Delhi High Court
M/S Pentex Sales Corporation vs Commissioner Of Sales Tax, Delhi on 6 May, 2013
Author: Vibhu Bakhru
Bench: Badar Durrez Ahmed, Vibhu Bakhru
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 06.05.2013
+ ST. REF. 1/1998
M/S PENTEX SALES CORPORATION ..... Petitioner
versus
COMMISSIONER OF SALES TAX, DELHI ..... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr P.P. Mittal with Mr P.K. Mittal
For the Respondent : Mr Sushil Dutt Selwan with Mr Vineet Bhatia
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The present matter arises from a reference made by the Sales Tax Appellate Tribunal wherein the following questions have been referred:
"Whether in the facts and circumstances of the case, the claim for deduction of sales against prescribed Forms ST-1, furnished by the purchasing dealer in respect of goods found during enquiry by the Assessing Authority, not specified in the Registration Certificate of the purchasing dealer, would render the selling dealer in law:
(a) guilty of wilful omission;
(b) dis-entitled for deduction in respect of those goods within the meaning of proviso-II to sub-clause (v) of clause (a) of sub-STR No. 1/1998 Page 1 of 29
Section(2) of Section 4 of the Delhi Sales Tax Act, 1975 and rules framed thereunder; and
(c) liable for imposition of interest also within the meaning of Section 27 on the amount of 'due tax' assessed under Section 23 of the Delhi Sales Tax Act, 1975 and Rules framed thereunder in respect of those goods from the date of submission of return itself?"
2. The petitioner was assessed to sales tax by the Assessing Authority for the assessment year 1984-85 under the Delhi Sales Tax Act, 1975 (hereinafter also referred to as 'the Act'). The Assessing Authority made a demand of `.1,98,590/- including interest in the sum of `.85,053/-. The above demand was raised on the ground that nine ST-1 Forms submitted by the petitioner were held to be invalid as an inquiry had revealed that the said forms were issued by the purchasing dealer who did not hold a registration certificate in respect of the goods sold by the petitioner. The petitioner who is a dealer in electronic goods had declared sales of `.11,30,478/- against the said nine ST-1 Forms furnished by one M/s New Standard Foam Manufacturing Company who was a registered dealer albeit with respect to hosiery goods only and did not hold a registration certificate with respect to electronic goods. The Assessing Authority thus did not allow deduction of `.11,30,478/- on account of sales made by the petitioner to M/s New Standard Foam Manufacturing Company from the 'taxable turnover' of the petitioner for the relevant assessment year. The Assessing Authority assessed sales tax at the STR No. 1/1998 Page 2 of 29 rate of 10% of the said disallowance and also imposed interest on such tax from the date of filing of the return.
3. Aggrieved by the order dated 19.03.1989 passed by the Assessing Authority, the petitioner preferred an appeal under Section 43 of the Act before the Deputy Commissioner, Sales Tax. The Deputy Commissioner of Sales Tax held that the declaration issued in Form ST-1 by M/s New Standard Foam Manufacturing Company was not valid in view of the second proviso to Section 4(2)(a) of the Act and dismissed the appeal. Aggrieved by the dismissal of the first appeal, the petitioner preferred an appeal before the Appellate Tribunal which was also dismissed by an order dated 12.02.1996. The Appellate Tribunal further held that the return made by a dealer must be correct and complete and to the best of his knowledge and belief and without any wilful omission on the part of the dealer. The Appellate Tribunal held that the return made by the petitioner could not be stated to be without any wilful omission as the petitioner ought to have been vigilant and aware that ST-1 Forms, on the basis of which the petitioner had claimed deduction from the taxable turnover, were invalid and the same could have been discovered by the petitioner with little care and due diligence. The Tribunal further held that as the petitioner was guilty of wilful omission in paying the correct sales tax, the petitioner was also liable to pay STR No. 1/1998 Page 3 of 29 interest under Section 27 of the Delhi Sales Tax Act from the date of submission of the return.
