Madras High Court
Sri Ganesan Traders vs Union Of India And Others on 13 June, 1994
JUDGMENT Janarthanam, J.
1. The exigibility to tax on goods, moved from one State - say, from the State of Tamil Nadu - to another, is the subject-matter of challenge, in all these actions. Such a challenge emerges in various hues and colours, about which, I will have the occasion to mention or specify, at the appropriate place. In order to understand the gravity and magnitude of such a challenge, better it is, I feel, to refer to or trace, in a short compass, the legislative history thereof.
2. Article 246 of the Constitution of India (for short "the Constitution") deals with the subject-matter of laws made by Parliament and the Legislatures of States. This Article, by way of elaboration it may be said, deals with "distribution of legislative powers as between Union and State Legislatures, with reference to different Lists in the Seventh Schedule". The gist of this article is that Union Parliament has full and exclusive power to legislate with respect to matters in List I, and has also power to legislate with respect to matters in List III. The State Legislature, on the other hand, has exclusive power to legislate with respect to matters in State List II minus matters falling in Lists I and III and has concurrent power, with respect to matters included in List III. It is to be noted here that the distribution, as between Union and States, of legislative power, as is being provided for under article 246, is conferred by article 245.
3. Article 245(1) prescribes :
"Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State."
4. Article 245(2) provides :
"No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation."
5. Article 246 therefore must have to be read as, "Subject to the other provisions of the Constitution".
The legislative powers of the Legislatures of Union and States, thus being limited by the provisions, relating to distribution of powers and other mandatory limitations, imposed by different provisions of the Constitution, a law passed without legislative competence is a nullity ab initio and nothing can be done to cure that law. Even subsequent amendment to the Constitution cannot confer jurisdiction upon the Legislature with retrospective effect so as to validate that law, unless that amendment is given retrospective effect.
6. Under entry 92 of List I of the Seventh Schedule to the Constitution, Union is empowered to enact legislations providing for, "taxes on the sale or purchase of newspapers and on advertisements published therein".
7. By section 2 of the Constitution (Sixth Amendment) Act, 1956, entry 92-A of List I of the Seventh Schedule had been inserted, enlarging the scope of legislative power of the Union and the said entry reads :
"Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce."
8. Correspondingly, the legislative powers of the States had been curtailed by the substitution of entry 54 of List II of the Seventh Schedule and the said substituted entry reads :
"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I."
By section 3 of the aforesaid Amendment Act, in article 269, which deals with "taxes levied and collected by the Union, but assigned to the States", sub-clause (g) to clause (1) had been inserted and it is couched in the following terms :
"269(1). The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2), namely :-
(a) to (f) ..............
(g) taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce."
9. Subsequent to the aforesaid Amendment Act, enlarging legislative field of the Union, with the corresponding curtailment on the States, on the subject of tax on sale or purchase of goods, other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce, the Union of India passed the Central sales Tax Act, 1956 (Act No. 74 of 1956 - for short "the Central Act"), which received the assent of the President on December 21, 1956. This Act extends to the whole of India. All the sections of this Act, except section 15, were brought into force with effect from January 15, 1957. Section 15 was brought into force with effect from October 1, 1958. The levy of tax on inter-State sales under this Act commenced from July 1, 1957.
10. Pertinent it is to mention at this juncture, the objects and reasons of this Act, which is reflected as under.
"Objects and reasons of the Act. - Certain amendments were undertaken in the Constitution by the Constitution (Sixth Amendment) Act, 1956, whereby -
(a) taxes on sales or purchases of goods in the course of inter-State trade or commerce were brought expressly within the purview of the legislative jurisdiction of Parliament;
(b) restrictions could be imposed on the powers of State Legislatures with respect to the levy of taxes on the sale or purchases of goods within the State where the goods are of special importance in inter-State trade or commerce.
The Amendments at the same time authorised Parliament to formulate principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce or in the course of export or import outside a State in order that the legislative spheres of Parliament and State Legislatures become clearly demarcated. In the case of goods of special importance in inter-State trade or commerce, a law of Parliament has to lay down the restrictions and conditions subject to which any State law may regulated the tax on sales or purchase of such goods in the State.
2. The Bill seeks to provide for the legislation authorised by the Constitution as amended with a view to enabling the State Governments to raise additional revenues by levying tax on inter-State transactions which are at present immune from tax under their respective sales tax laws. After taking into account the recommendations of the Taxation Enquiry Commission and in consultation with the States, the Government of India are of the view that the following principles should govern the scheme of the detailed legislation on the three inter-related subjects.
(i) The Central Government should authorise the State Governments to impose on behalf of the Central Government a tax on the sale or purchase of goods in the course of inter-State trade or commerce. The Central legislation should also delegate, to the States the Central Government's power to levy and collect tax and for this purpose prescribe the same system of registration, assessment, etc., as prevails in the State concerned under their own sales tax system.
