State Taxation Tribunal - West Bengal
Jindal (India) Ltd. vs State Of West Bengal And Ors. on 29 August, 1989
Equivalent citations: [1990]76STC367(TRIBUNAL)
JUDGMENT
L.N. Ray, Judicial Member
1.This is a writ petition under Article 226 of the Constitution of India transferred to us from the High Court by virtue of Section 16 of the West Bengal Taxation Tribunal Act, 1087. The vires of the provisions of Sections 4(6)(ii) and 5(6)(b) of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as "the BFST Act"), as introduced by the West Bengal Act 23 of 1977 and as amended by the West Bengal Act 14 of 1978 and the West Bengal Act 8 of 1983, is challenged.
2. Jindal (India) Ltd., is a company under the Companies Act, 1956, having its registered office at New Delhi and other offices at Lillooch, Howrah, within our jurisdiction. Its shareholders including applicant No. 2 are Indian citizens. The company is a registered dealer under the BFST Act and also under the Central Sales Tax Act, 1956 (hereinafter called "the CST Act"). It has branch offices at some places including Madras and Bhubaneswar. It purchases hot rolled strips ("HR strips", for short) for its own use directly in the manufacture in West Bengal of cast iron goods, such as M.S. pipes and galvanised pipes. HR strips are declared goods of special importance in inter-State trade and commerce under Section 14 of the CST Act. The company pays concessional rate of 2 per cent sales tax when it purchases HR strips from registered dealers by issuing declarations in form XXIVA according to the proviso to Section 5(1)(bb) of the BFST Act, The applicant-company transfers its manufactured products to the branches outside West Bengal and also despatches consignments thereof to different places outside the State. Sub-section (6) was inserted in Sections 4 and 5 of the BFST Act for the first time by the West Bengal Act 23 of 1977, for imposing with effect from 10th October, 1977, a purchase tax in respect of specified purchases at the rate of 4 per cent. The rate was reduced to 2 per cent by the West Bengal Act 14 of 1978 and again increased to 3 per cent with effect from April 1, 1983, by the West Bengal Act 8 of 1983.
3. The company became liable to pay purchase tax for the first time for the financial year ending on 31st March, 1981, Purchase tax was imposed on the company by way of assessment for the years ending on 31st December, 1981 and 31st December, 1982. It paid the tax for the year ending 31st December, 1981 (obviously without preferring any appeal). But it preferred appeal against the assessment for the year ending on 31st December, 1982, for imposition of purchase tax on the ground that calculation of such tax was wrongful and illegal. The appellate authority set aside the assessment with a direction on respondent No. 1 to make fresh assessment in accordance with law. In or about June, 1983, the company discovered that it was not liable to pay purchase tax, since HR strips were declared goods under Section 14 of the CST Act. This ground was taken in the appeal against the assessment order for the year ending on 31st December, 1983, but was rejected. It has not paid any purchase tax for the subsequent years up to 31st December, 1987, by stating in the returns that purchase tax was not legally leviable.
4. The company challenges imposition of purchase tax on HR strips on the ground that the provisions are ultra vires Article 286(3) of the Constitution and Section 15 of the CST Act, on two grounds. The first ground is that sales tax is levied at 2 per cent at the stage of sale to the company and again a purchase tax is imposed on it on the same goods at the stage of purchase. The second ground is that under Section 15 of the CST Act the maximum tax leviable at the material time is 4 per cent, whereas with effect from 1st April, 1983, a total of 5 per cent tax is levied, 2 per cent as sales tax and 3 per cent as purchase tax. Such levy is further alleged to be in violation of articles 19(1)(g), 265 and 300-A of the Constitution. The company filed a supplementary affidavit dated 20th July, 1989, complaining that the impugned provisions of law imposing purchase tax is beyond the legislative competence of the State Legislature because it is in effect a tax on consignment or despatch of goods and because it is payable when the products are transferred outside West Bengal.
5. The case of the respondents is that of a denial and that it is within the competence of the State Legislature to impose purchase tax in specified circumstances. It is explained that the liability to pay purchase tax arises when contrary to the intention declared at the time of purchase of the goods for availing of the concessional rate of sales tax, the products are not sold in West Bengal, but disposed of otherwise by way of sale in West Bengal or transferred outside the State. Without imposing any penalty in Section 5A, the legislature has imposed the purchase tax for disposal or transfer of the products in an unauthorised manner, namely, in a manner contrary to the declaration given for payment of concessional sales tax at the rate of 2 per cent only.
