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TMI Blog1985 (1) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of the petition, the petitioner's learned counsel has relied on Bata India Limited v. State of Haryana [1983] 54 STC 226, a judgment rendered by a Division Bench consisting of S.S. Sandhawalia, C.J., and I.S. Tiwana, J., wherein an analogous provision in the Haryana General Sales Tax Act was partially held to be ultra vires the Constitution as the power to tax despatch of goods outside the State was held not coverable under entry No. 54 of List II of the Seventh Schedule to the Constitution. Lending support was sought from entry No. 92-B in List I of the Seventh Schedule to the Constitution wherein the word "consignment" was employed and it was taken that the words "despatch" and "consignment" were synonymous with each other. And since entry No. 54 of List II of the Seventh Schedule to the Constitution had only relationship with entry No. 92-A of List I of the Seventh Schedule to the Constitution, the Division Bench took the view that Parliament alone was competent under entry No. 92-B of List I of the Seventh Schedule to the Constitution to levy a tax on despatch of goods. Since the provision under the Haryana Act was struck down, the learned counsel for the petitioner clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or purchase in the course of inter-State trade or commerce." The observation had come about because the question that fell for decision was whether in the facts and circumstances of that case, the dealer was liable to pay purchase tax under the provisions of section 7 of the Act under consideration. Now, as it seems to me, the question involved herein is not whether the transactions of despatch of goods by the petitioner's branch to his own branch in Himachal Pradesh involves sale or not but the question is whether the petitioner is liable to pay purchase tax. It seems to me that in this context, the Full Bench in Sterling Steels Wires Ltd.'s case [1980] 45 STC 438 (FB) alive to that situation as emergent from Ganesh Prasad Dixit's case [1969] 24 STC 343 (SC), as followed in M. K. Kandaswami's case [1975] 36 STC 191 (SC) had without much ado held section 4-B of the Act to be valid. As is plain from the judgment of Bata India Limited [1983] 54 STC 226 no mention was made of the Sterling Steels Wires Ltd.'s case [1980] 45 STC 438 (FB) and the main emphasis in striking down the provision under the Haryana Act was as if it was workable only on the axis of payment of sales ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a given purpose but came to be dealt with by such purchasers otherwise and thus the question of law requiring consideration being indentical to all the writ petitions, a common judgment is proposed. However, wherever, a reference to facts would become necessary, the same would be taken so far as the Punjab case is concerned from C.W.P. No. 4462 of 1978 and in regard to Haryana case from C.W.P. No. 698 of 1984. Messrs. Des Raj Pushap Kumar Gulati, petitioner-firm in Civil Writ No. 4462 of 1978, was a registered dealer under the Punjab Act, and also under the Central Sales Tax Act, 1956. The firm had a branch office within the territory of Himachal Pradesh which too was duly registered under the Himachal Pradesh General Sales Tax Act. For the assessment year 1975-76, the Assessing Authority while framing assessment under the Punjab Act observed that transactions worth Rs. 4,88,949.27 were branch transfers from the Punjab branch to the Himachal Pradesh branch and were thus liable to tax under section 4-B of the Punjab Act. Accordingly, these transactions were reckoned towards computation of tax due and the petitioner-firm was made liable. The petitioner-firm impugned the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion that the crushing of oil-seeds and production of oil and oilcakes did not involve the process of manufacturing. Their contention was rejected by this Court in a decision reported in Raghbir Chand Som Chand v. Excise and Taxation Officer [1960] 11 STC 149. An identical controversy reached the Supreme Court in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax [1965] 16 STC 310 (SC) for resolving. In the latter case the assessee-company purchased raw cotton in Punjab, ginned it in its ginning mills in Punjab and sent the bales to the spinning and weaving mills in the State of Uttar Pradesh for the manufacture of cloth. The assessee while computing its taxable turnover, claimed deduction of the amount spent by it on purchasing raw cotton on the strength of a certificate of registration granted to it, in which there was no express condition that the goods were for use by the assessee for the manufacture of goods for sale in the State of Punjab. Their Lordships repelled the contention of the assessee and held that the old registration certificate even though did not contain the words "in the State of Punjab" would stand impliedly modified by the charging section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills Ltd. v. State of Punjab [1967] 20 STC 290 (SC). Their Lordships reversing the decision of this Court approvingly quoted the observations from A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SC); [1957] SCR 837, at page 852 which read: "There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are Prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The Legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax. If they are thus not liable to tax, no tax can be levied or imposed on them an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The