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TMI Blog1978 (2) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... ; S.V. Gupte, Attorney- General (in C.A. Nos. 1290, 1352 and 1110 of 1977 and 816 of 1976) and R.C. Chawal, Advocate, with R.N. Sachthey and Miss A. Subhashini, Advocates (in C.A. Nos. 1290 of 1977 and 18 of 1975 and W.P. No. 166 of 1977), for the respondents in C.A. Nos. 1290, 1111, 1085, 1352 and 1110 of 1977, 236, 456 and 816 of 1976, 18 of 1975, 1522 and 1256 of 1974, W.P. Nos. 166 of 1977 and 329 of 1975 and S.L.P. Nos. 2522 and 2524 of 1977. F.S. Nariman, Senior Advocate (in C.A. Nos. 1290, 1085 and 1352 of 1977), A.K. Sen, Senior Advocate (in C.A. No. 1111 of 1977), S.T. Desai, Senior Advocate (in C.A. No. 1110 of 1977) (M/s. Ravinder Narain, Talat Ansari, Balram Sangal [in C.A. Nos. 1290 and 1111 of 1977] and Shri Narain [in C.A. Nos. 1352, 1085 and 1110 of 1977] and Arjun Anand, Advocates, for M/s. J.B. Dadachanji & Co., with them), for the appellants in C.A. Nos. 1290, 1111, 1085, 1352 and 1110 of 1977 and 1526 of 1974. -------------------------------------------------- The judgment of the Court was delivered by BHAGWATI, J.-These appeals raise a short but interesting question of law relating to the interpretation of section 5(2)(a)(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Sub-section (1) of section 5 provided different rates of tax, according as the goods fell within one category or another, at which the tax payable by a dealer shall be levied on his taxable turnover. What is "taxable turnover" was defined in sub-section (2) of section 5 to mean: "that part of a dealer's gross turnover during any period which remains after deducting therefrom- (a) his turnover during that period on- (i) the sale of goods declared tax-free under section 6; (ii) sale to a registered dealer- of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him as raw materials in the manufacture of goods for sale; and of containers or other materials for the packing of goods of the class or classes so specified for sale: Provided that in the case of such sales a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars on a prescribed form obtainable from the prescribed authority is furnished in the prescribed manner by the dealer who sells the goods: Provided further that where any goods specified in the certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of India; and of containers or other materials for the packing of goods of the class or classes so specified for sale." Section 7, sub-section (1), laid down that no dealer shall, while being liable to pay tax under section 4, carry on business as a dealer unless he has been registered and possesses a registration certificate and sub-section (3) of that section provided for grant of a certificate of registration to a dealer on an application being made by him under sub-section (2) and said that such certificate of registration shall specify the class or classes of goods for the purposes of sub-clause (ii) of clause (a) of sub-section (2) of section 5. Section 26 conferred power on the Chief Commissioner to make rules for carrying out the purposes of the Act and in exercise of this power, the Delhi Sales Tax Rules, 1951, were made by the Chief Commissioner. These rules prescribed not only the form of the application for registration but also the form of the certificate of registration. Clause (3) of the form of the certificate of registration provided that the sale of the specified goods to the dealer "for purposes of manufacture" and "for resale" will be free of tax. This was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such sale or purchase takes place- (i) in the course of inter-State trade or commerce; (ii) outside the Union Territory of Delhi, or (iii) in the course of import of the goods into, or export of the goods out of, the territory of India. This section was obviously introduced with a view to bring the Act into conformity with article 286 of the Constitution. These are the relevant provisions of the Act in the light of which we have to decide the question of law arising in the appeals. The assessees in all the appeals are registered dealers and during the relevant assessment periods they held certificates of registration specifying the class or classes of goods intended for resale by them or for use by them as raw materials in the manufacture of goods for sale. The certificates of registration were in the form as it stood prior to its amendment on 29th March, 1973, and they did not specify that the resale of the goods purchased or their use as raw materials in the manufacture of goods or the sale of manufactured goods should be inside Delhi. There are broadly two groups in which the appeals can be divided for the sake of convenience. One group consists of appeals where the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods manufactured outside Delhi, there was utilisation of the goods by the assessees for a purpose other than that for which they were purchased and hence the second proviso to section 5(2)(a)(ii) was attracted and the price of the goods purchased was liable to be included in the taxable turnover of the assessees. The question which arises for determination in the appeals is whether this view taken by the taxing authorities and approved by the High Court of Delhi in Fitwell Engineers' case [1975] 35. S.T.C. 