Full Judgment Text
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PETITIONER:
CHUNNI LAL PARSHADI LAL
Vs.
RESPONDENT:
COMMISSIONER OF SALES TAX, U.P., LUCKNOW
DATE OF JUDGMENT18/03/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1986 AIR 1966 1986 SCR (1) 891
1986 SCC (2) 501 1986 SCALE (1)1365
ACT:
Uttar Pradesh Sales Tax Act, 1948, s.3AA and Uttar
Pradesh Sales Tax Rules, 1948, Rule 12-A - Sale of goods by
dealer deemed to be a sale to the consumer - Whether
irrebuttable presumption raised - Sales Tax Authorities can
only examine certificate in Form III as ’Farzi’ or not.
Interpretation of Statutes
Interpretation which implements purpose of Act and
makes effective provisions of Act to be preferred.
HEADNOTE:
The turnover of cotton yarn was taxable under s.3-AA of
the U.P. Sales Tax Act, 1948 at the point of sale of the
consumers. The assessee, a dealer in cotton yarn, in the
assessment year 1960-1961 was granted exemption on the
turnover of cotton yarn amounting to Rs. 8,70,810 by the
Sales-tax Officer on the basis of Form IIIA filed by him.
Subsequently, on receipt of information by the Sales-tax
Officer that the purchasing dealer of cotton yarn had not
actually sold it but had consumed it himself, proceedings
were taken against the assessee under s.21 to reopen the
assessment for the assement year 1960-61. A list of dealers
to whom sales were made was also obtained from the assesses.
In his order under s.21, the Sales-tax Officer had stated
that on verification of the aforesaid list, it was learnt
that two dealers had consumed the entire cotton yarn in
manufacturing handlooms cloth and another dealer had
consumed the yarn of Rs. 44,676.12 only out of the amount of
Rs. 55,991.87; that dealer No. 4 in the list had admitted
the purchases of yarn and had also paid sales tax on the
sale of yarn so purchased but the dealer at serial No. 5 in
the list had deposed that he had consumed the entire
cotton yarn in manufacturing coarse handloom cloth. The
order under s. 21 further stated that cotton yarn worth Rs.
8,17,905.39 was sold to dealers who did not resell the same
but actually consumed the same and so the assessee was
liable to pay sales tax on this turnover.
892
On behalf of the assessee it was contended that he was
not liable to pay sales tax as he had fulfilled all the
conditions laid down in s.3AA of the Act read with Rule 12A
of the U.P. Sales Tax Rules inasmuch as he had sold the
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cotton yarn to registered dealers and had also obtained
certificates of resale on Form III-A and that it was not
possible to find out what the purchasers subsequently did
because it had no control over purchasers of the yarn.
Rejecting this plea of the assessee the Sales Tax
Officer held that the assessee had not proved beyond shadow
of doubt that sale of cotton yarn was made to the consumers,
that the mere fact that the purchasers were registered
dealers and they had furnished certificates for resale was
not sufficient, that the declaration forms given by the
purchaser-dealers were ’farzi’, that the assessee was in
collusion with them, that the documentary evidence on record
showed that the purchasers though registered dealers did not
resell the cotton yarn in the same condition in which they
had purchased, rather they had themselves consumed cotton
yarn and, therefore, the cotton yarn amounting to Rs.
8,16,905.39 was assessable to Sales Tax at 2%.
In the appeal filed by the assessee, the Appellate
Authority Sales Tax, held that the assessee was not liable
to tax.
The revision filed by the Department was dismissed and
it was held that there was not a single bit of evidence for
showing that Form III-A certificates were ’farzi’ in the
sense that they did not bear any signature of the buyer nor
there was any collusion between the buyer and the assessee;
that the assessee had sold the goods and accepted the Forms
in good faith and that the assessee had no control over the
purchaser of the yarn.
In the reference under s.11(5) of the U.P. Sales Tax
Act 1948, the High court affirmed the view taken by the
Sales Tax Officer.
