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Commissioner of Sales Tax Vs. Lalloobhai B. Patel and Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Civil Case No. 201 of 1970
Judge
Reported in[1979]43STC146(MP)
AppellantCommissioner of Sales Tax
RespondentLalloobhai B. Patel and Co. Ltd.
Appellant Advocate J.P. Bajpai, Deputy Adv.-General
Respondent Advocate V.S. Dabir and ; A.G. Dhande, Advs.
Cases ReferredState of Madras v. Radio and Elect
Excerpt:
.....prescribed by the rules and the representation is recorded in the certificate in form c, the selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. their lordships in this case have very clearly laid down that one of the duties in that behalf of the selling dealer is that he should satisfy himself about the fact that the goods purchased from him are mentioned in the registration certificate of the purchasing dealer which in fact is the question before us. the language clearly goes to show that this concessional rate of tax would be permissible only when the restrictions and conditions as have been prescribed are complied with. it is as a result of this, that they, on..........is that the article must be mentioned in the registration certificate; while in the case of the selling dealer, he must have obtained from the purchasing dealer a declaration in the prescribed form and signed by the purchasing dealer.he was of the view that the selling dealer is not required to hold any enquiry with a view to ascertaining whether the declaration furnished by the purchasing dealer is correct or not. according to him, it would be sufficient for the selling dealer to claim tax concession if he produces a certificate in form xii-a from the purchasing dealer and it would be no concern of his if the purchasing dealer gives a certificate in respect of goods which are not specified in his registration certificate. he on this ground allowed the appeal, set aside the order of.....
Judgment:

S.S. Sharma, J.

1. The Board of Revenue, Madhya Pradesh, has made this reference to this Court under Section 44(1) of the M. P. General Sales Tax Act. The Division Bench which heard this reference felt it proper to refer this case to a Full Bench and thus the matter has been placed before us.

2. The relevant facts of the case briefly are as follows :

The assessment of the assessee for the period from 28th' October, 1962, to 17th October, 1963, was reopened under Section 19(1) of the M. P. General Sales Tax Act, 1958 (hereinafter referred to as 'the Act'), as it was found that the dealer was under-assessed. As a result of this a total additional demand of Rs. 1,191.56 was raised against the dealer by an order dated 29th April, 1967, passed by the Assistant Commissioner of Sales Tax, Jabalpur. In this order dated 29th April, 1967, it was, inter alia, held that the dealer had sold tendu patti worth Rs. 26,038.90 to M/s. Purshottam Bhai Jhorabhai holding registration certificate No. S/126. During the period under assessment tendu leaves were not mentioned as raw material in the registration certificate of the purchasing dealer which was added subsequently, that is, on 9th July, 1964. In view of this, it was held that the imposition of the tax at concessional rate of 1 per cent was wrong which should have been imposed at the rate of 5 per cent. Consequently, an additional demand of Rs. 1,041.56 was created on this count.

3. Against this order dated 29th April, 1967, the dealer preferred an appeal to the Deputy Commissioner of Sales Tax, Jabalpur. In that appeal, one of the objections taken was that the purchasing dealers gave declaration certificate in form XII-A to the assessee and, therefore, the latter was not bound to check up their registration certificates. Accordingly, an argument was advanced that the Assistant Commissioner was in error in denying to the appellant concessional rate of tax under Section 8(1) of the Act. The Deputy Commissioner rejected this objection as also the other one raised before him and dismissed the appeal.

4. Against that order of the Deputy Commissioner the assessee preferred an appeal before the Board of Revenue, M. P., Gwalior, and, inter alia, raised the aforesaid ground which he had raised before the Deputy Commissioner. This objection, however, found favour with the learned member of the Board of Revenue. He relied on the following observations in a judgment of this Court in Commissioner of Sales Tax, M.P. v. Samaj Paper Mart, Indore 1968 M.P.L.J. 65 :

In the case of the purchasing dealer, however, the condition is that the article must be mentioned in the registration certificate; while in the case of the selling dealer, he must have obtained from the purchasing dealer a declaration in the prescribed form and signed by the purchasing dealer.

He was of the view that the selling dealer is not required to hold any enquiry with a view to ascertaining whether the declaration furnished by the purchasing dealer is correct or not. According to him, it would be sufficient for the selling dealer to claim tax concession if he produces a certificate in form XII-A from the purchasing dealer and it would be no concern of his if the purchasing dealer gives a certificate in respect of goods which are not specified in his registration certificate. He on this ground allowed the appeal, set aside the order of the Deputy Commissioner of Sales Tax and remanded the case back for fresh assessment in the light of his order.