(ii) An important aspect of the Central legislation will be concerned with the definition of the local of sales for the purpose of defining in detail the relative jurisdiction, firstly of the Union and the States, and secondly, of the States inter se. It is, therefore, necessary that the law should define clearly, with specific reference to sales tax, the circumstances in which a sale or purchase becomes taxable by a particular State and no other. It should also define for the purpose of constitutional restrictions on the State's power to impose a tax under item 54 of the State List, when a sale or purchase of goods, may be said to take place :
(a) in the course of export out of India;
(b) in the course of import into India; and
(c) in the curse of inter-State trade or commerce.
(iii) The Central legislation should provide for the declaration of certain commodities which are in the nature of raw materials and of special importance in inter-State trade or commerce and lay down the restrictions and conditions as to the rate, system of levy and other incidents of tax subject to which the States may impose tax on the sale or purchase thereof.
3. Necessary provisions have, therefore, been made in a different Chapters of the Bill incorporating the principles States above."
11. Section 3, by way of legal fiction, prescribes circumstances and situations, in which a sale or purchase of goods, is said to take place in the course of inter-State trade or commerce. It reads as under :
"3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase -
(a) occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation 1. - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2. - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State."
12(i). Section 6, the charging provision relatable to inter-State sales, is couched in the following terms :
"6. Liability to tax on inter-State sales. - (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier that thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified :
Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India.
(1-A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.
(2) Notwithstanding anything contained in sub-section (1) or sub-section (1-A), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods, -
(A) to the Government, or (B) to a registered dealer other than the Government, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act :
Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit, -
(a) a certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and
(b) if the subsequent sale is made -
(i) to a registered dealer, a declaration referred to in clause (a) of sub-section (4) of section 8, or
(ii) to the Government, not being a registered dealer, a certificate referred to in clause (b) of sub-section (4) of section 8 :
Provided further that it shall not be necessary to furnish the declaration or the certificate referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods, if, -
(a) the sale or purchase of such goods is, under the sales tax law of the appropriate State, exempt from tax generally or is subject to tax generally at a rate which is lower than four per cent (whether called a tax or fee or by any other name); and
(b) the dealer effecting such subsequent sale proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in clause (A) or clause (B) of this sub-section."
(ii) Section 9 dealing with levy and collection of tax and penalties reads as under :
"9. Levy and collection of tax and penalties. - (1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of section 3, shall be levied by the Government of India and the tax so levied shall be collected by that Government in accordance with the provisions of sub-section (2), in the State from which the movement of the goods commenced :
Provided that, in the case of a sale of goods, during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of section 6, the tax shall be levied and collected, -
(a) where such subsequent sale has been effected by a registered dealer, in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of clause (a) of sub-section (4) of section 8 in connection with the purchase of such goods, and
(b) where such subsequent sale has been effected by an unregistered dealer, in the State from which such subsequent sale has been effected.
(2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State, shall, on behalf of the Government of India, assess, reassess, collect and enforce payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State, and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties, charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly :
Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, by rules made in this behalf, make necessary provision for all or any of the matter specified in this sub-section.
(2-A) All the provisions relating to offences and penalties (including provisions relating to penalties in lieu of prosecution for an offence or in addition to the penalties or punishment for an offence but excluding the provisions relating to matters provided for in sections 10 and 10-A) of the general sales tax law of each State shall, with necessary modifications, apply in relation to the assessment, reassessment, collection and the enforcement of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, reassessment, collection or enforcement of payment as if the tax under this Act were tax under such sales tax law.
(3) The proceeds in any financial year of any tax, including any penalty, levied and collected under this Act in any State (other than a Union Territory) on behalf of the Government of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union Territories shall form part of the Consolidate Funds of India."
13. By a compendious reading of the salient provisions adumbrated in the aforesaid sections, it is rather clear that the tax on inter-State sales, leviable by Government of India, is collectible by the appropriate State Governments, from which, movement of goods commenced within the parameters prescribed therein. The authorities under the general sales tax laws in the State have thus been made the agent of the Union Government, in discharging the duties of assessment, etc., referable to the provisions of the Central Act and empowered to exercise all or any of the powers they have under the general sales tax laws of the State for the aforesaid purpose.
14. So much of the provisions of section 13, dealing with the power to make rule, as is relevant for the present purpose is couched in the following terms :
13. Power to make rules. - (1) The Central Government may, by notification in the Official Gazette, make rules rules providing for -
(a) to (c) .............
(d) the form in which and the particulars to be contained in any declaration or certificate to be given under this Act the State of origin of such form or certificate and the time within which any such certificate or declaration shall be produced or furnished;...........
(3) The State Government may make rules, not inconsistent with the provisions of this Act and the rules made under sub-section (1), to carry out the purposes of this Act.