Allowing the appeal of the assessee on the question
whether the sale of yarn made by him against certificates in
Form III-A was liable to tax,
893
^
HELD : 1. Under s.3AA of the U.P. Sales Tax Act, 1948,
the cotton yarn is to be taxed at a single point i.e. when
the sale takes place to the consumer. To ensure this the
legislature has enacted s.3-AA in the Act and the State
Government has framed Rule 12-A of the U.P. Sales Tax Rules,
1948. Rule 12-A proceeds on the basis that sale of any of
the goods specified in s.3-AA of the Act shall be deemed to
be a sale to the consumer, unless the dealer furnishes a
certificate in Form III-A to the effect that the goods
purchased are for resale in the same condition i.e. the tax
shall not be realised by a registered dealer from another
registered dealer if a certificate in Form III-A is
furnished that the goods purchased would not be consumed or
used by the purchaser but it will be resold. [899 G; 900 D-
G]
2. The combined effect of sub-s.(1), (2) & (3) of s.3-
AA of the Act is that tax would be payable if the goods in
question, that is cotton yarn, in this case, are sold to a
dealer for consumption. Unless the dealer proves otherwise
every sale by a dealer shall for the purposes of sub-s.(1)
be presumed to be a sale to a consumer. Therefore, a
registered dealer has to prove that a sale to another
registered dealer or an unregistered dealer is not for
consumption. [901 E-G]
3. Rule 12-A provides a method of proving that the sale
is not a sale to the consumer. Furnishing of certificate in
the form and with the particulars, is one of the methods of
proving that sale by a registered dealer is not for
consumption. Neither the rule nor the provision of the
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section suggests that this is the only method. If a dealer
can prove by any other way then the way contemplated by Rule
12-A then he is not so precluded. The purpose of the rule
would be frustrated if after the dealer proves in the manner
indicated in Rule 12-A he has to prove again how the
purchasing dealer has dealt with the goods after he obtains
the certificates from a registered dealer. That would make
the working of the Act and rule unworkable. Indubitably, in
the instant case, certificate as mentioned in Rule 12-A were
furnished. The furnishing of the certificate in the
prescribed manner raises a presumption of proof that the
goods were sold to dealer for
894
resale in the same condition and not to be consumed by the
purchasing dealer, but that was not the only method. [901 G-
H; 902 A-D]
The question is whether Rule 12-A raises an
irrebuttable presumption by the assessing authority. Even if
the assessee had furnished a certificate in Form III-A and
the details as stipulated in Form-IV, can the selling dealer
be called upon to prove further how the purchasing dealer
has dealt with the goods after purchasing the goods. [904 C-
D]
4. The purpose of Rule 12-A was to make the object of
the provisions of the Act workable i.e. realisation of tax
at one single point, at the point of sale to the consumer.
The provisions of the rule should be so read as to
facilitate the working out of the object of the rule. [906
A-B]
J.K. Manufacturers Ltd. v. The Sales Tax Officer,
Sector II, Kanpur & Ors., 26 S.T.C. 310, relied upon.
Commissioner, Sales tax, Uttar Pradesh v. Shankar Lal
Chandra Prakash, 26 S.T.C. 386, overruled.
The State of Madras v. M/s. Radio and Electricals Ltd.
Etc., [1967] Supp. S.C.R. 198, referred to.
5. The genuineness of the certificate and declaration
may be examined by the Taxing Authority but not the
correctness or the truthfulness of the statements. The sales
tax authorities can examine whether certificate is ’Farzi’
or not, or if there was any collusion on the part of selling
dealer - but not beyond - i.e. how the purchasing dealer has
dealt with the goods.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No.162 (NT)
of 1974.
From the Judgment and Order dated 19th April, 1973 of
the Allahabad High Court in Sales Tax Reference No. 603 of
1971.
E.C. Agarwal, V.K. Pandita and P.P. Srivastava for the
Appellant.
