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Commercial Taxes Officer Vs. Gadia Textiles and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtRajasthan High Court
Decided On
Case Number D.B. Sales Tax Case No. 107 of 1983
Judge
Reported in[1987]67STC161(Raj); 1985(2)WLN148
AppellantCommercial Taxes Officer
RespondentGadia Textiles and anr.
Advocates: K.C. Bhandari, Adv.
DispositionPetition allowed
Cases ReferredA.V. Fernandez v. State of Kerala
Excerpt:
.....rules. -(i) no tax shall be payable under this act on the sale or purchase of any of the exempted goods if the conditions specified in column 3 of the schedule are satisfied. the very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sales tax can be levied or imposed. section 3 to our mind is a provision for levy of tax, if the conditions laid down therein are satisfied, then the dealer/manufacturer is liable to pay tax under the act. the words used in rule 42(1) and (2) are 'liable to pay tax under the act'.the conditions laid down in section 3 are satisfied in the case of the assessee, but the tax is not payable by him, for, the cloth, i. he did not maintain stock book of the raw materials..........of accounts by the dealer. it is relevant to read it:42. accounts-how to be maintained.-(i) every dealer liable to pay tax under the act shall maintain a true and correct account of his purchases, sales and stocks showing the quantity and value of the goods.(2) every manufacturer liable to pay tax under the act shall also maintain a stock book in respect of raw materials and of finished goods.14. on a careful perusal of the various provisions of the act and the rules ref erred to hereinabove the two expressions 'liable to pay tax under the act' and 'tax shall be payable' deserve our pointed attention. in rule 42 the words used in both the sub-rules (1) and (2) are 'liable to pay tax under the act'. we shall first examine the connotation of the word 'liable'. the word 'liable' is.....
Judgment:

S.K. Mal Lodha, J.

1. This is an application under Section 15(2)(b) of the Rajasthan Sales Tax Act, 1954 (No. 29 of 1954) (for short 'the Act'), for directing the Board of Revenue for Rajasthan at Ajmer ('?the Board' herein) to state the case and to refer the following questions of law arising out of its appellate order dated July 2, 1982 which it has refused to do by its order dated February 16, 1983 :

1. Whether, under the facts and circumstances of the case, the learned D. B. was right in dismissing the special appeal in view of order dated May 21, 1982 and held that no penalty could be imposed in the instant case ?

2. Whether, under the facts and circumstances of the case, it is or it is not obligatory for the dealer to maintain separate stock register as provided under Rule 42(2) ?

3. Whether, under the facts and circumstances of the case, if nil tax is assessed whatever the tax liability, if the dealer did not maintain stock register as provided under Rule 42(2) whether amounts to contravention and penalty could be imposed ?

2. Non-petitioner No. 1, M/s. Gadia Textiles, Pali (the manufacturer), is a partnership firm of Pali carrying on the business of dyeing and printing cloth and selling it in the market. The case relates to the period July 26, 1972 to March 4, 1973. The cloth, i.e., cotton fabrics were exempt from levy of tax under Section 4(1) of the Act. The subsequent period involved is March 5, 1973 to July 16, 1973. By a notification issued in exercise of the powers conferred by Sub-section (2) of Section 4 of the Act and in supersession of all previous notifications so far as they relate to the exemption of goods, the State Government by means of S. O. 129/F. 2(12)FD/Gr. IV/73/2 dated March 6, 1973 exempted from tax the sale or purchase of cotton fabrics, rayon or artificial silk fabrics, woollen fabrics, sugar and tobacco as defined in the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957).

