1979 (5) TMI 135 - SC - VAT and Sales Tax

Whether as owner or usufructuary mortgagee, tenant or otherwise were tax-free goods or of sub-clause (ii) of clause (a) of sub-section (2) of section 5 of the Act which required the turnover relating to sales to a registered dealer of goods specified in his certificate of registration for use by him in the manufacture in Punjab of any goods other than goods declared tax-free under section 6 for sale in Punjab to be deducted from the gross turnover of any dealer in order to arrive at the taxable turnover ? Held that - Appeal dismissed. In the instant case, the taxable event is the purchase of paddy and not its sale which alone attracts section 5(2)(a)(ii) of the Act and the taxable person, that is, the person liable to pay tax, is the purchaser and not the seller. The appellants cannot, therefore, complain that any exemption granted to them by the Act has been taken away. Even though the liability to pay purchase tax may be on the appellants, it is bound to have repercussions on the price at which they buy paddy and the price at which rice manufactured by them out of that paddy is sold by them. The tax payable under the Act admittedly being an indirect tax, the tax burden would ordinarily fall on the consumer of rice and not on any of the intermediaries including the appellants. The impugned notification cannot, therefore, be treated as one issued against the policy of the statute.

Summary

Issues Involved:
1. Validity of Section 31 of the Punjab General Sales Tax Act, 1948.
2. Validity of the notification dated 15th January 1968 issued under Section 31.
3. Liability of the appellants to pay purchase tax on the turnover relating to the purchases of paddy.

Issue-wise Detailed Analysis:

1. Validity of Section 31 of the Punjab General Sales Tax Act, 1948:
The appellants contended that Section 31 of the Act, which authorized the State Government to amend Schedule C by adding certain items, suffered from the vice of excessive delegation of legislative power. The Court reviewed several decisions, including Powell v. Apollo Candle Company Limited, J. W. Hampton Jr. & Company v. United States, and Pandit Banarsi Das Bhanot v. State of Madhya Pradesh, and concluded that such delegation of power by the legislature to the executive was permissible. The Court emphasized that the delegation did not involve the abdication of essential legislative power and was consistent with the accepted legislative practice. The Court held that the delegation of power to the State Government to determine whether any class of goods should be included or excluded from Schedule C was not unconstitutional.

2. Validity of the Notification Dated 15th January 1968:
The appellants argued that the inclusion of paddy in Schedule C by the notification was against the policy underlying the Act. They contended that the exemption from payment of sales tax provided under Section 5(2)(a)(ii) was taken away indirectly by the State Government, which was contrary to the express legislative policy. The Court rejected this argument, referencing the decision in Pandit Banarsi Das Bhanot v. State of Madhya Pradesh, where it was held that it was open to the legislature to delegate the power to withdraw exemptions. The Court noted that the principal object of the Act was to collect revenue and not to encourage manufacturing industries. The inclusion of paddy in Schedule C was within the scope of Section 31 and did not contravene the policy of the statute.

3. Liability of the Appellants to Pay Purchase Tax:
The appellants contended that they should not be liable to pay purchase tax on the turnover relating to the purchases of paddy, as it was against the policy of the Act. They argued that the tax payable under the Act was an indirect tax and that the exemption they were enjoying was taken away by including paddy in Schedule C. The Court held that the taxable event was the purchase of paddy and not its sale, and the taxable person was the purchaser, not the seller. The Court noted that the tax burden would ultimately fall on the consumer and not on the intermediaries, including the appellants. The Court also rejected the argument of double taxation, stating that paddy and rice were distinct commercial goods.

In conclusion, the Court dismissed the appeals, upholding the validity of Section 31 of the Act and the notification issued thereunder, and confirmed the liability of the appellants to pay purchase tax on the turnover relating to the purchases of paddy. The parties were directed to bear their own costs.