1968 (4) TMI 40 - SC - VAT and Sales Tax

Whether the rule-making authorities have failed to appreciate the scheme of section 13 of the Central Sales Tax Act? Held that - Appeal dismissed. The State Government is undoubtedly empowered to make rules under sub-sections (3) and (4) of section 13; but the rules made by the State Government must not be inconsistent with the provisions of the Act and the Rules made under sub-section (1) of section 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 section 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 section 13(1)(d) of the Act had made the Rules.

Issues Involved:
1. Applicability of Section 8(1) and 8(2) of the Central Sales Tax Act, 1956.
2. Validity of declarations in Form 'C' covering multiple transactions.
3. Competence of State Governments to frame rules under Section 13 of the Central Sales Tax Act.
4. Interpretation of Rule 10(1) of the Central Sales Tax (Madras) Rules, 1957.

Issue-wise Detailed Analysis:

1. Applicability of Section 8(1) and 8(2) of the Central Sales Tax Act, 1956:
The assessees, dealers in wool, were assessed to pay tax at seven percent on a turnover of Rs. 2,08,343.05 from sales to registered dealers in Punjab. The assessing authority declined to apply the one percent rate under Section 8(1) because the declarations in Form 'C' covered multiple transactions, contrary to Rule 10(1) of the Central Sales Tax (Madras) Rules, 1957. The High Court, however, set aside this order, declaring that the assessees were liable to pay tax at the lower rate.

2. Validity of Declarations in Form 'C' Covering Multiple Transactions:
The respondents furnished declarations in Form 'C', but each declaration covered more than one transaction, with an aggregate value exceeding Rs. 5,000. The Sales Tax Authorities and the Tribunal viewed these declarations as contravening the Madras Rules. However, the High Court held that Rule 10(1) applied only to transactions by dealers in Madras and not to those in Punjab. Since the Madras selling dealers could not compel Punjab purchasing dealers to comply with the Madras Rules, the declarations were not defective.

3. Competence of State Governments to Frame Rules Under Section 13 of the Central Sales Tax Act:
The High Court's assumption that no rule was framed by Punjab under Section 13(4)(e) was erroneous. It was conceded that Punjab had made Rule 7(2-A), effective from February 17, 1958, stating that no single declaration in Form 'C' shall cover more than one transaction of sale except when the total amount does not exceed Rs. 5,000. Despite this, the judgment of the High Court was affirmed because Rule 10(1) was intended only for dealers in Madras, not outside the state.

4. Interpretation of Rule 10(1) of the Central Sales Tax (Madras) Rules, 1957:
Rule 10(1) imposes no obligation on a Madras dealer wishing to sell goods; it applies to a dealer wishing to purchase goods. The Central Sales Tax Act and Rules indicate that the rules framed by Madras were intended for dealers within Madras. The High Court correctly held that the injunction against purchasing dealers in Rule 10(1) did not apply to Punjab dealers. Rule 10(2) does not direct that a declaration covering more than one transaction shall not be given. The rules do not impose any binding obligation on the selling dealer in Madras to obtain a separate declaration form for each sale transaction.

The rule-making authorities failed to appreciate the scheme of Section 13. It was not within the competence of State authorities under Section 13(3) and (4) to provide that a single declaration covering more than one transaction shall not be made. Such authority can only be conferred by Section 13(1)(d) to the Central Government. The Central Government prescribed the form of declaration and particulars under Section 13(1)(d). A direction for separate declarations for each transaction could be made under this section. The State Government's rules must not be inconsistent with the Act and Rules made under Section 13(1).

Conclusion:
The appeal was dismissed, affirming the High Court's judgment that Rule 10(1) of the Madras Rules did not apply to dealers outside Madras, and the declarations in Form 'C' covering multiple transactions were valid. The State Government's rule-making power under Section 13(3) and (4) does not extend to imposing such conditions. The appeal failed and was dismissed with costs.

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