1978 (2) TMI 186 - SC - VAT and Sales Tax

Whether resale in section 5(2)(a)(ii) and the second proviso means resale any where without any geographical limitation or it is confined only to resale inside Delhi? Whether the price of the raw cotton was liable to be included in the taxable turnover of the appellants under the second proviso which was in identical terms with the second proviso in the present case? Held that - Appeal allowed. As already pointed out that even where the assessees used the goods purchased as raw materials in the manufacture of goods outside Delhi or having manufactured the goods sold them outside Delhi there was no breach of the intention expressed by them in the declarations given to the selling dealers and they could not be said to have utilised the goods for any purpose other than that for which they were purchased so as to attract the applicability of the second proviso. There was no evidence at all before the assessing authority and the order imposing penalty was therefore plainly unjustified. It was based on misconstruction of section 5(2)(a)(ii) and the second proviso and it must therefore be quashed and set aside.

Issues Involved:
1. Interpretation of section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941.
2. Geographical limitation of "resale," "manufacture," and "sale" in section 5(2)(a)(ii) and the second proviso.
3. Validity and applicability of the declarations given by purchasing dealers.
4. Imposition of penalty on the assessees.

Comprehensive, Issue-wise Detailed Analysis:

1. Interpretation of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941:
The court examined the scheme of the relevant provisions of the Act, focusing on the definition of "dealer," "sale," and "taxable turnover." Section 5(2)(a)(ii) allows deductions from a dealer's gross turnover for sales to a registered dealer of goods specified in the certificate of registration. The court emphasized that the deduction is based on the intended end-use of the goods, either for resale or as raw materials in the manufacture of goods for sale. The first proviso requires a declaration from the purchasing dealer to ensure the intended use of the goods, preventing fraud and promoting administrative efficiency.

2. Geographical Limitation of "Resale," "Manufacture," and "Sale" in Section 5(2)(a)(ii) and the Second Proviso:
The court addressed whether "resale" in section 5(2)(a)(ii) and the second proviso is confined to resale inside Delhi. The revenue argued that resale outside Delhi would result in the Union Territory of Delhi losing tax revenue. However, the court rejected this argument, stating that the word "resale" should be given its plain natural meaning, which includes resale anywhere without geographical limitation. The court emphasized that the legislature could have explicitly limited "resale" to inside Delhi but chose not to do so. The court also noted that the definition of "sale" in section 2(g) does not limit it to sales inside Delhi. Therefore, "resale" in section 5(2)(a)(ii) and the second proviso includes resale outside Delhi.

3. Validity and Applicability of the Declarations Given by Purchasing Dealers:
The court examined the declarations given by the purchasing dealers, which stated that the goods were purchased for resale or for use as raw materials in the manufacture of goods for sale. The court noted that the declarations did not specify that the resale or manufacture and sale must be inside Delhi. Therefore, even if the goods were resold or manufactured and sold outside Delhi, the purchasing dealers complied with the declarations, and the second proviso was not attracted. The court emphasized that the burden of proving that the goods were utilized for a different purpose lies with the revenue.

4. Imposition of Penalty on the Assessees:
The court addressed the imposition of a penalty of Rs. 2 lakhs on the assessees in Civil Appeal No. 1085 of 1977 for failing to include the price of the goods purchased in their returns and to pay tax on it. The court found that the assessees complied with the declarations given to the selling dealers, and there was no breach of the intention expressed in the declarations. Therefore, the second proviso was not attracted, and the penalty was unjustified. The court quashed and set aside the order imposing the penalty.

Conclusion:
The court allowed the appeals and writ petitions, set aside the orders passed by the High Court and the assessing authority, and directed the assessing authority to pass fresh orders in light of the court's decision. The court also set aside the order imposing the penalty of Rs. 2 lakhs on the assessees. The respondent was directed to pay the costs of the appellants/petitioners in each appeal and writ petition.

← Previous Next →