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A.D.M. Stores and anr. Vs. Commissioner of Sales Tax and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Civil
CourtPunjab and Haryana High Court
Decided On
Case NumberC.W. No. 483-D of 1958
Judge
Reported in[1966]18STC305(P& H)
AppellantA.D.M. Stores and anr.
RespondentCommissioner of Sales Tax and ors.
Appellant Advocate A.C. Chawla and; Y. Dayal, Advs.
Respondent Advocate S.N. Shankar and; N.S. Rao, Advs.
DispositionPetition allowed
Cases ReferredSantumal v. Assistant Commissioner of Sales Tax
Excerpt:
.....- trading company (annexure r2) shows that the cancellation was directed under clause (a) of sub-section (6) of section 7 of the act on the solitary ground that business had been discontinued by that firm with effect from 16th march, 1956. rule 12 of the delhi sales tax rules, 1951, provides that when the appropriate assessing authority is satisfied that certain contingencies exist he shall forward to the competent authority the registration certificate of the dealer concerned and the cancellation of the certificate shall come into effect from such date as may be specified in the order and the liability of such dealer to pay tax under sub-section (3) of section 4 shall cease with effect from the said date. ..it would be better, on the whole, not to follow such a procedure, so that..........whose gross turnover exceeds the taxable quantum shall be liable to pay tax under the act on all sales effected by him after the notified date. sub-section (2) of section 4 provides for payment of sales tax under the act by person to whom sub-section (1) of that section does not apply. the amount of tax depends on the taxable turnover and on the nature of the goods sold or purchased. taxable turnover is defined in sub-section (2) of section 5 of the act as the dealer's gross turnover during any period which remains after deducting therefrom, amongst other things, sales to a registered dealer of goods of the class or classes specified in the certificate of registration of such dealer provided a declaration duly filled up and signed by the registered dealer to whom goods are sold and.....
Judgment:

R.S. Narula, J.

1. The petitioners were registered dealers under the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi and as amended up to 1958 (hereinafter called the Act). Returns of their taxable turnover for the four quarters of the financial year 1957-58 were filed by them. In working out the taxable turnover the petitioners had deducted sales worth Rs. 1,05,530.87 nP. in favour of Messrs L.C. Trading Company (Registration No. 13499, dated 26th August, 1953) under Section 5(2)(a)(ii) of the Act. The claim for the abovesaid deductions was supported by the prescribed declarations of Messrs L.C. Trading Company.

2. By order dated 30th October, 1958 (annexure A) respondent No. 4, the Sales Tax Officer, disallowed the petitioners' claim for the deductions in question on the ground that the registration certificate of Messrs L.C. Trading Company had been cancelled by order dated 25th August, 1958 (annexure R2) with retrospective effect from 16th March, 1956, under Section 7(6)(a) of the Act. I need not refer to deductions regarding sales to Messrs Makan and Company which were also disallowed by the same order as the learned counsel for the petitioners has, at the hearing of the writ petition, expressly with-drawn the challenge against that part of the order and has stated that he does not want to impugn the same though that was also sought to be questioned in this writ petition which was filed on 2nd December, 1958, and admitted by the Motion Bench (Bishan Narain and S.B. Capoor, JJ.) on 3rd December, 1958.

3. By way of return to the rule issued in this case the respondents have filed an affidavait dated 15th April, 1959, of Shri Jagan Nath, Sales Tax Officer, Delhi. By way of preliminary objections it has been stated there that the petitioners have not exhausted their remedies by way of appeal and revision under the Act before approaching this Court and that Moti Sagar has no locus standi to move this Court on behalf of Messrs A.D.M. Stores. On the merits the impugned part of the order, annexure A, is supported on the solitary ground that for the period to which the turnover of the petitioners relates, the registration certificate of Messrs L.C. Trading Company had been cancelled by a subsequent order. It is averred in the written statement that the petitioners claimed the deduction only on the basis of the declarations signed by the purchasing dealer and that the registration having been cancelled, the declarations were of no avail.