5. After the aforesaid decision of the Board of Revenue, the Commissioner of Sales Tax submitted an application under Section 44(1) of the Act requiring the Tribunal to refer to this Court the question of law which arose out of its order. Consequently, the Tribunal has drawn up the statement of case and has referred the following question :

Whether, on the facts and circumstances of the case, the assessee who has obtained declaration in form XII-A from the purchasing dealer, was not entitled to claim the concessional rate of tax under Section 8(1) of the Act on the ground that the goods were not specified in the registration certificate of the purchasing dealer.

6. In the case of Samaj Paper Mart 1968 M.P.L.J. 65, the assessee was a dealer in paper who sold the same to the manufacturers of beedis, agarbattis and fire-works having registration certificates after obtaining declarations from them in form XII-A as prescribed in the M. P. General Sales Tax Rules, 1959, and so claimed to be taxed at the reduced rate of 1 per cent under Sub-clause (1) of Section 8 of the Act. This claim of the assessee was rejected by the taxing authorities on the ground that paper sold to these manufacturers was not 'raw material' as defined in Clause (1) of Section 2 of the Act and that it was used only as a packing material and not as raw material in the manufacture of those articles. The Sales Tax Tribunal, however, held that paper in the circumstances was 'raw material' as defined in Clause (1) of Section 2 of the Act. It also found that as the appellant had produced the necessary declarations in form XII-A of the Rules it was entitled to get the benefit of the reduced tax under Clause (1) of Section 8 of the Act. In the case of Samaj Paper Mart 1968 M.P.L.J. 65, the question that was referred was as follows:

Is the paper used in wrapping beedis, agarbattis and fire-works is a raw material under Clause (1) of Section 2 of the M. P. General Sales Tax Act, 1958?

7. The learned Judges constituting the Division Bench in Samaj Paper Mart's case 1968 M.P.L.J. 65 relied on a decision of their Lordships of the Supreme Court in State of Madras v. Radio and Elect deals Ltd. [1966] 18 S.T.C. 222 (S.C.), wherein a similar provision of the Central Sales Tax Act was under consideration. Their Lordships in the case of Radio and Electricals Ltd. [1966] 18 S.T.C. 222 (S.C.) observed as follows :

The seller can have, in transactions of sale and purchase in the course of inter-State trade and commerce, no control over the purchaser. He has only to rely upon the representations made to him. He must satisfy himself that the purchaser is a registered dealer, and the goods purchased are specified in his certificate; but his duty extends no further. If he is satisfied on these two matters, on a representation made to him in the manner prescribed by the Rules and the representation is recorded in the certificate in form C, the selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. Whether the goods specified in the registration certificate in form B can be used for the purpose is not for the selling dealer to determine.

8. The aforesaid observations of their Lordships of the Supreme Court enjoin a duty upon the seller to satisfy himself that the purchaser is a registered dealer and further that the goods which have been purchased by him are specified in his certificate. The question that was involved in Radio and Electricals Ltd. [1966] 18 S.T.C. 222 (S.C.) before their Lordships was in respect to the user of the goods purchased by the purchaser. No doubt it would be no function of the seller to enquire about the actual user of the goods purchased. It was in this context that their Lordships observed that the selling dealer is under no further obligation to see to the application of the goods to the very use which was mentioned in the declaration. It would be no function of the seller to judge as to whether the goods specified in the registration certificate and which are being purchased from him can be used for that purpose or not. Their Lordships in this case have very clearly laid down that one of the duties in that behalf of the selling dealer is that he should satisfy himself about the fact that the goods purchased from him are mentioned in the registration certificate of the purchasing dealer which in fact is the question before us.

9. Their Lordships of the Supreme Court in Kedamath Jute . v. Commercial Tax Officer [1965] 16 S.T.C. 607 (S.C.), while construing Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, which in effect exempts a specified turnover of a dealer from sales tax observed that a 'dealer cannot get the exemption unless he furnishes the declaration in the prescribed form'. On a consideration of the relevant provisions of the Act and the Rules, their Lordships observed as follows:

We realise that the section and the rules as they stand may conceivably cause unmerited hardship to an honest dealer. He may have lost the declaration forms by a pure accident, such as fire, theft, etc., and yet he will be penalised for something for which he is not responsible. But it is for the legislature or for the rule-making authority to intervene to soften the rigour of the provisions and it is not for this court to do so where the provisions are clear and unambiguous.