3. The C.T.O., Pali (assessing authority) passed an order dated October 1, 1976 which was an assessment-cum-penalty order. He did not levy any tax on the sale of dyed and printed cloth manufactured by non-petitioner No. 1 (the manufacturer) as the goods were exempt from levy of tax. He, however, imposed a penalty of Rs. 500 under Section 16(1 )(n) of the Act on the ground that the manufacturer did not maintain a stock book regarding the raw materials and of finished goods as required by Rule 42(2) of the Rajasthan Sales Tax Rules, 1965 (which will, for the sake of brevity hereinafter be referred to as 'the Rules'). The manufacturer lodged an appeal against the order of imposition of penalty. The Deputy Commissioner (Appeals), Commercial Taxes, Jodhpur by his order dated February 16, 1979 set aside the penalty of Rs. 500. While doing so, he relied on Commissioner of Commercial Taxes, Special Circle-II, Jaipur v. Karani Doll Mitts, Jaipur (1977) 11 TR 432, Commercial Taxes Officer, Special Circle-II, Jaipur v. Laxmi Misthan Bhandar 1978 RRD 633, Commissioner of Commercial Taxes, Special Circle-II, Jaipur v. K.D. Jhaveri, Jaipur (1978) 12 TR 395 and Commissioner of Commercial Taxes, Special Circle-II, Jaipur v. Dharam Chand Paras Chand, Partaniyon ka Rasta, Jaipur (1978) 12 TR 286. This citation has not been correctly shown in the order by the Deputy Commissioner.

4. Being dissatisfied with the order dated February 16, 1979, the assessing authority filed a revision application before the Board. A Single Member of the Board by his order dated January 28, 1982 dismissed the revision along with seven other similar revisions by a common order. The Single Member of the Board while dismissing the revision pbserved as under :

In the present batch of eight cases also we find that the dealers had dealt with in textiles totally exempted from tax and this has been accepted by the department. But the dealers had also purchased chemicals and dyes for printing and it has been observed that a separate stock register should have been maintained. It is not observed by the assessing authority that the dealers in the past also had omitted to maintain stock registers and they had been warned that henceforth they should maintain the stock register. It also does not appear that these were fresh registers. It also does not appear that these were fresh dealers, who were assessed to 'nil' tax for the first time. Sub-rule (2) of Rule 42 states that 'every manufacturer liable to pay tax under the Act shall also maintain a stock book in respect of raw materials and of finished goods', certainly the eight dealers had been assessed to 'nil' tax and the department had accepted their contention that the turnover was wholly of sales of exempted goods, namely, the textiles. If the assessing authority had made any observation that the total quantity of raw materials purchased is not commensurate with their use in the printing of exempted goods and some more raw materials must have been misused, one can understand about the imposition of penalty. In other words; the penalty has been imposed only on a technical ground that the stock register was not maintained. As the dealers were not liable to tax, since they dealt with only exempted goods, I do not think that these are fit cases to be admitted only for a technical omission to maintain stock registers when in the previous years no such warning was given asking the dealers to maintain such stock registers.

5. Aggrieved, the assessing authority filed a special appeal. The Division Bench of the Board dismissed it on July 2,1982. It relied on its earlier decision in Laxmi Misthan Bhandar's case 1978 RRD 533. The assessing authority submitted a reference application under Section 15(1) of the Act. That was dismissed by the Board by its order dated February 16, 1983 on the ground that the point decided by the Division Bench in the special appeal is too clear to call for a reference to the High Court. Hence, this application under Section 15(2)(b) of the Act was filed. This application was pending on May 1, 1985, when the Rajasthan Sales Tax (Amendment) Act, 1984 (No. 20 of 1984) ('the Amendment Act') came into force and so by virtue of Section 13(10) of the Amendment Act this application under Section 16(2)(b) of the Act is to be treated as a revision under Section 15 of the Act as substituted by the Amendment Act. We have, therefore, heard it as such. We have had the advantage of hearing the learned counsel for the assessing authority only, as nobody has appeared on behalf of the manufacturer to oppose it. Having considered the submissions that were advanced by the learned counsel for the assessing authority, the only question of law that is involved is whether a dealer or manufacturer who deals in or manufactures only goods which are exempt from tax, can it be said to be 'liable to pay tax under the Act' and so failure to maintain stock book of the raw materials and of finished goods entails imposition of penalty under Section 16(1)(n) of the Act.

6. In order to examine this question, it is necessary for us to read the relevant provisions of the Act as well as the Rules. 'Dealer' has been defined in Section 2(f) of the Act as under :

(f) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes-

(i) a local authority, a company, an undivided Hindu family or any society including a co-operative society, club, firm or association which carries on such business;

(ii) a society including a co-operative society; club, firm or association which buys goods from, or sells; supplies or distributes goods, to its members;

(iii) a commission agent, a broker, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal;

(iv) a casual trader.

