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TMI Blog1974 (9) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of any sale or purchase of such goods inside the State shall not exceed three per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage....." Among certain goods to be of special importance in inter-State trade or commerce so declared by section 14 is included "cotton yarn", the levy of sales tax on the inter-State sale of which is the subject-matter of these writ petitions. In Civil Writ No. 1247 of 1972 (Dina Nath Sons v. Sales Tax Officer) and Civil Writ No. 350 of 1973 (Ramesh Trading Company v. Sales Tax Officer) the petitioners pray that the assessments of sales tax for the year 1969-70 made against them in respect of the sale prices of cotton yarn under the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi (hereinafter called the Delhi Act) should be quashed. They contend that the declared goods are liable to be taxed at more than one stage under the Delhi Act. This being contrary to the provisions of section 15(a) of the Central Act, no liability at all arises against the petitioners for the payment of sales tax on these declared goods even once or at one stage. They contend that they are not liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able turnover on the ground that the cotton yarn has been already subjected to sales tax in a previous sale thus making such cotton yarn liable to sales tax at more than one stage contrary to section 15(a) of the Central Act. Mr. M.C. Bhandare assisted by Mr. Wazir Singh for the Commissioner of Sales Tax controverted each of the above contentions. He pointed out that section 15(a) of the Central Act did not require the State Sales Tax Act to state whether the stage at which the sales tax was to be levied on the declared goods was to be the first sale or the last sale. All that was needed was to read the taxing provision to know from it the stage at which the sales tax was to be levied. Under section 5(2)(a)(ii) of the Delhi Act it is the last sale of the declared goods which would be taxable inasmuch as it would be a sale by a registered dealer to an unregistered dealer or a consumer. At this stage, the declared goods will pass out of the stream of commerce or the series of sales to which they may be subjected inside Delhi. For, if the unregistered dealer were to sell these goods again, neither was any sales tax leviable on the sale price realised by him nor was he authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such a sale had to be deducted from the gross turnover to arrive at the taxable turnover. Since, however, the liability to levy of sales tax itself is absent, the sale price of declared goods which have been already subjected to sales tax in a previous sale does not have to be shown even in the gross turnover. The points in controversy between the parties, therefore, relate to three aspects of the levy of sales tax on declared goods, namely: (1) Stage of the taxation, (2) Knowledge about the taxation, and (3) Exclusion from the taxation. We now proceed to consider each of these three aspects in the light of the arguments addressed by the learned counsel. 1.. Stage of the taxation.-The power to levy sales tax has been enjoyed by the Legislature of the Provinces under the Government of India Act, 1935, and the Legislatures of the States under the Constitution. Neither under the said Act nor under the Constitution was there any limitation placed on the powers of the State Legislatures to impose sales tax on goods at more than one stage in the series of sales to which such goods may be subjected in each stage. Whether the goods would be taxed only at one stage or at more than o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old section 15(a), sales tax may be leviable at a stage earlier than the stage of the last sale or purchase. Similarly, certain State sales tax laws might prefer to impose sales or purchase tax on the first sale or purchase in respect of the declared goods even if the sales tax on the other goods was levied on the last sale or purchase. It was with a view to leave the State Legislatures free to fix the stage at which sales or purchase tax should be levied on declared goods that the amendment of section 15(a) made in 1958 simply stated the principle that the tax shall not be levied at more than one stage. Another significance of the amendment is that Parliament realised that it was not necessary to state the stage of taxation as being the last sale or purchase (or for the matter of that the first sale or purchase). For, even without the use of the word "last " or the word "first" the provision of the Sales Tax Act concerned can itself indicate whether the tax would be leviable on the last or the first sale. As pointed out in Fitwell Engineers' case[1975] 35 S.T.C. 66. by this court, the sales tax was leviable on the last sale under section 5(2)(a)(ii) of the Delhi Act because of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 600. While construing the amended section 15(a) as carrying out the intention of article 286(3) of the Constitution, the Supreme Court observed as follows: "The meaning or the intention of clause (3) of article 286 is not to destroy all charging sections in the Sales Tax Acts of the States which are discrepant with section 15(a) of the Central Sales Tax Act, but to modify them in accordance therewith. The