There is an understandable reason for the stringency of the provisions. The object of Section 5(2)(a)(ii) of the Act and the rules made thereunder is self-evident. While they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax. In the nature of things, in view of innumerable transactions that may be entered into between dealers, it will wellnigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purposes mentioned in the section. Therefore, presumably to achieve the twofold-object, namely, prevention of fraud and facilitating administrative efficiency, the exemption given is made subject to a condition that the person claiming the exemption shall furnish a declaration form in the manner prescribed under the section. The liberal construction suggested will facilitate the commission of fraud and introduce administrative inconveniences, both of which the provisions of the said clause seek to avoid.

10. In Samaj Paper Mart's case 1968 M.P.L.J. 65, the primary question that has been considered is about the user with the goods purchased by the purchasing dealer and it is in that connection that it was observed that 'so far as the selling dealer is concerned, it is not his responsibility to see how the articles purchased from him, on furnishing declarations, is utilised by the purchasing dealer'. This decision does not lay down the principle that the selling dealer will be entitled to be taxed at the concessional rate even though the goods purchased by the purchasing dealer were not mentioned in the registration certificate although in the declaration given by the purchasing dealer he might have so mentioned. It is necessary for the selling dealer to satisfy, as held by their Lordships in the case of Radio and Electricals Ltd. [1966] 18 S.T.C. 222 (S.C.), that the goods sought to be purchased are mentioned in the registration certificate of the purchasing dealer.

11. As laid down by their Lordships in the case of Kedamath Jute . [1965] 16 S.T.C. 607 (S.C.), the selling dealer will be entitled to the concessional rate only when he strictly complied with the provisions of law in that behalf. Section 8(1) of the Act at the relevant time was as follows:

Notwithstanding anything contained in Section 6 or Section 7 but subject to such restrictions and conditions as may be prescribed, the rate of tax payable on the sale to or purchase by a registered dealer of any raw material for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce shall be one per cent of the sale or purchase price of such raw material.

The language clearly goes to show that this concessional rate of tax would be permissible only when the restrictions and conditions as have been prescribed are complied with. This being in the nature of an exception it has to be strictly complied with. The relevant condition is provided in Rule 20(4) of the Rules framed under the Act, which is as follows :

Rule 20. (4) No registered dealer shall be entitled to pay tax at the reduced rate of 1 per cent in respect of sale or purchase of raw material for the purposes specified under Sub-section (1) of Section 8 unless-

(i) such raw materials are specified in the registration certificate of the purchasing dealer as being required by him for the manufacture of other goods for sale in the State of Madhya Pradesh or for sale in the course of inter-State trade or commerce; and

(ii) where the claim is by a selling dealer, the sale has been made to a registered dealer on a declaration in form XII-A duly signed by the purchasing dealer.

12. As is apparent from the aforesaid provision, the selling dealer will be entitled to pay tax at the reduced rate only if raw materials are specified in the registration certificate of the purchasing dealer as being required by him for the manufacture of other goods for sale, and there is a declaration given by such purchasing dealer in form XII-A duly signed by him. There is a complete procedure provided under the Rules before the taxing authorities grant registration certificates. It is as a result of this, that they, on being satisfied that particular goods are used as a 'raw material' that the same are mentioned in the registration certificate. If a particular goods is not so mentioned then there is no further stage provided under the Act or the Rules at which the taxing authorities may enquire as to whether the goods so purchased can be used as a raw material. The effect of this would be that the selling dealer will get the benefit of the concessional rates of tax merely on the basis of a declaration without those goods having been included in the registration certificate of the purchasing dealer. This obviously will give the selling dealer a benefit which is neither contemplated by the Act and the Rules nor could have been so intended to mean. The position which thus emerges is that the selling dealer will be entitled to claim the concessional rate of tax only if there is a declaration in form XII-A of the Rules given by the purchasing dealer and the goods in respect of which that concessional rate is claimed is included in the registration certificate of the purchasing dealer. As observed by their Lordships of the Supreme Court in the case of Radio and Electricals Ltd. [1966] 18 S.T.C. 222 (S.C.), he has to satisfy himself about this fact.

13. We would, therefore, answer the question referred to us as follows: On the facts and circumstances of the case, the assessee who has obtained a declaration in form XII-A from the purchasing dealer was not entitled to claim the concessional rate of tax under Section 8(1) of the Act because the goods were not specified in the registration certificate of the purchasing dealer.

14. A copy of this judgment be sent to the Tribunal as required by Section 44(5) of the Act who shall dispose of the case in the light of the judgment given above. In view of the circumstances of the case, we shall leave the parties to bear their own costs.


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