7. The definition of 'manufacture' is contained in Section 2(k) which is as follows :

(k) 'manufacture' includes any process or manner of producing, collecting, extracting, preparing or making any goods but does not include such manufactures or manufacturing processes as may be notified by the State Government.

'Taxable turnover' has been defined in Section 2(s) as under :

(s) 'taxable turnover' means that part of turnover which remains after deducting therefrom the aggregate amount of the proceeds of sale of goods-

(i) on which no tax is leviable under this Act,

(ii) which have already been subjected to tax under this Act,

(iii) which have been sold to persons outside the State for consumption outside the State, and

(iv) which are taxable at a point of sale within the State subsequent to the sale by the dealer and such sale is covered by a declaration as may be required under any provision of this Act or the Rules made thereunder :

Provided that where a dealer in goods which are exempted from tax unconditionally, sells any bardana, container or any other packing material received along with such goods at the time of purchase thereof by him, the taxable turnover in respect of such sale shall, at the option of such dealer to be exercised in the prescribed manner, be one per cent of the aggregate amount of the sale prices received or receivable by him in respect of the sale or supply of such goods and of such bardana, container or material:

Provided further that when any dealer has purchased any goods without paying any tax on the strength of any declaration furnished by him and the said goods are used by him for any purpose other than the one mentioned in the declaration, the purchase price of such goods shall be included in his taxable turnover.

'Turnover' has been denned in Section 2(t) as follows :

(t) 'turnover' means the aggregate of the amount of sale prices received or receivable by a dealer in respect of the sale or supply of goods or in respect of the sale or supply of goods in the carrying out of any contract :

Provided that the proceeds of the sale made within the State by a person of agricultural or horticultural produce, grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, or dairy products from animals kept by him shall be excluded from his turnover :

Provided further that in the case of prescribed class of dealers, other than a manufacturer, producer, processor or a dealer engaged in the execution of a contract, and at the option to be exercised by a dealer of such prescribed class, in such manner and subject to such terms and conditions, as may be prescribed, turnover shall mean the aggregate of the amount of purchase price paid or payable by him in respect of the goods purchased by him for sale plus an amount equal to 10 per cent of such purchase price.

Explanation.-Subject to such conditions and restrictions, if any, as may be prescribed in this behalf-

(i) the amount for which goods are sold or supplied shall, in relation to a contract, be deemed to be the amount payable to the dealer for carrying out such contract less the cost of labour;

(ii) the amount for which goods are sold or supplied shall include any sum charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof;

(iii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included;

(iv) where for accommodating a particular customer or a purchaser, a dealer obtains goods from another dealer and immediately disposes of the same to the said customer or purchaser, the sale in respect of such goods shall be included in the turnover of the latter dealer alone.

8. Section 3 of the Act is a charging section. It deals with incidence of taxation. The material part of Section 3 for the present purpose is as under :

3. Incidence of taxation.-(1) Subject to the provisions of this Act, every dealer whose turnover in the previous year in respect of sales or supplies of goods exceeds-

(a) ...

(b) ...

(c) ...

shall be liable to pay tax under this Act on his taxable turnover.

9. Section 4 relates to exemption. It is a provision which lays down that the Act does not apply to certain sales. We may read Sub-sections (1) and (2) of Section 4 of the Act.

4. Act not to apply to certain sales.-(I) No tax shall be payable under this Act on the sale or purchase of any of the exempted goods if the conditions specified in column 3 of the Schedule are satisfied.

(2) Where the State Government is of the opinion that it is necessary or expedient in the public interest so to do, the State Government may, by notification in the Official Gazette, exempt whether prospectively or retrospectively, from tax the sale or purchase of any goods or class of goods or any person or class of persons on such conditions and on payment of such fee as may be specified in the notification.

10. Section 6A relates to levy of purchase tax. The relevant part is as follows :

5A. Levy of purchase tax.-Every dealer who in the course of his business purchases any goods, other than exempted goods, in circumstances in which no tax under Sections 5 and 5E is payable on the sale price of such goods and either consumes such goods in the manufacture of other goods for sale or otherwise, or disposes of such goods in any manner other than by way of sale in the State, or if such goods are the specified goods, despatches them to a place outside the State, or if such goods are goods other than the specified goods, despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under Sections 6 and 6E.