4. Admittedly M/s New Standard Foam Manufacturing Company i.e. the purchasing dealer did not hold a registration certificate in respect of electronic goods and the purchasing dealer could not have issued the ST-1 Forms. It is contended on behalf of the petitioner that the petitioner was under no obligation to verify whether the purchasing dealer issuing the ST-1 Forms in fact held a registration certificate in respect of the goods specified in the ST-1 Forms as the ST-1 Forms contained the declaration by the purchasing dealer that the goods purchased were covered under the registration certificate. The ST-1 Forms also contained the verification by the purchasing dealer that the statement made in the Forms was true to the best of his knowledge and belief. It is contended on behalf of the petitioner that once the ST-1 Forms had been issued by a registered dealer, it was not incumbent upon the selling dealer to make any further inquiry and the seller was entitled to rely on the declaration made by the purchasing dealer in the ST-1 Form that the purchasing dealer held a registration certificate in respect of the goods sought to be transacted. The counsel for the petitioner has also drawn our attention to Section 50(1)(d) of the Act which provides that whoever, being a registered dealer, falsely represents, while purchasing any goods that such goods are covered by a certificate of registration, is liable to be punished with rigorous STR No. 1/1998 Page 4 of 29 imprisonment for a term which may extend to six months or with a fine or with both. It has thus been contended on behalf of the petitioner that the authorities would have, in cases of false declarations by the purchasing dealer, recourse to recover penalty from the offending dealer and that would compensate any loss of revenue that may have resulted on account of the false representations made in the ST-I forms. It is contended that the Assessing Authorities would be required to pursue the matter against the purchasing dealer and cannot seek to recover tax from the selling dealer.
5. The petitioner had further relied on the decision of the Supreme Court in the case of State of Madras v. Radio Electrical Ltd. and Anr.: 1966 (18) STC 222 wherein it has been held that, where C-Forms submitted by a purchasing dealer state that the goods are intended to be used for a particular purpose and the purchasing dealer misapplies the goods, the selling dealer is under no obligation to ensure that the goods are applied for the purposes as represented by the purchasing dealer and the selling dealer is entitled to rely upon the Forms submitted by the purchasing dealer for claiming exemptions of concessional rate of tax. The counsel for the petitioner has further relied on Circular No. 30 of 1979-80 issued by the Sales tax authorities in support of his contention that ST-1 Forms issued by the purchasing dealer are, prima facie, taken as correct and the STR No. 1/1998 Page 5 of 29 law does not cast any duty on the seller to verify the correctness of the Form issued by the purchasing dealer.
6. With regard to the question whether the petitioner is liable to pay interest under Section 27 of the Act on the amount of Tax as assessed under Section 23, it is urged on behalf of the petitioner that the expression "tax due" appearing in section 27(1) of the Act has to be read in conjunction with Section 21(3) of the Act and the expression "tax due" is the amount of tax payable as per the return and, since, according to the petitioner no tax was payable on the sales made against ST-1 Forms, no interest could be charged under section 27(1) of the Act from the date of submission of the returns. It has been further contended that the petitioner was entitled to rely on the declaration made by the purchasing dealer in the ST-I Forms and thus there was no omission on his part.
7. Section 4 of Act provides for the levy of Sales Tax on the taxable turnover of the assessee. The expression "turnover" is defined under Section 2(o) as under:-
"(o) "turnover" means the aggregate of the amounts of sale price receivable, or, if a dealer so elects, actually received by the dealer, in respect of any sale of goods, made during prescribed period in any year after deducting the amount of sale price, if any, refunded by the dealer to a purchaser in respect of any goods purchased and returned by the purchaser within the prescribed period:STR No. 1/1998 Page 6 of 29
Provided that an election as aforesaid once made shall not be altered except with the permission of the Commissioner and on such terms and conditions as he may think fit to impose."
8. Sub-section (2) of Section 4 of the Act provides for certain deductions from the dealer's turnover to arrive at the "taxable turnover" for the purposes of the Act. Section 4(2)(a)(v) of the Act provides for excluding certain sales made by a registered dealer to another registered dealer from the "taxable turnover" of the selling dealer. Section 4(2)(a)(v) of the Act is quoted below :-
"4. Rate of Tax -
(1) xxxx xxxx xxxx xxxx xxxx
(2) For the purposes of this Act, "taxable turnover" means that
part of a dealer's turnover during the prescribed period in any year which remains after deducting therefrom,--
(a) his turnover during that period on -
xxxx xxxx xxxx xxxx xxxx
(v) sale to a registered dealer--
(A) of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for use by him as raw materials in the manufacture in Delhi of any goods, other than goods specified in the Third Schedule or newspapers,--
(1) for sale by him inside Delhi; or
(2) for sale by him in the course of inter-State trade or
commerce, being a sale occasioning, or effected by transfer of documents of tile to such goods during the movement of such goods from Delhi; or (3) for sale by him in the course of export outside India being a sale occasioning the movement of such goods from Delhi, or a sale effected by transfer of documents of title to STR No. 1/1998 Page 7 of 29 such goods effected during the movement of such goods from Delhi, to a place outside India and after the goods have crossed the customs frontiers of India; or (B) of goods of the class or classes specified in the certificate of registration of such dealer as being intended for resale by him in Delhi, or for sale by him in the course of inter-State trade or commerce or in the course of export outside India in the manner specified in sub-item (2) or sub-item (3) of item (A), as the case may be; and (C) of containers or other materials, used for the packing of goods, of the class of classes specified in the certificate of registration of such dealer, other than goods specified in the Third Schedule, intended for sale or resale;"
9. The purchasing dealer had made a declaration in the prescribed form (i.e. ST-1 Form) that the goods were for resale by him in Delhi and in terms of Section 4(2)(a)(v)(B) of the Act, the petitioner would be entitled to reduce his taxable turnover by the quantum of sales made to the purchasing dealer subject to compliance of the rules.