66., is correct and can be sustained. We may first examine the scheme of the relevant provisions of the Act in so far as it bears on the present controversy. Every dealer, whose gross turnover exceeds the taxable quantum is liable to pay tax on the sales effected by him after a specified date and while he is liable to pay tax he cannot carry on business unless he gets himself registered and possesses a registration certificate. Though his liability to tax is determined by reference to his gross turnover, whether it exceeds the taxable quantum or not, tax is leviable on him only in respect of his taxable turnover. The concept of taxable turnover is different from that of gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is clearly intended to prevent fraud and promote administrative efficiency (vide Kedarnath Jute Mfg. Co. Ltd. v. Commercial Tax Officer [1965] 16 S.T.C. 607 (S.C.). But what would be the position if the purchasing dealer does not act according to the intention expressed by him in the declaration given to the selling dealer and, in the one case, does not resell the goods and, in the other, does not use them as raw materials in the manufacture of goods for sale. The selling dealer is granted deduction in respect of the sales made by him because the goods are purchased for resale or for use as raw materials in the manufacture of goods for sale and this intended end-use of the goods purchased is sought to be ensured by taking a declaration in the prescribed form from the purchasing dealer. But if the goods are utilised by the purchasing dealer for some other purpose contrary to the intention expressed by him in the declaration, the object and purpose of giving deduction to the selling dealer would be defeated. Even so, it would not be right to withdraw the deduction granted to the selling dealer because that would be penalising the selling dealer for a breach of faith committed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions as a matter of construction and three reasons were given in support of this contention. The first reason was that if resale outside Delhi were held to be within the terms of section 5(2)(a)(ii) and the second proviso, the Union Territory of Delhi would lose tax altogether in cases where the goods were resold outside Delhi, because in that event the first sale would escape tax by reason of the deduction granted under section 5(2)(a)(ii) and the resale would also be free from tax since it is outside Delhi and hence covered by the exempting provision contained in section 27. The legislature could never have intended to bring about such a result where the Union Territory of Delhi would be deprived altogether of tax. The intention of the legislature was to recover tax at only one point whilst the goods were in the stream of trade and the legislature, therefore, granted the deduction in respect of the first sale on the basis that it would be leving tax when the goods were resold and that postulated the requirement that the resale should be inside Delhi. Secondly, it was urged that the legislature had no legislative competence to tax sale outside Delhi and, moreover, by reason of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of a statute, and a penal statute, produces an intelligible result, clearly there is no ground for reading in words or changing words according to what may be the supposed intention of Parliament. But here we venture to think that the result is unintelligible." Lord Reid also with great clarity and precision which always characterise his judgments enunciated the rule as follows in Federal Steam Navigation Co. Ltd. v. Department of Trade and Industry [1974] 2 All E.R. 97.: "Cases where it has properly been held that a word can be struck out of a deed or statute and another substituted can as far as I am aware be grouped under three heads: where without such substitution the provision is unintelligible or absurd or totally unreasonable; where it is unworkable; and where it is totally irreconcilable with the plain intention shown by the rest of the deed or statute." This rule in regard to reading words into a statute was also affirmed by this court in several decisions of which we may refer only to one, namely, Narayanaswami v. Panneerselvam [1973] 1 S.C.R. 172., where the court pointed out that: "..... addition to, or modification of, words used in statutory provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention more clearly than the other, it is proper to conclude that, if the legislature used that one of the two expressions which would convey the intention less clearly, it does not intend to convey that intention at all. We may repeat what Pollock, C.B., said in Attorney-General v. Sillem (1863) 2 H. & C. 431 at 526., that "if this had been the object of our legislature, it might have been accomplished by the simplest possible piece of legislation; it might have been expressed in language so clear that no human being could entertain a doubt about it". We think that in a taxing statute like the present which is intended to tax the dealings of ordinary traders, if the intention of the legislature were that in order to qualify a sale of goods for deduction, "resale" of it must necessarily be inside Delhi, the legislature would have expressed itself clearly and not left its intention to be gathered by doubtful implication from other provisions