1. The common question in these petitions turns on the scope of Section 7-A of the Madras General Sales Tax Act, 1959, which was introduced by the Tamil Nadu General Sales Tax (Amendment) Act, 1970. Just to show how the question arises, we refer to the facts in W.P. No. 864 of 1970. There, by a memorandum dated 5th March, 1970, the Joint Commercial Tax Officer, Leigh Bazaar and Gugai Division, Salem, called upon the petitioner to pay a certain sum by way of tax assessed under the section. The basis for the charge was stated to be :
Admittedly you have purchased castor seeds through your own bought notes from registered dealers whose transactions are not verifiable. As per Section 10, the burden of proof that any dealer or any of his transaction is not liable to tax under this Act shall lie on such dealer. Therefore the purchases effected by you have suffered tax already should be proved by you.
2. The contention for the petitioner is that this approach to Section 7-A is erroneous, because the circumstances contemplated by that provision did not include the possibility or impossibility of verifiability of the transactions with the dealers from whom the petitioner had purchased.
3. It seems to us that the contention of the petitioner as mentioned above is well founded. Section 7-A (1) reads :
Levy of purchase tax.--Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under Section 3, 4 or 5, as the case may be, and either,--
(a) consumes such goods in the manufacture of other goods for sale or otherwise; or
(b) disposes of such goods in any manner other than by way of sale in the State; or
(c) 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 pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in Section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year : Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under Sub-section (1) of Section 3) shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than fifteen thousand rupees.
4. We do not think that it is material to read Sub-section (2) for purposes of disposal of these petitions. In order to attract the purchase tax under this section, the person who is taxed must be a dealer, and the purchases made by him should have been in the course of his business, and such purchases may be either from a registered dealer or from other person, whether a dealer or not. So far there is no difficulty. But the words that follow in the first part of the section are somewhat vague and indefinite and appear to fall short of the purpose it was apparently intended to serve, viz., to check evasion. The provision can have significance only in respect of taxable transactions in respect of which tax is payable, but by some means the transactions have not been brought to tax or have escaped tax. To apply Section 7-A, two further conditions should be satisfied apart from the purpose for which the goods have been purchased, and those are :
(1) the sale or purchase of the goods is liable to be taxed under the Act, and
(2) the circumstances existed in which no tax was ever payable under Section 3, 4 or 5, as the case might be. The two conditions are cumulative. If for some reason, though the sale or the purchase is liable to tax, the tax is not payable, the circumstances leading to that situation may bring the transaction within Section 7-A. But what are or can be those circumstances in which both the conditions may possibly be satisfied Take, for instance, a purchase from a person who is not a dealer. That transaction as a sale will not be liable to tax, because the Act charges only sales or purchases made by a dealer as defined in the Act. That being the case, the second condition too will not be relevant, for where the sale or purchase is not liable to tax, no question will arise of the tax in respect of it not being payable under Section 3, 4 or 5. The expression 'no tax is payable' can only indicate the terms of liability under the Act, that is to say, though a sale or a purchase is liable to tax, still because of certain reasons, the tax is not payable. To illustrate, a dealer having a turnover of less than Rs. 15,000 will not be liable to tax because of the exemption limit. So also, in the case of sales or purchases being ordinarily liable, but because of a policy in relation to the particular goods, such sales or purchases are totally exempt from tax. Another circumstance may be contemplated in cases of single point taxation, where sales or purchases are made not liable to tax because they are non-taxable points. In respect of these instances, unless the twofold test is satisfied, viz., that the sale or purchase is liable to tax, but nevertheless the tax in respect of which is not payable in the sense of some kind of exemption from tax, as we have just now visualised, there will be no occasion to invoke Section 7-A. Merely because a dealer has made purchases from others the particulars of which are not verifiable, that will not in itself be a circumstance to justifiably apply Section 7-A. Verifiability of the preceding transactions is not one of the tests or conditions, and will be irrelevant to the scope of Section 7-A. It is for these reasons we are of the view that if the purpose of Section 7-A is, as obviously it is, to check evasion, the phraseology has fallen short of achieving that purpose. Section 7-A could have detailed the circumstances in which the tax liability under Section 7-A would arise. But, instead, the circumstances have been related by the section to sales or purchases which are liable to tax under the Act, but for some reason no tax is payable in respect of them. It appears to be a contradiction in terms, and we are unable to visualise the circumstances except what we have noticed above in which Section 7-A could be applied. In fact, we are unable to visualise the circumstances in which the twofold requirement of the sale being liable to tax but for some reason no tax is payable under Section 3, 4 or 5 can arise, except in cases of exemptions. Even there, the difficulty arises whether one can say that the sale which is exempted is liable to tax, and then assume that because of exemption, the tax is not payable. To our minds, the language of Section 7-A is far from clear as to its intention, and we think that the Joint Commercial Tax Officer was not justified in invoking Section 7-A merely because the petitioner in W.P. No. 864 of 1970 had purchased from registered dealers whose transactions were not verifiable. If the purchases were from registered dealers, we fail to see why they were not verifiable. Registered dealers from whom the purchases had been made should have kept accounts, and merely because their transactions were not verifiable, it does not mean that their tax liability should be shifted to the petitioner, for which there is no warrant in Section 7-A.
5. W.P. Nos. 605, 606, 697 and 909 of 1971 are cases in which purchase tax had been levied on purchases of butter on the ground that the butter was consumed in the manufacture of ghee. Similar tax has also been levied on purchase turnover of ghee involved in consignment sales said to be in other States. We fail to see how this could be done under Section 7-A. Butter is taxable to multi-point tax and is levied on the sales. That being the case, we do not understand how purchase tax can also be levied at the purchase point of the sales which were also the subject-matter of charge.
6. If the purchases were made from householders or other persons who are not dealers, even so, inasmuch as the transactions were not liable to tax at all under the Act, on that ground, Section 7-A could not be invoked.
7. On the view we have taken of the scope of Section 7-A as indicated earlier in this judgment, counsel for the petitioners, who initially sought to argue on the basis of Articles 14, 19(1)(f) and (g) of the Constitution, did not pursue the line.
8. The petitions are allowed. We make it clear that, wherever it is necessary, the department may reopen final assessments already completed and modify them in accordance with this judgment, and wherever there are no final assessments made, they may proceed to assess, but subject to and in the light of the observations in this judgment. No costs.