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The Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. Bharat Refineries Limited - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case NumberT.R.C. Nos. 135, 136 and 137 of 1977
Judge
Reported in[1978]42STC225(Ker)
AppellantThe Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes)
RespondentBharat Refineries Limited
Appellant AdvocateThe Government Pleader
Respondent Advocate T.L. Viswanatha Iyer,; P.S. Narayanan,; K.S. Menon,;
DispositionRevision dismissed
Cases ReferredPolestar Electronic (Pvt.) Ltd. v. Additional Commissioner
Excerpt:
.....construing similar provisions of the madras general sales tax act, 1959. it was held that once the selling dealer was satisfied, by virtue of the purchaser's solemn declaration that the goods were for use as a component, there was no further obligation on him to ensure that the declaration was not false ;he would be 'automatically entitled' for the concessional rate. in rejecting these contentions, the court observed that when once the statutory requirements are complied with by the selling dealer by obtaining the purchasers' declarations and furnishing them to the sales tax authorities, the conditions for deductions were satisfied in his case. but in view of the innumerable transactions that may be entered into by the dealers, it would be well-nigh impossible for the taxing authorities..........such sale :provided that the provisions of this sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in a prescribed form.sub-rules (1) and (2) of rule 28 are in the following terms:28. (1) the declaration referred to in the proviso to sub-section (3) of section 5 shall be furnished in form 18.(2) a dealer who wishes to purchase goods from another dealer on payment of tax at the rate specified in sub-section (3) of section 5, shall obtain from the assessing authority a blank declaration form prescribed under sub-rule (1), on payment of a fee at the rate of one rupee per book of 50 forms.....
Judgment:

M.P. Menon, J.

1. 'Naphtha' and 'chemical fertilisers' are goods specified in the First Schedule to the Kerala General Sales Tax Act, 1963. Under Section 5(1) of the Act, sales of naphtha attracts sales tax at 5 per cent. But where the sale is by one dealer to another for use by the latter as component part of goods to be manufactured by him, Section 5(3) provides that the rate shall be one per cent. An oil company, who is the assessee herein, sold naphtha to a manufacturer of chemical fertilisers, during the years 1970-71, 1971-72 and 1972-73. At the time of sale, as required by the proviso to sub-Section (3) of Section 5 of the Act, the manufacturer-purchaser had declared that naphtha was for use in the manufacture of goods covered by Schedule I. The assessing officer assessed the relevant turnover at one per cent. The Deputy Commissioner, however, found that naphtha was used as fuel for producing hydrogen and that the hydrogen in turn was used for manufacture of chemical fertilisers. On the view that naphtha was not used directly for the manufacture, he initiated proceedings under Section 35 of the Act and set aside the orders of the assessing authority. On appeal, the Sales Tax Appellate Tribunal reversed the said decision. These three tax revision cases, filed by the revenue, raise the question whether the assessee could be denied the benefit of the concessional rate, in view of the fact that there could be no use of naphtha directly in the manufacture of chemical fertilisers.

2. In Radhakrishna Chetty & Bros. v. Assistant Commissioner of Sales Tax [1974] 34 S.T.C. 370, a learned Judge of this court held that

the scheme of the Act appears to be that in case the selling dealer obtains a declaration form in accordance with the proviso to Sub-Section (3) of Section 5 of the Act and furnishes it to the assessing authority he cannot be called upon to pay more than the concessional rate of tax of one per cent

and that the selling dealer could claim the concessional rate even if the declaration was in the nature of fraudulent misrepresentation. In Premier Electro-Mechanical Febricators v. State of Madras [1968] 22 S.T.C. 269, the Madras High Court had also taken the same view, in construing similar provisions of the Madras General Sales Tax Act, 1959. It was held that once the selling dealer was satisfied, by virtue of the purchaser's solemn declaration that the goods were for use as a component, there was no further obligation on him to ensure that the declaration was not false ; he would be 'automatically entitled' for the concessional rate. The Madras High Court had followed this view in subsequent decisions also. Counsel for revenue, however, took us through the decision of the Supreme Court in State of Madras v. Radio Electricals [1966] 18 S.T.C. 222 (S.C ), to contend that the observations therein based on the provisions of the Central Sales Tax Act, 1956, are inapplicable to a case arising under the State enactments where the provisions are not ad idem and urged that the Kerala and Madras views referred to above require closer examination, as they were influenced by the said observations. Reference was also made to a Division Bench decision of this Court in Paul Lazar v. State of Kerala [1977] 40 S.T.C. 437 in support of the plea that the purchaser's declaration cannot be treated as conclusive.

