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TMI Blog1956 (4) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... 143 lb. of groundnut shall be taken to be equivalent to 100 lb. of kernel; (b) 143 lb. of groundnut or 100 lb. of kernel shall, when converted into oil, be taken to yield 40 1b. of oil; and (c) one candy of oil shall be taken to be equivalent to 500 lb. of oil. (3) Every such manufacturer shall submit so as to reach the registering authority not later than the 25th day of every month, a statement in form A-9 in respect of the transactions relating to the previous month. (4) For the purpose of sub-rule (2), the value of the groundnut and/ or kernel shall be calculated on the price for which the manufacturer purchased the groundnut and/or kernel in the month to which his application for deduction relates or, if no purchase was made in that month, in the last preceding month in which the manufacturer made the purchase." (5)............................ (6) No deduction under clause (k) of sub-rule (1) of rule 5 shall be allowed in connection with the sale of groundnut cake." Rule 5(1)(k) referred to runs: "All amounts which a registered manufacturer of groundnut oil (other than refined groundnut oil) and cake may be entitled to deduct from his gross turnover under rule 18 subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of India and exempted from tax under item A (that is in the course of export). In his objection letter dated 27th March, 1952, the dealer stated that he was entitled to rebate under rule 18 also. Rule 18 deals with exemption on the sale of groundnut oil. The rebate under clause (a) is to be allowed only if the sale is otherwise included in the turnover of tax; and the application in form A-9 also refers to the tax paid and rebate claimed. If, therefore, sales of manufactured groundnut oil exported out of India are eliminated from the taxable turnover there is no question of granting rebate for the same turnover." Eliminating these items he worked out the turnover eligible for rebate under rule 18 at Rs. 51,48,720-15-10, and determined the net turnover on that basis and levied the tax. The assessee took the matter in appeal before the Commercial Tax Officer. The point urged before this appellate authority is thus stated by him: "The subject matter of the objection is the refusal of the Deputy Commercial Tax Officer to allow a deduction of Rs. 6,65,569-15-8 from the gross turnover on the ground that the deduction under rule 18 is not admissible as the sales of manufactured gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate, of which exceeded two hundred and fifty rupees per annum, such tax may continue to be levied until provision to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities." The argument was on these lines: No doubt the Provincial Legislature under the Government of India Act, 1935, and the State Legislatures under the Constitution are vested with powers to impose a tax on the sale or purchase of goods. That power which is derived under sections 99 and 100 of the Government of India Act, 1935, read with entry 48 of List II of Schedule VII and the corresponding Articles 245 and 246 of the Constitution of India, read with entry 60 of the State List, is subject to the other provisions of the Constitution. One of such provisions is Article 276. This article has had a previous history. Under section 142-A of the Government of India Act, 1935, which was introduced by the Amending India-Burm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the tax shall be collected from the petitioners, then undoubtedly it would have been a tax on betting and gambling and the petitioners would merely have been collecting it for the Government. What is taxed here is openly and obviously the gross proceeds in the hands of the petitioners. What is taxed is what the petitioners have realised in the course of their business as a result of their activity." (1) A.I.R. 1956 Bom. 1. On this reasoning the learned Judges held that this tax was in violation of the limitation imposed by Article 276(2) of the Constitution, and they declared it unconstitutional. We do not see any analogy between the facts of that case and the tax on sales now impugned or as regards the applicability of the reasoning extracted above to the case before us. The Legislature has specifically conferred on it a right to levy a tax on the sale of goods, and it is not disputed that the tax in the present case is a tax on the sale, that is on the transaction of sale. It is not a tax on trade, not a tax for the privilege of trading. It is a tax on a transaction, and that is its pith and substance, and that is not in controversy. The incidence of the tax is wholly irreleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of these rules shall be the amount for which the goods are bought by the dealer: (a) groundnut." This rule was made under the powers conferred on the State Government by section 3(2). Section 3 after laying a tax on every dealer (as defined by the Act) for each year on his total turnover for such year-the tax being calculated at the rate of so many pies for every rupee in such turnover-went on to enact in sub-section (2) which was replaced by the present section 3(4). The turnover for all the purposes of the Act shall be determined in accordance with and the tax shall be assessed, levied and collected in such manner and in such instalments as may be prescribed by the rules made by the Provincial Government in this behalf. The contention that was urged was, that the Act itself furnished no criteria for determining the goods whose turnover was to be assessed in the hands of a seller as distinguished from those in which it was to be assessed in