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Commissioner of Sales Tax Vs. R. Sureshchandra and Co. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 84 of 1978
Judge
Reported in[1984]57STC151(Bom)
Acts Bombay Sales Tax Act, 1959 - Sections 2, 3, 5, 6, 7, 8, 9, 10, 11, 12, 14, 14(1), 17, 41, 41(1) and 61(1)
AppellantCommissioner of Sales Tax
RespondentR. Sureshchandra and Co.
Excerpt:
.....section 14 (2a) - notification issued under section 41 (1) dealt with exemption from payment of general sales tax - notification did not affect liability to pay purchase tax under section 14 (2a) - held, sto rightly levied tax at the rate of 6%. - - sub-section (2a) provide for levy as well as the rate of purchase tax, once the dealer becomes liable to pay the purchase tax. section 17 provides that the state government may by notification in the official gazette reduce any rate of tax specified in schedules b, c, d, and e in respect of any entry (or part thereof) in the said schedules and may by like notification, (a) omit or amend any entry (or part thereof) but not so as to enhance the rate of tax in any case. in our view such an interpretation would be clearly contrary to the..........such dealer or commission agent shall be liable to pay purchase tax on the purchase price of the goods purchased under such certificate; and accordingly, he shall include the purchase price thereof in his turnover of purchases in his return under section 32. sub-section (2a) was inserted in section 14 by section 2 of the amending act 13 of 1973, which runs as under :'(2a) where any dealer or commission agent becomes liable to pay purchase tax under sub-section (1) or (2), as the case may be, there shall be levied a purchase tax -(a) on the turnover of purchases of goods specified in column 2 of schedules b, c and d, at the rate set out against each of such goods in column 4 of the said schedules :(b) on the turnover of purchases of goods specified in column 2 of schedule e, at a rate,.....
Judgment:

Shah, J.

1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the Act'). In this reference the question referred to us for our determination is as follows :

'Whether on the facts of this case and on a true and proper interpretation of clause (b) of sub-section (2A) of section 14 of the Bombay Sales Tax Act, 1959, the Tribunal was justified in coming to the conclusion that the rate of purchase tax on the turnover of purchases of Rs. 27,018.00 for the purpose of sub-section (1) of section 14 should be 3 per cent and not 6 per cent ?'

2. The facts are few and not in dispute : The respondent is dealing in medicines and chemicals. For the period from October 31, 1970, to October 19, 1971, the Sales Tax Officer while passing the assessment order in respect of certain purchases made and certificate in form 14 issued under section 12 of the Act read with rule 21 of the Bombay Sales Tax Rules, 1959 (hereinafter referred to as 'the Rules'), found that the assessee had committed breach of the recitals of such certificate with the result that the assessee was liable to pay purchase tax under section 14 of the Act. The Sales Tax Officer, therefore, levied purchase tax accordingly on the turnover of such purchases amounting to Rs. 27,018. These purchases were of medicines covered by entry 22 of Schedule E to the Act. Under notifications issued by the State Government under sub-section (1) of section 41 of the Act from time to time certain classes of goods were exempted from payment of general sales tax. We shall have occasion to refer to this notification at a later stage. However, it may be pointed out that under such a notification issued under sub-section (1) of section 41, entry 38 was added to the earlier notification whereby the dealer was exempted from payment of general sales tax in respect of certain classes of medicines and medicines in question belong to that class or classes. The Sales Tax Officer levied the purchase tax at 6 per cent on these goods relying on the provisions of sub-section (2A) of section 14 of the Act read with entry 22 of Schedule E to the Act. This order of the Sales Tax Officer was confirmed by the Assistant Commissioner in appeal. The contention of the assessee was that in view of the notification issued under sub-section (1) of section 41 exempting from payment of general sales tax, the rate of general sales tax mentioned in column 4 against entry 22 of Schedule E should be read as 'nil' for the purpose of medicines, with the result that the aggregate rate of tax mentioned in columns 3 and 4 against the said entry would come to 3 per cent. The assessee preferred a second appeal before the Maharashtra Sales Tax Tribunal challenging the order of the Assistant Commissioner. The Tribunal accepted the contention of the assessee and held that the operative part of the purchase tax under section 14 for medicines which are covered by entry 38 of the said notification under section 41(1) would be 3 per cent only.

