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Commissioner of Sales Tax Vs. Nathalal Shivlal - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 60 of 1979 in Reference Application No. 7 of 1976
Judge
Reported in[1985]58STC184(Bom)
Acts Bombay Sales Tax Act, 1959 - Sections 2, 3, 7, 8, 9, 12A, 22, 33, 35, 36(2) and 61(1)
AppellantCommissioner of Sales Tax
RespondentNathalal Shivlal
Excerpt:
sales tax - deduction - sections 8 and 12a of bombay sales tax act, 1959 and rule 53 of bombay sales tax rules - respondent-firm (registered dealer) purchased certain goods and resold them - respondent claimed deduction in respect of resale under section 8 (ii) - dealer entitled to deduction under section 8 (ii) when he produced certificate as required therein - respondent produced requisite certificates under section 12a as required under section 8 (ii) - held, respondent entitled to deduction under section 8 (ii). - - the burden then shifted on the department and the department had failed to discharge the burden. under sub-section (3), if the prescribed authority is satisfied that an application is in order, it has to register the dealer and to issue him a certificate of..........j.1. this is a reference on a case stated by the sales tax tribunal under section 61(1) of the bombay sales tax act, 1959 (referred to hereinafter as 'the bombay sales tax act'), at the instance of the commissioner of sales tax. the question submitted to us for determination in the reference is as follows :'whether on the facts and in the circumstances of the case, the tribunal was correct in holding that the respondent-assessee was entitled to the benefit of resale claim under section 8(ii) of the bombay sales tax act, 1959 corresponding to his purchases of rs. 83,306 effected from kamala mills ltd. and setting aside the reassessment order ?'2. the facts giving rise to the reference are as follows :the respondent is a partnership firm registered as a dealer under the bombay sales.....
Judgment:

Kania, J.

1. This is a reference on a case stated by the Sales Tax Tribunal under section 61(1) of the Bombay Sales Tax Act, 1959 (referred to hereinafter as 'the Bombay Sales Tax Act'), at the instance of the Commissioner of Sales Tax. The question submitted to us for determination in the reference is as follows :

'Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the respondent-assessee was entitled to the benefit of resale claim under section 8(ii) of the Bombay Sales Tax Act, 1959 corresponding to his purchases of Rs. 83,306 effected from Kamala Mills Ltd. and setting aside the reassessment order ?'

