1. The matter coming up in the first instance before Subba Rao, C.J., and Bhimasankaram, J., the following question was referred to a Full Bench :-
'Whether the deduction referred to in sub-rule (2) of rule 18 of the Turnover and Assessment Rules framed under the Madras General Sales Tax Act is conditional upon the assessee complying with the requirement contained in sub-rule (3) of that rule.'
Opinion Of The Full Bench
The Opinion of the Full Bench was delivered by
P. Satyanarayana Raju, J.
1. The following question has been referred to us :
'Whether the deduction referred to in sub-rule (2) of rule 18 of the Turnover and Assessment Rules framed under the Madras General Sales Tax Act is conditional upon the assessee complying with the requirement contained in sub-rule (3) of that rule ?'
2. The answer to this question depends on the construction of the relevant provisions of the Madras General Sales Tax Act (hereafter referred to as 'the Act'), which, by reason of section 53 of the Andhra State Act, is in force in the territory now forming part of the State of Andhra. The descriptive title of the Act is 'An Act to provide for the levy of a general tax on the sale of goods in the State of Madras.'
3. The provisions of the Act, so far as they are now relevant, run as follows :-
Section 2(b) : ''Dealer' means any person who carries on the business of buying or selling goods.'
Section 2(i) : ''Turnover' means the aggregate amount for which goods are either bought by or sold by a dealer whether for cash or for deferred payment ..............................'
Section 3 provides that the turnover for all purposes of the Act shall be determined in accordance with, and the tax shall be assessed, levied and collected in such manner and in such installments as may be prescribed by the rules made by the State Government in that behalf. Every dealer whose turnover is Rs. 10, 000 or more for a year shall submit such return or returns of his turnover in such manner and for such periods as may be prescribed under sub-section (1) or sub-section (2) of section 3.There is a proviso to section 3(5) which contains the following clauses :-
'(i) in respect of the same transaction of sale, the buyer or the seller, but not both as determined by such rules as may be prescribed, shall be taxed;
(ii) where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules referred to in clause (i) of this proviso, he shall not be taxed again in respect of any sale of such goods effected by him.'
Section 5 provides for exemptions and reduction of tax in certain cases. Section 6 empowers the Government to make an exemption or reduction in rate, in respect of any tax payable under the Act, on the sale of any specified class of goods at all points or at a specified point or points in the series of sales by successive dealers. Section 15 provides for offences and penalties, among which is wilful submission of an untrue return or failure to submit a return as required by the provisions of the Act or the rules made thereunder. Section 19 empowers the State Government to make rules to carry out the purposes of the Act, and requires that all rules made under the section shall be published in the Gazette, which, upon such publication, shall have effect as if enacted in the Act.
Under section 3(2), the State Government made rules which are called 'The Madras General Sales Tax (Turnover and Assessment) Rules, 1939', and under section 19, further rules which are called 'The Madras General Sales Tax Rules, 1939'. These rules are of an elaborate and comprehensive character, and by reason of sections 3(4), 3(5) and 19(5) they have statutory force.
4. None of the provisions in the Madras General Sales Tax Rules is relevant for our present purpose, but some of the provisions of the Turnover and Assessment Rules require to be noticed. They are :
'4. (1) Save as provided in sub-rule (2) the gross turnover of a dealer for the purposes of these rules shall be the amount for which goods are sold by the dealer.
(2) In the case of the under mentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer.
(a) groundnut, .....................'
'5. (1) The tax or taxes under section 3 or 5 or the notification or notifications under section 6(1) shall be levied on the net turnover of a dealer ...............
(k) all amounts which a registered manufacturer of groundnut oil (other than refined groundnut oil) and cake may be entitled to deduct from his gross turnover under rule 18 subject to the conditions specified in that rule.'
5. The other relevant provision is contained in rule 18, which runs thus :
'(1) Any dealer who manufactures groundnut oil and cake from groundnut and/or kernel purchased by him may, on application to the assessing authority having jurisdiction over the area in which he carries on his business, be registered as a manufacturer of groundnut oil and cake.
(2) Every such manufacturer shall be entitled to a deduction under clause (k) of sub-rule (1) of rule 5 equal to the value of the groundnut and/or kernel purchased and converted by him into oil and cake provided that the amount for which the oil is sold is included in his turnover.
