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Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Mohanlal Anilkumar - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 33 of 1978 in Reference Application No. 151 of 1975
Judge
Reported in(1984)86BOMLR334; [1984]57STC145(Bom)
ActsBombay Sales Tax Act, 1959 - Sections 3, 4, 7, 8, 9, 10, 11, 12, 13, 14, 14(1), 15, 15(1), 15(2), 32 and 61(1); Central Sales Tax Act, 1956 - Sections 8, 9, 10, 14 and 15
AppellantCommissioner of Sales Tax, Maharashtra State, Bombay
RespondentMohanlal Anilkumar
Excerpt:
.....of sub-section (1) of section 15, which we have set out earlier, clearly shows that where a dealer liable to pay tax under the said act discontinues his business, purchase tax is to be levied on the purchase price of the taxable goods contained in the stock of goods held immediately before discontinuance, as if such dealer had become liable to pay purchase tax on such goods under section 14. it was submitted by him that these provisions show that in such a case a legal fiction is introduced whereby irrespective of the actual facts the dealer has to be treated in respect of such goods, as if he had contravened the terms of the certificate issued by him as contemplated in sub-section (1) of section 14 and as a result of this he becomes liable to pay purchase tax at the aggregate of..........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, which he is to furnish next thereafter : provided that ..................... (2) ............................... (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.....
Judgment:

Kania, J.

1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (referred to hereinafter as 'the said Act'). The question referred to us for determination in this reference by the Maharashtra Sales Tax Tribunal is as follows :

'Whether on a true and proper interpretation of section 15 read with section 14 of the Bombay Sales Tax Act, 1959, the Tribunal was correct in holding that in respect of goods covered by entry 22 of Schedule E to the Act, the rate of purchase tax leviable was 3 per cent as prescribed in column 5 of the said entry and not 6 per cent as prescribed under section 14 of the Act ?'

2. The relevant facts, as appearing from the statement of the case furnished by the Tribunal, are as follows :

The respondent was registered as a dealer under the said Act. Although it is not expressly stated in the statement of the case, it is common ground that the registered dealer in this case was a firm. The registration of the dealer was cancelled with effect from 1st June, 1972, as its business was closed, and in view of this cancellation the assessment was made in respect of the period from 1st April, 1972 to 31st May, 1972, being the relevant assessment period for the purposes of this reference. There were no sales or purchases made by the dealer during this period. However, on the date of the closure the dealer had a stock of unsold goods worth Rs. 36,100, which had been purchased by the dealer by issuing declarations in form 16 of the Bombay Sales Tax Rules, 1959. Section 15 of the said Act provides for the liability of the dealer to pay purchase tax and for the levy of such tax where a dealer liable to pay tax under the said Act discontinues his business and holds a stock of goods which were purchased on a declaration under section 11 or section 12. There was no dispute that the provisions of section 15 were applicable in respect of the unsold stock of Rs. 36,100 and that purchase tax was leviable thereunder on the said stock. The dispute was only in respect of the rate of purchase tax to be applied. The goods in question are admittedly covered by entry 22 of Schedule E to the said Act, whereunder the rate of purchase tax prescribed in column 5 against entry 22 is 3 per cent. Relying on this entry and the rate prescribed in column 5 the Tribunal accepted the dealer's contention that the rate of purchase tax applicable was 3 per cent only, and not 6 per cent as was contended by the Revenue. The Tribunal came to this conclusion on the construction which it gave to section 15 reading it along with section 14 of the said Act. It is from this decision that the aforesaid question has been referred to us.

3. Before coming to the arguments of Mr. Lokur, the learned counsel for the Revenue, it might be desirable to refer to certain relevant provisions of the said Act. Chapter II of the said Act provides for the incidence and levy of tax under the said Act. Very briefly stated, section 3 provides that every dealer whose turnover of sales or purchases made during the period specified therein exceeds the relevant limits specified in the said section shall be liable to pay tax under the said Act on his turnover of sales or on his turnover of purchases. Section 4 deals with the liability of a dealer to pay tax under the said Act, where the dealer is registered under the Central Sales Tax Act, 1956. Section 8 deals with the levy of sales tax on the goods described in Schedule C. Section 9 deals with the levy of general sales tax on the goods described in Schedule D. Section 10 deals with the levy of sales tax, general sales tax and retail sales tax on the goods specified in Schedule E. The material portion of section 10 reads thus :

'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 deduction from such turnover, -