2. The facts giving rise to the reference are as follows :

The respondent is a partnership firm registered as a dealer under the Bombay Sales Tax Act. The Sales Tax Officer concerned assessed the respondent under section 33 of the Bombay Sales Tax Act for the period from 10th November, 1969 to 31st October, 1970 on 5th May, 1971. Thereafter, it came to the notice of the Sales Tax Officer that sales amounting to Rs. 83,306 made by Kamala Mills Ltd. to the respondent during the said period of assessment were allowed as casual sales in the assessment of Kamala Mills Ltd. In the aforesaid order of assessment, passed under section 33, in the case of the respondent these purchases of Rs. 83,306 had been treated as purchases from a registered dealer and the corresponding sales were allowed as resales not liable to tax. Merely on this material, the Sales Tax Officer came to the conclusion that as the said sales of Rs. 83,306 were of yarn and as Kamala Mills Ltd. was not a dealer in yarn as revealed in the assessment record of that dealer, that respondent was not entitled to claim that the purchases of Rs. 83,306 made from Kamala Mills Ltd. were from a registered dealer and he held that it was necessary to disallow corresponding resale claim which had been erroneously allowed in the original assessment order under section 33 passed against the assessee. It may be mentioned here that it is quite clear the only material on which the Sales Tax Officer proceeded is that in the assessment of Kamala Mills Ltd. the sales of yarn of Rs. 83,306 to the respondent were treated as casual sales and that was the only fact disclosed to the respondent-assessee in the present case. No other assessment record of Kamala Mills Ltd. has been shown to the respondent. The Sales Tax Officer initiated proceedings under section 35 of the Bombay Sales Tax Act by the issue of a notice in form 28 and ultimately, by an order dated 23rd October, 1974 passed under section 35, subjected the corresponding resales out of the purchase of Rs. 83,306 made by the respondent to sales tax at the rate of 2 per cent. An appeal preferred by the respondent to the Assistant Commissioner was dismissed. The Assistant Commissioner took the view that the sales made by Kamala Mills Ltd. could not be held to be in the regular course of business of the mills, and consequently, he concluded that even though the bills issued by Kamala Mills Ltd. in respect of purchase of Rs. 83,306 made by the respondent from Kamala Mills Ltd., showed that Kamala Mills Ltd. had a registration certificate and those bills also contained a certificate as requested under section 12A of the Bombay Sales Tax Act, the respondent-assessee was not entitled to claim these purchases as made from a registered dealer. The respondent preferred a second appeal to the Sales Tax Tribunal. The two bulls in question were produced before the Sales Tax Tribunal and showed that Kamala Mills Ltd., the vendor, held a valid registration certificate under the Bombay Sales Tax Act and had furnished certificates as required under section 12A of the Bombay Sales Tax Act. The Tribunal accepted the contention urged on behalf of the respondent-assessee herein that, as the finding in the case of Kamala Mills Ltd. to the effect that the sales were casual sales had been arrived at without any notice to the assessee, that finding could not affect the claim of the respondent. The Tribunal pointed out that Kamala Mills Ltd. had issued certificates in favour of the respondent as required under section 12A of the Bombay Sales Tax Act and under the circumstances, it was for the Sales Tax Officer to enquire into the matter in detail and to confront the assessee with this finding. This was not done. The assessee had produced the requisite certificates under section 12A from Kamala Mills Ltd. and had discharged the initial burden of showing that the purchases made by the respondent were from a registered dealer. The burden then shifted on the department and the department had failed to discharge the burden. This reasoning has not been expressly given by the Tribunal in the judgment in the present case. But the fact found show that at the hearing of the appeal in the present case before the Tribunal, the Sales Tax Officer (Legal) appearing on behalf of the applicant before us stated that he merely adopted all the arguments which had been advanced on behalf of the department in the case of Messrs. B. Hasmukhlal & Co. v. State of Maharashtra, and the Tribunal found, as a fact, that the facts in the case of Messrs. B. Hasmukhlal & Co. were on all fours with the facts in the present case. This statements is contained in the statement of case which has been forwarded with the approval of the parties, and hence, even if there is a slight discrepancy in the same, it would be but proper to proceed on the basis of it being correct. Moreover, it is not disputed that, in the present case also, all that was pointed out by the Sales Tax Officer to the respondent was that in the case of Kamala Mills Ltd. the said sales were held to be casual sales. The reasoning of the Tribunal which we have stated above has been expressly stated in the judgment in the case of Messrs. B. Hasmukhlal & Co. v. State of Maharashtra (Second Appeal No. 1882 of 1974 decided by the Tribunal on 27th February, 1975). It is from this decision that the question set out by us has been submitted to us.

3. Before setting out the respective submissions of the parties, it will not be out of place to refer to the relevant provisions of the Bombay Sales Tax Act. The term 'dealer' is defined by clause (11) of section 2 of the said Act as 'any person who whether for commission, remuneration or otherwise carries on the business of buying and selling goods in the State, .........'. Under section 3 of the Act, after the coming into force of the Act from January 1, 1960 every dealer whose turnover exceeds certain limits in the previous year becomes liable to pay tax on his turnover of sales and purchases. Under Chapter II, the taxes which are levied are not levied in respect of every sale or purchase made by any person, but only in respect of sale or purchase made by a dealer. Section 22 of the said Act provides for the registration of a dealer. Under the said section every dealer liable to pay tax has to obtain a valid certificate of registration as provided by the Act. Under sub-section (2) of section 22, such dealer has to make an application for the said purpose in the prescribed manner to the prescribed authority. Under sub-section (3), if the prescribed authority is satisfied that an application is in order, it has to register the dealer and to issue him a certificate of registration in the prescribed form. Under clause (21) of section 2 of the Act, 'prescribed' means prescribed by rules (see Impex (India) Ltd. v. State of Maharashtra 1976 37 STC 249. Section 8 of the Bombay Sales Tax Act deals with the levy of sales tax on goods in Schedule C. The yarn in respect of which the resales in question were made in covered by entry 2 of Schedule C. The relevant portion of section 8, as it stood at the relevant time, ran thus :

'There shall be levied a sales tax on the turnover of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover, -

(i) ..........