S.C. Manchanda, J.D. Jain and Mrs. Kawaljit Kochar for
the Respondent.
895
The judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This is an appeal by special
leave from the decision of the High Court of Allahabad in
Sales Tax reference No. 603 of 1971 under section 11(5) of
the U.P. Sales Tax Act, 1948 (hereinafter called the ’Act’).
The question referred to the High Court under section 11(5)
of the Act was as follows:-
"Whether, on the facts and in the circumstances of
the case, the dealer could be declared non-taxable
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on sales of yarn for Rs.8,70,810, which he made
against III-A Forms though the purchaser instead
of selling the said yarn in the same condition,
consumed the same?"
The division bench of the Allahabad High Court was of
the opinion that the controversy raised in the reference was
covered by the decision of the Full Bench of the said High
Court in Commissioner,Sales Tax, Uttar Pradesh v. Shankar
lal Chandra Prakash, 26 S.T.C. 386 where it was held that
the certificate in Form III-A was only a prima facie
evidence of the fact that the goods had not been sold to a
consumer. The division bench of the Allahabad High Court was
further of the opinion that that certificate was not
conclusive evidence and the department could go behind the
certificate and if it found that the goods had not been
resold in accordance with the certificate given in Form III-
A and had been consumed, in such a case the department could
ignore the certificate and levy tax on the selling dealer.
In those circumstances the revising authority was wrong,
according to the High Court, in holding that the assessee
was not liable to tax even if the department had found that
the yarn had been consumed by the purchaser and not re-sold.
The division bench answered the question in the negative in
favour of the Commissioner and against in the assessee. The
assessee has come up in appeal as mentioned hereinbefore by
special leave.
In order to appreciate the controversy, it is necessary
to refer to certain facts and findings.
The assessee at the relevant time was a dealer in
cotton yarn at Moradabad. In the assessment year 1960-61,
the
896
Sales-tax Officer had granted exemption to the dealer on the
turn-over of cotton yarn amounting to Rs.8,70,810 on the
basis of Form III-A filed by the assessee. The turnover of
cotton yarn was taxable under section 3-AA at the point of
sale to the consumers. The assessee filed certificate in
Form III-A from the purchasers. Later, the Sales-tax Officer
had received certain information that the purchasing dealer
of cotton yarn had not actually sold it but had consumed it
himself. Hence the proceedings were taken against the
assessee under section 21 of the Act to reopen the
assessment for the assessment year 1960-61.
In view of the nature of the findings made, it would be
relevant to refer to the order under section 21 of the Act.
As mentioned hereinbefore, the assessee was a registered
dealer and was originally assessed for the year 1960-61
under section 41(5) of the Act on a net turnover of
Rs.20,31,897.58 to a tax of Rs 38,027.60 vide assessment
order dated 11th January, 1963 by the Sales-tax Officer.
The attention of the dealer was drawn to the letter of
the Sales-tax Officer, Bijnor. A list of dealers to whom
sales were made was also obtained from the dealers and the
Sales-tax Officer in his order under section 21 of the Act
had stated that the same was verified. In the list there
were five names indicating the amount of cotton yarn sold to
them. The Sales-tax Officer in his order under section 21
had stated that on verification, it was learnt that two
dealers had consumed the entire cotton yarn in manufacturing
handloom cloth and another dealer had consumed the yarn of
Rs.44,676.12 only out of the amount of Rs.55,991.87 sold to
him and he had resold the balance in the same condition and
paid the sales tax due thereon. It was further recorded that
dealer No.2 in the said list had purchased cotton yarn worth
Rs.60,514.87 and not for Rs.55,991.87 as given by the Kanth
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dealer. The other dealer, namely dealer No.4 mentioned in
the list had admitted the purchases of yarn and had also
paid sales tax on the sale of yarn so purchased but the
dealer at serial No.5 in the list had deposed that he had
consumed the entire cotton yarn in manufacturing coarse
handloom cloth.
