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TMI Blog1985 (1) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial Tax Officer, Chintamani Circle, Chintamani ("C.T.O."). For the period from 1st January, 1974 to 31st December, 1974 the petitioner filed two returns under the K.S.T. and C.S.T. Acts before the C.T.O. on 27th January, 1975 disclosing various turnovers under different heads claiming various exemptions. The C.T.O. called upon the petitioner to produce its books of account on 19th May, 1975 for examination. Petitioner did not comply. In that view, on 16th June, 1975 the C.T.O. under sections 12(3) and 12-B(4) of the K.S.T. Act and rule 16 of the Karnataka Sales Tax Rules of 1957 ("the Rules "), issued a proposition notice in form No. 31-A setting out the reasons for the best judgment assessment proposed by him. In response, the petitioner filed its objections/reply before the C.T.O. and produced the books of account on 26th June, 1975. In so far as on the purchase turnover of Rs. 4,11,535 with which alone we are precisely concerned, the petitioner asserted thus: "So far as the levy of purchase tax of groundnuts amounting to Rs. 4,11,535, we wish to submit that we are not the first purchasers within the State of Karnataka. We are only the subsequent purchasers within the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return and paid tax thereon." In Writ Petition No. 5031 of 1975, the petitioner has challenged the said assessment order of the C.T.O. inter alia contending (i) that section 6-A(2) of the Act was beyond the legislative competence of the State Legislature; (2) that rule 26(9)(a) of the Rule was not for purposes of the Act and was ultra vires of the same and (3) that, if the construction suggested by it on section 6-A(2) was not accepted, then the same was violative of article 286 of the Constitution and section 15 of the C.S.T. Act. 4.. All the other petitioners are also registered dealers under both the Acts on the files of the respective assessing authorities. (i) Petitioners in Writ Petitions Nos. 5032 to 5034 of 1975, 5734, 5735 of 1977 and 137 of 1979 are dealers in groundnuts, oil and other seeds. (ii) Petitioners in Writ Petitions Nos. 13978 of 1978 and 15899 to 15903 of 1983 are dealers in cardamom. (iii) Petitioner in Writ Petitions Nos. 3124 and 3125 of 1977 is a dealer in coconuts who has challenged the proposition notices issued against it by the assessing authority under the Act. (iv) Except the petitioner in Writ Petitions Nos. 3124 and 3125 of 1977, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by their learned counsel also. 10.. Section 6-A(2) of the Act is only a machinery provision. The power to make a law for levy of tax on sales and purchases is derived from article 246 of the Constitution read with entry No. 54 of the State List of the Seventh Schedule to the Constitution. That power comprehends in itself the power to enact all incidental and ancillary provisions including machinery provisions for levy and recovery of those taxes. We see no merit in this contention of the petitioners 11.. The petitioners have urged that section 6-A(2) of the Act was violative of article 19(1)(g) of the Constitution. But, even here, the petitioners have not elaborated them and the same was not also pursued at the hearing. 12.. Article 19(1)(g) of the Constitution does not guarantee immunity from taxation. The power of taxation available to the State comprehends in itself the power to make necessary machinery provisions. We see no merit in this contention of the petitioners and reject the same. 13.. The petitioners have challenged the validity of rule 26(9)(a) of the Rules which reads thus: "26. Nature of accounts to be maintained by dealers and licensees............. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary to focus our attention, we consider it useful to briefly notice as to how that concept itself is dealt in the general law of our country. 19.. In our country the law of evidence has been codified in the Indian Evidence Act (Act 1 of 1872) ("the Code"). The Code virtually reproduces the principles of law of evidence that was then prevailing in England (vide AIR 1961 SC 526). 20.. Part III of Chapter VII of the Code deals with "the Burden of proof". Section 101 of the Code defines the term "burden of proof" thus: "101. Whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist. When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person." On the scope and ambit of that provision Sarkar states thus: "Principle and scope: This section is based on the rule, ei incumbit probatio qui dicit, non qui negat-the burden of proving a fact rests on the party who substantially asserts the affirmative of the issue and not upon the party who denies it; for a negative is usually incapable of proof. 'It is an ancient rule fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he had obtained one, could have no difficulty in producing it, the law, which is founded on general convenience, compelled him to do so (Apoth Co. v. Bentley 1824 Ry M 159)." 21.. In H.E.H. Nizam's Religious Endowment Trust, Hyderabad v. Commissioner of Income-tax, Andhra Pradesh, Hyderabad AIR 1966 SC 1007 and Lakshmiratan Cotton Mills Co. Ltd., Kanpur v. Commissioner of Income-tax, U.P. AIR 1969 SC 917, the Supreme Court has applied the above principles to proceedings arising under the Income-tax Act. 22.. On the burden of proof and the rule of exception incorporated in section 106 of the Code, Taylor in his classic treatise on the "Law of Evidence" (Eleventh Edition published in 1920) states thus: "364. A THIRD RULE, which governs the production of evidence, is, that the burden of proof lies on the party who substantially asserts the affirmative of the issue. This rule of convenience, which in the Roman Law is thus expressed, ei incumbit probatio qui dicit, non qui negat, has been adopted in practice, not because it is impossible to prove a negative, but because the negative does not admit of the direct and simple proof of which the affirmative is capable and moreover, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative.......... 92.. Meaning and scope of rule: As applied to judicial proceedings the phrase 'burden of proof' has two distinct and frequently confused meanings: (1) the burden of proof as a matter of law and pleading-the burden, as it has been called, of establishing a case, whether by preponderance of evidence or beyond a reasonable doubt; and (2) the burden of proof in the sense of adducing evidence. (1) Burden of proof on the pleadings. The burden of proof, in this sense, rests upon the party, whether plaintiff or defendant, who substantially asserts the affirmative of the issue. It is fixed at the beginning of the trial by the state of the pleadings, and it is settled as a question of law, remaining unchanged throughout the trial exactly where the pleadings place it, and never shifting in any circumstances whatever. If, when all the evidence, by whomsoever introduced, is in, the party who has this burden has not discharged it, the decision must be against him.......... * * * * (1) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on." (vide page 67 "Evidence by Cross", Third Edition) With this general legal back drop of the "burden of proof" it is first necessary to notice the rules of construction that should guide the construction of section 6-A(2) of the Act. 23.. A machinery provision in a fiscal statute should be so interpreted as to make the charging provision of that statute effective is well-settled. 