3. It is unnecessary to examine the question in detail as it seems to be covered by the recent decision of the Supreme Court in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax [1978] 41 S.T.C. 409 (S.C.), arising under the Bengal Finance (Sales Tax) Act, 1941, as applied to the Union Territory of Delhi.

4. Before dealing with the said decision, however, it will be useful to set out the relevant provisions of the Kerala Act and the Rules, as the provisions of the Bengal Act and the Rules considered by the Supreme Court are analogous. Section 5(3) of the Kerala Act reads :

Notwithstanding anything contained in Sub-Section (1) or Sub-section (2), the tax payable by a dealer in respect of any sale of the goods mentioned in the First Schedule by such dealer to another for use by the latter as component part of any other goods mentioned in the said schedule, which he intends to manufacture inside the State for sale, shall be at the rate of only one per cent on the taxable turnover relating to such sale :

Provided that the provisions of this Sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in a prescribed form.

Sub-rules (1) and (2) of Rule 28 are in the following terms:

28. (1) The declaration referred to in the proviso to Sub-section (3) of Section 5 shall be furnished in form 18.

(2) A dealer who wishes to purchase goods from another dealer on payment of tax at the rate specified in Sub-section (3) of Section 5, shall obtain from the assessing authority a blank declaration form prescribed under Sub-rule (1), on payment of a fee at the rate of one rupee per book of 50 forms and shall furnish to the selling dealer the original and duplicate portions of the declaration in form 18 duly filled in and signed by him or by any responsible person authorised by him in this behalf and shall retain the counterfoil.

Form 18, referred to in Sub-rule (1), is as shown below :

Original

Duplicate

Counterfoil

Name and address of dealer to whom issued:

Registration Certificate No. of the dealer to whom issued :

Officer issuing the form :

Date of issue:

Seal of issuing authority.

To (Seller)

Certified that the goods specified in the First Schedule and

ordered for in our purchase order No. date

-------------------------------------------------------

purchased from you as per bill/cash memo stated below

-------------------------------------------------------

supplied under your chalan No. are for use by me as component

part of other goods specified in that schedule which I intend to manufacture inside

the State for sale.

Name and address of the purchasing dealer in full.

Signature and status of the person

signing the declaration.

Date:

5. The assessees in Polestar case [1978] 41 S.T.C. 409 (S.C.) before the Supreme Court were purchasers of goods under Section 5(2)(a)(ii) of the Bengal Act extended to the Union Territory of Delhi by notification under the Part C States (Laws) Act, 1950. 'Taxable turnover' was defined in Section 5(2) of that Act as

that part of a dealer's gross turnover during any period which remains after deducting therefrom-

(a) his turnover during that period on-

(i) the sale of goods declared tax-free under Section 6;

(ii) sale to a registered dealer-

of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him as raw materials in the manufacture of goods for sale ; and

of containers or other materials for the packing of goods of the class or classes so specified for sale:

Provided that in the case of such sales a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars on a prescribed form obtainable from the prescribed authority is furnished in the prescribed manner by the dealer who sells the goods:

Provided further that where any goods specified in the certificate of registration are purchased by a registered dealer as being intended for resale by him or for use by him as raw materials in the manufacture of goods for sale, but are utilised by him for any other purpose, the price of the goods so purchased shall be allowed to be deducted from the gross turnover of the selling dealer but shall be included in the taxable turnover of the purchasing dealer.

