TMI Blog1978 (2) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... as, therefore, plainly unjustified. It was based on misconstruction of section 5(2)(a)(ii) and the second proviso and it must, therefore, be quashed and set aside. - Civil Appeal No. 1290 of 1977, 1111 of 1977, 1352 of 1977, 1085 of 1977, 236 of 1976, 456 of 1976, 816 of 1976, 18 of 1975, 1522, 1526 of 1974, 1110 of 1977, W.P. No. 166 of 1977, 329 of 1975, - - - Dated:- 20-2-1978 - BEG M.H., AND BHAGWATI P.N. JJ. G.S. Chatterjee and M/s. D.P. Mukherjee and A.K. Ganguli, Advocates, for the petitioners in S.L.P. Nos. 2522 and 2524 of 1977. Mrs. Shyamla Pappu, Senior Advocate (J. Ramamurthi and Miss R. Vaigai, Advocates, with her), for the appellants in C.A. Nos. 236 and 456 of 1976 and 18 of 1975. Yogeshwar Prasad, Senior Advocate (Misses Rain Arora and Meera Bali, Advocates, with him), for the appellants. in C.A. No. 816 of 1976 and W.P. No. 166 of 1977. M/s. K.P. Rohatgi and M.K. Gare, Advocate, for the petitioners in W.P. No. 329 of 1975. Sardar Bahadur and Vishnu Bahadur Sahrya, Advocates, for the appellant in C.A. No.1522 of 1974. S.V. Gupte, Attorney- General (in C.A. Nos. 1290, 1352 and 1110 of 1977 and 816 of 1976) and R.C. Chawal, Advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take place inside Delhi. Section 4, sub-section (1), provided that every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded the taxable quantum at any time within such year shall be liable to pay tax under the Act on all sales effected after the date notified by the Chief Commissioner and sub- section (2) of that section said that every dealer to whom sub-section (1) does not apply, shall, if his gross turnover calculated from the commencement of any year exceeds the taxable quantum at any time within such year, be liable to pay tax under the Act, on the expiry of two months from the date on which such gross turnover first exceeds the taxable quantum, on all sales effected after such expiry. Sub-section (5) of section 4 defined "taxable quantum" to mean, in relation to any dealer who imports for sale any goods into Delhi or manufactures or produces any goods for sale, regardless of the value of the goods imported, manufactured or produced, ten thousand rupees, and in relation to any other dealer, thirty thousand rupees. Sub-section (1) of section 5 provided different rates of tax, according as the goods fell within one category or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression 'taxable turnover' means that part of a dealer's gross turnover during any period which remains after deducting therefrom- (a) his turnover during that period on- (i) ..... (ii) sales to a registered dealer- of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him as raw materials in the manufacture in the Union Territory of Delhi (hereinafter in this sub-clause referred to as Delhi), of goods (other than goods declared tax-free under section 6),- (A) for sale inside Delhi; or (B) for sale in the course of inter-State trade or commerce, being a sale occasioning, or effected by transfer of documents of title to such goods during the movement of such goods from Delhi; or (C) for sale 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 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; and of containers or other materials for the packing of goods of the class or cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. Signature Dealer " It was only on 29th March, 1973, that the form of the declaration was substituted by amending rule 26 so as to bring it in line with the amended section 5(2)(a)(ii) and after the substitution it ran as follows: "Certified that the goods mentioned in the cash memo/bill No ..... dated ..... worth Rs ..... have been purchased by me/us from M/s ..... and are duly covered by my/our registration certificate No ..... valid from ..... and are required by me/us for resale/for use as raw material, in the manufacture in Delhi in accordance with the provisions contained in section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, as in force in the Union Territory of Delhi, in the manufacture of goods for sale. Signature ..... Dealer ....." The Act as originally enacted ended with section 26, but by the amending Act of 1959, section 27 was introduced in the Act with effect from 1st October, 1959, and this section provided that nothing in the Act or under the Rules shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, if such sale or purchase takes place- (i) in the course of inter-State trade or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appeals are brought by special leave directly from the orders of the assessing authority and some others from the appellate or revisional orders. Special leave was granted in these cases without requiring the assessees to exhaust their remedies under the Act and to approach the High Court of Delhi in the first instance, because a decision was already given by the High Court of Delhi on 26th April, 1974, in Fitwell Engineers v. Financial Commissioner of Delhi [1975] 35. S.T.C. 66., negativing the contentions of the assessees. The view taken in the orders impugned in the appeals and accepted by the High Court of Delhi in Fitwell Engineers' case(1) was that for the purpose of section 5(2)(a)(ii) and the second proviso, resale of the goods purchased was confined to resale