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TMI Blog1989 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, the applicant No. 1, Tata Iisco Dealers' Association of Eastern India is a registered company which was established with the object of catering to the commercial needs of its members who are dealers in iron and steel. In RN-144(T) of 1989, the applicant No. 1, is the Calcutta Iron Merchants' Association, which is a registered association of iron merchants looking after the commercial interests of its members who are dealers in iron and steel. In RN-129(T) of 1989, of course, the applicants are themselves dealers in iron and steel. 3.. The cases of the applicants in the three matters being almost identical, may be briefly put as follows: Prior to amendment of the BFST Act by section 4 of the West Bengal Taxation Laws (Amendment) Act, 1985, introducing subclause (vd) of section 5(2)(a), the tax on the sale of iron and steel was levied on the last point of sale. By the said amendment the point of taxation was changed to the first point of sale inside the State of West Bengal. In view of the provisions of the BFST Act, 1941, only the first point of sale in iron and steel in West Bengal was exigible to tax and subsequent sales thereof would not be subjected to any tax, provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxation. The result is that the first purchasing dealer of iron and steel will incur loss at the rate of 2 per cent, when he sells such goods to a manufacturing dealer. The point of taxation having been fixed at the first point of sale, it was sufficient if the second selling dealer could show that he had purchased from the first seller who was identifiable. The point of taxation could shift from the first point of sale to the second or any subsequent point of sale for non-production of declaration in form XXIVC. Sub-clause (vd), therefore, compels the first purchasing dealer to be submissive and to remain at the mercy of the first selling registered dealer till he received the declaration from the latter. This is an impediment and restriction on the free-flow of trade in iron and steel. Representations have been made to the Government against the effect of introduction of sub-clause (vd) of section 5(2)(a). But no action has been taken thereon. The impugned subclause (vd) is in conflict with section 15 of the CST Act, 1956. A copy of the representation to the Government has been made an annexure to each of the writ petitions. Sub-clause (vd) is, thus, challenged as violative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration has to be furnished by a registered dealer and also for a direction to the respondents not to insist on production of declaration along with an injunction restraining them from giving effect to or taking steps in accordance with the provisions of the said sub-clause (vd). 8.. There are certain irrelevant denials, statements and references in the affidavit-in-opposition of the respondents in RN-144(T) of 1989, for instance, references to sections 4A and 4B of the BFST Act, 1941, and rules 89A and 91 of the BST Rules, 1941. [Mr. S.N. Bose, Advocate, appearing for the appellants in this case, rightly commented that the pleading was carelessly prepared. Mr. D. Majumdar, State Representative, candidly conceded the correctness of this criticism.] But the underlying basic theme is that there was no contravention of any provision of the Constitution or the CST Act, 1956. It has been averred in paragraph 11 that the object of introduction of the impugned provision with effect from 1st April, 1985, is to ensure that there is no evasion of tax on sales of iron and steel. 9.. In RN-125(T) and 129(T) of 1989, it has been denied that introduction of sub-clause (vd) in section 5(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or reselling dealers, if he satisfies the conditions of section 5(2)(a)(vd) of the BFST Act read with rule 27A(1b) and (1C) of the BST, Rules. By furnishing a declaration in form XXIVC, the assessee will eliminate the possibility of any difference of opinion between him and the assessing officer. The allegation of discrimination between dealers in iron and steel and dealers in other goods under either the BFST Act, 1941, or the West Bengal Sales Tax Act, 1954, has been denied. Mere production of purchase bills or vouchers by the selling dealers at subsequent points of sales in the State of West Bengal is not sufficient proof of the fact that purchases were made from registered dealers. Payment of due tax can be checked more effectively by production of declaration in form XXIVC. 11. For proper appreciation of the rival contentions of the parties the relevant parts of section 5 of the BFST Act, 1941, and rule 27A of the BST Rules, 1941, are reproduced below: "Section 5. Rate of tax.-(1) The tax payable by a dealer under this Act shall be levied on his taxable turnover at the rate of- * * * (aaa) two per centum of such part of his taxable turnover as represents sales to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in the prescribed form obtainable in such manner and subject to such conditions and restrictions as may be prescribed from the prescribed authority duly filled up and signed by the registered dealer to whom, or by the owner or representative of the undertaking to which, the goods are sold. * * * (2) In this Act the expression 'taxable turnover' means, in the case of a dealer who is liable to pay tax under section 4 or under sub-section (3) of section 8, that part of his gross turnover during any period which remains after deducting therefrom- (a) his turnover during that period on- * * * (va) sales of goods specified in section 14 of the Central Sales Tax Act, 1956 (74 of 1956), on a prior sale whereof in West Bengal due tax is shown to the satisfaction of the Commissioner to have been paid; * * * (vd) sales of iron and steel as specified in clause (iv) of section 14 of the Central Sales Tax Act, 1956, where he proves to the satisfaction of the Commissioner that such iron and steel were purchased by him in the same form in West Bengal, on or after the date with effect from which this sub-clause comes into