1974 (4) TMI 92 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, as applied to Delhi.
2. Whether resale or post-manufacture sale by registered dealers must occur within Delhi.
3. Constitutionality of Section 5(2)(a)(ii) in light of Article 14 of the Constitution.
4. Impact of long-standing usage and practice by sales tax authorities.

Detailed Analysis:

1. Interpretation of Section 5(2)(a)(ii):
The core issue revolves around the interpretation of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, as applied to Delhi. The petitioners argued that the words "for resale" and "for sale" in Section 5(2)(a)(ii) are used without qualification, implying that resale or sale could occur outside Delhi. They contended that the definitions of "sale" and "turnover" in Sections 2(g) and 2(i) do not confine sales to Delhi. Furthermore, they argued that the undertaking given by registered dealers did not bind them to effect resales or post-manufacture sales within Delhi. The respondents countered that the general words "for resale" and "for sale" must be limited to Delhi because the legislature's competence was confined to the State. They asserted that the definitions of "sale" and "turnover" are restricted to sales within Delhi, as per Section 27 of the Act.

2. Resale or Post-Manufacture Sale within Delhi:
The court held that the resale or post-manufacture sale by registered dealers must occur within Delhi. The rationale was that the Act's object is to tax sales within Delhi, and the exemption given to registered dealers on the first sale is because the second sale by them is expected to be taxable within Delhi. The court emphasized that the words "for resale" and "for sale" in Section 5(2)(a)(ii) refer to taxable sales within Delhi. The court also noted that the concept of a registered dealer is territorially bound to Delhi. Therefore, sales by registered dealers outside Delhi would not be considered sales by them in their capacity as registered dealers under the Act.

3. Constitutionality under Article 14:
The court addressed the argument that allowing resales or post-manufacture sales by registered dealers outside Delhi would make Section 5(2)(a)(ii) unconstitutional under Article 14 of the Constitution. The court reasoned that the classification between registered and ordinary dealers is based on intelligible differentia relevant to the Act's object. The system of single-point levy of sales tax can only work if the sales tax authorities ensure that the exemption on the first sale is subject to the payment of sales tax on a subsequent sale within Delhi. If the second sale by registered dealers were allowed outside Delhi, it would undermine the basis of the distinction between registered and ordinary dealers, leading to discrimination.

4. Long-Standing Usage and Practice:
The court acknowledged the long-standing practice by sales tax authorities of allowing resales and post-manufacture sales by registered dealers outside Delhi. However, it concluded that such practice was based on a superficial reading of Section 5(2)(a)(ii) and did not consider the provision's true meaning and the Act's object. The court emphasized that a statute should be construed to avoid unconstitutionality and that the correct interpretation of Section 5(2)(a)(ii) requires resales and post-manufacture sales by registered dealers to occur within Delhi.

Conclusion:
The court concluded that the registered dealers who purchase goods specified in their registration certificates under Section 5(2)(a)(ii) free from payment of sales tax contravene the second proviso to Section 5(2)(a)(ii) when they resell the goods outside Delhi or use them as raw materials in the manufacture of goods sold outside Delhi. Such resales and sales outside Delhi are not made by these registered dealers in their capacity as registered dealers. Consequently, the purchase price of the goods has been rightly included in their taxable turnover by the sales tax authorities. The writ petitions were dismissed without any order as to costs.

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