inside Delhi and so also, use of the goods purchased as raw materials in the manufacture of goods and sale of manufactured goods were required to be inside Delhi, and, therefore, if the assessees resold the goods outside Delhi or used them as raw materials in manufacture outside Delhi, or even if the manufacture was inside Delhi, sold the goods manufactured outside Delhi, there was utilisation of the goods by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom the goods are sold and containing the prescribed particulars on a prescribed form ..... is furnished" by the selling dealer. The result is that a dealer cannot get deduction in respect of the turnover of his sales falling within section 5(2)(a)(ii) unless he furnishes a declaration containing the prescribed particulars on the prescribed form duly filled in and signed by the purchasing dealer. The form of declaration prescribed under rule 26 as it stood up to 29th March, 1973, contained an expression of intention of the purchasing dealer to resell the goods purchased or to use them as raw materials in the manufacture of goods for sale. Such declaration given by the purchasing dealer to the dealer selling the goods would afford evidence that the goods were purchased by the purchasing dealer "as being intended for resale by him or for use by him as raw materials in the manufacture of goods for sale". The dealer selling the goods would be granted deduction in respect of the sales on the strength of such declaration given by the purchasing dealer. The requirement of such declaration as condition of deduction is clearly intended to prevent fraud and promote administrative efficienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the second proviso enacts that where the purchasing dealer acts contrary to the intention declared by him, the selling dealer shall not be penalised for the sin of the purchasing dealer and he shall continue to have his deduction, but the price of the goods purchased shall be included in the taxable turnover of the purchasing dealer. The second proviso is thus intended to provide the consequence of the purchasing dealer not complying with the statement of intention expressed in the declaration given by him to the selling dealer under the first proviso. This is broadly the scheme and intendment of section 5(2)(a)(ii) and its two provisos read in the context of the other provisions of the Act. Now, the first question that arises for consideration is whether "resale" in section 5(2)(a)(ii) and the second proviso means resale any where without any geographical limitation or it is confined only to resale inside Delhi. The contention of the revenue was that though the words "inside the Union Territory of Delhi" are not to be found in section 5(2)(a)(ii) and the second proviso, they must be read in these provisions as a matter of construction and three reasons were given in suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This rule of literal construction is firmly established and it has received judicial recognition in numerous cases. Crawford in his book on "Construction of Statutes" (1940 Ed.), at page 269, explains the rule in the following terms: "Where the statute's meaning is clear and explicit, words cannot be interpolated. In the first place, in such a case they are not needed. If they should be interpolated, the statute would more than likely fail to express the legislative intent, as the thought intended to be conveyed might be altered by the addition of new words. They should not be interpolated even though the remedy of the statute would thereby be advanced, or a more desirable or just result would occur. Even where the meaning of the statute is clear and sensible, either with or without the omitted word, interpolation is improper, since the primary source of the legislative intent is in the language of the statute." Lord Parker applied the rule in R. v. Oakes [1959] 2 All E.R. 92., to construe "and" as "or" in section 7 of the Official Secrets Act, 1920, and stated: "It seems to this court that where the literal reading of a statute, and a penal statute, produces an intelligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 5(2)(a)(ii) and the second proviso when such words have been omitted by the law-giver. We do not think so. It may be pointed out in the first place that the legislature could have easily used some such words as "inside the Union Territory of Delhi" to qualify the word "resale", if its intention was to confine resale within the territory of Delhi, but it omitted to do what was obvious and used the word "resale" without any limitation or qalification, knowing fully well that unless restrictions were imposed as to situs, "resale" would mean resale anywhere and not merely inside the territory of Delhi. The legislature was enacting a piece of legislation intended to levy tax on dealers who are laymen and we have no doubt that if the legislative intent was that "resale" should be within the territory of Delhi and not outside, the legislature would have said so in plain unambiguous language which no layman could possibly misunderstand. It is a well-settled rule of interpretation that where there are two expressions which might have been used to convey a certain intention, but one of those expressions will convey that intention more clearly than the other, it is proper to conclude