10. Rule 7 of the Delhi Sales Tax Rules, 1975 (hereinafter referred to as 'the Rules') specifies the conditions subject to which a dealer may claim deduction from his turnover on account of sales made to a registered dealer. The relevant extract of Rule 7(1) of the Rules is quoted below:-
"7. Conditions subject to which a dealer may claim deduction from his turnover on account of sales to registered dealers.- (1) A dealer who wishes to deduct from his turnover the amount in respect of sales on the ground that he is entitled to make such deduction STR No. 1/1998 Page 8 of 29 under the provisions of sub-clause (v) of clause (a) of sub-section (2) of section 4, shall produce-
(a) copies of the relevant cash memos or bills according at the sales are cash sales or sales on credit; and
(b) a declaration in Form ST-1 duly filled in and signed by the purchasing dealer or a person authorized by him in writing:
Provided that no single declaration in Form ST-1 shall cover more than one transaction of sale except in cases where the total amount of sales made in a year covered by one declaration is equal to or less than Rs.50,00,000/- or such other amount as the Commissioner may, from time to time, specify in this behalf in the Official Gazette:
Provided further that where, in the case of any transaction of sales, the delivery of goods is spread over different years it shall be necessary to furnish a separate declaration in respect of goods as delivered in each year."
11. Rule 8 of the Rules mandates that the declaration referred to in the second proviso to clause 4(2)(a) of the Act should be in 'Form ST-1' which would be printed under the Authority of the Commissioner and could be obtained from the appropriate Assessing Authority by the registered dealer intending to purchase goods on the strength of his certificate of registration. The relevant portions of Rule 8 of the Rules are quoted below:-
"8. Authority from whom the declaration form may be obtained, and use, custody and maintenance of records of such forms and matters incidental thereto.-
(1) The declaration referred to in the second proviso to clause (a) of sub-section (2) of section 4 shall be in Form ST-1 which shall be printed under the authority of the Commissioner and shall be obtained from the appropriate assessing authority by the registered STR No. 1/1998 Page 9 of 29 dealer intending to purchase goods on the strength of his certificate of registration.
(2) No selling dealer shall accept any declaration from a purchasing registered dealer unless it is furnished in Form ST-1 and not declared invalid or obsolete by the Commissioner:
Provided that the declaration Form ST-1 issued to a dealer before the 1stFebruary, 1978 and remaining unused shall become invalid and obsolete except for the purpose of a transaction of sale effected before the 31st January, 1978:
Provided further that all invalid and obsolete Form ST-1 covered by the foregoing proviso shall be surrendered by the registered dealer to the appropriate assessing authority upto the 31st March, 1979 with an up to date account of the forms received, used and surrendered.
(2A) If the space provided in Form ST-1 is not sufficient for making the entries, the particulars specified in the said form may be given in a separate annexure attached to that form so long as it is indicated in the form that the annexure forms part thereof and such annexure is also signed by the person signing the declaration in Form ST-1.
(3) For obtaining declaration Form ST-1, a registered dealer-
(i) shall submit a Requisition Account of statutory form in Form ST-2A together with his last return in each assessment year; and
(ii) shall apply for issue of forms to appropriate assessing authority in Form ST-2C, whenever such forms are required.
(4)(a) If, for reasons to be recorded in writing the appropriate assessing authority is satisfied that the declaration forms have not been used bona fide by the applicant or that he does not require such forms bona fide, the appropriate assessing authority may reject the application or it may issue such lesser number of forms as it may consider necessary.STR No. 1/1998 Page 10 of 29
(b) If the applicant for declaration forms has, at the time of making the application, failed to comply with an order demanding security from him under sub-section (1) of section 18, the appropriate assessing authority shall reject the application.