4. At the hearing of the writ petition it has been argued by Mr. A.C. Chawla, Advocate, that the registration of a dealer cannot be cancelled with retrospective effect and that in any case a selling dealer, who has not charged sales tax from a registered purchasing dealer cannot be penalised by a subsequent cancellation of the registration of the purchasing dealer with retrospective effect. Section 4 of the Act is the charging Section which lays down that every dealer whose gross turnover exceeds the taxable quantum shall be liable to pay tax under the Act on all sales effected by him after the notified date. Sub-section (2) of Section 4 provides for payment of sales tax under the Act by person to whom Sub-section (1) of that section does not apply. The amount of tax depends on the taxable turnover and on the nature of the goods sold or purchased. Taxable turnover is defined in Sub-section (2) of Section 5 of the Act as the dealer's gross turnover during any period which remains after deducting therefrom, amongst other things, sales to a registered dealer of goods of the class or classes specified in the certificate of registration of such dealer provided a declaration duly filled up and signed by the registered dealer to whom goods are sold and containing prescribed particulars on a prescribed form obtainable from the prescribed authority is furnished in the prescribed manner by the dealer who sells the goods.

5. It is not disputed in this case that the goods in respect of which deduction is claimed, were of the class or classes specified in the certificate of registration of Messrs L.C. Trading Company. It is also admitted that at the time of the relevant sales Messrs L.C. Trading Company held a certificate of registration in respect of those goods. It is further admitted that Messrs L.C. Trading Company had furnished to the petitioners the requisite declarations in the prescribed form and that the said declarations had been produced in the prescribed manner by the petitioners before the Assessing Authority.

6. The procedure for registration of dealers and for cancellation of registration is laid down in Section 7 of the Act. Sub-section (1) of that section provides that no dealer shall, while being liable to pay tax under Section 4 of the Act carry on business as a dealer unless he has been registered and possesses a registration certificate. Certain contingencies in which the registration certificate of a dealer may be cancelled, are laid down in Sub-Sections (6) and (7) of Section 7. These read as follows :

Section 7(6)-When-

(a) any business in respect of which a certificate has been granted to a dealer on an application made, has been discontinued or transferred, or

(b) a dealer has ceased to be liable to pay tax under Section 4 of this Act,

the Commissioner shall cancel the registration.

Section 7(7) - The Commissioner may at any time for reasons to be recorded in writing and after giving the dealer an opportunity of being heard cancel any certificate of registration.

7. A perusal of the ex parte order of cancellation of registration of Messrs L.C. Trading Company (annexure R2) shows that the cancellation was directed under Clause (a) of Sub-section (6) of Section 7 of the Act on the solitary ground that business had been discontinued by that firm with effect from 16th March, 1956. Rule 12 of the Delhi Sales Tax Rules, 1951, provides that when the appropriate Assessing Authority is satisfied that certain contingencies exist he shall forward to the competent authority the registration certificate of the dealer concerned and the cancellation of the certificate shall come into effect from such date as may be specified in the order and the liability of such dealer to pay tax under Sub-section (3) of Section 4 shall cease with effect from the said date. Sub-rule (2) of that rule directs that the appropriate Assessing Authority shall twice in a year, i.e., by the last day of June and by the last day of December in each year forward to the Commissioner a list of all dealers whose registration is cancelled under Sub-rule (1) of Rule 12 and every such list shall be published in the official Gazette thereafter in the prescribed form. The endorsement on annexure R2 shows that sometime after 26th August, 1958, the order of cancellation of registration of Messrs L.C. Trading Company was forwarded for publication. In any case it is clear and it is admitted that no order for cancellation of the registration of the said purchasing firm was passed at any time during the period relating to which the taxable turnover of the petitioners had to be assessed by the impugned order.

8. The petitioners have filed with this writ petition a copy of an order annexure B) dated 11th August, 1958, passed by Shri A.D. Pandit, the then Chief Commissioner, Delhi, in Sales Tax Appeal No. 85 of 1958 of Messrs Chhabra Electric Stores, Sadar Bazar, Delhi, where the learned Chief Commissioner observed, inter alia, as follows:-

I agree that such orders with retrospective effect should not ordinarily be passed by the Sales Tax Authorities.... It would be better, on the whole, not to follow such a procedure, so that honest firms along with the dishonest ones are not penalised because of the misdemeanour of the firm whose certificate of registration is cancelled, without the cancellation being widely known at the same time.

9. In that judgment, the learned Chief Commissioner had, however, upheld the jurisdiction of the Sales Tax Authorities to cancel the registration of a dealer with retrospective effect.

10. This petition has been pending since 1958. The only question of law which requires to be decided by this Court relates to the jurisdiction of the Assessing Authorities under the Act. The period for filing an appeal or a petition for revision of the impugned order before the Sales Tax Authorities expired many years ago. In the peculiar circumstances of this case I am not inclined to dismiss this petition on the preliminary objection of the respondents to the effect that an alternative remedy was available to the petitioners which they should have followed before invoking the extraordinary jurisdiction of this Court.