of the Act. The absence of specific words limiting "resale" inside the territory of Delhi is not without significance and it cannot be made good by a process of judicial construction, for to do so would be to attribute to the legislature an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the first sale. It is, therefore, difficult to see how lack of legislative competence on the part of the legislature to tax sale outside Delhi or exemption from tax provided to sale outside Delhi under section 27 can operate to cut down the plain meaning of "resale" so as to exclude resale outside Delhi. The revenue placed some reliance on the words "by him" following upon "resale" in section 5(2)(a)(ii) and the second proviso for the purpose of contending that the resale contemplated there is resale by the purchasing dealer as a registered dealer and since a registered dealer is a dealer who carries on business in Delhi and whose liability to tax is determined by reference to his gross turnover in Delhi, resale by him must be resale within the territory of Delhi. But this contention has no merit and the utmost that can be said about it is that it raises a point that has position, but no magnitude. The words "by him" are merely descriptive of the purchasing dealer and they are introduced merely with a view to emphasising that the goods must be resold by the same person who has purchased them. It is clear from the scheme of the Act that a dealer who carries on business of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. We have already explained the scheme of section 5(2)(a)(ii) and its two provisos and, even on the view that "resale" means resale anywhere and not necessarily inside Delhi, they enact a statutory provision which is quite intelligible, reasonable and workable. The selling dealer is granted deduction in respect of sale to a registered dealer where the goods purchased are of the class or classes specified in the certificate of registration of the purchasing dealer as being intended for resale by him and the purchasing dealer gives a declaration that the goods are purchased by him for resale. So long as the goods are required by the purchasing dealer for resale, whether inside or outside Delhi, the sale to the purchasing dealer is exempted from tax. It is true that if the purchasing dealer resells the goods outside Delhi, the Union Territory of Delhi would not be able to recover any tax since the sale to the purchasing dealer would be exempt from tax under section 5(2)(a)(ii) and the resale by the purchasing dealer would also be free from tax by reason of section 27. But that is not such a consequence as would compel us to read the word "resale" as limited to resale inside Delhi. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequence which could not have been intended by the legislature. It is only from the language of the statute that the intention of the legislature must be gathered, for the legislature means no more and no less than what it says. It is not permissible to the court to speculate as to what the legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the legislature. Here, the language employed in section 5(2)(a)(ii) and the second proviso is capable of bearing one and only one meaning and there is nothing in the Act to show that the legislature exempted the sale to the purchasing dealer from tax on the hypothesis that the Union Territory of Delhi would be entitled to tax the resale by the purchasing dealer. The intention of the legislature was clearly not that the Union Territory of Delhi should be entitled to tax the goods at least at one point so that if the sale to the purchasing dealer is exempt, the resale by the purchasing dealer should be taxable. We do not find evidence of such legislative intent in any provision of the Act. On the contrary, it is very clear that there are certain categories of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owlatt, J., in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 K.B. 64., lay down the correct rule of interpretation in case of a fiscal statute: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." It is a rule firmly established that "the words of a taxing Act must never be stretched against a taxpayer". If the legislature has failed to clarify its meaning by use of appropriate language, the benefit must go to the taxpayer. Even if there is any doubt as to interpretation, it must be resolved in favour of the subject. We would, therefore, be extremely loath to add in section 5(2)(a)(ii) and the second proviso words which are not there and which, if added, would have the effect of imposing tax liability on the purchasing dealer. Moreover, it may be noted that if the purchasing dealer resells the goods outside Delhi, then, on the construction contended for on behalf of the revenue, he would be liable to include the price of the goods paid by him in his r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e territory of Delhi, it must be presumed to be aware of this interpretation which had been placed on section 5(2)(a)(ii) by the revenue in the State of West Bengal. Even so, the Central Government, whilst it made several other modifications in the Act while applying it to the territory of Delhi, did not add the words "inside the Union Territory of Delhi" to qualify "resale ". Then again, it was common ground that at least for a