(c) If applicant for declaration forms has, at the time of making application-
(i) defaulted in furnishing any return or returns in accordance with the provisions of the Act or these rules, or in payment of tax due according to such return or returns; or
(ii) defaulted in making the payment of the amount of tax assessed or penalty imposed by assessing authority, in respect of which no orders for instalments/stay have been obtained from the competent authority under the provisions of law; or (iia) not filed proper Requisition Account of the declaration forms required by him; or (iib) not filed proper utilization account in Form ST-2B of forms issued to him in advance together with the returns for the period during which the form were utilized; or
(iii) been found by an appropriate assessing authority having some adverse material against him, suggesting any concealment of sale or purchase or of furnishing inaccurate particulars in the returns, the appropriate assessing authority shall, after affording the applicant an opportunity of being heard, withhold, for reasons to be recorded in writing, the issue of declaration forms to him and the appropriate assessing authority shall make a report to the Commissioner about such withholding within a period of three days from the date of its order:"
xxxx xxxx xxxx xxxx xxxx
STR No. 1/1998 Page 11 of 29
"(d) Where the appropriate assessing authority does not proceed
under clause (a), clause (b), or clause (c), it shall issue the requisite number of declaration forms to the applicant.
(5) The counterfoil of the form shall be retained by the purchasing dealer and the other two portions marked 'original' and 'duplicate' shall be made over to the selling dealer."
12. It is also relevant to examine 'Form ST-1'. The said form is in two parts. While the part marked as "DUPLICATE / ORIGINAL" is furnished by the purchasing dealer to the selling dealer, the counter foil is retained by the purchasing dealer. The Form ST-1 is as under:-
"COUNTER FOIL DUPLICATE/ORIGINAL
FORM ST-1 FORM ST-1
(See rule 7)
(See rule 7)
FORM OF DECLARATION FOR
FORM OF DECLARATION
PURCHASES BY REGISTERED
FOR PURCHASES BY
DEALERS
REGISTERED DEALERS
Issued to holder of Serial
Seal of the issuing authority
No..........
Serial No. ...................
Registration Certificate Seal of the
To
issuing
........................... (Seller)
No............... authority
........................... (Address)
To
Declaration given against:
........................... (Seller)
........................... (Address)
Certified that the goods purchased
from you as per bill / cash memos
stated below are covered by *my/our
Registration Certificate No..........
dated.......... Which is valid with
effect from.......... and are for:
*(i) Sale or resale
*(ii) Use of raw materials
STR No. 1/1998 Page 12 of 29
*(iii) Packaging of goods
in terms of section 4(2)(a)(v) of the
Delhi Sales Tax Act, 1975.
* Strike out the words/expressions
not applicable.
Bill(s)/Cash memo(s) Description Bill(s)/Cash memo(s) Description
Value of Value of
No. and date of goods No. and date of goods
goods goods
TOTAL...................
Date......... Signature..........
The above statements are true to the
best of my knowledge and belief.
Date...... Signature.................
Name of the person signing the
declaration and his status in relation to
the purchasing dealer.
Name and address of the purchasing
dealer."
13. A bare perusal of Rule 8 does indicate that there are checks to ensure that the same are issued to bonafide dealers and can be relied upon by the selling dealers. In the first instance, ST-1 Forms are printed under the Authority of the Commissioner and are issued by the Assessing Authority of the purchasing dealer on an application made to him by the purchasing dealer. An application for issuance of forms may also be rejected by the Assessing Officer, if the Assessing Officer is satisfied that the declaration forms have not been used bonafide or if the conditions in sub-rule (4) of Rule 8 of the Rules are not satisfied. Further, the STR No. 1/1998 Page 13 of 29 declarations made in the ST Forms are unequivocal and the purchaser is liable to be subjected to punitive action if the same are found to be untrue. Thus, in the normal course, there would be no reason for the selling dealer to doubt the declaration made by the purchasing dealer, in the Form ST-1. In the present case too, the petitioner has relied upon such Forms and there is no material on record to suggest that the petitioner accepted the ST-1 Forms with the knowledge that the declarations made thereunder by the purchasing dealer were wrong. We are, thus, unable to agree with the view that there was any "willful omission" on the part of the petitioner in making his return or that the return was made by the petitioner knowing that the particulars in the ST-1 Forms on the strength of which deduction in the taxable turnover was claimed were inaccurate.