Revenue sought to sustain the levy on the strength of second proviso to section 5(2)(a)(ii). The Full Bench repelled this contention of the Revenue with the following observations: "The second proviso to section 5(2)(a)(ii) has, therefore, no application and no other provision of the Act has been brought to our notice under which the State can assess the petitioner to tax on the purchase price of gur which was purchased by it for the manufacture of khandsari on the basis of its certificate of registration and declarations in form S.T. XXII. It is quite manifest that under section 5(2)(a)(ii), as amended and in force in 1965-66, the selling dealer was not entitled to claim deduction for the sale turnover of gur sold to the petitioner tax-free for the manufacture of khandsari from his gross turnover and, if claimed, the Assessing Authority should have disallowed it. If the selling dealer has been allowed that deduction, it can be only on the basis that khandsari is not tax-free goods. If that be so, then a different interpretation cannot be placed on khandsari in the hands of the petitioner. On that basis, the petitioner is not liable to pay any tax on the purchase of gur. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, the petitioner is not claiming any deductions under section 5(2)(a)(ii) of the Act but is resisting its liability to pay tax which has been levied under the second proviso to clause (ii) of section 5(2)(a) of the Act. On the basis of the Supreme Court judgment, all that can be said is that by virtue of the amendment made in section 5(2)(a)(ii) of the Act by Act 2 of 1963, the petitioner could not purchase free of tax gur for the manufacture of khandsari on the basis of its certificate which had been wrongly issued to it by the Assessing Authority. In that view of the matter, the selling dealer/dealers should not have sold gur to the petitioner free of tax as he/they were also presumed to know the law as much as the petitioner." The Full Bench in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB) absolved the purchasing dealer of the liability to pay tax even when he did not use the goods in accordance with the conditions laid down in his registration certificate on the ground that there was no express provision in the charging section to impose liability on him. In the wake of this decision, the dealers who were entitled to purchase goods for the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench. "Whether section 4-B of the Punjab General Sales Tax Act, 1948 is ultra vires section 15 of the Central Sales Tax Act, 1956 and of section 5(3) of the Punjab General Sales Tax Act, 1948?" The Full Bench for clarity's sake reformulated the aforesaid question into three separate questions: "(1) Whether section 4-B of the Act is applicable to declared goods? (2) Whether section 5(3) of the Act excludes the applicability of section 4-B or any other provision of the Act (in case of declared goods) as section 5(3) starts with the non obstante clause starting with 'notwithstanding'? (3) Whether section 4-B is ultra vires article 286 of the Constitution of India and contravenes section 15 of the Central Sales Tax Act, 1956?" The Full Bench answered the first question in affirmative and 2 and 3 in the negative, thus holding section 4-B of the Punjab Act as intra vires. Haryana Legislature enacted the Haryana General Sales Tax Act of 1973. In this legislation the Haryana Legislature introduced section 9, a provision parallel to the provision of section 4-B of the Punjab Act. Relevant part of section 9 then read as under: "9. Liability to pay purchase tax.-(1) Where a dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds so despatched." The assessee-firm challenged the said notification in Goodyear India Ltd. v. State of Haryana [1983] 53 STC 163, when the Assessing Authority sought to levy tax on proportionate value of the goods purchased in the State and utilised in the manufacture of such goods as were being sent by the company outside the State of Haryana as per its books to its own branches and sales depot. The assessee-company before this Court raised the contention that the transfer of stocks by the company to its branches and sales depots located outside the State of Haryana did not amount to the disposal of the same and was consequently not exigible to tax under section 9 of the Act as the title and the possession of goods had admittedly been retained by the assessee-company and mere despatching of goods outside the State did not amount to disposal of such manufactured goods. The Bench posed the following question for answering: "Whether the mere despatch of manufactured goods by a dealer to his branches outside the State of Haryana (whilst retaining both title and possession thereof) would come within the ambit of the phrase 'disposes of the manufactured goods in any manner other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title and possession thereof, does not come within the ambit of the phrase 'disposes of the manufactured goods in any manner otherwise than by way of sale' as employed in section 9(1)(a)(ii) of the Haryana General Sales Tax Act. The answer to the question posed at the very outset is thus rendered in the negative. Once it is held as above, the impugned Notification No. S.O. 119/H.A.20/ 73/Ss. 9 and 15/74 dated 19th July, 1974 (annexure P-2) plainly travels far beyond the parent section 9 of the Act. Whereas the said provision provided only for the levy of a purchase tax on the disposal of manufactured goods, the notification by making a mere despatch of goods to the dealers