(ii) resales of goods purchased by the dealer on or after the appointed day from a registered dealer, if a certificate as provided in section 12A is furnished, and'.

Under clause (25) of section 2, a 'registered dealer' merely means a dealer registered under section 22. The form of a registration certificate entitled is set out in form 2 annexed to the Bombay Sales Tax Rules, 1959. The said certificate inter alia specifies that the dealer to whom the certificate is issued deals in particular classes of goods and the classes of goods dealt with are set out by their generic description. The application for registration has to be made in form 1 annexed to these Rules which contains a requirement at item 9 that the dealer has to state by general description the classes of goods in which he deals. Section 12A as it stood at the relevant time read as follows :

'There shall not be deducted from the turnover of sales, the resales of goods purchased by a dealer after the commencement of the Bombay Sales Tax (Amendment) Act, 1965, from a registered dealer, as provided in sections 7, 8, 9 and 10, unless the dealer claiming deduction produces a bill or cash memorandum containing a certificate that the registration certificate of the selling dealer was in force on the date of sale of the goods to him. Such certificate shall be signed by the selling dealer or a person duly authorised by him in this behalf.'

The form of the certificate referred to in section 12A is contained in rule 53 of the Bombay Sales Tax Rules, 1959. As the Rules stood at the relevant time, it required inter alia that the certificate should contain a statement as follows :

'I/We hereby certify that my/our registration certificate under the Bombay Sales Tax Act, 1959 is in force on the date on which the sale of the goods specified in this bill/cash memorandum is made by me/us and that the transaction of sale covered by this bill/cash memorandum has been effected by me/us in the regular course of my/our business.'

4. The submission of Mr. Jetly, learned counsel for the department, is that even a dealer registered under the Bombay Sales Tax Act can make sales which are of a casual nature. It was submitted by him that if a registered dealer purchases goods from a dealer who is also registered under the Act, but in circumstances where sales of those goods made by the registered dealer to him are casual sales, then the registered dealer who purchases goods would not be entitled to claim the deduction contemplated under section 8(ii) of the Sales Tax Act. It was urged by him that merely because a certificate of the selling registered dealer is produced that does not conclude the matter and if, in fact, the sales effected were casual sales, the purchasing registered dealer would still not be entitled to get the benefit of deduction under section 8(ii) merely because he produces certificates as contemplated under section 12A of the Bombay Sales Tax Act issued by the selling registered dealer. In support of his argument, Mr. Jetly relied on the decision of the Supreme Court in the case of State of Gujarat v. Raipur . : [1967]1SCR618 where it was held by the Supreme Court that under the Bombay Sales Tax Act, 1953, in the turnover of a person carrying on the business of selling one commodity will not be included the price received by him by the sale of another commodity, unless he carries on the business of selling that other commodity. The Supreme Court laid down certain guidelines which should be followed in determining the question as to whether a person carries on business in a particular commodity. To attribute an intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable. It was held that where a company carrying on the business of manufacturing and selling cotton textiles disposes of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans and so on, it cannot be said to carry on the business of selling these items of goods.

5. Mr. Jetly placed strong reliance on the aforesaid decision of a Division Bench of this Court in Impex (India) Ltd. v. State of Maharashtra [1976] 37 STC 249. In that case, it was held that under the Bombay Sales Tax Act, 1959, what is to be taxed are sales and purchases made by a dealer in the course of his business of buying or selling goods, and not sales or purchases of any goods by a dealer even though he may not be carrying on business in that particular class of goods. A dealer is, therefore, registered in respect of a particular business of buying or selling goods, and not generally. Therefore, there can be no claim for deduction under clause (ii) of section 8 of the Act unless the goods which have been resold are purchased from a registered dealer who is dealing in that very class of goods. Where the registered dealer who had made the sale was not dealing in that class of goods, the goods sold could not be said to be sold by a registered dealer, and such a sale must stand on the same footing as a sale by an unregistered dealer. It may be mentioned at this stage that in the case, the goods in question, namely, a machine, had been purchased by the assessee from a registered dealer on 29th November, 1961 and sold on 17th February, 1962 at which time the provisions of section 8(ii) were altogether different and there was no corresponding provision to section 12A in the Bombay Sales Tax Act.

