TMI Blog1975 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... KARIA R.S. AND GUPTA A.C. T.A. Ramachandran, Advocate, for the respondents in C.A. Nos. 1060-1061 and 1066 of 1973. B. Sen and Y.S. Chitaley, Senior Advocates (C. Natarajan and Mrs. S. Gopalakrishnan, Advocates with them), for the respondents in C.A. Nos. 1043, 1046-1048, 1062-1064, 1068-1070, 1049-1050, 1054, 1057-1058, 1061, 1067, 1056, 1065 and 1059 of 1973. S. Govind Swaminathan, Advocate-General for the State of Tamil Nadu (A.V. Rangam, Miss A. Subhashini, K. Venkataswami and N.S. Sivam, Advocates, with him), for the appellant. -------------------------------------------------- The judgment of the Court was delivered by SARKARIA, J. -These appeals by the State of Tamil Nadu on a certi- ficate granted by the High Court under article 133(1)(c) of the Constitution raise a question as to the interpretation and scope of section 7-A of the Madras General Sales Tax Act, 1959 (hereinafter called the Madras Act). All the respondents are dealers against whom either pre-assessment proceedings have been initiated or assessments have been made under section 7-A of the Act on the purchase turnover of certain goods. The assessee-respondents in Civil Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted the contention of the assessees that "the circumstances contemplated by that provision (section 7-A) did not include the possibility or impossibility of verifiability of the transactions with the dealers from whom the petitioner had purchased", and further observed: "........that if the purpose of section 7-A is, as obviously it is, to check evasion, the phraseology has fallen short of achieving that purpose. Section 7-A could have detailed the circumstances in which the tax liability under section 7-A would arise. But, instead, the circumstances have been related by the section to sales or purchases which are liable to tax under the Act, but for some reason no tax is payable in respect of them. It appears to be a contradiction in terms, and we are unable to visualise the circumstances except what we have noticed above in which section 7-A could be applied. In fact, we are unable to visualise the circumstances in which the twofold requirement of the sale being liable to tax but for some reason no tax is payable under section 3, 4 or 5 can arise, except in cases of exemption. Even there, the difficulty arises whether one can say that the sale which is exempted is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who purchases the goods is a dealer; (2) The purchase is made by him in the course of his business; (3) Such purchase is either from "a registered dealer or from any other person"; (4) The goods purchased are "goods, the sale or purchase of which is liable to tax under this Act"; (5) Such purchase is "in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be "; and (6) The dealer either- (a) consumes such goods in the manufacture of other goods for sale or otherwise or (b) despatches all such goods in any manner other than by way of sale in the State or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. Section 7-A(1) can be invoked if the above ingredients are cumulatively satisfied. The proviso to the sub-section exempts a dealer (other than a casual trader or agent of a non-resident dealer), if his turnover for a year is less than Rs. 25,000 (which by a subsequent amendment was raised to Rs. 50,000). The assessees prima facie fall within the definition of "dealer" in section 2(g), which includes not only a person who carries on the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the turnover in each year relating to such goods whatever be the quantum of turnover in that year. The focal point in the expression, "goods, the sale or purchase of which is liable to tax under the Act," is the character and class of goods in relation to their exigibility. In a way this expression contains a definition of "taxable goods", that is, goods mentioned in the First Schedule of the Act, the sale or purchase of which is liable to tax at the rate and at the point specified in the schedule. The words, "the sale or purchase of which is liable to tax under the Act" qualify the term "goods" and exclude by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under section 8 or section 17(1) of the Act. The goods so exempted-not being "taxable goods"---cannot be brought to charge under section 7-A. The words "under the Act" will evidently include a charge created by section 7-A also. It is to be noted that section 7-A is not subject to section 3; it is by itself a charging provision. Section 7-A brings to tax goods the sale of which would normally have been taxed at some point in the State, subsequent to their purchase by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the sale of these goods by the sellers. If it is a fact that the gingerly seeds (vide Civil Appeals Nos. 1046 to 1048, 1054 to 1057, 1059 to 1069 of 1973) and castor seeds (vide Civil Appeal No. 1043 of 1973) were crushed into oil and the butter (vide Civil Appeals Nos. 1049, 1050, 1058, 1067 of 1973) was converted into ghee by the purchaser-dealers concerned, the condition in clause (a) of sub-section (1) of section 7-A would be satisfied and section 7-A would be attracted. If in the case of arecanuts (vide Civil Appeals Nos. 1040 to 1044 of 1973), turmeric and gram "(vide Civil Appeals Nos. 1051 to 1053 of 1973), the purchasing dealers transported these goods outside the State for sale on consignment basis, their case would also be covered by clause (b) or (c) of section 7-A(1) and such dealers would be liable to tax on the purchase turnover of these goods. It may be remembered that section 7-A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the manufacture of other goods for sale, or (2) consumes such goods otherwise; or (3) disposes of such goods in any manner other than by way of sale in the State; or (4) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. The assessees are registered as dealers and they have purchased building materials in the course of their business; the building materials are taxable under the Act, and the appellants have consumed the materials otherwise than in the manufacture of goods for sale and for a profit-motive. Oil the plain words of section 7 the purchase price is taxable." The impugned section 7-A is based on section 7 of the Madhya Pradesh Act. Although the language of these two provisions is not completely identical, yet their substance and object are the same. Instead of the longish phrase, the goods, the sale or purchase of which is liable to tax under this Act employed in section 7-A of the Madras Act, section 7 of the Madhya Pradesh Act conveys the very connotation by using the convenient, terse expression "taxable goods". The ratio decidendi of Ganesh Prasad [1969] 24 S.T.C. 343 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchaser is sought to be made liable under section 5A...... Another instance I can conceive of is a case of a dealer selling agricultural or horticultural produce grown by him or grown on any land in which he has interest, whether as owner, usufructuary mortgagee, tenant or otherwise. From the definition of 'turnover' in section 2(xxvii) of the Act it is evident that the proceeds of such sale would be excluded from the turnover of a person who sells goods produced by him by manufacture, agriculture, horticulture or otherwise, though merely by such sales he satisfies the definition of a 'dealer' in the Act. Thus, such a person selling such produce is treated as a dealer within the meaning of the Act and the sales are of goods which are taxable under the Act but when he sells these goods, it is not part of his turnover. Therefore, it is a case of a dealer selling goods liable to tax under the Act in circumstances in which no tax is payable under the Act. In such a case, the purchaser is sought to be taxed under section 5A provided the conditions are satisfied. The case of growers selling goods to persons to whom section 5A thus applies is covered by this example." The judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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