(4) In particular and without prejudice to the powers conferred by sub-section (3), the State Government may make rules for all or any of the following purposes, namely :-
(a) the publication of lists of registered dealers, of the amendments made in such lists from time to time, and the particulars to be contained in such lists;
(aa) the manner in which security may be furnished under sub-section (2A) or sub-section (3A) or sub-section (3C) or section 7 and the manner in which and the time within which any deficiency may be made up under sub-section (3E) of that section;
(b) the form and manner in which accounts relating to sales in the course of inter-State trade or commerce shall be kept by registered dealers;
(c) the furnishing of any information relating to the stocks of goods of, purchases, sales and deliveries of goods by, any dealer or any other information relating to his business as may be necessary for the purposes of this Act;
(d) the inspection of any books, accounts or documents required to be kept under this Act, the entry into any premises at all reasonable times for the purposes of searching for any such books, accounts or documents kept or suspected to be kept in such premises and the seizure of such books, accounts or documents;
(e) the authority from whom, the conditions subject to which and the fees subject to payment of which any form of certificate prescribed under clause (a) of the first proviso to sub-section (2) of section 6 or of declaration prescribed under sub-section (1) of section 6A or sub-section (4) of section 8 may be obtained, the manner in which such forms shall be kept in custody and records relating thereto maintained and the manner in which any such form may be used and any such certificate or declaration may be furnished;
(ee) the form and manner in which, and the authority to whom, an appeal may be preferred under sub-section (3H) of section 7, the procedure to be followed in hearing such appeals and the fees payable in respect of such appeals;
(f) in the case of an undivided Hindu family, association, club, society, firm or company or in the case of a person who caries on business as a guardian or trustee or otherwise on behalf of another person, the furnishing of a declaration stating the name of the person who shall be deemed to be the manager in relation to the business of the dealer in the State and the form in which such declaration may be given;
(g) the time within which, the manner in which and the authorities to whom any change in the ownership of any business or in the name, place or nature of any business carried on by any dealer shall be furnished."
15. By G.O. No. 976, Revenue, dated February 27, 1957, in exercise of the powers conferred by sub-sections (3) and (4) of section 13 of the Central Act, the Government of Tamil Nadu made the Central sales Tax (Tamil Nadu) Rules, 1957 (for short "the Tamil Nadu Rules").
16. Similarly, Union Government by Notification in S.R.O. No. 644 dated February 28, 1957, in exercise of the powers conferred by sub-section (1) of section 13 of the Central Act made the Central Sales Tax (Registration and Turnover) Rules, 1957 (for short "the Turnover Rules").
17. By Notification in S.R.O. A-489/1971 dated April 17, 1971, sub-rule (3A) to rule 4 had been inserted in the Tamil Nadu Rules and it reads as under :
"(3A) Every principal, who claims exemption on the sales of goods on consignment account through agents outside the State, shall maintain the following records, namely :-
(a) a register showing the name and full address of the agent to whom goods were consigned together with description of the goods so despatched for sale, on each occasion and their quantity and value;
(b) the originals of authorisations sent to the agent for sale of the goods.
Note. - Copies of these authorisations and descriptions of goods despatched for sale on each occasion with particulars of their quantity and value should be simultaneously furnished to the assessing officer concerned.
(c) the originals of the written contract, if any, entered into between the principal and the agent;
(d) copies of bills issued by the agents to the purchasers;
(e) pattials, i.e., accounts rendered by the agents to the principals from time to time showing the gross amount of the bill and deduction on amount of commission and incidental charges;
(f) extract of the ledger account of the principal mentioned in the books of the agents duly signed by such agents;
(g) copies of railway receipts or lorry receipts under which the goods were so despatched; and
(h) a register showing the date and mode of remittance of the amount to the principal."
18. By Notification in GSR No. 56(E) dated February 9, 1973, sub-rule (5) to rule 12 had been inserted to the Turnover Rules and it reads as under :
"(5) The declaration referred to in sub-section (1) of section 6A shall be in form 'F' :
Provided that a single declaration may cover transfer of goods, by a dealer, to any other place of his business or to his agent or principal, as the case may be, effected during a period of one calendar month :
Provided further that if the space provided in form 'F' is not sufficient for making the entries, the particulars specified in form 'F' may be given in separate annexures attached to that form as long as it is indicated in the form that the annexures form part thereof and every such annexure is also signed by the person signing the declaration in form 'F' :
Provided further that form 'F' in force before the commencement of the Central Sales Tax (Registration and Turnover) (Second Amendment) Rules, 1973, may continue to be used up to 31st day of December, 1980, with suitable modifications."
19. Form "F" referred to in the aforesaid sub-rule is reflected as below :
"Counterfoil/Duplicate/Original FORM F (Form of declaration to be issued by the transferee) [see rule 12(5)] Serial No ............................................................
Name of the issuing State ............................................
Office of issue ......................................................
Date of Issue ........................................................
Name and address of the person to whom issued along with his Registration Certificate No ..........................................
Date from which registration is valid ................................
Seal of the issuing authority.
To ..... (Transferor) Registration Certificate No. of the Transferor ......
Certified that the goods transferred to me/us as per details below have been received and duly accounted for.
Description of the goods sent ........................................