(i) sales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14,

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

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

Sub-section (2) of section 10 deals with the levy of general sales tax and provides for the levy of general sales tax on the turnover of sales of goods specified in Schedule E and also provides for certain deductions being granted from the turnover for such levy. Sub-section (3) of section 10 deals with the levy of retail sales tax. Section 12 of the said Act provides that no deduction from turnover of sales to an authorised dealer, a licensed dealer or a commission agent holding a permits on behalf of principal or to a registered dealer would be allowed as provided in sections 7, 8, 9 and 10, unless a certificate is furnished as provided in the said section by such licensed dealer or commission agent or authorised agent or registered dealer. Clause (c) of section 12 provides for the certificate to be given buy a licensed dealer. The relevant part of section 14 of the purposes of this reference runs as follows :

'14. (1) 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, which he is to furnish next thereafter :

Provided that .....................

(2) ...............................

(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.

(3) ....................'

The material portion of section 15, which deals with the liability to purchase tax on certain stocks of goods, runs as follows :

'15. (1) Where a dealer, liable to pay tax under this Act, -

(a) dies, or

(b) transfers or otherwise disposes of his business, or effects any change in the ownership thereof, or

(c) is a firm, company, society or other association of persons, or a trust, which is dissolved, liquidated, wound up, or revoked, or

(d) is a Hindu undivided family, and the family is partitioned, or

(e) discontinues his business,

and the stock of goods held by such dealer immediately before the death, transfer, disposal, change, dissolution, liquidation, winding up, revocation, partition or discontinuance, as the case may be, includes taxable goods purchased by him on a certificate given by him under section 11 or 12, then, there shall be levied a purchase tax on the purchase price of such taxable goods at the relevant rate of purchase tax applicable thereto as if such dealer had become liable to pay purchase tax on such goods under section 14.'

There is a proviso to sub-section (1) of section 15, which deals with the situation where the business carried on by such dealer as referred to in sub-section (1) is continued after such death, transfer or disposal and so on. We are not concerned here with the proviso. There is also a further proviso with which we are not concerned. Sub-section (2) of section 15 deals with the situation where the certificate of registration issued to a dealer is cancelled. We are not concerned with that sub-section either. Schedule E to the said Act is under section 10, section 13 and section 14 of the said Act. It deals with goods, the sale and purchase which is subject to sales tax, general sales tax, purchase tax and retail sales tax, and the rates of sales tax, general sales tax and purchase tax. There are five columns in the said Schedule. The first column merely contains the serial numbers, the second column contains description of goods, the third column sets out the rate of sales tax, the fourth column sets out the rate of general sales tax and the fifth column sets out the rate of purchase tax. Entry 22 of the said Schedule runs as follows :

------------------------------------------------------------------------Sr. Description of goods Rate of Rate of general Rate of No.sales tax sales tax purchase tax1 2 3 4 5 ------------------------------------------------------------------------ '22. All goods other then Three paise Three paise Three paisethose specified from in the in the rupee. in thetime to time in rupee. rupee.'Schedules A, B, C and D and in the preceding entries.------------------------------------------------------------------------

Rule 21 of the Bombay Sales Tax Rules, 1959, makes provision for forms of certificate under sections 11 and 12 of the said Act. Sub-rule (3) of the said Rules provides that a certificate for the purpose of clause (c) of section 12 shall be in form 16. Heading of form 16 shows that it is Form of certificate of a licensed dealer purchasing goods for a purpose referred to in clause (c) of section 12 of the said Act.

4. The submission of Mr. Lokur, the learned counsel for the Revenue, is that in the present case the facts found show that the dealer had purchased the goods constituting the unsold stock at the time of discontinuance of its business on certificates in form 16, which would show that he had purchased these goods as a licensed dealer for the purposes referred to in clause (c) of section 12 of the said Act. On the discontinuance of the business it cannot be disputed that the provisions of section 15 came into play. It was submitted by him that the relevant portion of sub-section (1) of section 15, which we have set out earlier, clearly shows that where a dealer liable to pay tax under the said Act discontinues his business, purchase tax is to be levied on the purchase price of the taxable goods contained in the stock of goods held immediately before discontinuance, as if such dealer had become liable to pay purchase tax on such goods under section 14. It was submitted by him that these provisions show that in such a case a legal fiction is introduced whereby irrespective of the actual facts the dealer has to be treated in respect of such goods, as if he had contravened the terms of the certificate issued by him as contemplated in sub-section (1) of section 14 and as a result of this he becomes liable to pay purchase tax at the aggregate of the rates specified against such goods in columns 3 and 4 of the relevant entry in Schedule E. It was urged by him that once this legal fiction has been introduced, it must be carried to its logical conclusion and the dealer treated as if he had actually contravened the provisions of the certificate issued by him as contemplated under section 14 and further, that once a fiction of section 14 being applicable was introduced, we cannot allow our imaginations to be boggled from importing into the situation all the consequences of the applicability of section 14. In support of this contention Mr. Lokur relied on the decision of the Supreme Court in State of Bombay v. Pandurang : 1953CriLJ1049 , where it has been held that when a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the Court is entitled and bound to ascertain for what purchases and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion.