According to the Sales-tax Officer in his order under
section 21 of the Act, cotton yarn worth Rs.8,17,905.39 was
897
sold to dealers who did not resell the same but actually
consumed the same and so the instant dealer was liable to
pay sales tax on this turnover.
It was contended on behalf of the dealer that he was
not liable to pay sales tax as he had fulfilled all the
conditions laid down under the provisions of section 3-AA of
the Act read with rule 12A of the U.P. Sales Tax Rules
(hereinafter called the ’rules’) inasmuch as he had sold the
cotton yarn to registered dealers and had also obtained from
them the certificates of resale on Form III-A and it was not
possible nor was it his business to find out what the
purchasers of the cotton yarn subsequently did.
The Sales-tax Officer found himself unable to accept
this contention and after referring to the relevant
provisions observed that the selling dealer had not proved
beyond shadow of doubt that sale of cotton yarn made by the
dealer was to the consumers and that the mere fact that the
purchasers were registered dealers and that they had
furnished certificates for resale was of not much avail. The
Sales-tax Officer concluded that the documentary evidence on
record showed that those purchasers though registered did
not resell the cotton yarn in the same condition in which
they had purchased these.
Accordingly, the Sales-tax Officer came to the
conclusion that cotton yarn amounting to Rs.8,16,905.39 was
assessable to sales tax at 2%
There was an appeal from the said decision to the
Appellate Authority Sales Tax, Moradabad. On consideration
of the evidence, the said Appellate Authority, apart from
its view on law after discussing evidence and the Textile
Control Order and Licences, came to the categorical finding
that there was no case for assessment against the assessee
in the year 1960-61, as purchaser named in the order had
accepted some resale of yarn to consumers and were assessed
under section 21 and the rest three were registered dealers
and yarn licencees and admittedly had been assessed to tax
under section 21 on the same turnover which had been
included in the present assessment under section 21 of the
Act.
There was a further appeal to the Commissioner of Sales
Tax by revision. After discussing the position in law, the
revisional authorities dismissed the appeal.
898
To the objection to the notice under section 21, the
assessee had disputed his liability to tax on the ground
that since it had sold the yarn after scrutiny of requisite
declaration, it was not liable to tax and further that it
had no power to control over the yarn sold to the purchaser.
the Sales-tax Officer rejected this plea of the assessee and
held that the declaration forms given by the purchaser-
dealers were ’farzi’ and that the opposite party was in
collusion with them. He had held that the purchasing dealers
had consumed cotton yarn. The assessment order was followed
up by opposite party by appeal and the Appellate Authority
nullified the same and held that the assessee was not liable
to tax. The State had preferred a revision which was
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dismissed and the Additional Judge stated that he found that
there was not a single bit of evidence for showing that III-
A Form certificates were ’farzi’ in the sense that it did
not bear any signature of the buyer nor there was any
collusion between the buyer and the appellant. The dealer
had sold the goods and accepted the forms in good faith and
that was so. The dealer had no control over the yarn of the
purchaser. In those circumstances the question as mentioned
to hereinbefore was referred to the High Court after stating
these facts in the statement of case. The High Court
answered the question against the dealer as indicated
hereinbefore.
At the outset, in view of the statement of facts
narrated before, we are of the opinion, that the question
proceeded on misapprehension of facts. In this case though
the Sales-tax Officer had held that the purchasers of yarn
by giving certificates in Form III-A had consumed the said
yarn instead of selling the said yarn in the same condition,
the said finding was not accepted and was in fact reversed
by the Appellate Authority as well as the revising
authority.
Therefore, the question proceeded on a mis-apprehension
of the factual position.
In order to bring out the true controversy, we reframe
the question as follows:
"Whether,on the facts and in the circumstances of
the case, the sale of yarn to the extent of
Rs.8,70,810 sold by the dealer against
certificates in Form III-A was liable to tax?"