themselves taxable in essence, legislates and imposes a substantive tax which it obviously cannot. Indeed, its terms run contrary to and are in direct conflict with the provisions of section 9 itself. There is thus no option but to hold that the notification, which is a composite one, is ultra vires of section 9 of the Act and is hereby struck down." In order to override the effect of the judgment of this Court in Goodyear's case [1983] 53 STC 163 the Governor of Haryana promulgated an Ordinance on 13th Janua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of inter-State trade or commerce and the despatch of goods was held to be synonymous with transfer on consignment basis. So the Haryana Legislature was held to be incompetent to enact a legislative measure providing for levying of tax on transfer of goods on consignment basis outside the State of Haryana in the said manner, and therefore, Haryana Act No. 3 of 1983 amending section 9 of the Haryana General Sales Tax Act and validating the notification issued under section 15 was declared intra vires the Constitution of India. The State of Haryana has challenged in the Supreme Court the aforesaid Division Bench decision of this Court which is pending decision. Their Lordships of the Supreme Court declined the request for interim stay of the operation of the said decision, but directed that the refund of tax claimed by the respondentassessee would be allowed by the High Court Registrar only on furnishing security. To off-set the effect of the aforesaid Division Bench decision in Bata India Limited's case [1983] 54 STC 226, the Haryana State Legislature again intervened by enacting the Haryana General Sales Tax (Amendment and Validation) Act (No. 11 of 1984). By this Amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that State by way of despatch or consignment, as the topic of such legislation was not included in entry 54 of List II of the Seventh Schedule and was covered expressly by entry 92-B of List I of the Seventh Schedule after the enactment of Forty-sixth amendment to the Constitution and before the said constitutional amendment, it was covered by the residuary entry 97 of List I of the Seventh Schedule and Parliament alone was competent to enact legislation in that regard. That the binding effect of the Division Bench decision could not be got over by dressing the substance of the legislation in new clothes and that, in fact, section 9 remained the charging section which, even after amendment, was, in substance, the same as when it was struck down in Bata India Limited's case [1983] 54 STC 226 by this Court. It was merely a case of putting old wine in new bottles. It is further alleged that the State Government activated the Legislature to pass the said amendment with a view to stop the refund of the tax already realised when its effort to obtain stay from the Supreme Court had failed and that the action of the State Government by adding sub-section (3) to section 24, inter alia, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B, from any source in the State and uses them any source in the State and uses them in the State in the manufacture of in the State in the manufacture of any other goods and either disposes of any other goods and either disposes of the manufactured goods in any manner the manufactured goods in any manner otherwise than by way of sale in otherwise than by way of sale in the the State or despatches the manufacState or despatches the manufactured tured goods to a place outside the goods to a place outside the State in State in any manner otherwise than any manner otherwise than by way by way of sale in the course of interof sale in the course of inter-State State trade or commerce or in the trade or commerce or in the course of course of export outside the territory export outside the territory of India of India within the meaning of subwithin the meaning of sub-section (1) section (1) of section 5 of the Central of section 5 of the Central Sales Tax Sales Tax Act, 1956; or Act, 1956 or". (bb) purchases goods, other than those specified in Schedule B except milk, from any source in the State and uses them in the State in the manufacture of any other goods and either disposes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chedule B, from any milk, from any source in the State and source in the State and uses them in uses them in the State in the manuthe State in the manufacture of any facture of any other goods and disposes other goods and either disposes of the of the manufactured goods in any manufactured goods in any manner manner otherwise than by way of otherwise than by way of sale in the sale whether within the State or in State or despatches the manufactured the course of inter-State trade or goods to a place outside the State in any commerce or in the course of export manner otherwise than by way of sale out of the territory of India within the in the course of inter-State trade or meaning of sub-section (1) of section commerce or in the course of export 5 of the Central Sales Tax Act, 1956. outside the territory of India within the meaning of sub-section (1) of section 5 of the Central Sales Tax Act, 1956; (bb).............................." The underlined words in the amended provision of section 9 alone were highlighted before the Bench as being beyond the competency of the Haryana Legislature to enact and it was claimed that by adding those words to the said provision, the Haryana L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of inter-State trade or commerce. According to the Revenue, the taxing event was the purchase