th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the Act. But section 5(2)(a)(ii) does not seek to impose any tax on resale. What it does is to provide deduction in respect of sale to a registered dealer provided the condition is satisfied that the goods purchased are of the class or classes specified in the certificate of registration of the purchasing dealer as being intended for resale by him and a declaration is given by the purchasing dealer that he has purchased the same for resale. Undoubtedly, where the purchasing dealer does not act in conformity with the intention expressed by him and utilises the goods for any other purpose, he becomes liable to tax under the second proviso, but even there, what is taxed in his hands is the price of the goods purchased by him, that is, the turnover exempted in the hands of the selling dealer and not the turnover of resale made by him. It is still the first sale made by the selling dealer which is taxed and not the resale made by the purchasing dealer. Thus there is no tax sought to be imposed on the resale under section 5(2)(a)(ii) or the second proviso, but resale is made a condition of granting deduction in respect of the first sale. It is, therefore, difficult to see how la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st effect sales only in Delhi and not outside. There is nothing in the Act which prohibits a registered dealer from selling goods outside Delhi. If a registered dealer can effect sales outside Delhi, it is impossible to see how, by any stretch of reasoning, the words "by him" can be pressed into service for the purpose of restricting "resale " to that inside Delhi. We fail to see any reason why the word "resale" in section 5(2)(a)(ii) and the second proviso should not be construed according to its plain natural meaning to comprehend resale taking place anywhere without any limitation as to situs and it should be read as referring only to resale inside Delhi as if the words "inside the Union Territory of Delhi" were added by way of limitation or restriction. Even without such words and reading the statutory provision according to its plain natural sense as referring to resale, irrespective whether it is inside or outside Delhi, section 5(2)(a)(ii) and the second proviso do not become absurd, unintelligible, unworkable or unreasonable nor is it possible to say that they come into conflict with any other provision of the Act. We have already explained the scheme of section 5(2)(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pularly understood, may signify anything from intention embodied in positive enactment to speculative opinion as to what the legislature probably would have meant, although there has been an omission to enact it. In a court of law or equity, what the legislature intended to be done or not to be done can only be legitimately ascertained from what it has chosen to enact, either in express words or by reasonable and necessary implication." The same view was echoed by Lord Raid in Black-Clawson International Ltd. v. Papierwerke Waldhof-Aschaffenburg [1975] 1 All E.R. 810 at 814.: "We often say that we are looking for the intention of Parliament, but that is not quite accurate. We are seeking the meaning of the words which Parliament used. We are seeking not what Parliament meant but the true meaning of what they said." If the language of a statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the law-giver. It would not be right to refuse to place on the language of the statute the plain and natural meaning which it must bear on the ground that it produces a consequence which could not have been intended by the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intent, for in the event there contemplated, namely, where the purchasing dealer utilises the goods for any purpose other than "resale", what is taxed in the hands of the purchasing dealer is not the resale by him but the sale to him and that is done not with a view to ensuring that the goods must suffer tax at least at one point, but because the purchasing dealer having committed a breach of the intention expressed by him in the declaration, on the basis of which exemption is granted to the selling dealer, he should not be allowed to profit from his own wrong and to escape the amount of tax on the sale. We do not, in the circumstances, see any cogent or compelling reason for reading the words "inside the Union Territory of Delhi" after "resale" in section 5(2)(a)(ii) and the second proviso. It must also be remembered that section 5(2)(a)(ii) and the second proviso occur in a taxing statute and it is a well-settled rule of interpretation that in construing a taxing statute "one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law". The oft-quoted words of Rowlatt, J., in Cape Brandy Syndicate v. Inland Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords "inside the Union Territory of Delhi" is given by the purchasing dealer at the time of purchase, how can these words be read in the declaration when they are not there. It might be premissible to read such words in a statutory provision like section 5(2)(a)(ii) and the second provisio, but we fail to see how such words can be read in a declaration of intention furnished by a purchasing dealer. It may also be pointed out that the Act in the present case was originally enacted