899
It is necessary in this connection to bear in mind the
relevant provisions of the Act as well as the rules with
which this appeal is concerned. Section 3 of the Act imposes
liability to tax and provides inter alia, that every dealer
shall, for each assessment year, pay a tax at the rates
specified therein on his turnover of such year, which shall
be determined in such manner as might be prescribed.
Section 3-A which was inserted by U.P. Act No. XXV of
1948 as well as U.P. Act No. XXVI of 1950 provides that
notwithstanding any-thing contained in section 3, the State
Government, may, by notification in the Official Gazette,
declare that the turnover in respect of any goods or class
of goods shall not be liable to tax except at such single
point in the series of sales by successive dealers as the
State Government might specify.
Section 3-AA with which this appeal is concerned
provides that notwithstanding anything contained in section
3 or 3-A,turnover in respect of certain goods mentioned
therein shall not be liable to tax except at the point of
sale by a dealer to the consumer and the rate was specified
therein.
Clause (ii-a) of sub-section (1) of section 3-AA
included inter-alia, cotton yarn with which this appeal is
concerned, but not including yarn waste. It is relevant to
bear in mind Rule 12A framed under The U.P. Sales Tax Rule,
1948 which is in the following terms:
"12-A. Exemption of sales under Section 3AA.-A
sale of any of the goods specified in Section 3-AA
shall be deemed to be a sale to the consumer,
unless it is to a dealer who furnishes a
certificate in Form III-A to the effect that the
goods purchased are for re-sale in the same
conditions. Details of all such certificates shall
be furnished by the selling dealer with his return
in Form IV."
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The cotton yarn is to be taxed at a single point i.e.
when the sale takes place to the consumer. Section III-A and
the scheme thereunder was formulated under the provisions of
section 14 of the Central Sales Tax Act, 1956.
900
Section 14 of the Central Sales Tax Act specifies
certain goods as goods of special importance in inter-state
trade or commerce and clause (ii-b) Including cotton yarn
waste.
Section 15 imposes certain restrictions and conditions
in regard to tax on sale or purchase of declared goods
within a State, and clause (a) imposes conditions that the
tax payable under any law in respect of any sale or purchase
of such goods inside the State shall not firstly exceed four
per cent of the sale or purchase price thereof and secondly
such tax shall not be levied at more than one stage.
As cotton yarn is one of the goods which has been
declared goods of special importance, for the State to levy
sales tax on these goods, it is necessary to follow the
conditions laid down in section 15 which are essential to
ensure that such sales tax should not exceed 4%, of the sale
or purchase price and secondly that it shall be imposed at
one point.This appeal is not concerned with the question of
the limit. The limit in this case of 4% has been fulfilled.
The second aspect is that it should not be imposed at more
than one point. Law is so framed that it is collected from
the consumer. In order to ensure this, the legislature has
enacted section 3-AA in the Act and State Govt. has framed
Rule 12-A of the Rules. Rule 12-A as set out hereinbefore
proceeds on the basis that sale of any of the goods
specified in section 3-AA of the Act shall be deemed to be a
sale to the consumer. The second aspect of the said rule
enjoins that this will not be so that means to say that a
sale of goods specified in section-3AA shall not be deemed
to be a sale to the consumer unless the dealer furnishes a
certificate in Form IIIA and further that that certificate
must be to the effect that the goods purchased are for
resale in the same condition i.e. the tax shall not be
realised by a registered dealer from another registered
dealer if a certificate in Form III-A is furnished that the
goods purchased would not be consumed or used by the
purchaser but it will be resold. The Form IV provides for
return of turnover, class of goods and then there is a
declaration and then details in respect of sale of goods
specified in section 3-AA on which exemption is sought to be
claimed. The names of the goods have to be indicated i.e.
giving the name and address of purchasing dealer, the
Registration certificate
901
number, if any, of the registered dealer, date of sale, sale
price and number of certificate in Form III-A noticed
before. Sub-section (2) of section 3-AA of the said Act
provides that unless the dealer proves otherwise, every sale
by a dealer, shall, for the purpose of sub-section (1), be
presumed to be to a consumer. An explanation was, however,
added to sub-sec- tion (2) to section 3-AA by the Act of
1958 which provides, inter alia, as follows:-
"Explanation - A sale of any of the goods
specified in sub-section (1) to a registered
dealer who does not purchase them for resale in
the same condition in which he has purchased them,
or to an unregistered dealer shall, for purposes
of this section, be deemed to be a sale to the
consumer."
