
procurement of stores from all places in India in the same
manner as the Department of Supply had been doing previously
to its amalgamation with the new Department. The powers and
functions of the Department of Industries and Supplies in
the matter of procurement of stores continued as before.
The Department continued to procure and purchase only the
same kinds of articles as the Department of Supply had been
doing before the coming into existence of the Department of
Industries and Supplies so that the creation of the
Department of Industries and Supplies did not make any
difference in its activities relating to purchase of stores.
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There was no addition to or subtraction from its functions
in the matter of purchase of stores.
From what has been stated above, it is clear that the
purchasing functions of the Government of India with special
reference to the procurement of textiles including hessian
with which we are immediately concerned were discharged by
the Indian Stores Department from 1st January 1922. Those
functions were taken over by the Department of Supply in
1940,
1094
The Department of Supply itself merged in the Department of
Industries and Supplies with effect from the 7th January
1946. By a notification of the 2nd September 1947 the
Department of Industries and Supplies was redesignated as
the Ministry of Industry and Supply with effect from the
29th August 1947 as a result of the emergence of India as an
Independent State. Thus the Ministry of Industry and Supply
is a lineal descendant of the Indian Stores Department, of
course, with an added volume of work and functions, but the
original activity of purchase of stores remaining the same
in bulk and in character. It has already been noticed that
the Indian Stores Department was concerned with the
function, amongst others, of purchasing stores of a large
variety of articles and goods on behalf of all Central
Departments of the Government of India and Local Gov-
ernments, Railway Companies, Corporations, Port Trusts,
Municipalities and other quasi public bodies, as also Indian
States if they availed of the services of the department.
Thus the infant Indian Stores Department has grown in
stature and volume in the course of the last about 25 years.
The same sapling has grown into a shady tree but its
function as the sole purchasing agency of the Government of
India and other Governments for a large variety of goods and
commodities has ’Continued. The nomenclature has undergone
successive changes, but the function of purchasing agency on
behalf of the Central and other Governments and public
bodies as aforesaid has remained the same. Furthermore, the
purchase of hessian, which is the subject-matter of the
demand in question has continued in the same organization,
though under a different name.
It is well settled that the provisions of a statute have to
be construed with reference to the state of affairs as they
existed at the time the statute was passed. In the year
1941 there was in existence the Supply Department of the
Government of India which had incorporated the Indian Stores
Department. According to the affidavit referred to above,
the main activities of purchase of goods and commodities
1095
required by the Government of India ’and other governments,
local bodies, etc., except for purchases of small values,
that is to say, not exceeding Rs. 100 in each case and of
certain specified commodities, like foodstuffs, forage,
lethal stores, etc. referred to in para. 7 of the affidavit
(at p. 18 of the supplementary paper book) were carried on
by the Supply Department. That is the reason why the
exemption to the Government of India was worded as it stands
in section 5(2) (a) (iii). As stated above, the Supply De-
partment existed as a separate department up to the 6th
January 1946. With effect from the 7th January the
Department of Industries & Supplies came into existence
which later was re-designated as the Ministry of Industry &
Supply. The judgment under appeal is based chiefly on the
consideration that the exemption clause in question does not
in terms refer to the newly created department which now
goes by the name of the Ministry of Industry & Supply. But
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this department in so far as it deals with industry, is not
concerned with the main purchasing activities of the
Government of India. The exemption was granted in respect
of the purchasing activity of the Government of India and
that function continues to be assigned to the Supply
Department which has now become a wing of the newly created
department -of the Government. The question therefore
arises whether in those circumstances the Government of
India could claim the benefit of the exemption. The High
Court in answering that question in the negative has gone
upon mere nomenclature. It has emphasized the change in the
name and overlooked the substance of the matter.
After all, what is a Department of a Government? It is not
a mere name, whatever else it may be. It is not a person,
either natural or artificial. A Department of Government is
a particular function. The Government has so many functions
and each of its functions or a group of functions is placed
in charge of a particular Department which may be made up of
a number of clerks organized in a group, whose work is
supervised by a hierarchy of officials with
1096
the head of the department at the apex. A department may
therefore consist of a single function out of the many
functions of the Government, or it may comprise several
functions placed in charge of a single departmental head.
