1970 (4) TMI 137 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the validity of rule 27-A(ii) of the Punjab General Sales Tax Rules, 1949 as amended by the Haryana Government. Interpretation of sub-section (3) of section 5 of the Punjab General Sales Tax (Haryana Amendment and Validation) Act, 1967. Compliance with the requirement of furnishing a certificate in form S.T. XXX for claiming deduction under the Act. Dispute regarding the interpretation and application of rule 27-A(ii) in case of refusal by the selling dealer to issue the required certificate.

Analysis:
The judgment addresses the challenge to the validity of rule 27-A(ii) of the Punjab General Sales Tax Rules, 1949, as amended by the Haryana Government. The petitioner, a partnership firm engaged in the business of purchasing and selling cotton in Haryana, contested the requirement to furnish a certificate in form S.T. XXX before claiming a deduction under sub-section (3) of section 5 of the Act. The petitioner argued that this rule imposes an unnecessary restriction as the Act mandates taxation on the first purchaser within Haryana. However, the court held that rule 27-A(ii) serves as a mechanism to prevent tax evasion and is essential for the effective administration of the Act. The rule ensures proper documentation and verification of transactions to uphold tax compliance, aligning with the Act's objectives.

Regarding the interpretation of sub-section (3) of section 5 of the Act, the court clarified that while the Act requires taxation on the first purchaser within Haryana, rule 27-A(ii) complements this provision by introducing a procedural requirement for claiming deductions. The court emphasized that rules are enacted to facilitate the implementation of statutory provisions and prevent tax evasion, thereby upholding the integrity of the taxation system. The court rejected the petitioner's argument that the rule unduly restricts dealers, asserting that the certification process in form S.T. XXX is crucial for substantiating exemption claims and ensuring tax accountability.

In the event of a selling dealer refusing to issue the necessary certificate, a dispute arose regarding the implications for the purchasing dealer. The petitioner contended that such refusal unfairly burdens the purchasing dealer, while the State argued that alternative evidence could be used to verify exemption claims. Citing a precedent from a similar case, the court ruled that rule 27-A(ii) should be construed as directory rather than mandatory. The assessing authority has the discretion to verify exemption claims through other evidence sources if the certificate is not provided, ensuring the integrity of the assessment process and compliance with the Act.

Ultimately, the court concluded that rule 27-A(ii) is directory, and the assessing authority has the flexibility to verify exemption claims through alternative means if the certificate is not furnished. The court emphasized the importance of substantial compliance with the rule to enable accurate assessment of exemption eligibility under the Act. The judgment dismissed the writ petition while highlighting the necessity of adhering to procedural requirements for tax deductions, without awarding costs due to the circumstances of the case.