Punjab-Haryana High Court
Punjab Khandsari Udyog And Ors. vs The Additional Excise And Taxation ... on 7 April, 1982
Equivalent citations: [1983]52STC409(P&H)
ORDER M.R. Sharma, J.
1. The registration certificate granted to the petitioners in the year 1965 entitled them to purchase gur for the manufacture of khandsari. However, in 1963, the sales tax law had been amended. Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948, as amended provided that if a dealer purchased goods on the basis of his registration certificate without payment of tax and used them in the manufacture of tax-free goods in the State he was liable to pay tax. The petitioners claim exemption from payment of tax on the ground that the registration certificate entitled them to purchase gur without payment of tax. The Assessing Authority concerned turned down this contention on the basis of the rule laid down in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab [1965] 16 STC 310 (SC). The learned counsel for the petitioners has however argued that in a case inter partes a Full Bench of this Court in Punjab Khandsari Udyog v. State [1972] 30 STC 414 (FB), after considering the observations made by the Supreme Court in Modi Spinning and Weaving Mills' case [1965] 16 STC 310 (SC) laid down that the dealer was not liable to pay tax on the gur purchased. The view taken in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB), was considered by a later Full Bench of this Court of which I was a member. That case is reported as Sterling Steels & Wires Ltd. v. State of Punjab, ILR (1980) IP & H 306 (FB). Therein the view taken in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB) was impliedly doubted and the same was not overruled because the Bench considering the matter was a co-equal one. This matter has directly arisen in this case and I am of the view that this case should be decided by a still larger Bench so that the controversy may be set at rest. Let the papers be placed before my Lord the Chief Justice for obtaining suitable orders in that behalf.
In pursuance of the abovesaid order, the Full Bench delivered the following judgment :
JUDGMENT S.S. Sandhawalia, C.J.
1. Rumblings of a veiled doubt about the correctness of the ratio decidendi of the earlier Full Bench in Punjab Khandsari Udyog v. State [1972] 30 STC 414 (FB), had necessitated this reference. We take the view that all controversy in this context has now been set at rest by the final court in Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner of Sales Tax, New Delhi , AIR 1978 SC 897.
2. In view of the above, it is wholly unnecessary to burden this judgment with the facts as this Civil Writ Petition must go back for decision on merits before the single Bench. It suffices to mention that in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB) (the said case had also been preferred by the petitioners in this writ petition), the petitioners carried on the business of manufacture and sale of khandsari during the relevant year of 1965-66. A certificate of registration had been issued to the petitioners by the Assessing Authority on 21st April, 1965, certifying that the petitioners had been registered as dealers under the Punjab General Sales Tax Act, 1948; its business was "manufacture of khandsari"; and the sale of gur, shakkar and khand and some other goods to it (a) for purposes of manufacture and (b) for resale, would be free of tax. On the basis of this certificate, the petitioners purchased goods for the manufacture of khandsari without paying any sales tax thereon. However, the Assessing Authority held that since the petitioners had purchased goods for the manufacture of khandsari, which was tax-free goods, it was liable to pay sales tax under the second proviso to Section 5(2)(a)(ii) of the Act, as then applicable. The Sales Tax Tribunal, Haryana, (after the petitioners had been through the mill of the appellate and revisional proceedings) ultimately agreed with the view of the Assessing Authority. The petitioners then claimed a reference to the High Court and one of the questions so referred was as under:
No. 1. Whether in the circumstances and on the facts of the case the provisions of the second proviso to Section 5(2)(a)(ii) of the Act were rightly invoked to tax purchase value of gur (Rs. 4,50,780.53).