law of the State is declared to be subject to the restrictions and conditions contained in the law made by Parliament." Every State sales tax law was, therefore, left free in its own way to ensure that the tax on declared goods was not levied at more than one stage. Apparently, there would be two ways in which a State sales tax law may fix the stage of taxation. One way is to state that the first or the last sale or purchase would be taxable irrespective of the question as to who was the seller or the purchaser. Another way was to indicate the person in whose hands the sale or purchase would be taxable. The former one would be perhaps more suitable to multi-point sales tax laws while the latter one would be found perhaps more suitable to single point sales tax laws, though e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x has been levied or is leviable on any purchaser through whom the goods have already passed at a prior stage". The High Court, however, did not invalidate the impugned provisions of the Punjab Act because it was open to each purchaser to claim a refund of the tax already deposited by him if he is not liable to pay under the provisions of sub-clause (vi) of section 5(2)(a) and it was entirely a question of proving certain facts by evidence that refund is due and ought to be made. At pages 326 and 327 of the Reports, the Supreme Court pointed out that the High Court was itself impressed by the difficulties in the actual working of the Act. The Supreme Court did not accept the view of the High Court that a provision for refund was sufficient answer to the incompatibility of certain provisions of the Punjab Act with section 15(a) of the Central Act. At page 328 of the Reports is to be found the ratio of the decision of the Supreme Court. The court pointed out that the State Sales Tax Act itself must "make it very clear that there will be no levy or collection of tax, except from the persons who are bound to pay, as per the Central Act. It is here that there is considerable difficulty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued section 15(a) of the Central Act to mean that the State Sales Tax Act has only to ensure that the declared goods are not taxed at more than one stage. This could be done by the scheme of the taxing provision and even without using the words "first" or "last" sale or purchase as indicating the stage of the taxation. At page 329, their Lordships observed as follows: "Sub-clause (vi) of section 5(2)(a) negatives the assumption that the normal rule, under the Act, in respect of declared goods is to levy the tax on the first purchaser." The expression "normal rule" shows that the rule was inferred from the provisions of the Act even without the use of the words "first purchaser". The decision of the Supreme Court in Bhawani Cotton Mills' case(2), therefore, does not support the contention of the assessees that section 5(2)(a)(ii) of the Delhi Act is incompatible with section 15(a) of the Central Act merely because it does not state that the last sale, namely, the sale to an unregistered dealer or a consumer was taxable thereunder even though, as pointed out in Fitwell Engineers' case[1975] 35 S.T.C. 66., this was the effect of a proper reading of section 5(2)(a)(ii). At page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be computed only at the end of the year ......... To restate the position, whenever a miller purchases groundnut, the turnover relating to that purchase becomes exigible to tax subject to such exemptions as may be given under the Act .......... It was urged on behalf of the assessees that if we place that interpretation then even the turnovers relating to subsequent purchases of the same groundnut made by the other millers would become exigible to tax despite the fact that only a single point purchase tax is leviable under the Act. It was further urged that we should not read into item 6 of the Third Schedule the word 'first' before the word 'miller' under column 2 thereof. We see no merit in these contentions. Quite clearly in view of section 14 and section 15 of the Central Sales Tax Act and section 6 of the Act, purchase of groundnut can be taxed only at one stage. Once a particular quantity of groundnut has been subjected to payment of tax, the State's power to tax in respect of those goods gets exhausted and any further dealing in those goods cannot be brought to tax. This is clear from the scheme of the Act. There was no need for the legislature to say 'when purchased by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..... It follows from the said discussion that the Punjab General Sales Tax Act, during the crucial period which is the subject-matter of these appeals, in terms fixed a stage for taxation, i.e., the stage of purchase by a dealer for use in the manufacture of goods." It is important to note that the decision in Devi Dass Gopal Krishnan's case[1967] 20 S.T.C. 430 (S.C.). considered the same Punjab Act, which was considered in Bhawani Cotton Mills' case[1967] 20 S.T.C. 290 (S.C.)