TMI Blog1981 (2) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... Sulekha Enterprises was in force on the date of the sale of the goods to the applicants. Such certificates were signed by the proprietor of Sulekha Enterprises. Thereafter the applicants resold in the State of Maharashtra the said goods purchased by them from Sulekha Enterprises. In their assessment for the said period 1st January, 1967, to 31st December, 1967, the applicants claimed to deduct from their turnover of sales the turnover of resales of the said goods purchased by them from Sulekha Enterprises. This deduction was claimed by the applicants under section 10(1)(ii) of the said Act under which the turnover of resales of goods purchased by a dealer from a registered dealer (that is, a dealer registered under section 22 of the said Act) is to be excluded from his turnover of sale of goods specified in Schedule E to the said Act for the purpose of arriving at his taxable turnover, provided a certificate as provided in section 12A has been furnished. The certificate mentioned in section 12A is to be contained in the bill issued by the selling dealer and is to be in the form in which the certificates appear on the above-mentioned bills of Sulekha Enterprises. The Sales Tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the date of cancellation of the registration certificate of Sulekha Enterprises as 25th May, 1967, instead of as 25th August, 1967. Both the learned counsel are agreed that this is an obvious typographical error on the part of the Tribunal and that in the question referred to us the correct date should be mentioned. The question of law referred to us, with the date of the cancellation of the registration certificate of Sulekha Enterprises corrected as required, is as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sales tax authorities were justified in treating the purchases of the applicants made from Sulekha Enterprises as from an unregistered dealer on the ground that even though the registration certificate of Sulekha Enterprises was cancelled on 25th August, 1967, the cancellation thereof was operative with effect from 1st January, 1967, in so far as the purchases of the applicants effected from the said party prior to 25th August, 1967, were concerned?" At the hearing of this reference Mr. Sheth, the learned counsel for the applicants, submitted that though under the said Act the registration c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a check upon them. Thereafter on 29th August, 1966, one P.V. Shah, the proprietor of Messrs. P.V. Shah and Company, to whom Sulekha Enterprises had sold goods, was summoned and examined. The books of account of the said P.V. Shah were also examined, and it was ascertained from him as also from his books of account and by verification of the bill issued to him by Sulekha Enterprises that the sales made by Sulekha Enterprises to him were in fact made and were genuine. Two days later, namely, on 1st September, 1966, the said Asrani was summoned and examined and correspondence addressed to him looked at to verify the address given by him in his application for registration. Thereafter a certificate of registration dated 2nd September, 1966, was issued to Sulekha Enterprises in which the business is shown as of reseller. It appears that Sulekha Enterprises filed their quarterly returns up to 31st December, 1966, and did not file any returns thereafter. A notice was issued to them on 8th April, 1967, to produce all their books of account from the commencement of the business. Thereafter Sulekha Enterprises made an application for cancellation of registration, which was received in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause (25) of section 2 of the said Act defines the expression "registered dealer" as meaning "a dealer registered under section 22". Under section 3 every dealer whose turnover either of all sales or of purchases made during any year commencing on 1st April exceeds the relevant limit specified in sub-section (4) of that section is to be liable to pay tax under the said Act with effect from the date when his turnover had exceeded the specified limit. Under sub-section (3) of that section such dealer's liability to pay tax continues until his registration is duly cancelled. Section 22 casts a duty upon every dealer who is liable to pay tax under section 3 not to carry on business as a dealer, unless he possesses a valid certificate of registration. For this purpose, the dealer is to apply in the prescribed manner to the prescribed authority. The manner which is prescribed by rule 7 of the Bombay Sales Tax Rules, 1959 (hereinafter for the sake of brevity referred to as "the said Rules"), is by making an application to the registering authority. Under clause (h) of rule 2 the registering authority is the Sales Tax Officer having jurisdiction over the local area in which any place o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factured or produced or sold in the State to a limit which would make them unattractive and unable to stand competition with goods manufactured, produced or sold in other States. Intermediate sales are, therefore, exempted, and some goods are taxed at the first stage by levy of a sales tax and some at the last stage by levy of a general sales tax. Some goods, namely, the goods mentioned in Schedule E to the said Act, are subject, however, to tax at both stages. In the case of the sales made by the applicants general sales tax was payable by them irrespective of the fact whether the goods had been purchased by them from a registered dealer or not and such tax has in fact been paid by them. The controversy centres round the levy of sales tax upon these resales. The manner of exempting intermediate sales or first sales or last sales in the said Act is by the introduction of a system of grant of declarations and issue of certificates by the seller or the purchaser, as the case may be, and by providing for the obtaining of licences, authorizations, recognitions and permits by a registered dealer. Registration also entitles a dealer who is liable to pay