Quantity or weight ...................................................
Value of the goods ...................................................
Number and date of invoice or challan or any other document under which goods were sent ................................................
Name of Railway, Steamer or Ferry Station or Air Port or Post Office or Road Transport Company's Office from where the goods were despatched ...........................................................
Number and date of railway receipt or postal receipt or goods receipt with trip sheet of lorry or any other document indicating the means of transport ...............................................
Date on which delivery was taken by the transferee ...................
The above statements are true to the best of my knowledge and belief.
(Signature) (Name of the person signing the declaration) [Strike out whichever is not applicable] (Status of the person signing the declaration in relation to the transferee) [Strike out whichever is not applicable] (Status of the person signing the declaration in relation to the transferee) Date ............
Note -
On the Counterfoil ... To be retained by the transferee
On the Duplicate ... To be retained by the transferor
On the Original ... To be furnished to the assessing authority
in accordance with rules framed under
section 13(4)(e)."
(This form is in triplicate, identical, except for the
'Note ' below as indicated above)
20. Section 6A of the Central Act had been inserted by Amending Act 61 of 192. The reasons for the said enactment will become apparent from a perusal of the following Statement of Objects and Reasons appended for the insertion of a such provision :
"Central sales tax is not leviable in respect of transaction of transfer of goods from a head office or a principal to a branch or an agent or vice versa as these do not amount to sales. This aids evasion in that dealers try to show even genuine sales to third parties as transactions of this type. Accordingly, it is proposed to provide that the burden of proving that the transfer of goods in such cases is otherwise than by way of sale shall lie on the dealer who claims exemption from tax on the ground that there was in fact no sale."
21. Section 6A, which came into force with effect from April 1, 1973 reads as under :
"6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale. - (1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration duly filled and signed by the principal office of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of despatch of such goods.
(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall be deemed for the purposes of this Act to have been occasioned otherwise than as a result of sale.
Explanation. - In this section, 'assessing authority' in relation to a dealer, means the authority for the time being competent to assess the tax payable by the dealer under this Act."
22. The said Amending Act also substituted clause (a) to section 10 providing for penalties, which reads as under :
"10. Penalties. - If any person -
(a) furnishes a certificate or declaration under sub-section (2) of section 6, or sub-section (1) of section 6A or sub-section (4) of section 8, which he knows, or has reason to believe, to be false.......
he shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues."
This amendment, by substitution also came into effect on and from April 1, 1973.
23. By section 5 of the Constitution (Forty-sixth Amendment) Act, 1982, entry 92-B in List I of the Seventh Schedule had been inserted and it reads as below :
"92-B. Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce."
24. By section 2 of the aforesaid Amendment Act, in article 269, which deals with "taxes levied and collected by the Union, but assigned to the States", sub-clause (h) to clause (1) had been inserted and it is couched in the following terms :
"269(1). The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2), namely :-
"(a) to (g) ..........
(h) taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce."
25. Further, in clause (3), thereof, for the words, "sale or purchase of goods", the words "sale or purchase of, or consignment of, goods" had been substituted.
26. Thus, the net result is that the Union Government had been given the requisite power to enact legislation for the imposition of tax on the mere consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce.
27. The legislative history traced as above, as respects the taxes on goods moved from one State to another in the course of inter-State trade or commerce leads to the fulfilment of certain legal requirements, pursuant to either the Central or the State legislations, as a consequence of constitutional prescriptions and they are :
(1) By the insertion of sub-clause (g) to clause (1) of article 269 of the Constitution and entry 92-A in List I of the Seventh Schedule thereof, by the Constitution (Sixth Amendment) Act, 1956, the Union Government had been enables for the imposition of taxes on the sale or purchase of goods (other than newspapers, where such sale or purchase takes place) in the course of inter-State trade or commerce - hitherto not available - and consequently, Central Act had been enacted containing a salient provision in the shape of section 3, defining, by resorting to legal fiction, as to when such sale or purchase of goods is said to take place, besides enactment of provisions such as sections 6, 6A, 9, 10 and 13 of the Central Act, for the enforcement of which, rule 4(3)(A) of the Tamil Nadu Rules as well as rule 12(5) of the Central Rules, along with the statutory declaration in form "F" had been framed and thereby enabled the State Governments to collect tax as levied by the Union Government.
(2) Rule 4(3A) had been inserted at a time, that is to say, on April 17, 1971, when no provision, either in the Central Act or the Rules framed thereunder was available relatable to the methodology of proof of the character of movement of goods from one State to another, in the course of inter-State trade or commerce.
(3) Rule 12(5) of the Central Rules prescribed declaration in form "F", in order to activate the methodology of proof, as contemplated by section 6A of the Central Act.
(4) No central legislation had been enacted, consequent to the insertion of sub-clause (h) of clause (1) of article 269 of the Constitution and entry 92-B in List I of the Seventh Schedule, empowering the Union Government for the imposition of tax on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce and consequently, such imposition of tax either by the Union Government or by the respective State Governments is not permissible.