The Indian Stores Department which came to be incorporated
in the Supply Department of the Government of India and
later merged in the larger Department of the Ministry of
Industry & Supply, could have continued its separate
existence as it did until 1939 or could have become part of
a larger department as it did after the 3rd August 1940, or
the 7th January 1946, or the 29th August 1947; and
conversely, its activities could be split up into a number
of sub-departments under different heads classified
according to the nature of the commodities to be purchased.
But, in my opinion, the change in the nomenclature in either
direction should not matter so long as the function, namely,
of purchasing articles and commodities required by the
Government of India and other Governments continued to be
the same. It is a matter of substance and not of form.
The Department concerned cannot be equated with a natural
person. Nor can it be raised to the level of a legal
person. I am not aware of any principle of jurisprudence
which would justify placing a department of Government on
the pedestal of a legal person. There is no tertium quid
between the two positions. Though the High Court has not
said so in so many words, it has treated the department
either as a legal person or as something in between a legal
person and a natural person. That, in my opinion, is not
sound logic. Nor is there any legal basis for treating a
department of Government either as a legal person or as a
natural person. In my view, the terms of s. 5(2) (a) (iii)
show that it was an exemption granted to a particular
function of the Government of India described by a certain
name. And one might feel inclined to exclaim with the great
poet Shakespeare "What is in a name!" It is but a
description of the main purchasing activity of the
Government of India, as the history of the department above
set out shows,
1097
Sometimes the language of a statute has to be construed in a
modified form in order to give effect to the real intentions
of the legislature where, as in the present case,, the
language is only of a descriptive nature and not a
definitive one. An instance of this is furnished by the
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case of Miller v. Salomons(1). In that case the question
arose whether a person of Jewish persuasion who was returned
to Parliament as a Member of the House of Commons was
entitled to sit without taking the prescribed oath. The
form of the oath as given by 6 Geo. 3, c. 53, mentioned the
name of "King George" only. It was argued on behalf of that
member that the oath was confined to the name of a sovereign
who bore that name. But it was held by the Court that it
was a mere description and that the intention of the statute
was to include all sovereigns who came after King George
111. The relevant portion of the observations of the Court
are in these terms:
"The second question arising on the construction of the Act
is, whether, as the form of the oath given by the 6 Geo. 3,
c. 53, mentions the name of King George only, the obligation
to administer it ceased with the reign of that Sovereign,
because it was applicable to no other than to him. I think
this argument cannot prevail. It is clear that the
legislature meant the oath to be taken always thereafter,
for the enactment is general-that it shall be taken without
limit of time-and the oath is not confined to the existing
monarch, but mentions ’the successors’; and as it could not
be taken in those words during the reign of a Sovereign not
of the name of George, it follows that the name George is
merely used by way of designating the existing Sovereign;
and the oath must be altered from time to time in the name
of the Sovereign, in the manner it was when actually
administered in this case, in order to carry the obvious
meaning of the enactment into effect. This is an instance
in which the language of the legislature must be modified,
in order to avoid absurdity and inconsistency with its
manifest intentions".
(1) [1852] 7 Exchequer 475; 155 E.R. 1036, 1068.
1098
The High Court referred to the observation of Lord Halsbury
in the case Of Commissioners of Inland Revenue v. Forrest(1)
to the effect that exemptions from taxation should be
strictly construed because otherwise the burden of taxation
will fall on other members of the community. Those
observations, in my opinion, have no relevance to the facts
and circumstances of the present controversy, because we
know that the exemption was granted to the Government of
India in the department dealing with purchase of certain
commodities and articles without reference to quantity. As
already pointed out, the Indian Stores Department was
concerned with purchase of stores for public services on
behalf of all Central Departments of Government and local
Governments, etc., and the Government of Bengal as then
constituted was one of the Provinces of India which have
been receiving subsidies and subventions to make up the
deficit in their budgets. As a matter of fact, as stated on
behalf of the Bengal Government the concession was granted
in order to enable business communities within the Province
of Bengal to compete on favourable terms with others outside
Bengal in the matter of supplying the needs of the
Government. Hence there is no question of liberal
construction of the exemption resulting in throwing a
greater burden on other citizens. On the other hand, the
larger the sales in the Province of Bengal as it used to be,
the greater the benefit to the business community doing
business within that Province. It was therefore stated at
the Bar that though the present case involved taxes
amounting to less than Rs. 10,000, the question arising for
determination in this case affected much larger amounts
because such sales within the Province amounted to several
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crores. I should have thought that the business community
in the Province of Bengal having had the advantage of the
transactions of sale, the Government of Bengal in all
fairness should have allowed the purchasing agency of the
Government of India the benefit of the exemption until that
benefit was in
(1) [1890] 15 A.C. 334.