5. We find ourselves unable to accept the argument of Mr. Lokur for the reasons which we shall presently state. In the first place, we may make it clear that it is the accepted position that once a legal fiction is introduced by a statute, it must be carried to its logical conclusion and that 'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it' : see East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109. It must also, however, be remembered that a legal fiction must be carried to its logical conclusion and not to an illogical length. Nor can one allow oneself to be so carried away by a legal fiction as to ignore the words of the very section which introduces it or its context or setting in the statute which contains that section. Nor can one loose sight of the purpose for which the fiction was introduced. On a proper construction of the relevant sections, we find ourselves unable to accept the submission of Mr. Lokur on the construction of sub-section (1) of section 15. In the first place, the relevant words, which we have underlined in setting out the provisions of sub-section (1) of section 15 earlier, show that in case of death or dissolution or discontinuance of business by a registered dealer and so on, the provision is that the purchase tax shall be levied on the purchase price of taxable goods included in the stock remaining unsold as if such dealer had become liable to pay purchase on such goods under section 14, but the levy of the purchase tax is to be at the relevant rate of purchase tax applicable to such goods. In our view, accepting the contention of Mr. Lokur would be to render redundant the words 'at the relevant rate of purchase tax applicable thereto' and in fact, to give an interpretation to the said provision directly contrary to the import of these words in the said sub-section. It must be appreciated in this connection that the rate of purchase tax is set out in column 5 of Schedule E and columns 3 and 4 of the said Schedule set out the rates of sales tax and general sales tax respectively. It is true that where section 14 is directly applicable, the provisions of sub-section (2A) thereof show that the levy of purchase tax in respect of goods specified in column 2 of Schedule E is to be at a rate which would be the aggregate of the rates against each of such goods in columns 3 and 4 of that Schedule. That would show that in such a case what was to be levied was purchase tax, but the rate at which it was to be levied was the aggregate of the rates of sales tax and general sales tax. This, however, would not convert the respective rates of sales tax and general sales tax or the aggregate thereof into the rate of purchase tax. The contention of Mr. Lokur, therefore, flies in the face of the provisions of sub-section (1) of section 15 read with the headings of the columns in Schedule E. Merely because section 15(1) introduces the fiction of the dealer becoming liable to pay purchase tax on the goods in question as if section 14 were applicable that would not enable us to be so carried away by the legal fiction as to ignore the words 'at the relevant rate of purchase tax applicable thereto' which are used in the provision itself. It was contended by Mr. Lokur that, if the provisions of section 15(1) were to be interpreted as we have suggested above, then the words 'as if such dealer had become liable to pay purchase tax on such goods under section 14' used in sub-section (1) of section 15 would be rendered redundant and hence such construction was not permissible. We are afraid, this is not correct. In the first place, it must be appreciated that liability to pay tax deals with the incidence of tax and levy is treated separately. We find that that is the scheme which is followed in Chapter II of the said Act, the very little of which indicates that the provisions therein are regarding 'Incidence and levy of tax'. Properly read, therefore, the relevant portion of sub-section (1) of section 15 shows that in the situation contemplated therein the dealer becomes liable to pay purchase tax, as if he had contravened the terms of the certificate referred to in section 14 but the levy of purchase tax is to be at the rate specified in column 5 of Schedule E. Apart from this, there is another reason also why it might have been necessary to sue the words 'as if such dealer had become liable to pay purchase tax on such goods under section 14'. Sub-section (1) of section 10, which, inter alia, deals with deductions from the turnover of sales of goods specified in Schedule E for the levy of sales tax provides in clause (i) for such deduction being granted in respect of sales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14. This would suggest that the expression 'as if such dealer had become liable to pay purchase tax on such goods under section 14' was used in sub-section (1) of section 15 to enable the dealer to claim a deduction from turnover as contemplated in clause (i) of sub-section (1) of section 10. In view of what we have observed above, we are of the view that the Tribunal was right in the conclusion at which it arrived.

6. In the result, the question referred to us is answered in the affirmative and against the Revenue.

7. There will be no order as to the costs of the reference, as the dealer is not represented before us.


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