3. Before advertising to the contentions raised before us, it would be useful to refer to the relevant provisions of the Act. Chapter II of the Act contains provisions which deal with the incidence and levy of tax. Section 3 deals with the liability of the dealer to pay tax depending on the turnover of sales or purchases. Section 5 provides that in respect of goods mentioned in column 3 of Schedule A no tax shall be payable on the sales or purchases of the goods specified in the schedule. Section 6 provides that subject to the provisions of the Act and the Rules made thereunder there shall be paid by every dealer, who is liable to pay tax under the Act, the tax or taxes leviable under the provisions of Chapter II. Section 7 provides for single point levy of sales tax or general sales tax on declared goods specified in Part I of Schedule B at the rate set out against each of them in column 3 thereof. Section 8 provides for levy of sales tax on the turnover of goods specified in Schedule C at the rate set out against each of them in column 3 thereof and section 9 provides for levy of general sales tax specified in Part I of Schedule D at the rate set out against each of them in column 3 thereof. Section 10 provides for levy of sales tax, general sales tax a retail sales tax on goods specified in Schedule E. Section 10 inter alia provides as under :

'10(1) There shall be levied a sales tax on the turnover of sales of goods specified in Schedule E at the rate set out against each of such goods in column 3 thereof, but after deducting from such turnover, -

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

(ii) ..................

(iii) .................

(2) There shall be levied a general sales tax on the turnover of sales of goods specified in Schedule E, at the rate set out against each of such goods in column 4 thereof, but after deducting from such turnover -

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

(ii) ...................'

Section 11 provides for levy of tax at reduced rate on certain sales on giving a certificate as provided therein. Under section 12 it is provided that there shall not be deducted from the turnover sales of goods to an authorised dealer or licensed dealer or to a commission agent holding a permit to purchase on behalf of his principal or to a registered dealer as provided in sections 7, 8, 9 and 10 unless such authorised dealer, licensed dealer, commission agent or the registered dealer issues a certificate in the proscribed form as provided in section 12. Section 14 provides for the liability to purchase tax for contravention of terms of certificate given under section 11 or 12. According to sub-section (1) of section 14 it is provided that where any dealer or commission agent has purchased any taxable goods under a certificate given by him under section 11 or 12 and contrary to such certificate, the goods are used for another purpose, or are not resold or despatched, in the manner and within the period certified, then such dealer or commission agent shall be liable to pay purchase tax on the purchase price of the goods purchased under such certificate; and accordingly, he shall include the purchase price thereof in his turnover of purchases in his return under section 32. Sub-section (2A) was inserted in section 14 by section 2 of the Amending Act 13 of 1973, which runs as under :

'(2A) Where any dealer or commission agent becomes liable to pay purchase tax under sub-section (1) or (2), as the case may be, there shall be levied a purchase tax -

(a) on the turnover of purchases of goods specified in column 2 of Schedules B, C and D, at the rate set out against each of such goods in column 4 of the said Schedules :

(b) on the turnover of purchases of goods specified in column 2 of Schedule E, at a rate, which would be aggregate of the rates specified against each of such goods in columns 3 and 4 of that Schedule.'

This provision has been made retrospective and is applicable to the assessment period in question. Schedule E has 5 columns. The relevant entry No. 22 in Schedule E runs thus :

------------------------------------------------------------------------'Serial Description of Rate of sales Rate of general Rate of No. goods tax sales tax purchase tax------------------------------------------------------------------------22 All such goods Three paise Three paise Three paise other than those in the in the rupee. in the specified from rupee. rupee.'time to time in Schedules A, B, C and D and in the preceding entries.------------------------------------------------------------------------