When the reference came before the Division Bench, it noticed that the referred questions gave rise to the basic question, whether a certificate issued, which runs counter to the provisions of the statute, can provide protection to the assessee acting thereon and he can avoid liability for the payment of tax ? The case was consequently referred for decision by a Full Bench. B. R. Tuli, J., . speaking for the Full Bench and after referring to the earlier precedents on the point, including the Supreme Court judgment in Modi Spinning and Weaving Mills Co. Ltd. v. Commissioner of Sales Tax, Punjab [1965] 16 STC 310 (SC), categorically observed as under :
. . . The petitioner did not use gur purchased for the manufacture of khandsari on the basis of its certificate of registration and the declarations furnished to the selling dealer(s), for any purpose other than the manufacture of khandsari. It cannot, therefore, be said that under the second proviso to Section 5(2)(a)(ii), set out above, the petitioner could be made liable for the payment of tax on the purchase of gur because he did not use that gur for any purpose other than that for which it was sold to it. It is quite a different matter that the petitioner was not entitled to purchase, free of tax, gur for the manufacture of tax-free goods like khandsari, but it did not use that gur for any other purpose. To repeat, the gur was purchased for the manufacture of khandsari and was used for that very purpose. The second proviso to Section 5(2)(a)(ii) has, therefore, no application and no other provision of the Act has been brought to our notice under which the State can assess the petitioner to tax on the purchase price of gur which was purchased by it for the manufacture of khandsari on the basis of its certificate of registration and declarations in form S. T. XXII. It is quite manifest that under Section 5(2)(a)(ii), as amended and in force in 1965-66, the selling dealer was not entitled to claim deduction for the sale turnover of gur sold to the petitioner tax-free for the manufacture of khandsari from his gross turnover and if claimed, the Assessing Authority should have disallowed it. If the selling dealer has been allowed that deduction, it can be only on the basis that khandsari is not tax-free goods. If that be so, then a different interpretation cannot be placed on khandsari in the hands of the petitioner. On that basis, the petitioner is not liable to pay any tax on the purchase of gur. Looked at from any point of view, the petitioner cannot be made liable for the payment of tax to the State Government on the purchase price of the gur because to the Government the selling dealer is liable to pay tax on his sale turnover of gur and if he defaulted in collecting the tax from the petitioner, he may have a cause of action against the petitioner but not the State Government. The State Government cannot act on behalf of the selling dealer who is himself an assessee, but the Assessing Authority could disallow any deduction from his sale turnover, if claimed under Section 5(2)(a)(ii) with regard to the sale of gur to the petitioner.
Accordingly, the answer to the aforesaid question No. 1 was rendered in the negative, i.e., in favour of the assessee and against the department. Whilst holding so, the Full Bench affirmed two earlier Division Bench judgments taking the same view in the State of Haryana and Anr. v. Karnal Gur and Khandsari Industries [1972] 30 STC 423, and Fancy Nets and Fabrics v. The State of Punjab [1971] 28 STC 433.
3. As is manifest from the referring order, the correctness of the view of the Full Bench in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB), was sought to be assailed primarily on its alleged conflict with the ratio of the earlier decision of their Lordships in Modi Spinning and Weaving Mills Co. Ltd. [1965] 16 STC 310 (SC) and that is why the matter is before us. However, as noticed earlier, the issue is concluded by the ratio of the decision of their Lordships in Polestar Electronic (Pvt.) Ltd. [1978] 41 STC 409 (SC), which is on all fours. Therein what fell for consideration were the virtually identical provisions of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, as applied to the Union Territory of Delhi. Particularly, it calls for notice that the second proviso to the aforesaid provisions was in pari materia with the earlier second proviso to Section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 (hereinafter called "the Act"). However, on 28th May, 1972, by the Finance Act, 1972 the main enactment in Section 5(2)(a)(ii) was substituted. However, the relevant Rule 26 and the form of the declaration were not amended till later on 29th March, 1973. The identical question of the liability to sales tax of the purchasing dealers when their registration certificates and declaration forms were at variance with the amended statute, therefore, fell for consideration before their Lordships. In construing the provisions, the undermentioned classic dictum of Justice Rowlatt in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64, was in terms reiterated :--
...In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.
It was observed by their Lordships that the rule is fairly established that the words of the taxing Act must never be stretched against a taxpayer and if the legislature has failed to clarify its meaning by the use of appropriate language, the benefit must go to the taxpayer and even if there is any doubt as to interpretation, it must be resolved in favour of the subject.