Thus, for assessing a selling dealer under the Act, certain sales were to be excluded. Such sales should be of goods specified in the registration certificate of the purchasing dealer, as goods included for resale or for use in manufacture. The first proviso required that in order to get the benefit of such exclusion, the selling dealer should obtain from the purchaser a declaration containing prescribed particulars. The second proviso dealt with the contingency of the purchaser misusing the facility by furnishing a false declaration; if it was found that the goods purchased 'were utilised by him for any other purpose', the relatable turnover was to be included in the taxable turnover of the purchaser. The form of the declaration prescribed by the Delhi Sales Tax Rules, 1951, was as shown below:

Certified that the goods mentioned in the cash memo/bill No. ...dated...have been purchased by me/us from M/s...and are duly covered by my/our registration certificate No...dated...and are required by me/us for resale/for use as raw materials in the manufacture of goods for sale/for use in the execution of contract.

Signature

Dealer

6. The above was the position till 28th May, 1972, when Section 5(2)(a)(ii) was amended so as to specify that the resale by the purchaser or the use by him as raw materials should be in the Union Territory of Delhi. However, consequential amendment to the declaration form was carried out only on 29th March, 1973. Before 28th May, 1972, some of the purchasers had resold the goods outside Delhi and some others had utilised them as raw materials outside Delhi. The sales tax authorities added the turnover in respect of these purchases to the taxable turnover of the assessee-purchasers, under the second proviso to Section 5(2)(a)(ii), because, according to them, resale and manufacture within Delhi was a condition precedent for enjoying the exemption even before the 1972 amendment. In support of this construction, the revenue raised the following points before the Supreme Court :

(i) The Union Territory of Delhi would not be able to assess the first sale by reason of Section 5(2)(a)(ii), if a different construction was given. Resale outside the territory could not also be taxed by the Delhi Administration. A construction defeating the purpose of the taxing statute and depriving the authorities of tax altogether cannot be adopted.

(ii) The use of the words 'by him' following 'resale' in Section 5(2)(a)(ii) indicated that the resale contemplated was by a registered dealer and the concept of registered dealer could have relation only to sale inside Delhi.

In rejecting these contentions, the court observed that when once the statutory requirements are complied with by the selling dealer by obtaining the purchasers' declarations and furnishing them to the sales tax authorities, the conditions for deductions were satisfied in his case. The seller could not be penalised for a breach of faith on the part of a purchaser, who might sell or use the goods otherwise than in the manner declared. In such a case, the statute provided for inclusion of this turnover in the taxable turnover of the purchaser under the second proviso. The consequence of non-compliance by the purchasing dealer with the conditions of resale or use could only be that provided by the statute and nothing else. The following passages from the decision are instructive :

This deduction is allowed with reference to the intended end-use of the goods, namely, that they will be resold or they will be used as raw materials in the manufacture of goods for sale, according as they are purchased for one purpose or the other. But in view of the innumerable transactions that may be entered into by the dealers, it would be well-nigh impossible for the taxing authorities to ascertain in each case whether the goods were purchased as being intended for resale or for use as raw materials in the manufacture of goods for sale and hence the first proviso was enacted qualifying the substantive provision by saying that the turnover of sales covered by the terms of Section 5(2)(a)(ii) would be deductible only if 'a declaration duly filled in and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars on a prescribed form...is furnished' by the selling dealer. The result is that a dealer cannot get deduction in respect of the turnover of his sales falling within Section 5(2)(a)(ii) unless he furnishes a declaration containing the prescribed particulars on the prescribed form duly filled in and signed by the purchasing dealer. The form of declaration prescribed under Rule 26 as it stood up to 29th March, 1973, contained an expression of intention of the purchasing dealer to resell the goods purchased or to use them as raw materials in the manufacture of goods for sale. Such declaration given by the purchasing dealer to the dealer selling the goods would afford evidence that the goods were purchased by the purchasing dealer 'as being intended for resale by him or for use by him as raw materials in the manufacture of goods for sale'. The dealer selling the goods would be granted deduction in respect of the sales on the strength of such declaration given by the purchasing dealer. The requirement of such declaration as condition of deduction is clearly intended to prevent fraud and promote administrative efficiency....