4. The controversy as mentioned above is whether the correct rate of purchase tax as provided in sub-section (2A) of section 14 should be aggregate of rates specified in columns 3 and 4 against entry No. 22 in Schedule E, viz., 3 per cent + 3 per cent, as contended on behalf of the department, or it should be 0 + 3 per cent, i.e., 'nil' + 3 per cent, in view of exemption granted under the notification issued under section 41(1) as contended on behalf of the assessee. The contention of the assessee which has found favour with the Tribunal is that as a result of the notification granting exemption, the rate of tax mentioned in column 4 has to be read as 'nil'. Now there is nothing to indicate in the provision of sub-section (1) of section 41 that issuance of notification thereunder reduces the rate mentioned against column in the relevant entry and is rendered as nil. Section 41 deals with exemption from payment of tax and sub-section (1) thereof, inter alia, provides that subject to such conditions as it may impose, the State Government may, if it is necessary so to do in the public interest, by notification in the Official Gazette, exempt any specified class of sales or purchase from payment of the whole or any part of any tax payable under the provisions of the Act. The only effect of the notification is that the dealer is exempted from payment of tax. Section 41(1) does not talk of either the rate or the liability to pay the tax. As against this the levy of purchase tax, liability to pay the purchase tax and the rate of purchase tax is provided under sub-section (2A) read with sub-section (1) of section 14 of the Act.

5. As mentioned earlier, pursuant to the powers conferred under section 41(1), the Government has issued notifications from time to time exempting certain specified class of sales or purchases from payment of tax. The first notification issued under the said provision is dated December 28, 1959. Again by notification dated August 14, 1965, entry No. 38 was added to the exemption list whereby the whole of general sales tax was exempted from payment in respect of sales on medicines used or intended to be used (whether internally or externally) for or in the diagnosis, treatment, mitigation or prevention of disease in human beings or animals (other than those specified in entry 69 in Schedule C to the Act). It appears that this entry was subsequently deleted by notification dated July 11, 1973. However, this deletion does not affect the instant case, since the period of assessment is between October 31, 1970, to October 19, 1971.

6. It was urged by Mr. Thakur, the learned counsel appearing for the department, that on the plain wording of sub-section (2A) of section 14, it is clear that the dealer is liable to pay purchase tax on the aggregate of rates mentioned in columns 3 and 4 against the entry in Schedule E. The liability to pay the purchase tax is incurred under sub-section (2A) of section 14 and the rate of purchase tax is prescribed under sub-section (2A) by reference to the percentage mentioned in the two columns, viz., columns 3 and 4 in Schedule E. According to the learned counsel the exemption from payment of general sales tax by reason of the notification under entry 38, as stated above, is not relevant since that relates to general sales tax. On the other hand, the contention of Mr. P. C. Joshi, the learned counsel appearing for the assessee, was the same as was advanced before the Tribunal, which has been set out earlier. He submitted that in view of the notification issued under sub-section (1) of section 41 granting exemption of payment of general sales tax, the rate mentioned in column against entry No. 22 must be the rate as 'nil' for the purposes of sales of medicines.

7. We find considerable substance in the submissions made by Mr. Thakur having regard to the plain wording of sub-section (2A) of section 14 read in the light of sub-section (1) of section 14. Under sub-section (1) as a result of breach of condition of certificate the dealer becomes liable to pay purchase tax. Sub-section (2A) provide for levy as well as the rate of purchase tax, once the dealer becomes liable to pay the purchase tax. The rate specified under sub-section (2A) is the aggregate of the rate specified against the particular goods in columns 3 and 4 of Schedule E. The notification issued under section 41(1) which is relied on by the assessee in this case, merely deals with the exemption from payment of the general sales tax and does not affect the liability to pay purchase tax. There is nothing to show nor does the notification has the effect of reducing the rate of purchase tax, which in the instant case is provided under sub-section (2A) of section 14.