28. In the backdrop and setting of the legal position as above, the respective petitioners-assessees, involved in the movement of goods to other States in the course of inter-State trade or commerce, resorted to the present actions challenging the validity of rule 4(3A) of the Tamil Nadu Rules, besides filing WMPs, either praying for stay of further proceedings or for injunction restraining the competent assessing authorities concerned to recover the tax, pending disposal of these main writ petitions, in which interim orders of stay or injunction of one sort or other had been granted.
(a) When those WMPs came up for hearing, learned counsel appearing for the respective petitioners-assessees and learned Additional Government Pleader (Taxes) as well as learned Additional Central Government Standing Counsel agreed for the disposal of the main writ petitions themselves and consequently, all of them had been listed for hearing and arguments were heard.
29. From the submissions of different learned counsel appearing for the respective petitioners-assessees, the following points, in pith and substance, emerge for consideration, in the process of challenging the validity of the said rule :
(1) Rule 4(3A) prescribing certain mandates such as maintenance of register containing particulars in respect of agent and the goods despatched, authorisation sent to the agent, contract existing between the principal and agent, railway or lorry receipts, ledger accounts, etc., and thereby legislating on the area or field of branch transfer, a constitutional exclusion, under the facade of claim of exemption, which is not permissible, has to be struck down as null and void.
(2) Even otherwise, the said rule admittedly a pre-existing sub-rule - as having been made and occupied the field, just like a night watchman taking up the position before the opening batsman - pursuant to the enabling rule-making power ingrained in sub-sections (3) and (4) of section 13 of the Central Act, on April 17, 1971, before ever section 6A thereof and consequent amended sub-rule (5) of rule 12 made thereunder, came into force, that is to say, on April 1, 1973 - which is a subordinate legislation - cannot at all be expected to cross the frontiers of legislation, in the sense of legislating on an area, in respect of which the statute - main enactment itself - does not venture to legislate and in the absence of any provision in the main enactment, namely, Central Act, relatable to agency, the said rule cannot at all prescribe norms and conditions for the establishment of agency, contrary to common law concept of agency, as had been provided for under Chapter X of the Contract Act (Act 9 of 1872) and therefore it is, the said rule, having been made in excess of the legislative spheres of activity, cannot at all be stated to be valid in law.
(3) There cannot be two voices spoken to on the same subject-matter, namely, movement of goods from one State to another in the course of inter-State trade or commerce, one by the Union Government and another by the State Government, in the shape of statutory provisions and rules inconsistent with each other and rule 4(3A) of the Tamil Nadu Rules in the present shape cannot at all be stated to be not inconsistent with the statutory provisions of section 6A of the Central Act and rule 12(5) made thereunder, prescribing a declaration in form "F", followed it up by a penal provision, in the shape of section 10(a) for non-compliance of those provisions, which form by themselves a complete code, tackling such a situation and in the face of such glaring inconsistencies, the pre-existing rule 4(3A) of the Tamil Nadu Rules must, in such a situation, be deemed to have been impliedly repealed and consequently it is not enforceable.
(4) In any event, the said rule, even if construed to be not mandatory, but directory only and therefore, it can co-exist, along with section 6A, in the sense of supplanting and supplementing the methodology of proof, as contemplated by it, even then, the non-compliance of the said rule cannot at all be expected to confer jurisdiction on the competent authority to conclude that the movement of goods have not been effected by way of branch transfer, but only a sale in the course of inter-State trade or commerce and the burden of proof contemplated under section 6A alone shall be strictly adhered to therefor.
30. Points 1 to 4 urged for consideration, as above, are so interlinked with each other in such a way or fashion as is not possible to enter into an arena of discussion on each of them separately, without repetition of projection of the rationale or ideas and in a bid to avoid the same, I feel it better to group them together for consideration and discussion of vital implications underlying them.
31. Branch transfer in the course of inter-State trade or commerce is beyond the purview of taxation by way of constitutional exclusion and what was intended to be taxes was in respect of the goods, movement of which was occasioned pursuant to a contract of sale in the course of inter-State trade or commerce, under entry 92-A of List I of the Seventh Schedule to the Constitution.
32. Section 3 of the Central Act, which had been enacted pursuant to such constitutional provision, seeks to tax not goods involved in branch transfer, but only goods involved in inter-State sale. The word, "sale" appearing in section 2(g), as also in section 3(a) of the Central Act, includes an agreement to sell also provides that agreement contains a stipulation regarding passing of the property. But in order to determine whether a sale has taken place in the course of inter-State trade or commerce, the matter has to be approached only after a concluded sale has taken place, because unless the sale takes place or, in other words, the agreement to sell merges into a concluded sale, the question regarding the application of the provisions of the Central Act does not arise at all, because the tax is on sale and not on an agreement to sell or a forward contract.
33. Before a sale can be said to take place in the course of inter-State trade or commerce, the following conditions must be satisfied :
(1) There is an agreement to sell, which contains a stipulation, express or implied, regarding the movement of the goods from one State to another.