the hands of the buyer, and that the delegation of such an extended and unlimited power to the rule-making authority was excessive and amounted to an abdication of legislative power and was, therefore, bad. We do not see any substance in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section 3(4) and (5) ran thus: "Section 3(2). The turnover for all the purposes of this Act shall be determined in accordance with, and the tax shall be assessed, levied and collected in such manner and in such instalments as may be prescribed by the rules made by the Provincial Government in this behalf: Provided that no rule for the determination of the turnover shall come into force unless approved by a resolution of the Legislative Assembly." The proviso to section 3(1) further provided: "Provided further (1) that in respect of the same transaction of sale, the buyer and the seller shall not both be taxed, but only one of them, as shall be determined by the rules made in this behalf under sub-section (2) shall be taxed thereon, and (2) that, when the amount for which any goods were bought by a dealer has been included in his turnover, the amount for which the same goods were sold by him shall not be included in his turnover, for the purposes of this Act." "Prescribed" is defined in section 2(f) to mean "prescribed by rules made under this Act." Section 19 empowers the State Government to make rules. The portions of that section which are material in the present context we s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rules shall, before making them, publish a draft of the proposed rules; (b) the publication shall be made in such manner as that authority deems to be sufficient, or if the condition with respect to previous publication so requires, in such manner as the Central Government or, as the case may be, the Provincial Government prescribes; (c) there shall be published with the draft a notice specifying a date at or after which the draft will be taken into consideration; (d) the authority having power to make the rules, and where the rules are to be made with the sanction, approval or concurrence of another authority, that authority also, shall consider any objection or suggestion which may be received by the authority having power to make the rules from any person with respect to the draft, before the date so specified; (e) the publication in the Official Gazette of a rule purporting to have been made in exercise of a power to make rules after previous publication, shall be conclusive proof that the rule has been duly made." The draft rules which ultimately became the General Sales Tax (Turnover and Assessment) Rules, 1939-and among these we are at present concerned with, rules 4, 5(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the petitioners, that sub-section (e) would be attracted only to a case where the published rule expressly purports to be made in exercise of a power to make rules after previous publication and that as the notification dated 15th September, 1939, did not in terms purport to be made after previous publication, the provisions of that sub-section were not attracted to these rules. We are unable to accept this construction of that provision, which is designed to put an end to all controversy as regards the formalities prescribed by the preceding sub-sections. But, as we have reached the conclusion that there has been a due compliance with sub-section (c), it is unnecessary finally to decide the exact scope or application of sub-section (e). The next objection was that the rules were bad, in that the resolution of the Legislative Assembly referred in the proviso to section 3(4) was passed at a time when section 3(4) had not been brought into force, because the only portion of the enactment which came into force on the passing of the Act was section 1 and the rest of the Act came into operation only by the notification in the Fort St. George Gazette which fixed 1st October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1939, as it was originally passed, with which the rules came into force on 1st October, 1939, did not as already mentioned contain the rebate provided by the present rule 18(2). Rule 18 was introduced by G.O. No. P. 1515, Revenue, dated 5th July, 1941, while rule 5(1)(k) of the Turnover and Assessment Rules came in much later under G.O. No. 2051, Revenue, dated 13th October, 1944. The position, in 1941, before rule 18 was introduced was this. On the purchase of groundnut a tax was levied on the purchaser on his purchase turnover [rule 4(2) of the Turnover and Assessment Rules]. When such a purchaser converted the groundnut into oil and cake by milling it, these products were treated as commodities different from the groundnut on which tax had been paid at purchase point and became liable to tax on their sale turnover in the hands of the miller-dealer under rule 4(1) of the Turnover and Assessment Rules. As groundnut and oil were treated as different commodities, the second proviso to section 3(1) did not come into play. That provision was in these terms: "When the amount for which any goods were bought by a dealer has been included in his turnover the amount for which the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el) in a certain month for Rs. 195. In the same month, he sells two candies of oil for Rs. 90. Two candies of oil is equal to 1000 lbs. of oil which is equal to 3325 1/2 lbs. of groundnut. Against the sales tax due on Rs. 90, A may claim a rebate on the tax paid on the purchase of 3325 1/2 lbs. calculated at 7400 lbs. for Rs. 195." Illustration 2: A purchases 14,800 lbs. groundnut for Rs. 400 and 10,000 lbs. of kernel for Rs. 385. In the same month he sells two candies of oil for Rs. 90. At the rate of 143 lbs. of groundnut to 100 lbs. kernel, 14,800 lbs. nut equal to 10,349 1/2 lbs. kernel, so his total purchases for the month are reckoned at 20,349 1/2 lbs. kernel for Rs. 785. 