11. In Section 6A the words 'tax payable' and 'liable to pay tax' both have been used. Section 6A is a charging provision and it contemplates liability of tax on purchases in respect of goods mentioned therein.

12. Section 7 relates to submission of returns. According to it a registered dealer or any such other dealer as may be required to do so by the assessing authority has to submit the returns in accordance with Section 7 of the Act. The assessing authority is, of course, to serve notice on the dealer.

13. Rule 42 is under the head 'Accounts to be maintained' by dealers and manufacturers. Rule 42 is in respect of the maintenance of accounts by the dealer. It is relevant to read it:

42. Accounts-How to be maintained.-(I) Every dealer liable to pay tax under the Act shall maintain a true and correct account of his purchases, sales and stocks showing the quantity and value of the goods.

(2) Every manufacturer liable to pay tax under the Act shall also maintain a stock book in respect of raw materials and of finished goods.

14. On a careful perusal of the various provisions of the Act and the Rules ref erred to hereinabove the two expressions 'liable to pay tax under the Act' and 'tax shall be payable' deserve our pointed attention. In Rule 42 the words used in both the Sub-rules (1) and (2) are 'liable to pay tax under the Act'. We shall first examine the connotation of the word 'liable'. The word 'liable' is generally/normally interpreted to mean, 'exposed to a certain contingency or casualty, i.e., it means a future possibility, probability, happening which may or may not actually occur'. The word 'liable' ordinarily denotes (1) 'legally subject or amenable to', (2) 'exposed or subject to or likely to suffer from (something prejudicial)', (3) 'subject to the possibility of (doing or undergoing something undesirable)'. According to Webster's New World Dictionary also the word 'liable' denotes 'something external which may befall us'. It is not in dispute that the cloth that was manufactured by the manufacturer during the periods under consideration was exempt from payment of tax either under Section 4(1) or Section 4(2) of the Act and since the cloth which is a cotton fabric which the manufacturer was dealing was exempt from payment of tax, he was not required to pay any tax on it or in other words the tax was not payable by him. But none the less when non-petitioner No. 1 is a manufacturer [dealer within the meaning of Section 2(f) of the Act] and does the business as denned in Section 2(cc) of the Act having a turnover which is taxable under Section 3 of the Act, can still be said to be not liable to pay tax under the Act though the tax is not payable on the cloth manufactured by him by virtue of the exemption under Section 4(1) or 4(2) of the Act? A somewhat similar question arose in A.V. Fernandez v. State of Kerala [1957] 8 STC 661 (SC), while considering Sections 2(j), 2(k), 3 and 26 of the Travancore-Cochin General Sales Tax Act, 1125 and Rules 7(1)(k) and 20 of the Travancore-Cochin General Sales Tax Rules, 1960. It may be stated here that Rule 20(2) of the aforesaid Rules and other provisions are incidental to the process of levying such tax. Sales falling within the categories specified in Article 286 of the Constitution and the corresponding Section 26 of the aforesaid Act were taken out of the purview of the aforesaid Act and no effect was to be given to those provisions which would otherwise have been applicable, if Section 26 had not been added to the aforesaid Act. In that connection, Bhagwati, J., as he then was, speaking for the court made the following illuminating observations :

There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability of tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed.

In the latter case, the sales or purchases are exempted from taxation altogether. The legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax. If they are thus not liable to tax, no tax can be levied or imposed on them and they do not come within the purview of the Act at all. The very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sales tax can be levied or imposed.

15. It has been laid down therein that there are three stages in the imposition of a tax; a declaration of liability as the starting point. If there is a liability to tax> imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. If there is no liability to tax, there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatever to the same.