11. Nor does the other preliminary objection of the respondents deter me from dealing with the merits of the important question involved in this case. The learned counsel for the petitioners states that Messrs A.D.M. Stores is an H.U.F. concern and that none of the members of the H.U.F. are really partners in the strict sense of the term and have merely been loosely described as such. In this connection he also refers to the impugned order which shows that it was Moti Sagar Sachdeva who represented the petitioner-concern before the Sales Tax Authorities themselves. In any case the registered assessee is Messrs A.D.M. Stores who are petitioner No. 1 before me. That being so, I have no hesitation in rejecting even the second preliminary objection of the respondents.

12. Coming to the merits of the real point involved in the case, it appears to me that what is taxable turnover within the meaning of Section 5(2)(a) of the Act depends on the situation as it existed during the period to which the turnover relates and no provision of law enables the taxing authorities to deprive a selling dealer of his right to claim deductions under Sub-clause (ii) of Clause (a) of Sub-section (2) of Section 5 of the Act by subsequently cancelling the registration certificate of a purchasing dealer after the expiry of the period to which a deduction relates. In this view of the matter it does not appear to be necessary to decide the larger question raised by the learned counsel for the petitioners to the effect that the authorities have no jurisdiction at all to direct the cancellation of a registration certificate with any retrospective effect. It has been argued that Section 7(6) of the Act does not contemplate retrospective effect being given to an order passed under that provision. Mr. Chawla has urged that the authority conferred on the cancelling authority to fix the date from which cancellation is to take effect is merely to fix any date subsequent to the date of the order of cancellation. It is argued that if the rule is interpreted to confer power on the taxing authorities to cancel the registration with retrospective effect, then Rule 12(1) of the Delhi Sales Tax Rules is ultra vires Section 7(6) of the Act to that extent. The petitioners claim to be supported in their contention in this behalf by a Division Bench judgment of the High Court of Bombay (Nagpur Bench) in Santumal v. Assistant Commissioner of Sales Tax [1963] 14 S.T.C. 287 wherein it was held that under the provisions of the Central Provinces and Berar Sales Tax Act, 1947, and the rules framed thereunder an order cancelling a certificate of registration of a dealer cannot be given retrospective operation. Their I Lordships held in that case that cancellation can only take effect from ' the date of order of cancellation and not before. As stated above, I do not feel being called upon to decide this larger question for the purposes of disposing of the instant case. It is enough to hold that the declaration required by the proviso to Section 5(2)(a)(ii) of the Act should be a valid declaration at the time at which it is given and the liability of the selling dealer cannot be affected by subsequent invalidation of the declaration by the Sales Tax Authorities proceeding to cancel the purchasing dealer's registration with retrospective effect. Even the highest Sales Tax Authority in the Union territory, i.e., the Chief Commissioner of Delhi realised the hardship and absurdity resulting from retrospective effect being given to orders of cancellation, but the learned Chief Commissioner could not translate his sympathies into any concrete form. The selling dealer is not a party to the order of cancellation of registration. A purchasing dealer may for any reason ignore the proceedings and may allow an ex parte order being passed against him under Section 7(6) or (7) of the Act. The inaction, neglect or even fraud of a registered 1 purchasing dealer cannot result in penalising the innocent selling dealer in the absence of evidence of his having been a party to any fraud, deception or misrepresentation. That being so, I hold that the impugned order was invalid to the extent to which it disallowed the claim of the petitioners for deductions of the amount of sales effected by them during the relevant period in favour of Messrs L.C. Trading Company on the ground that the registration certificate of Messrs L.C. Trading Company had been cancelled in August, 1958, with retrospective effect from 16th March, 1956. This part of the order is, therefore, quashed and struck down. The validity of the remaining order of the Assessing Authority has not been impugned before me. Shri S. N. Shankar, the learned counsel for the respondents, urged that it is quite possible that the declarations of Messrs L.C. Trading Company may not be valid, that it may be found that in fact no sales at all were effected by the petitioners to Messrs L.C. Trading Company and that false and spurious declarations were obtained only for the purpose of evading the tax. Mr. Shankar had to concede that no such finding has been given in the impugned order. That being so, I cannot dismiss the writ petition on what might possibly be found in appropriate proceedings. All that I need say is that this order will not stand in the way of the Assessing Authorities going into those allegations in appropriate proceedings in accordance with law if it becomes necessary to do so.

13. In the above circumstances this writ petition is allowed with costs and the order disallowing the deduction for sales in favour of Messrs L.C. Trading Company is struck down.


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