., but arrived at the conclusion that section 15 of the Central Act has to be read with the provisions of the Punjab Act with the result that the stage of the taxation in the Punjab Act is automatically fixed without the use of the words "first" or "last" sale or purchase. On behalf the assessees an attempt was made to argue that section 5-A had to be inserted in the Delhi Act by an amendment in 1959 to enable the Chief Commissioner to prescribe points at which goods may be taxed. Section 5-A is as follows: "Notwithstanding anything' to the contrary in this Act, the Chief Commissioner may, by notification in the official Gazette, specify the points in the series of sales by successive dealers at which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .C.). by the Supreme Court to cases "where a non-registered dealer may have intervened ". It was argued that after the last sale by a registered dealer to an unregistered dealer or to a consumer it is possible that such an unregistered dealer or a consumer may sell the same goods back to a registered dealer. It was further possible that such a registered dealer would again sell the goods to an unregistered dealer or to a consumer and in such an eventuality the declared goods would be subjected to tax even though they had been taxed before. This is a fanciful argument which is untenable. Firstly, their Lordships of the Supreme Court have pointed out immediately at page 328 of the Reports of Bhawani Cotton Mills' case(2) that even if a non-registered dealer intervened, "it is clear that under section 15(a) of the Central Act the tax cannot be levied at more than one stage". Secondly, it was pointed out by a Division Bench of the Madhya Pradesh High Court in Gopaldas v. Sales Tax Officer[1973] 31 S.T.C. 575 at 579. that an unregistered dealer would sell goods to a registered dealer usually at a loss. For, if he sells the goods to a registered dealer at a profit, such a registered deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er), A becomes liable to purchase tax. But, if B sells the identical declared goods, again, after the period mentioned in sub-clause (vi), he will also be liable to pay purchase tax. That means, in respect of the same item of declared goods, more than one person is made liable to pay tax and the tax is also levied at more than one stage." The lack of knowledge on the part of the dealer was thus the result of the peculiar provision of the Punjab Act in section 5(2)(a)(vi) which is completely different from the provisions of the Delhi Act which does not contain any provision which corresponds to section 5(2)(a)(vi) of the Punjab Act.. The uncertainty created by section 5(2)(a)(vi) was removed by the subsequent amendment of the Punjab Act which was a result of the decision of the Supreme Court in Bhawani Cotton Mills' case[1967] 20 S.T.C. 290 (S.C.). After this amendment, the Supreme Court held in Rattan Lal v. Assessing Authority[1970] 25 S.T.C. 136 (S.C.)., that no uncertainty was left in the mind of the dealer. At pages 144-145 of the Reports, Hidayatullah, C.J., observed as follows: "It will be seen that the matter is now in the hands of the dealer. He has to find out for hims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certifies that the goods being sold have already suffered tax. It was argued that no such certificate is given by the selling dealer under the Delhi Act. The answer to this contention is simple. The taxation under the Punjab Act is on the first purchase. The declared goods have to be sold again thereafter. It is important, therefore, that the certificate must be given by the first purchaser that he has already paid the tax on these goods when such first purchaser sells these goods to another purchaser. Under the Delhi Act, however, the tax is levied on the last sale. In the nature of things, it is known that the unregistered dealer or the consumer must have paid the tax when he purchased them from a registered dealer. Since it is not expected that a sale by such a registered dealer or a consumer to another unregistered dealer or consumer would be taxable, there is no need why the certificate similar to the one in form 22A of the Punjab Rules should have to be given in such a transaction governed by the Delhi Act. 3.. Exclusion from the taxation.-Basing themselves on the amendment made in the Punjab Act after Bhawani Cotton Mills' case[1967] 20 S.T.C. 290 (S.C.)., the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(a) of the Central Act is read with the Delhi Act. The reading of the two together bring about the result that the sale prices of the declared goods which have been already subjected to tax do not have to be included in the gross turnover of a dealer. The reason is the distinction between the liability to pay sales tax and the assessment of such liability by a sales tax authority. When the liability itself does not arise, the sale price does not have to be shown in the gross turnover even though there is no specific provision for its exclusion from the gross turnover under a State Sales Tax Act. On the other hand, if an exemption has to be claimed during the assessment to sales tax, then such exemption or deduction from the gross turnover can be claimed only when there is a specific provision for such deduction in the State Act. The present case falls under the first category, namely, of the non-existence of the liability. It is not necessary, therefore, that the Delhi Act should provide for the exclusion of the sale price of the declared goods which are already taxed from the gross turnover of a dealer. The same view was expressed by the Supreme Court in State of Assam v. Ramesh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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