16. But for the exemption, the manufacturer in this case was required to pay tax under the Act on the cloth dyed and printed by him or in other words on the cloth manufactured by him, the tax was payable. Section 3 to our mind is a provision for levy of tax, if the conditions laid down therein are satisfied, then the dealer/manufacturer is liable to pay tax under the Act. It is a charging section. The liability to pay tax is dependent on the turnover and the tax is payable on the taxable turnover. The word 'turnover' in Section 3 of the Act is significant, for, Section 3 lays down that every dealer whose gross turnover exceeds the limit laid down therein, he is liable to pay tax on his taxable turnover, within the gross turnover could be included the entire turnover of goods on which the tax could be imposed and it is immaterial whether tax has been imposed or not. Liability to pay tax springs on the basis of turnover and tax becomes payable on taxable turnover. Under Section 3, the sales of printed and dyed cloth by the manufacturer were required to be included in his gross turnover but on account of the exemption under Section 4(1) or 4(2), he was not required to pay tax on the cloth, i.e., cotton fabrics. The tax may not be payable by the dealer/manufacturer, nevertheless, if Section 3 is attracted, he will be said to be liable to pay tax. The words used in Rule 42(1) and (2) are 'liable to pay tax under the Act'. The conditions laid down in Section 3 are satisfied in the case of the assessee, but the tax is not payable by him, for, the cloth, i.e., the cotton fabrics are exempted from payment of tax. Rule 42(2) of the Rules provides that a manufacturer who is liable to pay tax under the Act has to maintain a stock book of the raw materials and of finished goods. The manufacturer in this case admittedly did not maintain the stock book of the raw materials, i.e., of the cloth purchased by him. The manufacturer was not required to pay tax as cloth was exempt from payment of tax. But; on this ground alone it cannot be said that he was not liable to pay tax under the Act as envisaged by Rule 42(2) of the Rules, keeping in view of the scheme of the various sections of the Act referred to hereinabove. The basis of the view taken by the Board is that only those dealers or manufacturers are required to maintain stock books under Rule 42(2) of the Rules from whom tax is payable. The Board has construed 'liable to pay tax under the Act', as tax payable under the Act. In doing so, the Board ignored the distinction and difference between the two expressions 'liable to pay tax' and 'tax shall be payable', for, a manufacturer may be liable for payment of tax but on account of exemption, tax is not payable by him. We have already given reasons that 'liable to pay tax' does not mean that tax is payable by the dealer/manufacturer under the Act. From a manufacturer tax may not be payable because of exemption under the Act, none the less it cannot be said that he is not liable to pay tax under the Act. The view taken by the Board in Karani Doll Mills' case (1977) 11 TR 432 and K.D. Jhaveri's case (1978) 12 TR 395 and Dharam Chant Paras Chattel's case (1978) 12 TR 286 is not correct as it is not based on the correct interpretation of the expression 'liable to pay tax under the Act' as used in Rule 42(1) or 42(2) of the Rules. The manufacturer (assessee) in this case was a manufacturer of cloth. He did business of dyed and printed cloth. He did not maintain stock book of the raw materials as well as of the finished goods. On his turnover Section 3 of the Act was applicable and so he was liable to pay tax under the Act. But no tax was payable from him in view of the provisions of Section 4(1) and the notification issued in exercise of the powers conferred by Sub-section (2) of Section 4 of the Act in respect of both the periods under consideration. As the manufacturer was liable to pay tax though no tax was payable from him as cotton fabrics were exempted from payment of tax, his failure to maintain the stock book of the raw materials and of the finished goods attracted the provisions of Section 16(1)(n) of the Act and so the penalty was thus leviable. Our finding on the question of law formulated by us hereinabove is in the affirmative and non-compliance of Rule 42(1) or (2) as the case may be entails imposition of penalty under Section 16(1)(n) of the Act.

17. The result is that this application, which has been treated and heard as a revision under Section 15 of the Act as substituted by the Amendment Act, is allowed and orders, exhibit 2 dated February 16, 1979 of the Deputy Commissioner (Appeals) Jodhpur, exhibit 3 dated January 28, 1982 of the Board passed in revision and exhibit 4 dated July 2, 1982 passed in special appeal are set aside and the assessment-cum-penalty order, exhibit 1 dated October 1, 1976 of the Commercial Taxes Officer, Pali imposing penalty of Rs. 600 on non-petitioner No. 1 is restored.

18. As nobody has appeared on behalf of the dealer-non-petitioner No. 1, there will be no order as to costs of these proceedings.


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