1993 (10) TMI 336 - AT - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Section 14D of the Bengal Finance (Sales Tax) Act, 1941, and Rules 27C and 89AAA of the Bengal Sales Tax Rules, 1941.
2. Whether mandatory production of declaration in form XXXE violates Section 15(a) of the Central Sales Tax Act, 1956, and Article 286(3) of the Constitution.
3. Validity of Trade Circular No. 3/92 dated May 20, 1992.
4. Impact of Rule 27C(1)(b) on inter-State sales of iron and steel.

Issue-Wise Detailed Analysis:

1. Constitutionality of Section 14D and Rules 27C and 89AAA:
The applicants challenged the constitutionality of Section 14D of the Bengal Finance (Sales Tax) Act, 1941 (the 1941 Act) and Rules 27C and 89AAA of the Bengal Sales Tax Rules, 1941 (the 1941 Rules), arguing that these provisions are ultra vires various provisions of the Constitution of India, particularly in their application to iron and steel. The respondents contended that these provisions are valid, neither illegal nor unconstitutional, and are ancillary and incidental to the power to tax. The court concluded that Rule 89AAA, which mainly relates to transporters, is not the subject matter of the controversy and does not very much concern the dealers of iron and steel goods. The primary focus was on Rule 27C(1), which applies to the assessment stage.

2. Mandatory Production of Declaration in Form XXXE:
The applicants argued that mandatory production of the declaration in form XXXE at the time of assessment would contravene Section 15(a) of the Central Sales Tax Act, 1956 (the 1956 Act), and Article 286(3) of the Constitution. They contended that non-production of the declaration would result in rejection of the claim for deduction of inter-State sales from the taxable turnover, leading to double taxation. The respondents countered that the production of the declaration is a directory provision, not mandatory, and that the assessing authority has discretionary power to exempt the production of the declaration in appropriate cases. The court agreed with the applicants, holding that the mandatory nature of Rule 27C(1) infringes Section 15(a) of the 1956 Act and Article 286(3) of the Constitution, making it ultra vires those provisions.

3. Validity of Trade Circular No. 3/92:
The applicants also challenged Trade Circular No. 3/92 dated May 20, 1992, which outlined the procedural formalities for the production of the declaration in form XXXE. The court noted that such circulars are merely administrative instructions with no legal force and are not binding on quasi-judicial authorities. The circular will abide by the decision in this case.

4. Impact of Rule 27C(1)(b) on Inter-State Sales of Iron and Steel:
The court examined the implications of Rule 27C(1)(b) on inter-State sales of iron and steel. It was found that the mandatory production of the declaration at the assessment stage would lead to double taxation, violating Section 15(a) of the 1956 Act. The court held that the word "shall" in Rule 27C(1) must be read as "may," making the production of the declaration optional for dealers. The proviso to Rule 27C(1)(b) was struck down as it left too much discretion to the assessing authority, which could lead to constitutional violations.

Conclusion:
The application was partly allowed. The court declared that the word "shall" in Rule 27C(1) should be read as "may," making the production of the declaration in form XXXE optional for dealers of iron and steel goods for proving their claim under Section 5(2)(a)(v) of the 1941 Act. Rule 27C(1) was thus made a directory provision. The proviso to Rule 27C(1)(b) was struck down. Trade Circular No. 3/92 should be read in terms of this judgment but will not be binding on quasi-judicial authorities. The main application was disposed of with no order for costs.

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