14. The Tribunal held that the petitioner could have discovered that the purchasing dealer did not have a registration certificate in respect of the goods sold to him and that the petitioner ought to have been aware of the law and, as ignorance of law is no excuse, the petitioner was guilty of "wilful omission". We are unable to agree with the Tribunal in this regard. The adage that ignorance of law is no excuse will have little application in determining whether the assessee is guilty of "wilful omission" or not unless it is found that the contention raised by the assessee in his defence is moonshine or a subterfuge. STR No. 1/1998 Page 14 of 29
15. The reference to the decision of the Supreme Court in the case of J.K. Synthetics v. Commercial Tax Officer: (1994) 94 STC 422 (SC) in the impugned judgment also does not support the view that there has been any wilful omission on the part of the petitioner. On the contrary the Supreme Court holds that if a dealer has furnished particulars without wilfully omitting or withholding any particular information which has bearing on the assessment of tax, which he honestly believes to be correct and complete, it would be difficult to hold that the dealer has not acted bona fide in depositing of tax due on that information. It has been further held that the legislature desires to be harsh with wilful defaulters or those guilty of wilful omission and not with dealers who have failed to supply information under a bona fide belief that the same was not necessary or with those who have failed to pay full tax due, not with a view to evading the liability to pay tax, but because they believed that they were liable to pay the tax as assessed by them. The relevant extract from the said judgment in the case of J.K. Synthetics (supra) is quoted below:-
"5.... In sub-section (2-A), by Amending Act 4 of 1979, the words "tax according to his accounts" were substituted for the words "proportionate tax on the basis of the last return" and the latter part of the sub-section was restructured by deleting the words "[t]he difference, if any, of the tax payable according to the return and the advance tax paid shall be deposited with the return"
and making the sentence a running one. Sub-section (3) permits a dealer who discovers any error or omission in his return to submit a revised return in the prescribed manner before the time prescribed for the submission of the next return but not later. STR No. 1/1998 Page 15 of 29
6. Now Section 7(2) says that every 'such' return, meaning thereby the return referred to in Section 7(1), shall be accompanied by a receipt showing the deposit of the full amount of tax due "on the basis of the return". In other words the dealer is required to pay the full amount of tax that becomes due on the basis of the particulars in regard to the turnover and taxable turnover disclosed in the return. Sub-section (2-A) begins with a non obstante clause, namely, notwithstanding anything contained in sub-section (2), and provides that any dealer or class of dealers specified in the notification may pay the tax at intervals shorter than those prescribed under sub-section (1), in which case the tax shall be deposited at the intervals specified in the notification in advance of the return and the return shall be accompanied by the receipt for the full amount of tax due "shown in the return". Although the phraseology used in sub-sections (2) and (2-A) of Section 7 is not the same, the content and purport of the two sub- sections is more or less identical, namely, both the sub-sections require that the return shall be accompanied by a receipt evidencing the deposit of the "full amount of tax due" on the basis of the return or on the basis of the information shown in the return. The full amount of tax due and payable prior to the submission of the return is clearly relatable to the information furnished in the return. Undoubtedly, the information to be furnished in the return must be "correct and complete", that is, true and complete to the best of knowledge and belief; without the dealer being guilty of wilful omission. This is the essence of the verification clause found at the foot of Form ST 5. Rule 25 expects the verification of the return to be in the manner indicated in Form ST 5. Therefore, on a conjoint reading of Section 7(1), (2) and (2-A), Rule 25, the information to be furnished under Form ST 5 and the form of verification, it becomes clear that the dealer must deposit the full amount of tax due on the basis of information furnished, which information must be correct and complete to the best of the dealer's knowledge and belief without he being guilty of wilful omission. If the dealer has furnished full particulars in respect of his business, without wilfully omitting or withholding any particular information which has a bearing on the assessment of tax, which he honestly believes to be "correct and complete", it would be difficult to hold that the dealer had not acted "bona fide" in depositing the tax due on that information before the submission of the return. Of course the tax so deposited STR No. 1/1998 Page 16 of 29 is to be deemed to be provisional and subject to necessary adjustments in pursuance of the final assessment. Section 7-AA empowers levy of penalty if the assessing authority is satisfied that any dealer has "without reasonable cause" failed to furnish the return under Section 7(1) within the time allowed. The use of the words "without reasonable cause" clearly implies that if the dealer can show reasonable cause for his lapse he cannot be visited with the penalty prescribed by Section 7-AA. To put it differently if reasonable cause is shown by the dealer for the lapse, he cannot be visited with penalty under this provision. This is also suggestive of the fact that the legislature desired to be harsh with wilful defaulters or those guilty of wilful omission of material information and not with dealers who failed to supply some information under the "bona fide" belief that the same was not necessary or those who had failed to pay the full tax due not with a view to evading or avoiding the liability to pay the tax but because they bona fide believed that they were liable to pay the tax assessed by them on the basis of the return and no more. If at a later date on the basis of a different interpretation put on the language of the relevant provisions of the law, the dealer becomes liable to pay tax in excess of that already paid, he may be called upon to make good the difference but he cannot be visited with penalty under Section 7-AA unless it is shown that the dealer had withheld payment of the differential tax by wilfully withholding material information or had acted without reasonable cause in committing the default....."
(underlining added)
16. Following the aforesaid judgment, it cannot be held that the petitioner was guilty of wilful omission in filing his return on the basis of the ST-1 Form which was duly furnished to him by the purchasing dealer. Thus, in our view the answer to the first question whether the petitioner is guilty of willful omission must be answered in the negative.