by the Bengal Legislature in 1941 and it was applied in Delhi with certain modifications by the Central Government on 28th April, 1951. The Act was thus in operation prior to 15th August, 1947, in Bengal and thereafter in West Bengal for an aggregate period of about ten years before it was made applicable to Delhi. It was not disputed on behalf of the revenue that during this period the department administered the provision of section 5(2)(a)(ii) on the basis that "resale" was not confined to resale inside the State of Bengal or West Bengal, as the case may be, but it also included outside State resale. When the Central Government applied the Act to the territory of Delhi, it must be presumed to be aware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the goods so manufactured may be effected anywhere, whether inside or outside Delhi. The only end-use of the goods purchased required to be made for attracting the applicability of section 5(2)(a)(ii) is that the goods must be utilised by the purchasing dealer as raw materials in the manufacture of goods and the goods so manufactured must be sold, irrespective whether the manufacture or sale takes place inside Delhi or outside. If the purchasing dealer does not use the goods purchased as raw materials in the manufacture of goods or having manufactured the goods does not sell them, he would commit a breach of the intention expressed by him in the declaration furnished to the selling dealer and the second proviso would immediately be attracted and the price of the goods purchased by him would be liable to be included in his taxable turnover. But so long as he carries out the intention expressed in the declaration and uses the goods purchased as raw materials in the manufacture of goods, whether inside or outside Delhi, and sells the goods so manufactured in Delhi or outside, he would not fall within the second proviso and the sale to him would not be taxable in his hands. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inside the territory of Delhi. It is also significant to note that though Parliament amended section 5(2)(a)(ii) for restricting manufacture as well as sale to the territory of Delhi, it did not carry out any amendment in the section with a view to limiting resale in the same manner by the addition of some such words as "in the Union Territory of Delhi" or "inside Delhi". This clearly evinces parliamentary intent not to insist upon resale being restricted to the territory of Delhi. It is a circumstance which lends support to the view that "resale" in section 5(2)(a)(ii) and the second proviso meant resale outside as well as inside Delhi. We must, therefore, reach the conclusion that during the relevant assessment years "resale" within the meaning of section 5(2)(a)(ii) and the second proviso was not confined to the territory of Delhi, but also included resale outside the territory of Delhi and, similarly, for the period up to 28th May, 1972, when section 5(2)(a)(ii) was amended by the Finance Act, 1972, "manufacture" and "sale" contemplated by the section were not restricted to the territory of Delhi but could also be outside. There was no geographical limitation confining "resal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is, for a purpose different from that for which the goods were purchased as evidenced by the declarations, would be on the revenue and the revenue may discharge this burden by calling upon the assessees to produce evidence to show, in one case that the goods were resold by them, and in the other, that the goods were used by them as raw materials in the manufacture of goods and the goods so manufactured were sold. This would be a fact exclusively within the knowledge of the assessees and if the assessees do not produce sufficient evidence to establish this fact, it might be legitimate for the revenue to raise an inference that the assessees did not utilise the goods for the purpose for which they were purchased, but utilised them for "any other purpose". The question still remains in regard to the taxability of the assessees under the second proviso subsequent to 28th May, 1972, in cases where the goods were purchased for use as raw materials in the manufacture of goods for sale, because some of the appeals relate to the assessment year 1972-73 which comprises the period from 28th May, 1972, to 31st March, 1973. We have already pointed out that on 28th May, 1972, section 5(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other point of view and that too yields the same conclusion. We may assume for the purpose of argument that since the words "in the Union Territory of Delhi" and "inside Delhi" were added after "manufacture" and "sale" respectively in section 5(2)(a)(ii), a similar amendment may also be taken to have been effected in the second proviso and we may read there the words "in the Union Territory of Delhi" after the word "manufacture" and the words "inside Delhi" after the word "sale". What the second proviso, on this construction, postulates is that the goods must be purchased by the purchasing dealer as being intended for use by him as raw materials in the manufacture "in the territory of Delhi" of goods for sale "inside Delhi". But the declarations given by the assessees being in the unamended form, it would not be possible to say that the goods were purchased by the assessees as