(3) Every such manufacturer shall submit so as to reach the registering authority not later than the 25th day of every month a statement in Form A-9 in respect of the transactions relating to the previous month.
(3-A) If any such manufacturer fails to submit the statement in Form A-9 within the time specified in sub-rule (3) or if he omits to furnish any of the particulars required by that form, the Commercial Tax Officer may, in his discretion after making such enquiry as he considers necessary, condone the delay or omission or both ...............'
It may be noted here that the above sub-rule (3-A) was added on 10th February, 1949.
6. The general scheme of taxation adopted under the Act and the rules made thereunder is multipoint taxation. Tax is levied at specified rates on the total turnover of a dealer if it exceeds a specified limit. In respect of the same transaction of sale, the buyer or seller but not both, as determined by the rules, shall be taxed. Where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules, he shall not be taxed again in respect of any sale of goods effected by him.
7. Generally the amount for which the goods are sold by a dealer constitutes his gross turnover. But in the case of certain specified goods, such as groundnuts, etc., the gross turnover of a dealer shall be the amount for which the goods are bought by him. Thus in the case of groundnuts and other goods specified in sub-rule (2) of rule 4, tax is levied on the purchase turnover.
8. Any dealer who manufactures groundnut oil and cake from groundnut or groundnut kernel, purchased by him, may register himself as a manufacturer of groundnut oil and cake. Such manufacturer of groundnut oil (other than refined groundnut oil) and cake is entitled to a deduction from his gross turnover, of an amount equal to the value of the groundnut and/or kernel purchased and converted by him into oil and cake, provided that the amount for which the oil is sold is included in his turnover and subject to the conditions specified in rule 18. Normally the manufacturer of groundnut oil and cake who sells them has to pay tax on the sales turnover. But if the gross turnover of oil is subject to tax, the manufacturer would be paying tax both on the groundnut and kernel purchased by him and also on the sale of oil manufactured there from. In order to obviate this hardship, a special privilege or exemption is conferred on a dealer in groundnut who registers himself as a manufacturer of groundnut oil and cake. The right to claim this exemption is, however, subject to certain conditions specified in rules 5(1)(k) and 18. Under rule (5)(1)(k), all amounts which a registered manufacturer of groundnut oil and cake may be entitled to deduct from his gross turnover under rule 18 shall be subject to the conditions specified in that rule. Rule 18(1) requires any dealer who manufactures groundnut oil and cake to be registered as a manufacturer. Rule 18(2) which allows the deduction makes explicit reference to every such manufacturer, that is to say, a manufacturer of oil who gets himself registered under rule 18(1). Rule 18(2) imposes two further conditions, viz., that the oil should have been manufactured and sold by the dealer who has registered himself as a manufacturer and that the amount for which the oil is sold should be included in his turnover. It is only when these conditions are fulfilled that deduction equal to the value of the groundnut and kernel purchased by him and converted into oil and cake is permissible. There is a further obligation under rule 18(3), viz., that every such manufacturer shall submit so as to reach the registering authority not later than the 25th day of every month, a statement in Form A-9 in respect of the transactions relating to the previous month. This is to enable the assessing authority to allow deduction or to fix the amount thereof under rule 18(2). This exemption is allowed only in the case of unrefined groundnut oil but does not apply to refined oil.
9. Now it is contended on behalf of the assessee that he is entitled to the deduction provided for by rule 18(2) of the Turnover and Assessment Rules despite the fact that he failed to submit a return in Form A-9 which is the requirement contained in sub-rule (3) of rule 18. The argument of the learned counsel for the assessee may be stated thus : The provisions of rule 18(3) are only directory and not mandatory. What is liable to tax is the net turnover. The rules merely prescribe the procedure to be followed by the assessee in making his claim for deduction. The right to have a deduction is an absolute one and does not depend upon the fulfilment of the procedure prescribed, and this is also in consonance with the basic idea that double taxation has to be avoided. This contention receives support from a decision of Basheer Ahmed Sayeed, J., in The State of Madras v. Hajee M.S.A. Meeran Sahib Co. (1954 5 S.T.C. 71; 67 L.W. 660). There the learned Judge, after considering the relevant statutory provisions, reached the conclusion that if the intention behind the rules was to make the exercise of a right to depend upon the fulfilment of the duty referred to in sub-rule (3) appropriate language should have been used so as to make the meaning beyond dispute.