STR No. 1/1998 Page 17 of 29
17. The second question to be considered is whether the claim for deduction of sales against prescribed ST-1 Forms, furnished by the purchasing dealer, in respect of goods which are not specified in the Registration Certificate of the purchasing dealer, would dis-entitle the selling dealer to the deduction in respect of those sales within the meaning of proviso-II to sub-clause (v) of clause (a) of sub-Section (2) of Section 4 of the Delhi Sales Tax Act, 1975.
18. One of the pre-conditions which is required to be satisfied for deduction of sales made to a registered dealer from a taxable turnover of a assessee, under Section 4(2)(a)(v)(B) of the Act, is that the sale to the registered dealer must be of a class or classes of goods as specified in the certificate of registration of such a dealer. Indisputably, this condition is not satisfied in the present case and as such the deduction as contemplated under Section 4(2)(a)(v)(B) of the Act is not available to the petitioner. The learned counsel for the petitioner has contended that the scheme of the Act does not contemplate that the selling dealer should make any enquires as to the validity of the forms submitted by the purchasing dealer and a selling dealer is required to accept the declaration as submitted and the only exception to this is specified in sub-rule (2) of rule 8 of the Rules, that is, where the declaration from a purchasing registered dealer is not furnished in Form ST-1 or where such Forms have been declared to be invalid or obsolete by the Commissioner. The learned counsel for the petitioner has relied on the decision of the Supreme Court in the case of Radio and Electricals Ltd (supra) STR No. 1/1998 Page 18 of 29 and strongly urged that the ratio of the decision of the Supreme Court is that a selling dealer can rely on the declaration (in that case, Form C) and that the selling dealer has no duty to examine the correctness of the forms submitted. The scheme of claiming reduction in tax, under the Central Sales Tax Act, on account of sales made against Form C is similar to the scheme of reducing the taxable turnover on account of sales made against ST-1 Forms under the Act. It is contended, as the Supreme Court has held that a misrepresentation made in Form C as to application of the goods by the purchasing dealer would not disable the selling dealer from claiming deduction in respect of the sales made against such forms subsequently found to be inaccurate, the petitioner would also be entitled to deduct the sales made against ST-1 Forms without any further enquiry.
19. We are unable to agree with this contention. In our view the reliance placed by petitioner on the decision of the Supreme Court in the case of Radio and Electricals Ltd (supra) also does not further the case of the petitioner. First of all, it has been clearly held by the Supreme Court in the case of Radio and Electricals Ltd (supra) that it would be the duty of the selling dealer to verify that the purchasing dealer is (a) a registered dealer and (b) holds a registration certificate in respect of the goods sold to him. Once a selling dealer has complied with the same, his duty does not extend any further. Before a registered dealer can accept the declaration made by the purchasing dealer, he must satisfy himself STR No. 1/1998 Page 19 of 29 that the declaration is true in so far as the purchasing dealer does hold a certificate of registration in respect of the goods which are being transacted. Secondly, misapplication of goods which the purchasing dealer may be guilty of obviously takes place after the forms have been submitted and thus a selling dealer would have no control over the same. Contrary to this, the selling dealer can verify whether the purchaser is a registered dealer and holds the requisite registration certificate and it is within the control of the selling dealer to verify this at the time of the sale. The decision in the case of Radio and Electricals Ltd (supra) is based on the reasoning that the seller cannot be prejudiced on account of misapplication of goods by the purchasing dealer as he has no control over the same. This reasoning cannot be extended to a seller not verifying whether the purchaser is a dealer having the requisite registration certificate. The relevant extract from the decision of the Supreme Court in the case of Radio and Electricals Ltd (supra) is quoted below:-
"The Act seeks to impose tax on transactions, amongst others, of sale and purchase in inter-State trade and commerce. Though the tax under the Act is levied primarily from the seller, the burden is ultimately passed on to the consumers of goods because it enters into the price paid by them. Parliament with a view to reduce the burden on the consumer arising out of multiple taxation has provided in respect of sales of declared goods which have special importance in inter-State trade or commerce, and other classes of goods which are purchased at an intermediate stage in the stream of trade or commerce, prescribed low rates of taxation, when transactions take place in the course of inter-State trade or commerce. Indisputably the seller can have in these transactions no control over the purchaser. He has to rely upon the representations made to him. He must satisfy STR No. 1/1998 Page 20 of 29 himself that the purchaser is a registered dealer, and the goods purchased are specified in his certificate: but his duty extends no further. If he is satisfied on these two matters, on a representation made to him in the manner prescribed by the Rules and the representation is recorded in the certificate in Form 'C' the selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misapplies the goods he incurs a penalty under section 10. That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer...."