1000 lbs. of oil equal to 2,325 1/2 lbs. kernel, against the sales tax due on Rs. 90. A may claim a rebate of tax on the purchase of 2,325 1/2 lbs. kernel, calculated at 20,349 1/2 lbs. purchased for Rs. 785." Then followed sub-clauses (3), (4) and (5), which then ran: "(3) Every such manufacturer shall, not later than the 20th day of each month, submit a statement to the registering authority furnishing the following particulars in respect of transactions relating to the previous month: (i) the aggregate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 20. After rule 18(2) came into operation, the position would be this. Out of Rs. 150 payable as tax on the sale of the oil he would have been entitled to claim a reduction of the Rs. 100 he had already paid as tax on his purchase turnover. He would therefore be liable to a tax of Rs. 50 alone, in regard to the sales. In other words, he would have paid Rs. 100 at the moment of his purchase plus Rs. 50, that is Rs. 150 at the moment of the sale of the oil on both the purchases and the sale of the oil, in addition to a tax of Rs. 20 on the cake sold. If he were to export the oil, so as to bring himself within the concession granted by section 7 the effect would be this. He would have paid a tax of Rs. 100 on the purchase. After the rebate under rule 18(2) he would be paying a tax of Rs. 50 on the sale of the oil and on this he would obtain a further rebate of Rs. 25 under section 7; and he would also obtain a rebate of Rs. 10 if the cake was also sold outside. In other words, the total amount of tax then payable by him would be Rs. 100 plus Rs. 25 plus Rs. 10. Rule 5(1)(k) was introduced by G.O. No. 2051 dated 13th of October, 1944, reading thus: "5(1)(k). All amounts which a reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and (3-A) which run thus: "(3) Every such manufacturer shall submit so as to reach the registering authority not later than the 25th day of every month, a statement in Form A-9 in respect of the transactions relating to the previous month. (3-A) If any such manufacturer fails to submit the statement in Form A-9 within the time specified in sub-rule (3) or if he omits to furnish any of the particulars required by that form, the Commercial Tax Officer may, in his discretion, after making such enquiry as he considered necessary, condone the delay or omission or both: Provided that such manufacturer has maintained a true and correct account of his business showing all the particulars required by sub rule (3)." Form A-9 is in these terms: "Application for rebate under rule 18 of the Turnover and Assessment Rules [see rule 18(3)]. To The Assessing Authority, Sir, I/We registered manufacturer(s) of groundnut oil at request that I/We may be granted a rebate of tax under rule 18 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, in Page No: 239 respect of the sale of oil manufactured by me/us, particulars of which are given below: 1.. Quantity of groundnut reduced to k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsed that proportion of the tax, worked out on the basis of the conversion table in rule 18(2), the amount of the tax paid on the purchase of the groundnut which has gone into the production of the oil. Thus viewed, the dealer cannot claim the "repayment" of a tax that he has not paid at all. Conversely, in the computation of the purchase tax which he is entitled to get a refund of, that part of his turnover on which he has paid no tax at the moment of purchase would also have to be excluded and this is exactly the interpretation laid down by the two decisions of this Court in Sri Chandramouleswara Oil Co., Kurnool, In re [1954] 5 S.T.C. 340; [1954] 2 M.L.J. 187. and Radhakrishna Groundnut Oil Mill v. State of Madras[1954] 5 S.T.C. 357; [1954] 2 M.L.J. 550.. To pursue the concrete case which we have set out earlier with variations to illustrate the present point: If out of the purchase of kernels for Rs. 6,400 the miller obtained oil valued at Rs. 9,600 and exported oil outside the State in the course of inter-State trade to the extent of Rs. 6,400 and sold oil within the State for Rs. 3,200, the result would be that no tax would be leviable on the sales to the extent of Rs. 6,40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase tax has been levied could not be included in the subtrahend, similarly no sale on which tax has not been paid could be intended to be included as part of the turnover in the minuend as envisaged by the provision. Learned counsel for the assessees urged that as this was a taxing enactment we should not travel beyond the words used and imply a tax which had not in express terms been laid by the Legislature. Stress was laid on the language of rule 5(1)(k) by which a registered manufacturer was declared entitled to deduct from his gross turnover the amounts mentioned in rule 18 and to the terms of rule 18 itself where the reference to the turnover of the oil sold was general and not confined to the taxable turnover. Learned counsel contended that, in the absence of any expression in rule 18(2) confining the turnover to the taxable turnover, the Court ought to construe that expression as including his entire turnover-turnover as defined by section 2(i) read in conjunction with explanation (2) to section 2(h). The argument was that otherwise we would be reading into the taxing provision words which were not there; in the present instance the word "taxable" before the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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