10. In a later decision reported in The State of Madras v. Nallam Jaggiah (1954 5 S.T.C. 457; 1954 2 M.L.J. 670) the same learned Judge held that such a deduction could be allowed in favour of an assessee only if all the conditions specified in rule 18 were satisfied.
11. In an unreported decision of this Court in Boddu Pydanna Sons v. The State of Andhra (Appeal No. 293 of 1951 decided on 1st August, 1955) a Division Bench consisting of one of us (Viswanatha Sastry, J.) and Krishna Rao, J., after an exhaustive discussion of all the material provisions of the Act and the rules has held that the language of rule 18(3) is so absolute and peremptory that it has to be construed as laying down by necessary implication that the exemption under rule 18(2) cannot be claimed in any other manner and that the deduction referred to in sub-rule (2) of rule 18 of the Turnover and Assessment Rules is conditional upon the assessee complying with the requirements of rule 18.
12. The general rule of construction is that exemptions from tax granted by a statute should be given full scope and amplitude and should not be whittled down by importing limitations not inserted by the Legislature. If under the provisions of a taxing statute an assessee claims an exemption, it is for that person to show that he has been exempted. Therefore provisions providing for exemption may be properly construed strictly against the person who makes the claim of an exemption. In other words, before exemption can be recognised, the person or property claimed to be exempt must come clearly within the language apparently granting the exemption. (Vide Crawford on the Construction of Statutes, page 506). The same principle has been laid down by a Division Bench of the Madras High Court in P.A. Raju Chettiar & Brothers v. Commissioner of Income-tax (1949 17 I.T.R. 51; I.L.R. 1949 Mad. 644), where Rajamannar, C.J., and Yahya Ali, J., observed thus :
'It is manifest, therefore, that section 26-A as well as the rules and the particulars required in the form have all been designed to enable the assessment to be done on registered firms in the manner provided under sub-section (5)(a) of section 23. It is for this purpose of the utmost importance that the real partner should be disclosed and the precise shares of each of the partners should be mentioned and these particulars should represent the real state of affairs. The purpose of the entire scheme of the assessment of registered firms will be defeated if it is found that either the firm is not genuine or that the shares mentioned therein are not true. A strict and rigid compliance with the requirements of section 26-A and the rules is, in our opinion, essential and there is no scope for any of the equitable considerations put forward by the learned Advocate-General.'
13. These observations would apply with equal force to the interpretation of rules 5(1)(k) and 18(2) and (3) of the Turnover and Assessment Rules which confer a special privilege on a registered manufacturer of groundnut oil who complies with the prescribed conditions.
14. In Cape Brandy Syndicate v. Inland Revenue Commissioners (1921 1 K.B. 64 at 71), Rowlatt, J., made the following observations which are pertinent :-
'It is urged by Sir William Finley that in a taxing Act clear words are necessary in order to tax the subject. Too wide and fanciful a construction is often sought to be given to that maxim, which does not mean that words are to be unduly restricted against the Crown or that there is to be any discrimination against the Crown in those Acts. It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'
15. We may also bear in mind the difference between a mandatory and a directory provision. The former must be obeyed or fulfilled exactly while it is sufficient if the latter is obeyed or fulfilled substantially. The decision in Howard v. Bodington (1877 2 P.D. 203 at 211) lays down the following principle :-
'...... as far as any rule is concerned, you cannot safely go further than that in each case you must look to the subject matter, consider the importance of the provision that has been disregarded and the relation of that provision to the general object intended to be secured by the Act, and upon a review of the case in that aspect, decide whether the enactment is what is called imperative or only directory.'
16. Construing rules 5(1)(k) and 18(2) and (3) in the light of the foregoing principles and having regard to the peremptory and absolute language in which these rules are couched, it is manifest that the deduction referred to in sub-rule (2) of rule 18 is conditional upon the assessee complying with the conditions prescribed under sub-rule (3) of that rule.
17. For the above reasons, we are in agreement with the conclusion reached by the Division Bench of this Court in Boddu Pydanna Sons v. The State of Andhra (Appeal No. 293 of 1951).
18. The answer to the question referred to the Full Bench is, therefore, in the affirmative.
19. The petition coming on for hearing after the decision of the Full Bench before SUBBA RAO, C.J., and BHIMASANKARAM, J., the Court delivered the following order :
Following the Full Bench decision the revision is allowed with costs. Advocate's fee Rs. 250.