6. Mr. Pranab Pal, learned Advocate for the applicants, submitted at the first instance that the impugned provisions of the BFST Act, if construed by applying the pith and substance rule, is a consignment tax or a tax on despatch of goods. He went on to submit that it fell within the exclusive legislative power of the Parliament under entry 92B of List I of the Seventh Schedule to the Constitution. Looking at the real nature of the tax in question we see that it is exigible on purchase of goods intended to be used by the purchaser directly in the manufacture of goods in West Bengal for sale in West Bengal, where a concessional sales tax at the rate of 2 per cent was availed of at the time of purchase upon a declaration of such intention in terms of Section 5(1)(bb) and its proviso, but where ultimately the products are disposed of in West Bengal otherwise than by way of sale or transferred outside West Bengal contrary to such declaration. The taxable event is neither the disposal in West Bengal otherwise than by way of sale, nor the transfer outside West Bengal. The taxing event is the purchase of goods. Collection of the tax has been merely postponed and made conditional. That does not alter the basic character of the State Legislature's competence to legislate on imposition of such purchase tax under entry 54 of List II. It is well-settled that entries in the Legislative Lists in the Constitution must be given the widest amplitude at the time of interpretation so as to extend to all the incidental and ancillary powers which can fairly and reasonably be said to be comprehended in it [See [1989] 74 STC 146 (SC) (Elel Hotels and Investments Ltd. v. Union of India) ]. In the instant case, the purchase tax under attack squarely falls within the power of the State Legislature in entry 54 of List II. There is no overlapping at all. Even if there would have been overlapping between this power and the power of the Parliament under entry 92B of List I, it would have mattered little. Because on reading together the said two entries in the two Lists there is no escape from the inevitable interpretation that entry 54 of List II must comprehend this power to the extent and in the manner exercised for enacting Sections 4(6) and 6(6) of the BFST Act [See [1989] 74 STC 102 (SC) (Federation of Hotel & Restaurant Association of India v. Union of India)]. We have, thus, no hesitation in rejecting this contention of Mr. Pal. The view taken by us regarding purchase tax vis-a-vis consignment tax was also taken by a Full Bench judgment of the Punjab and Haryana High Court reported in [1985] 58 STC 393 (Des Raj Pushap Kumar Gulati v. State of Punjab) and referred to by Mr. P.K. Chakraborty, the learned State Representative. He also referred to a similar judgment of the Bombay High Court reported in [1989] 72 STC 69 (Wipro Products Limited v. State of Maharashtra). Mr. Pranab Pal contended that those two decisions are awaiting the final verdict of the Supreme Court which has already heard arguments in the appeals therefrom. Until those judgments are reversed, they ramain in full force and in any case, those judgments have a persuasive value as far as we are concerned. We have taken our own views and we hold that the impugned tax is only a purchase tax and not a consignment tax or tax on despatches of goods. Subsequent to the arguments, Mr. Sumit Kumar Chakraborty for the applicants drew our attention (in the presence of the State Representative) to a recent judgment dated May 12, 1989, of the Supreme Court in the case of Buxa Dooars Tea Co, Ltd. v. State of West Bengal [1989] 74 STC 447. The rural employment cess levied by Section 4(2) (aa) of the West Bengal Rural Employment and Production Act, 1976, was held unconstitutional on the grounds that it amounted to a direct restriction on the movement of tea and that without sanction of the President under Article 404(b), proviso, the State Legislature had no, competence to levy such a tax clearly on despatches of tea from tea estates. That judgment has no bearing on the instant case, because the purchase tax has no manner of nexus with despatches or consignments.
7. Mr. Pal next argued that the impugned provisions are violative of Article 286(3) of the Constitution and Section 15(a) of the CST Act. As regards the first ground of challenge, namely, levy of sales tax and purchase tax at the same stage, Mr. Chakraborty for the respondents contended that the sale and purchase of the same goods at the same stage, constituted a single composite stage and therefore it was competent for the State Legislature to impose sales tax and purchase tax on the same stage of the transaction without violation of Article 286(3) and Section 15(a) of the CST Act. The law in this respect is settled by two decisions of the Supreme Court reported in [1985] 60 STC 1 (Govind Saran Ganga Saran v. Commissioner of Sales Tax) and [1986] 63 STC 314 (Rajasthan Commercial Corporation v. Sales Tax Commissioner). The stage must not only be single but must be definite and ascertainable so that both the dealer and the sales tax authorities may know clearly the "point" at which the tax is to be levied. The State law should specify expressly or by necessary implication the "single point" at which the tax may be levied. Section 8 of the Orissa Sales Tax Act, 1947, and the significance of a single point tax came up before the Supreme Court for consideration in [1985] 60 STC 213 (State of Orissa v. Titaghur Paper Mills Co. Ltd.). Section 8 of that Act prohibited taxing at more than one point by laying down : "Provided that the same goods shall not be taxed at more than one point in the same series of sales or purchases by successive dealers." It was held at page 237 of the Report that where goods have already been made liable to purchase tax under Section 8 of the Orissa Act, no sales tax can be levied in respect of the same transaction. Learned State Representative attempted to distinguish a "stage" from a "point". But neither [1985] 60 STC 1 (SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) nor [1986] 63 STC 314 (SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner), did so. In those judgments the two words were used synonymously. The word "stage" is used in the matter of transports to mean "a stopping point on a route" and "the distance between two such points" (Webster's New World Dictionary). In connection with Section 15(a), a "stage" has been understood by the Courts as a "point" [Also see [1965] 16 STC 29 (Mad.); AIR 1965 Mad 360 (State of Madras v. Narayanaswami Naidu]. Apart from that, Section 15(a) uses the words : "sale or purchase of such goods inside the State". We are of the view that the single point of tax can be imposed either on sale or purchase at one stage and not on both sale and purchase though forming the same transaction. Having regard to the language of Section 15(a) of the CST Act and the ratio of the decisions of the Supreme Court discussed above, we are of the view that the State Legislature has no power to impose both sales tax and purchase tax on the same declared goods at the same stage, although the sale and the purchase may constitute one composite transaction.