(2) In pursuance of that agreement, the goods in fact moved from one State to another.
(3) Ultimately, a concluded sale took place in the State where the goods were sent and that State is different from the State, from which the goods moved.
If these conditions are satisfied, as already indicated, then, by virtue of section 9 of the Central Act, it is the State, from which the goods moved, which would be competent to levy tax under the provisions thereof. Thus, the inter-State sale of goods of description, as mentioned in section 3 alone is taxable or chargeable under section 6.
34. Under sub-section (1) of section 13, rule-making power inhering in favour of the Central Government had initially not at all been invoked in making any rules thereunder, in respect of movement of goods involved in inter-State sale and in respect of the same subject, the State Government had been empowered under sub-clauses (3) and (4) of section 13, to make rules for carrying out the purposes of the Central Act. While such a power had been conferred on the State Government, precaution had been taken to incorporate provisions in those sub-sections that the rules, that were to be made by the State Government should not be inconsistent with the provisions of the Central Act and the Rules made under sub-section (1) thereof by the Central Government.
35. Tamil Nadu Rules had admittedly in fact been framed under those provisions. It is to be remembered here that those rules are only machinery provisions and definitely not charging ones. Rule 4(3A) in the said Rules had been inserted in the year 1971, with a view to activate the charge relatable to goods liable to tax under section 6 as a measure of anti-evasion of tax, by the prescription of mandates to maintain certain records indicated therein. In prescribing such a mandate, auxiliary verb "shall" has been utilised. A careful perusal of the rule, as extracted above, would indicate, in crystal clear terms, that nothing is found traceable as to the adverse effect to be produced as a consequence of non-compliance of the said rule. Such being the case, the use of the auxiliary verb "shall" in a procedural statute, like the Tamil Nadu Rules must have to be construed, as not mandatory, but only directory.
36. Subsequently, section 6A of the Central Act prescribing a declaration in form "F" had been inserted and come into force with effect from April 1, 1973. The question is as to whether rule 4(3A) is inconsistent with the provisions of section 6A and rule 12(5). The answer to such a question is traceable, with ease and grace, if one is able to understand the reason why section 6A and rule 12(5) prescribing a declaration in form "F" had been made. The statement and object clause for enactment of such a provision, as had been extracted earlier, if perused, would point out that those provisions had been enacted mainly to prevent dealers trying to show even genuine sales to third parties as transactions of the type of branch transfer.
37. What had been enacted under those provisions was relatable to burden of proof in case of transfer of goods claimed otherwise than by way of sale, casting squarely on the shoulders of the dealers, which was hitherto on the Revenue. Under section 6A(1) the burden is on the dealer to prove that the movement of the goods was occasioned, not by reason of sale, but was occasioned by reason of transfer of such goods by him to any other place of his business or the his agent or principal outside the State. The burden so cast on the dealer may be discharged, by furnishing a declaration, as prescribed in form "F", along with evidence of despatch of such goods. Furnishing of declaration in form "F" is not compulsive or mandatory. It is open to the dealer to discharge the burden of proof cast on him in any other manner by adducing other evidence. In case where the dealer exercises the option of furnishing declaration in form "F", the only further requirement is that the assessing authority should be satisfied, after making such enquiry as he may deem necessary, that the particulars contained in the declaration so furnished by the dealer are true. It is only then the assessing authority is enjoined to pass an order in the matter.
38. A plain reading of section 6A(2) points out that in case where the dealer exercises option of furnishing declaration in form "F", the only further requirement is that the assessing authority should be satisfied, after making such enquiry, as he may deem necessary, that the particulars contained in the declaration furnish by the dealer are true. The scope or frontiers of the enquiry by the assessing authority is limited to this extent, namely, to verify whether the particulars contained in the declaration in form "F" furnished by the dealer are true. It means that the assessing authority can conduct an enquiry to find out whether the particulars in the declaration furnished are correct or dependable or in accord with the facts or accurate or genuine. That alone is the scope of the enquiry contemplated by section 6A(2).
39. On the conclusion of such an enquiry, the assessing authority should record a finding one way or the other. As to what should be the nature of the enquiry that can be conducted by the assessing authority is certainly for him to decide. It is certainly for him to verify and satisfy himself that the particulars contained in the declaration furnished by the dealer are true. As a quasi-judicial authority, the assessing authority should act fairly and reasonable in the matter. During the course of enquiry, it is open to him to require the dealer to produce relevant documents or other papers or materials, which are germane or relevant to find out whether the particulars contained in the declaration in form "F" are true. It is not possible to specify the document or other materials or papers that may be required to be produced or furnished in all situations and in all cases. It depends upon the facts and circumstances of each case. The power vested in such authority is a wide discretionary power to find out whether the particulars contained in the declaration in form "F" are true. It is not possible or practicable to lay down the exact requirement or the materials that may be required alike in all eventualities and situations for the assessing authority to give a proper and just finding as required by section 6A(2). In case there is dismal failure on the part of the dealer-assessee in the discharge of the burden so cast on him, the irresistible inference, that there was a sale under the Central Act, cannot at all be avoided.