It means that a sale of any of the goods specified in
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sub-section (1) to a registered dealer who has purchased
them or to any un-registered dealer, shall for the purpose
of this section, be deemed to be a sale to the consumer
unless the purchasing dealer purchases the said goods for
resale in the same condition. It merely strengthens the
provisions of sub-section (2) of section 3-AA i.e. unless
the dealer proves otherwise, every sale shall, for the
purpose of sub-section (1), be presumed to a consumer. the
combined effect of sub-sections(1), (2) and (3) of section
3-AA of the Act is that tax would be payable if the goods in
question i.e. cotton yarn, in this case, are sold to a
dealer for consumption. Unless the dealer proves otherwise
every sale by a dealer shall for the purpose of sub-section
(1) be presumed to be a sale to a consumer. A sale of any of
the goods mentioned in sub-section (1) to a registered
dealer who does not purchase them for resale in the same
condition, without processing or sale to unregistered dealer
shall be deemed to be a sale to the consumer. Therefore, a
registered dealer has to prove that a sale to another
registered dealer or an unregistered dealer is not for
consumption. In order to facilitate the working of the Act,
by rule 12A a method of proving has been provided that the
sale is not a sale to the consumer. The reading of the rule
along with relevant provisions of the Act leads to the
conclusion that 12A method, - furnishing of certificate in
the form and with the particulars, is one of the methods of
proving that sale by a registered dealer is not for
consumption. Neither the rule nor the provision of the
section
902
suggests that this is the only method. If a dealer can prove
by any other way than the way contemplated by rule 12A then
he is not so precluded. For the rule to say otherwise would
be exceeding the provision of the section. The purpose for
the making of the rule would however, be frustrated if after
the dealer proves in the manner indicated in rule 12A he has
to prove again how the purchasing dealer has dealt with the
goods after he obtains the certificate from a registered
dealer. That would make the working of the Act and rule
unworkable.
There is no dispute that in this case certificate as
mentioned in rule 12A were furnished.
The questions involved in this case are whether by
furnishing certificate in Form III-A and the details of such
certificate given in Form IV, the selling dealer got
exemption and Rule 12A created an irrebuttable presumption
i.e. that no further evidence is required in this matter to
prove that the goods were sold to a dealer for resale in the
same condition and not to be consumed by the purchasing
dealer.
The Full Bench of the Allahabad High Court in J.K.
Manufacturers Ltd. v. The Sales Tax Officer, Sector II,
Kanpur, and Others, 26 S.T.C. 310 had occasion to deal with
this question. In this case one of us (Pathak, J.) was a
party. It was observed by Pathak, J. that Rule 12A must be
construed to mean to provide merely a convenient mode of
proving that the purchase of the goods was for resale in the
same condition. It was, however, observed that this rule did
not lay down that the only mode of proving this was by
furnishing certificates in Form III-A. Beg, J. as the
learned Chief Justice then was, observed that the primary
object and plain meaning of rule 12A was to prescribe
certification by the purchasing dealer as the only means of
protection for the selling dealer which enabled him to repel
the statutory presumption most conveniently. The rule in
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addition, the learned judge observed, to preventing the
commission of fraud and introducing administrative
convenience, was designed to facilitate the task of the
dealer who sold. It was further observed by learned judge
that it was, therefore, reasonable and valid and did not go
beyond the object of section 3-AA. It was further observed
by Beg, J. that the question whether the fair and reasonable
but obligatory presumption raised by
903
section 3-AA(2) read with first part of rule 12-A was
rebutted or not in a particular case, could be decided, on
the totality of evidence before the Sales Tax Officer, when
the evidence had to be weighed and assessment order had to
be passed. At that time, the Sales Tax Officer might fairly
use non-compliance with the last part of rule 12-A as a
piece of evidence for concluding that some certificates
filed before him in assessment proceedings were not genuine.