tax to collect or recover the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, to be made as also examined the said P.V. Shah and the said Asrani as also examined the documents which he had called upon them to produce. As observed by a Division Bench of this High Court, sitting at Nagpur, in Santumal v. Assistant Commissioner of Sales Tax (Appeals), Eastern Division, Ranges I II, Nagpur[1963] 14 S.T.C. 287 at 293.: "For the purpose of claiming exemption these certificates (that is, certificate of registration as dealers) are vital documents because on the basis of these certificates being granted by the department to a dealer that dealer is empowered to grant certain declarations which declarations in their turn would entitle persons selling goods to the registered dealer to claim exemption from sales tax." As mentioned earlier, a registered dealer's liability to pay tax under the said Act continues until his registration certificate is cancelled. If, however, such dealer's liability continues till that date, so also would the advantages which accrue to him by reason of his registration as also those which would accrue to others by reason of their dealing with him. A question may arise as to what would happen if a person who is not under a liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurs for the first time in the first proviso, and the words "or transferred or disposed of, as the case may be" were inserted after the word "discontinued" where it occurs for the second time in the said proviso. Now, what is pertinent to note about sub-section (6) is that it entitles a dealer to apply for cancellation of his registration certificate. It does not cast any obligation upon him to do so. If, however, the sales tax authorities feel that by reason of certain events that have happened his certificate should not continue, they have a right to cancel such certificate. During the period with which we are concerned, the only circumstance which entitled the sales tax authorities to cancel a registration certificate on their own was where the dealer's business was discontinued. After 1st September, 1969, the sales tax authorities also became entitled to cancel a registration certificate where a dealer had transferred or disposed of his business. In this connection, it is pertinent to note that under section 28 of the said Act a dealer whose certificate is cancelled either on his own application or by the sales tax authorities under the first proviso to section 22(6), has f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition, authorization or permit are, in a case where registration is cancelled, to be presented forthwith for cancellation. The registration certificate is required to be presented for cancellation within fifteen days from the date of communication to the dealer, of the order of cancellation of registration even though under clause (a) of rule 10(3) where registration is cancelled on the ground that the business has been discontinued or transferred or otherwise disposed of, the date of such discontinuance, transfer or disposal is to be the date of cancellation of the registration. The same position prevails where the registration is cancelled under the first proviso to section 22(6). The learned Advocate-General, however, submitted that the words "and the dealer has failed to apply as aforesaid for cancellation of registration" occurring in the first proviso to section 22(6) of the said Act showed that a dealer was under an obligation to apply for cancellation if he had discontinued his business. We are unable to accept this submission. As we have seen, what has been made obligatory is for the dealer to give information to the registering authority that he has discontinued his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer between the date from which the cancellation of his certificate of registration is made to operate and the date of the actual cancellation of his registration shall be deemed to be transactions entered into by an unregistered dealer. It may be useful in this connection to look at the second proviso to sub-section (7) of section 34 of the Maharashtra Sales Tax Act, 1979, which was passed on 25th June, 1979, but has not yet been brought into force. The substantive part of the said sub-section (7) is in terms similar to section 22(6) of the said Act with which we are concerned. The first proviso thereto confers power upon the Commissioner of Sales Tax in terms similar to the amended first proviso to section 22(6) to cancel a certificate of registration with effect from the date of discontinuance, transfer or disposal, as the case may be, but which date is not to be earlier than five years from the date of the order of cancellation. The second proviso to the said sub-section (7) runs as follows: "Provided further that, for the purposes of this Act, such dealer shall not be deemed to be a registered dealer under this Act with effect from the date of cancellation so fixed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument that a legal fiction is enacted in section 22(6) or that by reason of the power given to the prescribed authority to cancel a certificate of registration from an anterior date, the consequences canvassed for by the respondents flow, though not expressly mentioned in the section, which also would amount to creation of a legal fiction, it is now wellsettled that where a statute creates a legal fiction the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. The classic passage which lays this down is that of James, L.J., in Ex parte Walton; In re Levy(1881) L.R. 17 Ch. D. 746 at 756. , which was approved by the House of Lords in Arthur Hill v. East and West India Dock Company(1884) L.R. 9 App. Cas. 448, 456, 458., and by our Supreme Court in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, Quilon[1953] 4 S.T.C. 205 at 226 (S.C.); A.I.R. 1953 S.C. 333 at 342. In Ex Parte Walton; In re Levy(1881) L.R. 17 Ch. D. 746 at 756. James, L.J., said: "When a statute enacts that something shall be deemed to have been done, which in fact and in truth was not done, the court is entitled and bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sold by him as required by section 48, or knowingly produces incorrect accounts, registers or documents, or knowingly furnishes incorrect information commits an offence. We were informed that when a registration certificate is cancelled with retrospective effect, notice to show cause why a prosecution under section 63 should not be launched is issued not only against the dealer whose registration certificate is cancelled but also against those who have purchased goods from him. The learned Advocate-General also stated that in some cases such notices have been issued and prosecutions launched. In the very reference before us the taxing authorities had imposed a penalty upon the applicants on the ground that they had concealed their turnover and knowingly furnished inaccurate turnover liable to pay tax by reason of the fact that the amount of tax paid by them prior to assessment had fallen short of eighty per cent of the amount of tax assessed, because the deductions claimed by them were disallowed. In our opinion, such liabilities cannot be allowed to be imposed without there being an express provision to that effect in the statute, for to do so would be to make illegal retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed before the court as to the jurisdiction of the sales tax authorities to direct cancellation of a registration certificate with retrospective effect. The court, however, did not find it necessary to decide that question. It proceeded upon the basis that the sales tax authorities had such a power. The court held that the selling dealer was not a party to the order of cancellation of registration and the fact that the purchasing dealer may for any reason ignore the proceedings and may allow an ex parte order of cancellation of his registration certificate with retrospective effect to be passed against him cannot result in penalising the innocent selling dealer in the absence of evidence of his having been a party to any fraud, deception or misrepresentation. This is an authority directly in point. It is nowhere alleged on the record that the applicants were in any way a party to any fraud, deception or misrepresentation, or that the sales to the applicants by Sulekha Enterprises were not genuine. The learned Advocate-General frankly stated that the genuineness of the sales by Sulekha Enterprises to the applicants was not disputed. The Calcutta High Court has also consistently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o levying tax on these resales with retrospective effect. As mentioned earlier, the taxing power of the State extends to levying taxes on sales and purchases of goods taking place in the State, other than newspapers. In Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax (Central), Calcutta[1971] 28 S.T.C. 672 at 675 (S.C.)., the Supreme Court observed: "Now under all sales tax laws including the statute with which we are concerned, the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till the quantification is effected by assessment proceedings, the liability for payment of tax is independent of the assessment." This position was reiterated by the Supreme Court in State of Madhya Pradesh v. Shyama Charan Shukla[1972] 29 S.T.C. 215 at 218-219 (S.C.). In Ramkrishan Kulwantrai v. Commissioner of Sales Tax[1979] 44 S.T.C. 117 at 125., this High Court pointed out that under the said Act, tax is not imposed upon a dealer's total turnover of sales of goods but only upon that part of the turnover which is arrived at after deducting from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be taxed and that its liability had to be determined as on those dates, and it not being liable on those dates, the fact that the forest department was retrospectively exempted from paying tax from an earlier date could not make the assessee liable to pay tax which he was otherwise not liable to pay. The Supreme Court further held that the Government had no power to levy tax either prospectively or retrospectively and that its power was merely to exempt one or more dealers from paying tax and that such power could not be used directly or indirectly to levy retrospectively tax on someone else. In the reference before us the power of the prescribed authority is to cancel the dealer's certificate of registration from the date it fixes as the date of discontinuance of his business. This may have consequences for the dealer whose certificate is cancelled, but this power of cancellation with retrospective effect cannot be used to levy tax retrospectively on someone else. The learned Advocate-General in support of his contentions relied upon a decision of the Supreme Court in Tata Iron Steel Co. Ltd. v. State of Bihar[1958] 9 S.T.C. 267 (S.C.); A.I.R. 1958 S.C. 452. In that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resale in Orissa against declarations given by the purchasers that the goods were purchased for being resold in Orissa. The Sales Tax Officer refused to allow such deductions, holding that the declarations given were false. An extreme contention appears to have been advanced by the assessee in that case that once he produced a declaration he was not bound to do anything else and was entitled to a deduction and that the department could not go behind the declaration to ascertain whether the declaration was genuine or not. It was the contention of the department that the so-called registered dealers who had given these declarations were fictitious persons and they were entitled to say that they were fictitious persons by going behind the registration certificates. Now, if these purchasers were in fact fictitious persons, then the purchases were not made by them but were made by third parties who were not registered, and these fictitious persons were put up merely to lend their names and give false certificates. In such a case the transaction would not be genuine. We fail to see how this authority is relevant for our purposes, because, as mentioned earlier, it has not at any time be ..... 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