40. In the backdrop of the spectrum of the burden of proof cast on the dealer-assessee and the methodology contemplated for the discharge of such a burden, decides the power inhering in the competent authorities to make an enquiry as respects the particulars contained in declaration in form "F" or to sift the other material or evidence produced by the dealer-assessee, without the production of form "F", in a bid to make it appear that the transaction was one of a branch transfer and not of inter-State sale and recording a finding therefor, the requirement of rule 4(3A), if viewed in that perspective, would point out that such requirements therein are not in any way repugnant to or inconsistent with the provisions, as adumbrated under section 6A and rule 12(5), in the sense of they accordingly aiding, supplementing or supplanting by production of the materials required for the proof of determining the question of branch transfer or otherwise. Further, the rudiments of rule 4(3A) requiring furnishing of certain materials cannot at all be stated to be defining agency, different from the common law concept of "agency", as had been provided for under chapter X of the Contract Act. The materials required to be produced by the said rule are only towards the proof of the factum of existence of an agency or not, thereby accepting the concept of "agency", as had been provided for under the Contract Act. Such being the case, to say that the said rule defines "agency", contrary to the concept of "agency", as contemplated under the Contract Act, when especially there is no special definition of "agency" in the Central Act cannot at all be countenanced.
41. A vain attempt had also been made that the provisions of rule 4(3A) had been impliedly overruled by the subsequent enactment of the provisions, in the shape of section 6A and rule 12(5) prescribing a declaration in form "F" serving as a complete code in respect of the transactions relatable to movement of goods from one State to another, in the course of inter-State trade or commerce. Implicit reliance had been placed in support of such an argument on certain decisions emerging from the apex Court of this country. A few decisions in this context may now be referred to.
42. Their Lordships of the Supreme Court in a Constitution Bench decision, namely, State of Orissa v. M. A. Tulloch and Co. said in paragraph 21 (at page 1294) thus :
"The entire theory underlying implied repeals is that there is no need for the later enactment to state in express terms that an earlier enactment has been repealed by using any particular set of words or form of drafting but that if the legislative intent to supersede the earlier law is manifested by the enactment of provisions as to effect such supersession, then there is in law a repeal notwithstanding the absence of the word 'repeal' in the later statute. Now, if the legislative intent to supersede the earlier law is the basis upon which the doctrine of implied repeal is founded could there by any incongruity in attributing to the later legislation the same intent which section 6 presumes where the word 'repeal' is expressly used. So far as statutory construction is concerned, it is one of the cardinal principles of the law that there is no distinction or difference between an express provision and a provision which is necessarily implied, for it is only the form that differs in the two cases and there is no difference in intention or in substance. A repeal may be brought about by repugnant legislation, without even any reference to the Act intended to be repealed, for once legislative competence to effect a repeal is posited, it matters little whether this is done expressly or inferentially or by the enactment of repugnant legislation. If such is the basis upon which repeals and implied repeals are brought about it appears to us to be both logical as well as in accordance with the principles upon which the rule as to implied repeal rests to attribute to that Legislature which effects a repeal by necessary implication the same intention as that which would attend the case of an express repeal. Where an intention to effect a repeal is attributed to a Legislature then the same would, in our opinion, attract the incident of the saving found in section 6 for the rules of construction embodied in the General Clauses Act are, so to speak, the basic assumptions on which statutes are drafted."
43. Their Lordships of the Supreme Court in another Constitution Bench decision, namely, Northern India Caterers (Private) Ltd. v. State of Punjab expressed thus :
"The rule of construction is that where a statute provides in express terms that its enactment will repeal an earlier Act by reason of its inconsistency with such earlier Act, the latter may be treated as repealed. Even where the later Act does not contain such express words, if the co-existence of the two sets of provisions is destructive of the object with which the later Act was passed, the court would treat the earlier provision as impliedly repealed. A later Act which confers a new right would repeal an earlier right if the fact of the two rights co-existing together produces inconvenience, for, in such a case it is legitimate to infer that the Legislature did not intend such a consequence. If the two Acts are general enactments and the later of the two is couched in negative terms, the inference would be that the earlier one was impliedly repealed. Even if the later statute is in affirmative terms, it is often found to involve that negative which makes it fatal to the earlier enactment."
44. In a recent decision of the Supreme Court, in Ratan Lal Adukia v. Union of India , their Lordships graphically stated the postulate of implied repeal in paragraph 11 (at page 110) thus :
"The doctrine of implied repeal is based on the postulate the Legislature which is presumed to know the existing state of the law did not intend to create any confusion by retaining conflicting provisions. Courts in applying this doctrine are supposed merely to give effect to the legislative intent by examining the object and scope of the two enactments. But in a conceivable case, the very existence of two provisions may by itself, and without more, lead to an inference of mutual irreconcilability if the later set of provisions is by itself a complete code with respect to the same matter. In such a case the actual detailed comparison of the two sets of provisions may not be necessary. It is a matter of legislative intent that the two sets of provisions were not expected to be applied simultaneously."