It was further observed that although the prescribed
certificate might provide prima facie evidence protecting
the selling dealer it was not conclusive. Rule 12-A
specified the kind of evidence which was required for
rebutting the presumption, but it did not purport to
regulate the question of time at which this evidence should
be admitted in the course of assessment proceedings. Nor did
it deal with evidence for other purposes which might be
needed for assessment. The Sales Tax Officer could only act
on legally sustainable grounds in excluding or admitting
evidence.
Referring to sub-section (2) of section 3-AA, Pathak,
J. observed that at first blush, the rule gave the
impression that unless the selling dealer is armed with a
certificate in Form III-A from the purchasing dealer the
sale made by him must be considered to be a sale to the
consmer. The learned judge observed that he was unable to
read the rule to mean that. This rule meant a convenient
mode to the selling dealer for proving that the goods had
not been sold to the consumer. It provided for no more than
that. The certificate in Form III-A was one mode in which
the dealer might establish that he had not sold the goods to
the consumer. But that was not the only mode. If it was
accepted that it was the only mode, then it would limit the
selling dealer to that mode alone and would preclude him
from adopting any other mode of proof.
This case was considered by another Full Bench of the
Allahabad High Court in Commissioner, Sales Tax, Uttar
Pradesh v. Shankar Lal Chandra Prakash, 26 S.T.C. 386 where
Beg, J., as the learned Chief Justice then was, observed
that rule 12-A prescribed an indispensable or an imperative
mode of rebutting the presumption laid down by section 3-
AA(2) and then in rule 12-A, so that other modes of proof
were by a necessary implication prohibited as substitutes
for fulfilling the same purpose. We are unable to accept
this view as correct. The
904
correct position was stated by the majority view Ln J.K.
Manufacturers Ltd. (supra).
As we read the rule, the furnishing of the certificate
in the manner indicated raises a presumption, but as
indicated before that was not the only method, a registered
dealer might prove otherwise also. As noted, rule 12-A first
states that a sale of any goods specified in sub-section (1)
shall be deemed to be a sale to the consumer. But this
presumption will not be there if the dealer furnishes a
certificate in Form III-A as indicated therein. But the
question with which we are concerned in this case did not
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arise in the form in either of the two cases. It is not the
question whether it raises a presumption or not. But the
question is whether it raises an irrebuttable presumption
i.e. a presumption which cannot be rebutted by the relevant
assessing authority. In other words even if the assessee had
furnished a certificate in Form III-A, and the details as
stipulated in Form IV, can the selling dealer be called upon
to prove further how the purchasing dealer has dealt with
the goods after purchasing the goods?
Mr. Aggarwala, learned counsel, contended that after a
certificate was given, it should be deemed to be not for
consumption and the certificate raised an irrebuttable
presumption in favour of the dealer and no further
examination of evidence was permissible. In support of this
contention, reliance was placed on certain observations of
this Court in The State of Madras v. M/s Radio and
Electricals Ltd. etc., [1967] Supp. S.C.R. 198. This Court
had occasion to deal with sections 7 and 8 of the Central
Sales Tax Act, 1956 and rules framed thereunder. There Shah,
J. speaking for the Court observed at page 207 of the report
that the Act sought to impose tax on transactions, amongst
others, of sale and purchase in inter-State trade and
commerce and explalning similar provisions in the Central
Act, this Court observed that though the tax under the Act
was levied primarily from the seller, the burden was
ultimately passed on the consumers of goods because it
entered into the price paid by them. Parliament with a view
to reduce the burden on the consumer arising out of multiple
taxation prescribed low rates of taxation, when transactions
took place in the course of inter-State trade or commerce.
