1963 (5) TMI 56 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Legal effect of the direction given by the State Government to the Commissioner, Sales Tax.
2. Whether the sale of phosphor bronze ingots is exempt from sales tax under the relevant notification.
3. Whether the direction regarding impurities up to 1% has legal force.
4. Whether lead and phosphorus in the ingots are impurities.

Detailed Analysis

1. Legal Effect of the Direction Given by the State Government to the Commissioner, Sales Tax
The primary issue revolves around the legal effect of the direction given by the State Government to the Commissioner, Sales Tax, regarding the exemption of sales tax for certain metals and alloys. The notification dated 3rd August 1949, exempted the sales of copper, tin, nickel, and zinc or any alloy containing only these metals from sales tax. However, an additional direction was given to the Commissioner that small impurities up to 1% in metals or alloys thereof should be ignored for the purposes of granting exemption. The Court held that this direction is not part of the official notification and is merely an administrative instruction. Since the exemption can only be granted through a notification in the official Gazette, the direction does not entitle any assessee to claim an exemption. The assessee can only claim an exemption under the notification itself, not under the direction. Therefore, the direction must be ignored, and the assessee cannot claim the exemption under it.

2. Whether the Sale of Phosphor Bronze Ingots is Exempt from Sales Tax
The notification exempted only the sales of copper, tin, nickel, and zinc or any alloy containing only these metals. The ingots sold by the assessee contained lead and phosphorus in addition to copper and tin. The Court held that since the ingots contained lead and phosphorus, they cannot be considered alloys of only the four metals mentioned in the notification. Therefore, the sale of these ingots is not exempt from sales tax under the notification.

3. Whether the Direction Regarding Impurities Up to 1% Has Legal Force
The Court examined whether the direction regarding impurities up to 1% has any legal force. It was argued that the direction was treated as an explanation to the exemption clause of the notification by the tax authorities. However, the Court held that the direction does not have legal force because it was not published in the official Gazette. The exemption can only be granted through a notification in the official Gazette, and any direction not published in the Gazette does not have the force of law.

4. Whether Lead and Phosphorus in the Ingots are Impurities
The Court analyzed whether lead and phosphorus in the ingots can be considered impurities. The term "impurity" was defined as "foreign matter which detracts from the purity of any substance." The Court held that whether a substance is an impurity depends on what the article purports to be. If the article purports to be an alloy containing copper, tin, lead, and phosphorus, then lead and phosphorus cannot be considered impurities because they are essential ingredients of the alloy. Therefore, the ingots sold by the assessee, which contained lead and phosphorus as required by the contract with the railways, do not contain any impurities. As such, the ingots cannot be exempted from sales tax under the notification, which only exempts alloys containing only copper, tin, nickel, and zinc.

Separate Judgments
Judgment by Desai, C.J.
Desai, C.J., held that the direction given by the State Government to the Commissioner, Sales Tax, does not have legal force and must be ignored. The sale of phosphor bronze ingots, which contain lead and phosphorus, is not exempt from sales tax under the notification.

Judgment by Asthana, J.
Asthana, J., disagreed with Desai, C.J., and held that the direction regarding impurities up to 1% should be treated as an explanation to the exemption clause of the notification. He opined that lead and phosphorus in the ingots, being far below 1%, should be ignored, and the sale of phosphor bronze ingots should be exempt from tax.

Judgment by Dwivedi, J.
Dwivedi, J., was called to resolve the difference of opinion between Desai, C.J., and Asthana, J. He agreed with Desai, C.J., that the direction does not have the force of law and that the sale of phosphor bronze ingots is taxable. He emphasized that lead and phosphorus, being deliberately added to the ingots, cannot be considered impurities.

Final Order
In view of the opinion of the third Judge, the Court answered the question in the affirmative, holding that the sale of phosphor bronze ingots is taxable. The assessee was directed to pay the cost of the reference, assessed at Rs. 100, to the Commissioner, Sales Tax, U.P.