6. It is submitted by Mr. Surte, learned Counsel for the respondent-assessee, on the other hand, that the entire argument of Mr. Jetly proceeds on the wrong assumption that the Tribunal has decided the appeal in question merely on the construction of clause (ii) of section 8 and section 12A of the Bombay Sales Tax Act. It was pointed by Mr. Surte that in the present case the facts found show that the respondent had produced certificates issued by Kamala Mills Ltd. as required under section 12A of the Act read with rule 53 of the Bombay Sales Tax Rules, 1959. It was not in dispute that Kamala Mills Ltd. was a registered dealer, and its registration was in force nor was it disputed that the certificates were issued by Kamala Mills Ltd. It was urged by Mr. Surte that, in these circumstances, in any event, the burden was undoubtedly on the department to show that the sales to which the said certificates related were casual sales and not sales made by Kamala Mills Ltd. in the course of its business. We find considerable merit in this submission.

7. The claim of deduction made by the respondent was initially allowed in the regular order of assessment and it was only in reassessment proceedings that the Sales Tax Officer concerned passed the order disallowing the deduction claimed under section 8(ii) of the Bombay Sales Tax Act merely on the footing that in the assessment of Kamala Mills Ltd., the said sales had been treated as casual sales. This would clearly indicate that the only material on which the department proceeded was the assessment order in respect of Kamala Mills Ltd. for the relevant period. The respondent had surcharged the burden which lay on the respondent initially by showing that the sales effected by the respondent were of goods purchased by the respondent from a registered dealer by producing the certificates as aforesaid. In view of this, it was for the department to lead cogent evidence to show that the sales of the aforesaid yarn were not effected by Kamala Mills Ltd. in the course of their business and by merely relying on the assessment order of Kamala Mills Ltd. for the relevant period wherein a finding was given that the said sales of yarn to the respondent were causal sales, the department could not possibly be held to have discharged that burden.

8. The finding that the said sales by Kamala Mills Ltd. were casual sales, it may be pointed out, was arrived at admittedly in proceedings to which the respondent was not a party and without any notice to the respondent. Such a finding might be conclusive as between the department and Kamala Mills Ltd., but it could not be used a evidence against the respondent in a proceeding between the respondent-assessee and the department and by merely producing that finding the department can it no way be held to have discharged the burden which lay on the department. The submission of Mr. Surte is, therefore, correct and the question referred to us must be answered in the affirmative.