45. The principle of "implied repeal" evolved in those decisions is not at all applicable in the instant cases, inasmuch as, as earlier stated, there is no inconsistency or incongruity or repugnancy or conflict between the earlier pre-existing rule 4(3A) of the Tamil Nadu Rules and the subsequent enactment of the statutory provisions in the shape of section 6A of the Central Act and rule 12(5) framed thereunder prescribing declaration in form "F". Therefore, the argument based on "implied repeal" has to face a dismal failure.
46. In view of what has been stated above, it goes without starting that all the points pressed into service for and on behalf of the petitioners-assessees must have to be answered against them.
47. However, let me place on record, a word of appreciation on the untiring and ceaseless efforts made by Mr. C. Natarajan, learned counsel, ably supported by Mr. R. Venkataraman, learned counsel, in projecting arguments, in an admirable fashion, on all intricate and subtle questions of law involved, besides being adopted by other learned counsels appearing on behalf of other petitioners-assessees. Mrs. Chitra Venkataraman, learned Additional Government Pleader (Taxes) also rose to the occasion in a splendid way in meeting those submissions, emerging from those learned counsels, by way of sharp and incisive analysis of various legal provisions and thereby rendered valuable assistance to the court in arriving at a just and proper conclusion. Equally so is the effort made by Mr. K. Ramagopal, learned counsel acting as amicus curiae on open invitation extended by court, in assisting the court. Mr. T. Srinvasa Moorthy, learned Additional Central Government Standing Counsel made his presence felt in stating that since none of learned counsel appearing for the petitioners-assessees did challenge the validity of either of the provisions of the Central Act or the Rules made thereunder, there was nothing for him to make any submission by way of reply, except to tread on the path chosen by Mrs. Chitra Venkataraman, learned Additional Government Pleader (Taxes).
48. In view of the discussions as above, the following positions emerge :
(1) Rule 4(3A) of the Tamil Nadu Rules, being a machinery provision, is only directory in nature; but not mandatory.
(2) There is no conflict, repugnancy or inconsistency between the earlier pre-existing rule 4(3A) of the Tamil Nadu Rules and the subsequent enactment of the provisions, in the shape of section 6A of the Central Act and rule 12(5) framed thereunder prescribing a declaration in form "F" and to put it otherwise, rule 4(3A) must have to be construed as aiding, supplementing and supplanting the methodology of burden of proof contemplated under section 6A and in that view of the matter, it could not be stated to have been "impliedly repealed".
(3) The burden of proof that movement of goods is only by way of branch transfer and not by way of inter-State sale is always upon the assessee-dealer and it never shifts.
(4) The burden of proof so cast on the assessee-dealer is capable of being discharged either by the production of declaration in form "F" and evidence for the despatch of goods or by adduction of evidence aliunde without the production of declaration in form "F" and evidence for the despatch of goods.
(5) Once the declaration in form "F" and despatch of goods are produced by the assessee-dealer, it is however open to the assessing authority to make an enquiry as respects the particulars contained in the declaration in form "F" to verify whether those particulars are true or not and to sift the evidence aliunde to come to a just and proper conclusion as to whether the transaction is a branch transfer or otherwise.
(6) Once the enquiry contemplated under section 6A(2) of the Central Act is completed and a finding is recorded that the particulars contained in form "F" declaration are not true or the assessee-dealer failed to discharge the burden cast on him as to the proof of the movement of goods as being relatable to branch transfer and not otherwise, the inevitable inference, that there was a "sale" as defined under the Central Act, cannot at all be avoided; and (7) The cumulative effect of the provisions adumbrated under sections 3, 6, 6A, 9 and 13 of the Central Act and rule 12(5) of the Rules framed thereunder prescribing declaration in form "F" and rule 4(3A) of the Tamil Nadu Rules is to tax goods, movement of which had been made from one State to another, pursuant to the contract of sale and such sale getting concluded at a later point of time either in the State, where it had been effected or in the State, from which the goods had been moved and not to tax goods relatable to the transaction of branch transfer, which is admittedly a constitutional exclusion, in accordance with entry 92-A of List I of the Seventh Schedule to the Constitution. Although such exclusion is excluded by the insertion of entry 92-B of List I of the Seventh Schedule to the Constitution by section 5 of the Constitution (Forty-sixth Amendment) Act, 1982, enabling the Union to levy or impose tax on such transaction by enacting a suitable legislation therefor, such a legislation is yet to see the light of the day and as such, branch transfer simpliciter is not liable to tax.
49. Subject to the aforesaid guidelines, all these writ petitions are disposed of. Consequently, all WMPs are also dismissed. There shall, however, be no order as to costs, in the circumstances.
50. Writ petitions dismissed.