being intended for use as raw materials in the manufacture "in the territory of Delhi" of goods for sale "inside Delhi". The condition for the applicability of the second proviso was, therefore, clearly not satisfied and the second proviso could not be invoked for including the price of the goods purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Act, 1948. Section 5(2)(a)(ii) of the Punjab Act, as it stood prior to its amendment, was in material respects identical with the unamended section 5(2)(a)(ii) of the Delhi Act. However, it was amended by Punjab Act No. 13 of 1959 by the addition of the words "in the State of Punjab" after the word "manufacture" and the amended section applied during the relevant assessment year. When section 5(2)(a)(ii) was amended, the rule-making authority also simultaneously amended rule 26 and form S.T. XXII, which was the prescribed form of declaration, by the addition of the same words "in the State of Punjab". The result was that not only was section 5(2)(a)(ii) amended to make it clear that the manufacture must be in the State of Punjab but also rule 26 and the form of declaration were also amended so as to provide that the declaration must set out the intention of the purchasing dealer to use the goods purchased in the manufacture "in the State of Punjab" of goods for sale. The appellants gave declarations in the amended form with the words "in the State of Punjab" after the word "manufacture" against purchases of raw cotton made by them and they ginned the cotton in their ginni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the words "in the State of Punjab" in the certificate of registration in a case where rule 26 and form S.T. XXII were both simultaneously amended along with section 5(2)(a)(ii) and the declaration given by the purchasing dealer contained the words "in the State of Punjab" after the word "manufacture" so that there was a breach of the statement contained in the declaration when the purchasing dealer used the goods purchased in the manufacture outside the State of Punjab. The court was not concerned with a case where rule 26 and form S.T. XXII continued to stand unamended and the declaration given by the purchasing dealer did not state that the use of the goods purchased in manufacture would be in the State of Punjab, but merely contained a general statement that the goods purchased would be used in the manufacture of goods for sale and the purchasing dealer utilised the goods purchased in manufacture outside the State of Punjab without committing a breach of the statement in the declaration. That is the case before us and it is entirely different from the case decided by the court in Modi Spinning Weaving Mills' case [1965] 16 S.T.C. 310 (S.C.). The decision in Modi Spinning W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the fiction of deeming them to the sales. This contention, we are afraid, is rather difficult to appreciate. We asked the learned counsel appearing on behalf of the appellants in these appeals as to what was the sequester of this contention and whether it was her submission that the second proviso was void as being outside the legislative competence of the legislature. But she frankly conceded that it was not possible for her to challenge the vires of the second proviso on the ground of lack of legislative competence, because it is competent to the legislature to impose a tax as much on purchase as on sale. She, however, urged that in her submission the second proviso was inconsistent with section 4 and, therefore, no effect should be given to it. This contention is, in our opinion, wholly unsustainable. We fail to see how the second proviso can be said to be inconsistent with section 4. It may be pointed out that even if there were some conflict, which we do not think there is, it would have to be reconciled by a harmonious reading of the two sections and it would not be right to adopt a construction which renders one of the two sections meaningless and ineffectual unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... branches, the resales were not by the assessees so as to attract the applicability of the second proviso. That leaves only one other point and that relates to the imposition of penalty of Rs. 2 lakhs on the assesses in Civil Appeal No. 1085 of 1977. This penalty was imposed on the assessees on the ground that they failed to include in the returns filed by them for the period from 28th May, 1972, to 29th March, 1973, the price of the goods purchased by them for use as raw materials in the manufacture of goods for sale and to pay tax on the amount of such price along with the submission of the returns. There were several grounds on which the imposition of this penalty was challenged on behalf of the assessees, but it is not necessary to refer to all of them, since there is one ground which is, in our opinion, sufficient to invalidate the order imposing the penalty. We have already pointed out that even where the assessees used the goods purchased as raw materials in the manufacture of goods outside Delhi or having manufactured the goods, sold them outside Delhi, there was no breach of the intention expressed by them in the declarations given to the selling dealers and they could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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