few years after the Act was made applicable to the territory of Delhi, the revenue interpreted "resale" in section 5(2)(a)(ii) to mean resale anywhere and not necessarily inside the territory of Delhi and administered the law on the basis of such interpretation. It is, no doubt, true that the view of the department as to the meaning of a statute which is administered by them is not admissible as an aid to construction because wrong practice does not make the law, but, as pointed out by Maxwell in his well-known work on "The Interpretation of Statutes" (12th Ed.), at page 264: "...the long acquiescence of the legislature in the interpretation put upon its enactment by notorious practice may, perhaps, be regarded as some sanction and approval of it." The circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale to him would not be taxable in his hands. The subsequent history of the Act also supports the construction which we are inclined to place on section 5(2)(a)(ii) and the second proviso. Section 5(2)(a)(ii) was amended with effect from 28th May, 1972, by the Finance Act, 1972, and the words "in the Union Territory of Delhi" were added after the word "manufacture" so as to provide that manufacture should be inside the territory of Delhi. It was also provided by the amendment that the sale of manufactured goods should be inside Delhi or in the course of inter-State trade or commerce or in the course of export outside India. This amendment clearly excluded manufacture of goods as also sale of manufactured goods outside Delhi. It is clear from the statement of objects and reasons that this amendment was not introduced by Parliament ex abundanti cautela, but in order to restrict the applicability of the exemption clause in section 5(2)(a)(ii). The statement of objects and reasons admitted in clear and explicit terms that: "At present sales of raw materials in Delhi are exempted from tax irrespective of the fact whether the goods manufactured therefrom are sold in Delhi or not. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no geographical limitation confining "resale", "manufacture" or "sale" to the territory of Delhi. On this construction, the second proviso would be attracted only if the purchasing dealer, in the former case, did not resell the goods at all and in the latter case, did not use them as raw materials in the manufacture of goods, or even if he manufactured the goods, failed to sell them and thus utilised the goods purchased for a purpose different from that for which they were purchased. Now, the burden of proving that the goods purchased were utilised by the purchasing dealer for a different purpose would be on the revenue if the revenue wants to include the price of the goods purchased in the taxable turnover of the purchasing dealer and, it would, therefore, be for the revenue to show in a given case that the goods purchased were utilised by the purchasing dealer for a different purpose, that is, where he purchased the goods for resale, he did not resell them and where he purchased the goods for use by him as raw materials in the manufacture of goods for sale, he, either did not use them as raw materials in the manufacture of goods, or, even if he did so, the goods manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that on 28th May, 1972, section 5(2)(a)(ii) was amended by the Finance Act, 1972, and the words "in the Union Territory of Delhi" were added after the word "manufacture" and the words "inside Delhi" after the word "sale". It is clear from this amendment that from and after 28th May, 1972, sale of goods was exempted from tax only if the goods were purchased by the purchasing dealer "as being intended ..... for use by him as raw materials in the manufacture in the Union Territory of Delhi ... of goods ... for sale inside Delhi". Both "manufacture" and "sale" were now required to be in the territory of Delhi and not outside. But the form of the declaration to be given by the purchasing dealer to the selling dealer, as prescribed in rule 26, was not amended until 29th March, 1973, with a view to bringing it in conformity with the amended section 5(2)(a)(ii). The result was that from 28th May, 1972, to 29th March, 1973, the form of the declaration continued to be the same as before and carried the statement that the goods were purchased by the purchasing dealer "for use by him as raw materials in the manufacture of goods for sale" without any restriction as to place of manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or including the price of the goods purchased in the taxable turnover of the assessees. Even if we take the view that by reason of the amendment of section 5(2)(a)(ii) the form of the declaration also stood amended, though in fact, no amendment was made in it until 29th March, 1973, it would not help the revenue, because in that case the declarations given by the assessees to the selling dealers could not be said to be on the prescribed form and in terms of section 5(2)(a)(ii) and the consequence of that would be that the selling dealers would be disentitled to exemption under section 5(2)(a)(ii) and not that the price of the goods purchased would be includible in the taxable turnover of the assessees. Exemption would be available to the selling dealers under section 5(2)(a)(ii) only if they could show that they have obtained proper declarations from the