of the raw material which had been consumed in the manufacture of goods which were being despatched outside the State otherwise than by way of sale in the course of inter-State trade or commerce. We entirely agree with the aforesaid contention of the Revenue. The Bench reached its conclusions about the taxing event by the following reasons: "Though the above finding would in a way conclude the matter in favour of the writ petitioners, yet the same results seem to flow on a closer analysis of the real taxing event spelt out by the impugned provisions of section 9(1)(b) of the Act. Adverting to its specific terms and placing them on the well-known anvils, it is first plain that the 'taxable person' herein is in terms specified as the dealer liable to pay tax under the Act. The phrase 'dealer' has been expressly defined in section 2(c) of the Act and thus no ambiguity with regard to the 'taxable person' under section 9 of the Act remains. Similarly, the 'taxable goods' are equally determinable with precision. Specifically, under clause (b) these are goods other than those s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods in the course of export outside the territory of India. It is these three exigencies alone which are the taxable events in the amended section 9(1)(b) of the Act. As already noticed, the challenge is levelled only to the taxable event of the mere despatch of the manufactured goods to a place outside the State in category (ii) above. Consequently, in a statute where the taxable event is the despatch or consignment of goods outside the State, the same would come squarely within the wide sweep of entry No. 92-B and thus excludes taxation by the States." So, the aspect that assumes significance is as to whether section 9(1)(b) of the Haryana Act and the corresponding provision in the Punjab Act envisages levying of tax on the purchase of the goods or, inter alia on the despatch of such goods outside the State of Haryana otherwise than by way of sale in the course of inter-State trade or commerce. Provision almost in pari materia with section 9 of the Haryana Act and section 4-B of the Punjab Act exists in the sales tax statutes of other States also. These had come up for consideration before the High Court and the Supreme Court. The view that the High Courts and the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase price is taxable." In Malabar Fruit Products Company, Bharananganam, Kottayam v. Sales Tax Officer, Palai [1972] 30 STC 537 in which section 5A of the Kerala General Sales Tax Act, 1963 the relevant portion of which was in the following terms: "5A. Levy of Purchase tax.-(1) Every dealer who in the course of his business purchases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under section 5, and either- (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for that year at the rates mentioned in section 5.", was challenged, inter alia, on the ground that the said provision imposed tax not only on the sale or purchase of goods but on its use and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inguished Kandaswami's case [1975] 36 STC 191 (SC) and the High Court cases referred to therein on the ground that the constitutionality of the relevant taxing provision of the given statutes on the touchstone of the legislative competency of the State Legislature to enact them, did not come up for consideration. Factually, that is so, but this fact does not in any way detract from the import of the conclusion arrived in those cases by the Courts that the taxable event was the purchase of the goods and not the act of user or consumption of such goods or despatching of goods outside the State in manner other than sale in the course of inter-State trade or commerce. Once the taxing event was identified to be the act of purchase or sale or the tax is held to be a purchase tax, or sales tax, as the case may be, tax which State Legislature admittedly is competent to legislate about, then the question of examining the competency of the State Legislature to enact these provisions before or after the Forth-sixth Constitutional Amendment does not arise. Now coming to the third assumption on the part of the Bench in Bata India Limited's case [1983] 54 STC 226, it may be observed that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not necessary to examine the entry 92-13, the reasons that led to the addition of the said entry (which were adverted to in the report of the Law Commission) and the further question as to whether the legislation regarding taxing of the goods sent out on consignment basis was within the competency of the Parliament alone, by virtue of residuary entry 97 to List I even if entry 92-B had not been added to List 1. In view of the aforesaid conclusion, we hold that the Bench decision in Bata India Limited's case [1983] 54 STC 226 does not lay down the correct law and we, therefore, overrule the same, with the result that the provision of section 9(1), as amended by Act No. 3 of 1983, is hereby held to be intra vires and so also its reincarnate in the form of section 9(1)(b) as a result of Amending Act No. 11 of 1984, as also the provision of section 4-B of the Punjab Act. One of the questions urged in the petition on behalf of the petitioners was that show cause notices for imposing penalty, inter alia, in terms of section 50 were illegal in view of the decision in Bata India Limited's case [1983] 54 STC 226, that no tax by way of purchase tax was payable, because if no tax b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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