(underlining added)
20. Thirdly, we must add that the third proviso to section 4(2) of the Act makes an express provision for collecting tax from the purchaser, in the event goods are purchased by him for the purposes mentioned in Section 4(2)(a)(v) of the Act but are not so utilized by him. Thus, whereas in the case of mis- utilization of goods by the purchaser, the amount of tax payable can be collected from the purchaser, there is no such provision in the Act which enables collection of tax from the purchaser, in the event, he makes a false declaration regarding holding of registration certificate with respect to the goods so purchased.
21. We also are unable to agree with the contention of the petitioner that the interest of the revenue can be protected by the imposition of penalty for offence of misrepresentation under Section 50(1)(d) of the Act. The provision to take punitive action and impose penalty cannot be equated to collecting the tax payable. Imposition of penalty is only a punitive measure to ensure that there is STR No. 1/1998 Page 21 of 29 compliance with the law and persons not complying with provisions of the statute are proceeded against. Penalty provisions are a part of the machinery to ensure compliance for collection of tax levied and the same cannot be equated to exacting tax from an assessee. We may also add that the quantum of penalty as contemplated under Section 50(1) of the Act is also not equal to the quantum of tax which is levied under Section 4 of the Act.
22. Thus, in our view the second question must be answered in the affirmative and the petitioner would be disentitled to reduce his taxable turnover in respect of sale of goods made to a dealer who does not hold a registration certificate in respect of goods purchased by him.
23. The third question to be considered is whether the petitioner is liable to pay interest under section 27 of the Act from the date of submission of the return, on the amount of tax assessed under section 23 of the Act?
24. Having held that there is no wilful omission on the part of the petitioner in filing a true return, it is not necessary to consider whether interest is payable by an assessee, who wilfully files an inaccurate return to avoid payment of tax. The only aspect that remains to be considered is whether interest under section 27(1) is payable on the tax as assessed or as returned by the assessee.
25. In terms of section 27 of the Act, interest is payable if a dealer fails to pay the tax due as per section 21(3) of the Act or where a dealer or a person is in STR No. 1/1998 Page 22 of 29 default or is deemed to be in default. The relevant portions of section 21 and section 27 of the Act are quoted below:
"Section 21 - Periodical payment of tax and filing of returns - (1) Tax payable under this Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed.
(2) Every registered dealer and every other dealer who may be required so to do by the Commissioner by notice served in the prescribed manner shall furnish such returns of turnover by such dates and to such authority as may be prescribed.
(3) Every registered dealer required to furnish returns under sub-
section (2) shall pay into a Government Treasury or the Reserve Bank of India or in such other manner as may be prescribed, the full amount of tax due from him under this Act according to such return, and shall where such payment is made into a Government Treasury or the Reserve Bank of India furnish alongwith the return a receipt from such Treasury of Bank showing the payment of such amount."
xxxx xxxx xxxx xxxx xxxx "Section 27 - Interest (1) If any dealer fails to pay the tax due as required by sub-section (3) of section 21, he shall, in addition to the tax (including any penalty) due, be liable of pay simple interest on the amount so due at one per cent per month from the date immediately following the last date for the submission of the return under sub-section (2) of the said section for a period of one month, and at one and a half per cent per month thereafter for so long as he continues to make default in such payment or till the date of completion of assessment under section 23, whichever is earlier. (2) When a dealer or a person is in default or is deemed to be in default in making the payment of tax, he shall, in addition to the amounts payable under section 23 or section 24, be liable to pay STR No. 1/1998 Page 23 of 29 simple interest on such amount at one per cent per month from the date of such default for a period of one month, and at one and a half per cent per month thereafter for so long as he continues to make default in the payment of the said amount.
xxxxx xxxxx xxxxx xxxxx xxxxx"
26. It is trite law that the fiscal statutes must be interpreted as per the plain language of the statute. In the oft-quoted words of Rowlatt, J., in Cape Brandy Syndicate v. Inland Revenue Commissioners : (1921) 1 KB 64, the rule of interpretation in case of a fiscal statute is stated as under:
"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."
27. A plain reading of section 27(1) indicates that interest is payable on "tax due" as required by section 21(3) and the plain words of section 21(3) indicate that a dealer is required to pay the full amount of tax due from him under the Act "according to such return". Thus, the expression "tax due" as used in section 27(1) and 21(3) can, on a plain reading of the language, only mean the amount of tax due as per the returns filed by him.