force, from a registered dealer and furnishes in the prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was consequently substituted with effect from the same date, prescribing form XXIVC for the declaration envisaged in the said section 5(2)(a)(vd). Prior to the addition of sub-clause (vd), iron and steel were being covered by section 5(2)(a)(va). Sub-clause (vd) of section 5(2)(a) clearly does not cover all sales of iron and steel. Its application is limited to the sales made by only the registered dealers. In other words, while calculating his taxable turnover, a dealer is, on the fulfilment of certain conditions, entitled to deduct from his gross turnover the sales of iron and steel which he purchased from registered dealers. Mr. S.N. Bose, Advocate appearing for the applicants in RN-144(T) of 1989, submitted that subclauses (va) and (vd) cannot co-exist in view of their mutual conflict. The State Representative, however, explained that sub-clause (va) continues to apply to declared goods of special importance in inter-State trade or commerce under section 14 of the CST Act other than iron and steel and also to such iron and steel as are purchased by a dealer from an unregistered dealer. He explained that iron and steel having been also declared as notified goods under section 4A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative repelled these arguments by saying that iron and steel had to be declared as notified goods under section 4A of the BFST Act because the State Government was of the opinion that there is appreciable evasion of tax in respect of such goods. That being so, he argued, the necessity arose for making a distinct provision in section 5(2)(a) for iron and steel purchased from registered dealers, because such transactions represent the bulk of trade in iron and steel. Moreover, he argued, the object of sub-clause (vd) was to change the point of taxation regarding iron and steel from the last point of sale to the first point. We shall presently advert -to the position taken by the Revenue in the affidavits-in-opposition. But, for our present purpose, we will confine ourselves to the submissions made by the learned State Representative at the hearing. As regards the test of nexus to the object sought to be achieved by sub-clause (vd), the answer of the Revenue is as indicated above. We find ourselves in agreement with the contentions of the learned State Representative that there are reasonable grounds for making a special provision by way of sub-clause (vd) for purchases of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill take place in the natural course of market forces. The question of loss of 2 per cent tax does not appear to be real. Accordingly, sub-clause (vd) is not hit by article 14 of the Constitution on the grounds discussed above. We are unable to uphold all these contentions on behalf of the applicants. [See [1989] 74 STC 102 (SC) (Federation of Hotel Restaurant Association of India v. Union of India) for extent of latitude with which article 14 operates on taxing laws.] 17.. At this stage, we may keep on record that although in the affidavits-in-opposition the respondents had maintained that sub-clause (vd) did not fix the first point of sale as the point of taxation or did not alter. the point of taxation from the last point of sale to the first point, it was argued by the learned State Representative that it was so. A written note of arguments was taken from the learned State Representative. We quote below a few lines therefrom which will indicate that the Revenue accepts the position that sub-clause (vd) makes the point of taxation for iron and steel as the first point of sale: "In our case the stage at which taxes can be imposed on sales of declared goods is clearly and defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by demanding mandatory production of declaration in form XXIVC for claiming exemption under section 5(2)(a)(vd) from paying tax for the second time, an unreasonable restriction has been imposed on the trade and commerce in iron and steel and there is a possibility of imposition of tax on more than one stage and also there is an attempt to shift the point of taxation from the first point of sale to any subsequent point of sale. Mr. Somen Bose [RN-125(T) of 1989], Mr. R.N. Bajoria [RN-129(T) of 19891 and Mr. S.N. Bose [RN-144(T) of 1989], contended with great force that the mandatory requirement of furnishing a declaration for claiming exemption from payment of tax (for the second time) makes all the difference in sub-clause (vd). Their principal attack is on this mandatory requirement. They argued in one voice that if a second or subsequent selling dealer is not required to furnish a declaration, as contemplated in sub-clause (vd), the grounds of attack on that sub-clause will disappear. But while Mr. Somen Bose and Mr. R.N. Bajoria contended that constitutionality of sub-clause (vd) may be maintained by reading down the provision to the effect that production of declaration will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid Co. v. State of Madras), [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd. v. Commercial Tax Officer, [1985] 60 STC 1 (SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) and [1986] 63 STC 314 (SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner). In [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid Co. v. State of Madras), rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, as substituted with effect from 1st April, 1955, came up for consideration. In that case the decisions in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 were followed and rule 16(2) was held invalid because it contravened article 304(a) of the Constitution for discriminating against imported hides and skins which had been purchased or tanned outside the State. The principle laid down in those three cases [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid Co. v. State of Madras, AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) and AIR 1962 SC 1406 [Automobile Transport (Rajasthan) Ltd. v. State of Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CST Act to be of special importance