1955 (12) TMI 30 - SC - VAT and Sales Tax

Whether certain sales of goods made by Shri Ganesh Jute Mills Ltd. 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? Held that - Appeal dismissed. Restore the orders passed by the Single judge of the Calcutta High Court with costs throughout

Summary

Issues Involved:
1. Whether the sales made by Shri Ganesh Jute Mills, Ltd. to the Government of India, Ministry of Industry and Supplies, should be exempt from sales tax under section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941.
2. Whether the newly created Department of Industries and Supplies is the same as the Indian Stores Department and the Supply Department of the Government of India for the purposes of the exemption.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax:
The primary question was whether the sales made by Shri Ganesh Jute Mills, Ltd. to the Government of India, Ministry of Industry and Supplies, should be deducted from the taxable turnover under section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941. The section exempts sales to the Indian Stores Department, the Supply Department of the Government of India, and any railway or water transport administration. The mills argued that their sales to the Ministry of Industry and Supplies should be exempt as the Ministry was essentially a continuation of the Indian Stores Department and the Supply Department. The Commercial Tax Officer disagreed, leading to the legal dispute.

2. Nature and Continuity of Departments:
The argument hinged on whether the Department of Industries and Supplies, later renamed the Ministry of Industry and Supply, was the same as the Indian Stores Department and the Supply Department. The High Court initially ruled in favor of the mills, holding that the exemption applied. However, on appeal, a Division Bench of the High Court reversed this decision, concluding that the Department of Industries and Supplies was not the same as the Indian Stores Department or the Supply Department. The Supreme Court had to determine if the newly created department could be considered the same entity for the purposes of the tax exemption.

Supreme Court's Decision:
The Supreme Court reviewed the history and functions of the departments involved. It was noted that the Indian Stores Department was established in 1922 and later merged with the Contracts Directorate to form the Supply Department in 1940. The Department of Industries and Supplies was created in 1946, combining the functions of the previous departments and adding new responsibilities. The Court concluded that the new department had wider powers and was not merely a re-designation of the old departments.

The Court emphasized that exemptions in tax statutes must be construed strictly. The exemption in section 5(2)(a)(iii) was specific to sales made to the Indian Stores Department and the Supply Department, not to any successor departments with broader functions. The Court found that the Department of Industries and Supplies, and later the Ministry of Industry and Supply, were distinct entities with different scopes and responsibilities. Therefore, sales to these new entities did not qualify for the exemption.

Dissenting Opinion:
One judge dissented, arguing that the exemption should apply to the purchasing functions of the Government of India, regardless of departmental reorganization. The dissent emphasized that the function of purchasing remained consistent, even if the departmental name and structure changed. The dissenting judge believed that the exemption should cover sales to the Ministry of Industry and Supply as it continued the purchasing activities of its predecessors.

Conclusion:
The majority of the Supreme Court upheld the decision of the Division Bench of the High Court, ruling that the sales tax exemption did not apply to sales made to the Ministry of Industry and Supply. The appeals were dismissed with costs, affirming that the newly created department was not the same as the Indian Stores Department or the Supply Department for the purposes of the tax exemption under section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941.