28. It is also relevant to refer to the decision of a Constitution Bench of the Supreme Court in the case of State of Rajasthan v. Ghasilal: AIR 1965 SC STR No. 1/1998 Page 24 of 29 1454, wherein the Supreme Court held that till the tax is ascertained by the assessee or the assessing authority, no tax can be said to be due. In the case of J.K. Synthetics (supra), while considering the provisions of Rajasthan Sales Tax Act, 1954 which are similar to the provisions of the Delhi Sales Tax Act, 1975 the Constitution Bench of the Supreme Court held that a provision made in the statute for charging interest on delayed payment of tax must be construed as substantive law and not as adjectival law and further that "tax due" is that amount which is payable on the taxable turnover as shown in the return. The relevant extract of the decision of the Supreme Court in the case of J.K. Synthetics (supra) is quoted below:
"16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC, CIT v. Mahaliram Ramjidas, India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay and Gursahai Saigal v. CIT, Punjab). But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of STR No. 1/1998 Page 25 of 29 the amount. (See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and Union of India v. A.L. Rallia Ram). Our attention was, however, drawn by Mr. Sen to two cases. Even in those cases, C.I.T. v. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. v. C.I.T., all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find, as pointed out by us earlier and by Bhagwati, J. in the Associated Cement Co. case, that if the Revenue's contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the legislature.
17. Let us look at the question from a slightly different angle. Section 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than fifteen days. The requirement of Section 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of 'tax due' in the state Government on the basis of the return. That is the requirement of Section 7(2). Section 7(2A), no doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of 'tax due' shown in the return. When Section 11-B(a) uses the expression 'tax payable under Sub- sections (2) and (2A) of Section 7', that must be understood in the context of the aforesaid expressions employed in the two sub- sections. Therefore, the expression 'tax payable' under the said two sub-sections is the full amount of tax due and 'tax due' is that amount which becomes due ex-hypothesi on the turnover and taxable turnover 'shown in or based on the return'. The word STR No. 1/1998 Page 26 of 29 'payable' is a descriptive word, which ordinarily means 'that which must be paid or is due, or may be paid' but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to 'due'. Therefore, the conjoint reading of Sections 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression 'tax payable' in Section 11B can only mean the full amount of tax which becomes due under Sub-sections (2) and (2A), of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid' to visit him with the liability to pay interest under Clause (a) of Section 11-B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible.
xxxxx xxxxx xxxxx xxxxx
19. In the result we are of the view that the majority opinion expressed by Venkataramiah, J. in the Associated Cement Company case does not, with respect, state the law correctly and in our view the legal position was correctly stated by Bhagwati, J. in his minority judgment. We, therefore, overrule the majority view in that decision and affirm the minority view as laying down the correct law....."
29. The question of chargeability of interest under section 27(1) of the Delhi Sales Tax Act has also been considered by this court in the case of M/s Pure Drinks (New Delhi) Limited vs. The Member, Sales Tax Tribunal & Ors: STR No. 1/1998 Page 27 of 29
W.P.(C) 1638/1994 decided on 21.03.2013. This Court has, following the decisions of the Supreme Court, inter alia, in the cases of Ghasilal (supra) and J.K. Synthetics (supra) held that the expression "tax due" as appearing in section 27(1) of the Act has to be read in conjunction with provisions of section 21(3) of the Act and interest under section 27(1) is payable only on the "tax due according to the return filed". The tax which is finally assessed becomes due on assessment and if the demand in relation to the same is not satisfied, interest will become payable by virtue of section 27(2) of the Act. The relevant extract of the said judgment dated 21.3.2013 is quoted below:-
"21. From an examination of the aforesaid decisions it is apparent that the expression "tax due" as appearing in section 27(1) of the said Act would have to be read in relation to the provisions of section 21(3) thereof. Section 21(3) of the said Act has clear reference to the furnishing of a return. Moreover, it has reference to the full amount of tax due from a dealer under the Act "according to such return". In other words, the tax which is said to be due under section 27(1) of the said Act must be the tax which is due "according to a return". It is obvious that if no return is filed then there could be no tax due within the meaning of section 27(1) of the said Act read with section 21(3) thereof. The tax which is ultimately assessed is the tax which becomes due on assessment and if this tax so assessed is not paid even after the demand is raised then the dealer would be deemed to be in default and would be liable to pay interest under section 27(2) of the said Act. But till such tax is assessed no interest can be levied on such a dealer, who has not filed a return under section 27(1) of the said Act."STR No. 1/1998 Page 28 of 29
30. The issue whether the petitioner is liable to pay interest on the taxes assessed under Section 23 of the Act from the date of submission of the return is thus covered by the decision of this court in the case of Pure Drinks (New Delhi) Ltd. (supra) and has to be answered in the negative.
31. Consequently, the impugned order, to the limited extent it requires the petitioner to pay interest under section 27(1) of the said Act, is set aside. The reference is answered in favour of the petitioner to the aforesaid extent. There shall be no order as to costs.
VIBHU BAKHRU, J BADAR DURREZ AHMED, J MAY 06, 2013 RK STR No. 1/1998 Page 29 of 29