4. Strong reliance on Modi Spinning and Weaving Mills Co. Ltd.'s case [1965] 16 STC 310 (SC), was sought to be placed on behalf of the revenue before their Lordships. However, on an indepth analysis of the said judgment, it was held as follows:--
...The decision in Modi Spinning & Weaving Mills' case [1965] 16 STC 310 (SC) is, therefore, no authority for the proposition that even where the declaration is given on the prescribed form by a purchasing dealer, which does not contain a statement that the manufacture of goods would be in Delhi or the manufactured goods would be sold in Delhi, this condition should be read into the declaration by the addition of some such words as 'inside Delhi' after 'manufacture' and 'sale', so that if the goods purchased are not used as raw materials in manufacture in Delhi or the goods manufactured are sold outside Delhi, the purchasing dealer could be said to have committed a breach of the statement made in the declaration so as to attract the applicability of the second proviso. We are clearly of the view that such is not the correct legal position and the second proviso is not attracted in such a case.
Thus distinguishing the Modi Spinning and Weaving Mills Co. Ltd.'s case [1965] 16 STG 310 (SC), it was held as under :--
...The only end-use of the goods purchased required to be made for attracting the applicability of Section 5(2)(a)(ii) is that the goods must be utilised by the purchasing dealer as raw materials in the manufacture of goods and the goods so manufactured must be sold, irrespective whether the manufacture or sale takes place inside Delhi or outside Delhi. If the purchasing dealer does not use the goods purchased as raw materials in the manufacture of goods or having manufactured the goods does not sell them, he would commit a breach of the intention expressed by him in the declaration furnished to the selling dealer and the second proviso would immediately be attracted and the price of the goods purchased by him would be liable to be included in his taxable turnover. But so long as he carries out the intention expressed in the declaration and uses the goods purchased as raw materials in the manufacture of goods, whether inside or outside Delhi, and sells the goods so manufactured in Delhi or outside, he would not fall within the second proviso and the sale to him would not be taxable in his hands.
It is manifest that the aforesaid observations conclude the matter and affirm in categoric terms the earlier view of the Full Bench in Punjab Khandsari Udyog's case [1972] 30 STC 414 (FB).
5. With illimitable fairness, Mr. Harbhagwan Singh, the learned Advocate-General, Haryana, stated that the Polestar Co. Ltd.'s case [1978] 41 STC 409 (SC) now covers the field. The rather half-hearted attempt he made to distinguish the said case was on the ground that apparently in the Supreme Court case the registration certificate and the declaration forms were made under the earlier existing statute which was later amended whilst in the present case, even when the registration certificate was granted in the year 1965 as also the corresponding declaration forms were both contrary to the amendment in the Act, which had been made earlier in the year 1963. On these premises, it was sought to be contended that the petitioners should be debarred from deriving any benefit therefrom. Even this contention stands conclusively negatived by their Lordships rejection of a similar stance in the Polestar Co. Ltd.'s case [1978] 41 STC 409 (SC), in the undermentioned terms :--
We are conscious that the result of this view which we are taking would be that both the selling dealers as well as the assessees would escape tax even in cases where the assessees have manufactured goods outside Delhi or having manufactured goods sold them outside Delhi. But that is an unfortunate result for which the blame must lie fairly and squarely at the door of the administration. We fail to understand why the administration should not have amended Rule 26 and the form of the declaration until 29th March, 1973, when the amendment in Section 5(2)(a)(ii) was made as far as back as 28th May, 1972. The lethargy and inaction on the part of the administration are inexplicable and it is a matter of regret that the Union Territory of Delhi should have lost a large amount of revenue entirely due to gross negligence and default on the part of the administration.
In view of the above, the attempt of the learned Advocate-General to distinguish the Polestar Electronic (Pvt.) Ltd.'s case [1978] 41 STC 409 (SC) must necessarily fail.
6. Affirming the ratio of the Full Bench in Punjab Khandsari Udyog v. State [1972] 30 STC 414 (FB), we direct that the writ petition be now placed before a Single Bench for adjudication on merits.
Prem Chand Jain, J.
I agree.
M.R. Sharma, J.
I also agree.