1099
terms withdrawn some time in the beginning of 1949.
The matter can be looked at from another point of view also.
We are concerned here with the sale of hessian. As pointed
out in the affidavit filed on behalf of the- Government of
India, the purchase of hessian has all along been the
concern of the Supply Department, now incorporated in the
Ministry of Industry & Supply. Sales tax is a tax on sale
of goods and tax on hessians falls within the contemplation
of the law granting the exemption if the sales were effected
through the purchasing agency of the Government of India.
The beneficiary certainly was not an amorphous body like a
department but the Government of India, because it is the
Government of India which could be a unit for purposes of
the Act.
In this connection our attention was invited to the last
clause of the exemption covered by the words "and any
Railway or water transport administration". The argument
was that if the Government of India as such was to be the
beneficiary, then there was no necessity for the words just
quoted. But this argument overlooks the fact that a railway
or a water transport administration need not necessarily be
a department of Government because there were, and still
are, railway systems or water transport systems which are
owned and administered by corporate bodies other than the
Government of India. Sales even to those public or semi-
public bodies were within the terms of the exemption. Those
words therefore are not words of limitation but words which
widen the scope of the exemption in so far as the same may
be available to railways and water transport administrations
not owned and carried on by the Government of India.
Another reason which may be adduced in answer to the
contention that there was nothing to prevent the Legislature
from stating that the exemption was granted in respect of
all purchases by the Government of India is that the Indian
Stores Department and its later substitutes had to make
purchases Dot only for the Government of India but also for
local governments and other public bodies. Hence the
exemption
1100
in the terms in which it occurs in section 5 (2) (a)(iii)
was not an exemption in favour of the Government of India
only but also to other Governments and public bodies which
could avail themselves of the facility of purchase -through
that department.
Another argument was urged to meet the appellant’s case that
really the exemption was meant for the Government of India
in its function of purchase of stores and commodities,
discharged through the Indian Stores Department and later
through the Supply Department. It was argued that if the
legislature meant to grant the exemption to the Government
of India, then the easiest thing to do would have been to
say that sales to the Government of India were exempt from
the tax. But it has not been the contention of the
appellant that all sales to the Government of India are
within the terms of the exemption. Only the sales
transacted through the purchasing department of the
Government of India were so exempt. In para. 7 of the
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affidavit referred to above it has been stated on behalf of
the Government that the different departments were entitled
to make local purchases of small values, that is to say, not
exceeding Rs. 100 and of certain specified commodities like
foodstuffs which were not within the purchasing activity of
the departments aforesaid of the Government of India.
Hence, in my opinion, there is no validity in this argument
either.
It was also suggested during the argument that if the
exemption were to be related to only such commodities and
articles as were within the purview of the Stores Department
and later of the Supply Department, then such an
interpretation would involve addition of qualifying words to
the section which is not ordinarily within the function of
the courts. But, in my opinion, this argument also suffers
from the infirmity that,it equates the departments mentioned
in the exemption clause quoted above with a legal person,-an
argument which has already been dealt with. In my opinion,
there is no escape from the conclusion that those are mere
words of description and are not words with defined
connotation, because
1101
neither the Act nor the rules framed thereunder define those
departments. If the nomenclature only mattered, then there
is no escape from the conclusion that whatever articles and
commodities were purchased by the Indian Stores Department
or its later substitutes, of whatever magnitude and value,
would be within the mischief of the exemption clause in
question. But that, in my opinion, was not the intention of
the framers of the Act. They knew what the activities of
the Government through those departments were and the
exemption was granted only in respect of those functions of
the Government, as already indicated.
For the aforesaid reasons I would allow these appeals, set
aside the orders of the Letters Patent Bench and restore the
orders passed by the Single Judge of the Calcutta High
Court, with costs throughout.
BY THE COURT.
In accordance with the Judgment of the majority the appeals
are dismissed with costs.