in inter-State trade or commerce must conform to the conditions laid down in section 15 of the CST Act, namely, that the tax shall not exceed the maximum laid down in section 15 of the CST Act and such tax shall not be levied at more than one stage. It was also held that the single point at which the tax may be imposed must be a definite and ascertainable point so that both the dealer and the sales tax authorities may know clearly the point at which the tax is to be levied. It was further held in [1985] 60 STC 1 (SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) that one of the components which enters into the concept of a tax is a clear indication of the person on whom the levy is imposed. We have already found that under section 5(2)(a)(vd) of the BFST Act, the point of taxation is the first point of sale by a registered dealer within West Bengal. That being so, the stage is definite and ascertainable. The Revenue has pleaded that the stage although fixed at the first point, may shift in appropriate cases. Learned Advocates for the applicants have unanimously opposed this contention. According to them, the stage cannot be shifted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring Co. Ltd. v. Commercial Tax Officer), where the Supreme Court held that the dealer was to strictly comply with the provisions of rule 27A of the BST Rules, 1941, read with section 5(2)(a)(ii) of the BFST Act, 1941. In that case, the decision in [1964] 15 STC 641 (SC) (State of Orissa v. Tulloch Co.), was considered and distinguished. But it is difficult to apply the decision in [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd. v. Commercial Tax Officer) to the class of cases before us because of the fact that in the instant cases the goods are iron and steel which are declared goods under section 14(iv) of the CST Act and therefore cannot be taxed at more than one stage and also because the single stage must be definite and ascertainable and not flexible depending on collection of tax. We quote below an extract from the decision in Kedarnath Jute Manufacturing case [1965] 16 STC 607 (SC) in order to appreciate the reason for upholding (in that case) the mandatory character of the provision for production of declaration for getting exemption from tax: "There is an understandable reason for the stringency of the provisions. The object of section 6(2)(a)(ii) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case the Supreme Court held that the provisions of the Punjab General Sales Tax Act, 1948, as they stood on 1st April, 1960, levying purchase tax on declared goods specified in Schedule C contravened section 15(a) of the CST Act, 1956, as the stage at which purchase tax is levied is neither definite nor ascertainable and there is a possibility of the tax being levied at more than one stage. In our view, the principle laid down in that case is significant. In order to conform to the requirements of section 15(a) of the CST Act, a provision of law must lay down a definite and ascertainable point of taxation and there must not be any possibility of the tax being levied at more than one stage. In the cases before us the applicants have been successful in showing that there is a possibility of the tax being levied at more than one stage, if the second or subsequent selling dealer fails to produce the required declaration. We have noted that such a dealer is obliged to secure a declaration from his seller who, in his turn, is obliged to obtain the same from the Commercial Tax Officer concerned. That contingency also depends on fulfilment of a number of preconditions laid down in rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o amend the Bengal Finance (Sales Tax) Act, 1941, the West Bengal Sales Tax Act, 1954 and the West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979, to- (i) raise additional resources, (ii) provide for relief and concessions, and (iii) streamline the procedures for better collection of revenue." Mr. Somen Bose argued that the difficulties represented by the trade was considered by the State Government, as a result of which the amendment has been made. The requirement of declaration in form XXIVC has now been dispensed with. The amended provisions are not the subject-matter for our present consideration and we do not express any views thereon. But there is substance in the contention of Mr. Bose that the budget speech of the Minister-in-charge and the amendments effected to sub-clause (vd) lend support to the contention of the applicants that the mandatory requirement of declaration was unreasonable and might result in multi-point taxation. 27.. For the aforesaid reasons, section 5(2)(a)(vd) which came into force with effect from 1st April, 1985, when interpreted to mean that furnishing declaration contemplated therein is a mandatory requirement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declarations with a view to getting exemption available under section 5(2)(a)(vd). In that context it was argued that the provision is hit by article 14 for its unfairness and unreasonableness and also is hit by article 19(1)(g) for its telling effect on the trade or profession of the applicants. As regards article 19(1)(g) we do not consider that the provision, as it is, puts unreasonable restriction on the right of the applicants to carry on their trade or business. They can carry on the trade, may be with a little hardship, if they are to comply with sub-clause (vd). But we hold that the provision is unfair and unreasonable to such an extent that it infringes article 14. 29.. But all these vices of sub-clause (vd) arise from the mandatory requirement of production of a declaration. In our view it is necessary and also reasonable to read the words "and furnishes" as "or furnishes" in sub-clause (vd) so that the mandatory character of the requirement becomes directory. We do not say that a dealer claiming exemption under section 5(2)(a)(vd) will in no case furnish the declaration, but if he fails to do so, he will be at liberty to prove by other satisfactory evidence before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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