9. In view of what we have held above, it is not really necessary for us to go into the questions as to what would be the position where a registered dealer purchasing goods from another registered dealer produces a certificate as contemplated under section 12A and section 8(ii), and it is not disputed that the dealer issuing the said certificate is a registered dealer, but the sales to the purchasing dealer are found not to have been made in the course of the business of the selling registered dealer and the purchasing dealer makes a claim for deduction under section 8(ii) of the Act. Since arguments have been canvassed before us in this connection, we propose to express out views prima facie on this question. On a plain reading of clause (ii) of section 8 it appears to us that where it is found that a dealer has resold goods purchases by him on or after the appointed date under the Bombay Sales Tax Act from a registered dealer, he is entitled to the deduction permitted under clause (ii) of section 8 on his furnishing a certificate from the selling registered dealer from whom he had purchased the goods as provided in section 12A. The provisions of section 12A read with rule 53 of the Bombay Sales Tax Rules as they stood at the relevant time provided that no deduction under section 8(ii) would be granted unless the purchasing dealer produced a certificate issued by a selling dealer that he had a registration certificate and that the registration certificate of that registered dealer was in force. It may be mentioned that clause (ii) of section 8 was amended as from 1st July, 1965. As it stood earlier, there was no reference therein to the production of any certificate. It was felt that this lead to a lot of difficulties both on account of bogus claims being made as well as of traders being put to undue hazards by purchasing goods from others relying upon their statements that they were registered dealers and their registration certificates had not expired. It was obviously to remedy this that clause (ii) of section 8 was amended and section 12A was enacted. This was done by Maharashtra Act XXIX of 1965 which came into effect on 1st July, 1965. It appears to us that as a result of this amendment once a certificate as per rule 53 was produced and it was found that the certificate was not bogus in the sense that the party issuing certificate was a registered dealer and his registration certificate was in force, if the purchasing dealer resold the goods purchased under the certificates, he would be entitled to the deduction contemplated under section 8(ii). It is possible, as contended by Mr. Jetly that a situation might arise where such a certificate is issued by a registered dealer even in respect of sales which were casual sales made by him, and there might be a complication and a situation might arise in which the purchasing dealer might get a deduction under section 8(ii) and the department might be unable to take action against the registered dealer issuing the certificate for having issued a false certificate either under section 63(1)(f) or under section 36(2)(b). It was urged by him that in view of this, it must be held that, in spite of a certificate being produced in order to obtain the deduction as contemplated under section 8(ii), the dealer claiming it must prove that the sales in question were effected by the selling dealer in the course of his business as a registered dealer. In our view, this submission is not sustainable. The plain languages of sub-section (ii) shows that once a certificate is produced as required therein, the dealer in question is entitle to deduction unless, of course, the certificate is bogus in the sense that it has not been issued by a registered dealer at all, or has been issued by a registered dealer whose registration is no longer in force. We see no warrant to read down the plain words of this sub-section merely to avoid a possible loss to department possibly caused by a lacuna in legislation. In fact rule 53 was amended with effect as from 5th July, 1973 and as a result of this amendment the certificate to be issued under section 12A read with rule 53 now requires a further statement that the transaction of sale covered by the bill/cash memo has been effected by the registered dealer in the regular course of its business. This would suggest that that the department as well as the legislative authorities themselves realised that there was a lacuna in the law and corrected it. Whatever may be the reason, there is, in our view, no warrant for reading down the words of section 8(ii) as suggested by Mr. Jetly. We may also point out here that the principles laid down in the decisions relied upon by Mr. Jetly to which we have referred earlier are undoubtedly correct and are binding on us. But they do not in any manner help in the construction of the provisions in question before us. We may in this connection point out that in period relevant to the decision of the Division Bench of this Court in Impex (India) Ltd. v. State of Maharashtra [1976] 37 STC 249 sub-section (ii) or clause (ii) of section 8 did not provide for any certificate being issued or required for obtaining deduction nor had section 12A been enacted at all. The result was that, in order to obtain a deduction under sub-section (ii) of section 8, as it stood, it was for the dealer claiming the deduction to prove that the goods resold by him had been purchased by him from a registered dealer and the sale of the same to him had been effected by he registered dealer in the course of his business. That decision has no application to the interpretation of sub-section (ii) of section 8 as amended by Maharashtra Act XXIX of 1965 which came into effect from 1st July, 1965 as we have set out earlier.

10. It would seem to us, therefore, that once a dealer who resells goods produces a certificate from the registered dealer from whom he had purchased the goods in the form prescribed under rule 53 as required by section 12A and section 8(ii), he is entitled to the deduction allowable under section 8(ii), unless it turns out that the certificate is bogus or was issued by a person who was no a registered dealer at all or by a dealer whose registration had come to an end or the certificate was obtained by fraud or collusion to which the dealer claiming the deduction was a party. This appears to be the position at the relevant rime. We may, however, make it clear that in view of what we have decided earlier regarding the finding that the sales effected by Kamala Mills Ltd. were casual sales having been arrived at without notice to the respondent and in violation of rules of natural justice, the rest of the observations in our judgment should not be treated as concluding the question regarding the construction of sub-section (ii) of section 8. Mr. Jetly was submitted that, in view of what we have observed regarding the construction and legal effect of section 8(ii) read with section 12A of the said Act, we must also consider the questions as to whether a certificate issued at the relevant time under section 12A and in form 53 contained an implication that the sale in respect of which the certificate was issued was effected by the registered dealer issuing the certificate in the course of his business and whether, if the sale was found to be a casual sale, the certificate must be regarded as a false certificate rendering the registered dealer issuing the same liable to penalty and prosecution. In the alternative, it was submitted by Mr. Jetly that, in any event, once such certificate was issued by a registered dealer, the registered dealer should be held bound by an implied admission that the sale in question was not a casual sale, but effected by him in the course of his business. We do prima facie see some substance in Mr. Jetly's submission that the registered dealer issuing the certificate would be precluded from contending that the sale in question in respect of which the certificate was issued was a casual sale. However, these aforesaid questions are not before us and we do not feel called upon to consider the same exhaustively, much less to decide them.

11. In the result, the question referred to us is answered in the affirmative and in favour of the respondent-dealer.

12. The applicant to pay to the respondent the costs of the reference.


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