24.. In C. Arunachalam v. Commissioner of Income-tax ILR (1984) 2 Kar 1387 (FB), a Full Bench of this Court, as late as on 26th October, 1984 in interpreting the scope and ambit of section 64 of the Income-tax Act, 1961 noticing all the important cases and text books, has explained the principles of construction in these words: "11. We shall presently consider these decisions, but before we do so, it will help the exposition which follows, if we explain the Court's functions with respect to statutes lumping under the single term 'interpretation'. We know of no statute which merely declares a rule, with no purpose or objective behind. Every statute whether addressed to individuals or institutions has an aim and purpose. That could be gathered only by a rational study of the law. The rational stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t stop at the words of the section. They call for help in every direction open to them. They look at the statute as a whole. They look at the social conditions which gave rise to it. They look at the mischief which it was passed to remedy. They look at the "factual matrix". They use every legitimate aid. By this means they clear up many things which would be unclear or ambiguous or doubtful.' This is how the Courts with their creative powers have recently responded to what we may call it a ground clearing exercise where the words of a statute are not so plain and unambiguous. To put it shortly, the Judges should not follow a blinkered way to lay down the law. They should use their hindsight as well. So far as the fiscal statutes are concerned, we must remember one more principle. The provisions in a fiscal statute are not to be so construed as to furnish a chance of escape and a means of evasion. In case of doubt, the fiscal statute should be construed in favour of and beneficial to the subject." 25.. The Karnataka Sales Tax (Amendment) Act of 1963 (Karnataka Act 9 of 1964) that made a large number of amendments to the Act, by section 7 of that Act introduced section 6-A, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and is made liable to pay tax on those purchases or the sales as is the case. 29.. Section 6-A(2) has direct nexus with the C.S.T. Act and the restrictions placed by that Act on the taxing power of the States on declared goods, subject to a single point levy and at a rate not exceeding the maximum rate stipulated by section 15 of that Act. After all, it is almost impossible for any authority under the Act to prove that the purchase or sale by a dealer was the first, second or subsequent purchase or sale. We are of the view that section 6-A(2) of the Act has been enacted only to avoid evasion of taxes under the Act by a dealer on a specious or a very convenient plea that he was the second purchaser or seller. 30.. We are of the view that what has been incorporated in section 6-A(2) is in accord with the well-recognised principles of burden of proof recognised by our Supreme Court in taxation provisions noticed by us earlier. 31.. In Jeevendriah's case [1975] 35 STC 104, this Court was primarily concerned with the true scope and ambit of section 6-A(1) and not section 6-A(2). But, having so held, Malimath, J. (as his Lordship then was), however expressed on the scope and ambi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivasan that this decision is no longer good law as the same was not approved by the Division Bench in appeal filed against that decision since reported in [1976] 38 STC 350; (1976) 2 Kar LJ 139 (Sha Pannala Pemraj Co. v. Commercial Tax Officer). 33.. In the appeal filed by the petitioner, this Court expressed the view that the decision rendered by his Lordship on the validity of section 6-A(2) was unnecessary on the facts of that case and the same was therefore left open. We are of the view that the Division Bench had not dissented from the construction placed by Venkataramiah, J. (as his Lordship then was), on section 6-A(2) of the Act. In any event, it can only be taken that the Division Bench left the question open. We are however, of the opinion that the construction placed by Venkataramiah, J. (as his Lordship then was), which accords with what we have earlier expressed, is the correct view to take in the matter. 34.. Sri Srinivasan contended that section 6-A(2) of the Act was violative of article 286 of the Constitution and section 15 of the C.S.T. Act. In support of his contention Sri Srinivasan has strongly relied on the ruling of the Supreme Court in Bhawani Cotton M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is violative of article 286 of the Constitution is without any merit. 36.. Section 15 of the C.S.T. Act on which strong reliance was placed reads thus: "15. Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.-Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely: (a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage; (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which was invalidated by the Punjab High Court. But, in a series of amendments made thereafter, the same was virtually sought to be maintained, the validity of which was again challenged by Bhavani Cotton Mills Limited as contravening section 15 of the C.S.T. Act, before the High Court, which rejected the same (vide pages 292-320). On appeal, the Supreme Court by majority disagreeing with the view expressed by the Punjab High Court, held that the amending provisions made to the Punjab Act were contrary to section 15 of the C.S.T. Act and were invalid. But, that is not the position here. Section 6-A(2) does not impose tax in excess of the rate provided by section 15 of the C.S.T. Act nor imposes tax on more than one occasion. Section 6-A(2) only provides for the mode of proof and the consequences flowing from such failure only. From this it follows that we cannot hold that section 6-A(2) of the Act contravenes section 15 of the C.S.T. Act. We are, therefore, of the view that the ratio in Bhavani Cotton Mills Limited's case [1967] 20 STC 290 (SC) does not really bear on the point and assist the petitioners. 39.. On the correctness of the assessments completed against the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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