But if the goods are utilised by the purchasing dealer for some other purpose contrary to the intention expressed by him in the declaration, the object and purpose of giving deduction to the selling dealer would be defeated. Even so, it would not be right to withdraw the deduction granted to the selling dealer because that would be penalising the selling dealer for a breach of faith committed by the purchasing dealer. The legislative wrath should in all fairness fall on the purchasing dealer and that is why the second proviso has been introduced in the Act by Delhi Amendment Act 20 of 1959. The object of the second proviso is to ensure that the intention expressed by the purchasing dealer in the declaration given by him is carried out and he acts in conformity with that intention.

The court then proceeded to hold that Section 5(2)(a)(ii) made mention only of 'resale' without any qualification as to the place of resale and, therefore, the purchasing dealers were eligible for exemption before 29th May, 1972, even if the sales had been effected outside Delhi. Words of limitation or qualification could not be read into a taxing statute, unless the result was manifestly unintelligible, absurd or unworkable. The Delhi Administration would no doubt lose substantial tax revenue on the construction placed, but there was no equity about a tax and no presumption. One has to look at the language of the statute and it cannot be stretched against a taxpayer. If the legislative intent is not clear, the doubt should be resolved in favour of the subject.

7. The scheme of the Kerala Act, the Rules and form 18, in our view, are similar and should necessarily lead to a similar conclusion in the present case. When once the declaration in the prescribed statutory form is obtained from the purchasing dealer and furnished to the authorities, the selling dealer satisfies the requirements of the statute and he is entitled to claim the concessional rate of one per cent, irrespective of the correctness of the declaration or the manner in which the declarant subsequently acts. Form 18 shows that the declarant need not even specify the goods he intends to manufacture or the nature of the use. The selling dealer is entitled to act on the meagre particulars furnished and there is no legislative intention to put him on an impossible enquiry as to the correctness of the declaration. The taxing event is the sale to the purchasing dealer. If the purchaser misrepresents or subsequently misbehaves, the 'legislative wrath' falls upon him, as Section 46(2)(d) of the Act provides for his imprisonment and for fine. While the West Bengal Act provided for financial consequences, the Kerala Act provides for much more serious consequences; and this is the only substantial difference in the two legislative schemes.

8. Nor could we accept the argument on behalf of the revenue that the Act and Rules should be so construed as to find a scope for enquiry into the question of user, at some stage, as otherwise the financial consequences for the State would be disastrous. For one thing, the Supreme Court has already indicated the approach in such cases. For another, it is not possible to construe Rule 28 as merely an attempt to convert the assessing authority into one selling ready-made forms for the mere asking or the purchasing dealer as one who can get away with anything. The forms can be supplied only to a 'dealer', in most cases registered, after complying with the stringent requirements of Section 14 of the Act. The provisions of Sub-rules (3) to (13) of Rule 28 also show that sanctity is attached to the forms in the matter of their safe-keeping, proper use, accounting, etc. Coupled with the prosecution envisaged in Section 46, these appear to us to be safeguards against any possible misuse of the facility. And if the legislature and its delegate consider them to be insufficient, it is for them to do the needful. An appeal to the court for a construction in favour of the revenue on the grounds and in the circumstances noticed can hardly be entertained.

9. The Division Bench decision in Paul Lazar's case [1977] 40 S.T.C. 437 does not appear to lay down any different principle. The assessee there had sold copper wires to a manufacturer of electrical transformers and the question was whether 'copper wires' fell within the First Schedule. After construing entry 26 of the First Schedule, which alone was relied on by the assessee, the Division Bench held that 'copper wire' was not covered thereby. For the application of Section 5(3), both the goods sold and the goods manufactured should fall within the First Schedule ; and it was held that the assessee was not entitled to the concessional rate. The point considered was thus entirely different.

10. For the foregoing reasons, we come to the conclusion that the Appellate Tribunal was right, on the facts and circumstances of the case, in vacating the Deputy Commissioner's order and restoring the orders of the assessing officer. The tax revision cases are, therefore, dismissed, but with no order as to costs.


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