8. We have discussed and found in the course of our judgment in RN-125(T) of 1989 and other cases Tata Iisco Dealers' Association [1990] 76 STC 14 delivered on 31st July, 1989, that in the BFST Act the point of taxation on iron and steel, being declared goods, is the first point of sale. For the purpose of Section 15(a) of the GST Act, sale and purchase, though parts or two aspects of the same transaction, are two separate stages or points mutually exclusive of each other. The State Legislature has to choose any one of the two aspects for the purpose of taxation. In respect of declared goods under Section 14 of the GST Act, the State Legislature's power to tax is restricted. From that point of view, the levy of the purchase tax on declared goods in the circumstances of the present case by the impugned provisions is beyond the legislative competence of the State Legislature and violative of Article 286(3) and Section 15(a) of the CST Act. The second ground of challenge is that with effect from 1st April, 1983, the purchase tax was increased to 3 per cent, thereby making the total tax burden at the rate of 5 per cent (sales tax 2 per cent plus purchase tax 3 per cent) which is in excess of the maximum of 4 per cent laid down in Section 15(a) of the CST Act. Mr. Chakraborty, the learned State Representative, conceded that this was bad and without striking down the provisions, it may be declared by us that purchase tax with effect from 1st April, 1983, cannot be levied on or collected from purchasers of declared goods under Section 14 of the CST Act. But, we have seen that imposition of purchase tax with effect from 10th October, 1977, (i.e., from the very beginning) has been bad and illegal in respect of declared goods under Section 14 of the CST Act, because of violation of Section 15(a) of that Act regarding the single stage of taxation. Moreover, imposition of such tax on declared goods was bad between 10th October, 1977, and 31st March, 1978, because it was at the rate of 4 per cent, making total tax burden to the tune of 6 per cent. For the reason of this vice, we may not strike down the impugned provisions, because they apply to various goods other than declared goods like HR strips which are tinder our consideration. It will be adequate if we declare that levy of purchase tax by these provisions of law in respect of declared goods was bad and no such tax can be collected in respect of such goods as long as sales tax is collected thereon.
9. Mr. Pal, for the applicants contended that the purchase tax is hit by articles 14, 19(1)(g) and 301. A wide latitude is allowed to the legislature in classification of taxable events, persons and subject-matter, etc., and the test under Article 14 is less rigorous in the matter of taxing laws. Here there is a rational differentia for considering those manufacturers in one class, who sell their products in West Bengal and for grouping the other manufacturers in another class, who dispose of their products in West Bengal otherwise than by way of sale or transfer the same outside the State. The classification has a rational nexus with the object sought to be achieved (See the long title and the preamble to the BFST Act). Hence, there is no breach of Article 14. The imposition of purchase tax does not by any means restrict the right under Article 19(1)(g) and does not restrict the free flow of trade and commerce directly and immediately as contemplated in Article 401. So, on these questions we are unable to agree with Mr. Pal.
10. In the result, the writ petition succeeds to the extent indicated herein. As long as sales tax will be levied and collected in respect of declared goods under Section 14 of the CST Act, 1956, including HR strips (in which the applicants are interested), the respondents shall not levy or collect purchase tax in respect of such goods on the strength of the provisions of Sections 4(6)(ii) and 5(6)(b) of the BFST Act, 1941, as amended from time to time. All completed assessments of the applicant- company commencing from the year ending on 31st December, 1981, shall be revised in terms of this judgment within three months. All pending assessments of the applicant-company shall be made in due course according to this judgment. Excess tax paid or realised shall be either. adjusted against unrecovered or unpaid taxes or shall be refunded within six months from the date. Interim orders shall stand vacated. We make no order as to costs. Prayers (a) to (d) and (f) in the writ petition are thus allowed in the above terms and to the above extent. The bank guarantee he released to the applicants within two weeks.
B.C. Chakrabarti, Chairman
11. I agree.
P.C. Banerji, Technical Member
12. I agree.