assessees and, consequently, if the declarations are not on the prescribed form or in terms of section 5(2)(a)(ii) (on the assumption that they are required to be in conformity with that provision), it is the selling dealers who would be ineligible for exemption and there would be no question of the assessees being made liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they ginned the cotton in their ginning mills and sent the bales to their spinning and weaving mills situate in the State of Uttar Pradesh for the purpose of manufacture of cloth. The question arose whether the price of the raw cotton was liable to be included in the taxable turnover of the appellants under the second proviso which was in identical terms with the second proviso in the present case. The principal argument advanced on behalf of the appellants for repelling the applicability of the second proviso was that since the certificate of registration held by them was not amended by the addition of the words "in the State of Punjab" and there was no condition in it that the goods must be purchased for use in the manufacture "in the State of Punjab" of goods for sale, they were not bound to use the cotton purchased in the manufacture of cloth in the State of Punjab and even if they did so outside the State of Punjab, the second proviso was not attracted. The reason why the appellants continued to have the old certificate of registration in the unamended form was that though section 5(2)(a)(ii) was amended, no corresponding amendment was made in the form of the certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (S.C.). The decision in Modi Spinning & Weaving Mills' case [1965] 16 S.T.C. 310 (S.C.). is, therefore, no authority for the proposition that even where the declaration is given on the prescribed form by a purchasing dealer, which does not contain a statement that the manufacture of goods would be in Delhi or the manufactured goods would be sold in Delhi, this condition should be read into the declaration by the addition of some such words as "inside Delhi" after "manufacture" and "sale", so that if the goods purchased are not used as raw materials in manufacture in Delhi or the goods manufactured are sold outside Delhi, the purchasing dealer could be said to have committed a breach of the statement made in the declaration so as to attract the applicability of the second proviso. We are clearly of the view that such is not the correct legal position and the second proviso is not attracted in such a case. We are conscious that the result of this view which we are taking would be that both the selling dealers as well as the assessees would escape tax even in cases where the assessees have manufactured goods outside Delhi or having manufactured goods, sold them outside Delhi. But th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaningless and ineffectual unless the conflict between the two is so utterly irreconcilable that the court is driven to that conclusion. Here we find that section 4 merely imposes liability on a dealer to pay tax if his gross turnover exceeds the taxable quantum. It is really section 5 which provides for levy of tax and it says that the tax payable by a dealer shall be levied on his "taxable turnover". Now, "taxable turnover" is a concept entirely different from gross turnover and it is arrived at by making certain additions and deductions to the gross turnover. Section 5(2)(a)(ii) provides for a deduction while the second proviso speaks of an addition. Where the conditions of the second proviso are satisfied, the price of the goods purchased is to be added to the "taxable turnover" of the purchasing dealer and it would then form part of the "taxable turnover" on which the tax is levied. This provision has been made in order to ensure that the purchasing dealer does not commit a breach of the declaration given by him on the basis of which exemption is given to the selling dealer. The sale to the purchasing dealer is exempted from tax in the hands of the selling dealer but it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the selling dealers and they could not be said to have utilised the goods for any purpose other than that for which they were purchased so as to attract the applicability of the second proviso. Now if the second proviso was not attracted in the case of the assessees even where they used the goods purchased as raw materials in manufacture outside Delhi or sold the manufactured goods outside Delhi, there could be no obligation on the assessees to include the price of the goods purchased in their returns or to pay tax on the amount of such price along with the returns. The assessees could, if at all, be made liable for penalty only if it could be shown that they did not use the goods purchased as raw materials in manufacture of goods or having manufactured the goods, did not sell them but utilised them for any other purpose. But of this there was no evidence at all before the assessing authority and the order imposing penalty was, therefore, plainly unjustified. It was based on misconstruction of section 5(2)(a)(ii) and the second proviso and it must, therefore, be quashed and set aside. We accordingly allow the appeals and the writ petitions, set aside the orders passed by the High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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