This Court observed that indisputably the seller could have
in these transactions no control
905
over the purchaser. He had to rely upon the representation
made to him. He must satisfy himself that the purchaser was
a registered dealer, and the goods purchased were specified
in his certificates but his duty extended no further. If he
was satisfied on these two matters on a representation made
to him in the manner prescribed by the rules and the
representation was recorded in the certificate in Form ’C’,
the selling dealer was under no further obligation to see to
the application of the goods for the purpose for which it
was represented that the goods were intended to be used. If
the purchasing dealer misapplied the goods he incurred a
penalty under section 10 of that Act. That penalty was
incurred by the purchasing dealer and could not be visited
upon the selling dealer. The selling dealer was under the
Act authorised to collect from the purchasing dealer the
amount payable by him as tax on the transaction, and he
could collect that amount only in the light of the
declaration mentioned in the certificate in Form ’C’. He
could not hold an enquiry whether the notified authority who
issued the certificate of registration acted properly, or
ascertained whether the purchaser, notwith standing the
declaration, was likely to use the goods for a purpose other
than the purpose mentioned in the certificate in Form ’C’.
There was nothing in the Act and the rules that for
infraction of the law committed by the purchasing dealer by
misapplication of the goods after he purchased them, or for
any fraudulent misrepresentation by him, penalty might be
visited upon the selling dealer.
This Court further observed that if the purchasing
dealer held a valid certificate specifying the goods which
were to be purchased and furnished the required declaration
to the selling dealer, the selling dealer became on
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production of the certificate entitled to the benefit of
section 8(1) of that Act. It was of course open to the sales
tax authorities to satisfy themselves that the goods which
were purchased by the purchasing dealer under certificate in
Form ’C’ were specified in the purchasing dealer’s
certificate in Form ’C’. These observations as has been
noted before were made in the context of the rules and the
provisions of the Central Act, which were on similar lines,
though their provisions were not in parinateria.
But it was contended by counsel for the dealer that in
order to make the provisions of the Act operative and
906
effective, this was the intention in the instant case and
though the rule did not say so that it raised an
irrebuttable presumption. We are of the opinion that this
submission has to be accepted. After all the purpose of the
rule was to make the object of the provisions of the Act
workable i.e. realisation of tax at one single point, at the
point of sale to the consumer. The provisions of rule should
be so read as to facilitate the working out of the object of
the rule.
An interpretation which will make the provisions of the
Act effective and implement the purpose of the Act should be
preferred when possible without doing violence to the
language. The genuineness of the certificate and declaration
may be examined by the taxing authority but not the
correctness or the truthfulness of the statements. The Sales
Tax Authorities can examine whether certificate is "farzi"
or not, or if there was any collusion on the part of selling
dealer but not beyond - i.e. how the purchasing dealer has
dealt with the goods. If in an appropriate case it could be
established that the certificates were "farzi" or that there
was collusion between the purchasing dealer and the selling
dealer, different considerations would arise. But in the
facts of this case as noticed before, the facts have been
found to the contrary by the appellate authority though that
was the finding of the Sales Tax Officer. The question has
been reframed for that purpose i.e. to bring about the real
controversy in the background of the facts found in this
case.
In the facts and circumstances of this case, the
question posed is academic because it has not been found by
the appellate authority that neither the goods have been
consumed by the purchasing dealer and not sold to the
consumer in terms of the registration certificates furnished
by the purchasing dealer, nor that the certificates were
forged or fabricated.
It must be held that the Full Bench decision of the
Allahabad High Court in Commissioner, Sales Tax, Uttar
Pradesh v. Shankar Lal Chandra Prakash (supra) was not
correctly decided. In the premises the question reframed
above must be answered in the negative and in favour of the
dealer. The appeal is, therefore, allowed and the judgment
and order of the High Court are set aside. The appellant is
entitled to the costs of this appeal.
A.P.J. Appeal allowed.
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