8. In this connection it may be mentioned that there is a separate provision in the Act, viz., section 17, which confers power on the State Government to reduce the rate of tax and also to amend schedules. Section 17 provides that the State Government may by notification in the Official Gazette reduce any rate of tax specified in Schedules B, C, D, and E in respect of any entry (or part thereof) in the said Schedules and may by like notification, (a) omit or amend any entry (or part thereof) but not so as to enhance the rate of tax in any case. It is not the case of the assessee that any notification has been issued under section 17 reducing the rate of purchase tax by the State Government. It is not possible to accept the contention that the rate mentioned in column 4 has to be read as 'nil' for the purposes of medicines in question because of the notification issued under section 41(1) granting exemption from payment of general sales tax. In our view such an interpretation would be clearly contrary to the plain and unambiguous provision in sub-section (2A) of section 14 which clearly lay down that the rate should be aggregate of the rates in columns 3 and 4 of Schedule E. We find substance in the contention of Mr. Thakur that the notification under section 41 has nothing to do with the levy or rate of tax, but it relates only to exemption from payment of tax. In our opinion, the provisions of section 41 cannot be imported to determine the rate of purchase tax as contemplated by sub-section (2A) of section 41 nor can a notification issued thereunder result in the amendment of the relevant entry in respect of the rate of general sales tax as far as the medicines in question are concerned.

9. It was urged by Mr. Joshi that the intention of the legislature in enacting sub-section (2A) was obviously to recoup the tax which the Government had lost on account of the certificate issued by the dealer at the time of purchasing the goods, which tax he would have been liable to pay, but for the exemption. So far as the intention of the legislature is concerned, looking to the plain language of sub-section (2A) of section 14 read with section 41(1) it cannot be said that the rate of general sales tax in column 3 of entry 22 should be read as 'nil'. The only effect of the notification issued under section 41(1) is that the dealer is exempt from payment of general sales tax to the extent mentioned in the notification. Had it been the intention as urged by Mr. Joshi, the notification would have been issued under section 17 and not under section 41(1). In this connection it would be worthwhile to look into the history of amendments made to section 14 of the Act. Sub-section (2A) was added by section 2 of Maharashtra Act 1 of 1971, which came into force on January 4, 1971. Sub-section (2A) as amended by the said amending Act has been quoted above in extenso. Clause 2 of the Statement of Objects and Reasons attached to the Bill provides a clue to the intention of the legislature in introducing the amendment to section 14. The legislature found that though section 14 of the Act provides for levy of purchase tax for contravention of the terms of the certificate given by an assessee under section 11 or 12, it does not prescribe specifically the rate of tax. It would, therefore, be clear that prior to the addition of sub-section (2A) there was no specific provision providing for rate of payment of purchase tax when there was breach of condition of the certificate issued under section 11 or 12 of the Act.

10. The present sub-section (2A) was added by Maharashtra Act 13 of 1973 which provision has been made retrospective and is, therefore, applicable to the facts of this case. Here also the Statement of Objects and Reasons indicate that the amendment was made since doubts were raised regarding rate of tax and the Tribunal had taken up a particular view and sub-section (2A) was added to make the rate of purchase tax more precise and clear. We have referred to the Statement of Objects and Reasons now with a view to show that no such intention, as is canvassed by Mr. Joshi, can be presupposed.

11. We, therefore, find substance in the contention of Mr. Thakur that the above mentioned notification issued by the Government under section 41 has no relevance for the purpose of determining the rate of purchase tax under sub-section (2A) of section 14. The notification merely grants exemption from payment of general sales tax, but it does not render the rate of general sales tax mentioned in column 4 against entry 22 of Schedule E as 'nil' for the purpose of computation of rate of purchase tax under sub-section (2A) of section 14. In other words, the rate of purchase tax under the said provision, as far as the medicines in question are concerned, which admittedly fall under entry 22 of Schedule E would be the aggregate of rates specified in columns 3 and 4 of that entry, viz., 6 per cent.

12. We may mention that it was faintly argued by Mr. Joshi that the provisions of sub-section (2A) of section 14 have no application to goods falling under entry 22 of Schedule E. According to him, the said provisions can apply only to goods which are specifically described in the Schedules A to E and not to the goods falling in the residuary entry 22 of the Schedule E.

13. We, therefore, answer the question referred to us in the negative and in favour of the department.

14. Respondents to pay the costs.


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