TMI Blog1978 (11) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... clarations in form 19 without payment of tax. Out of the goods manufactured by using the goods purchased as aforesaid, certain quantity of goods was sold against a certificate in form C, without recovery of any tax, to the Ahmedabad Electricity Company Ltd., which is a certified electrical undertaking within the meaning of entry 5 of the Schedule to the Government notification dated 29th April, 1970, issued under section 49 of the Act. During the course of assessment proceedings of the assessee for the relevant period (6th May, 1970, to Aso Vad 30, S.Y. 2026), the Sales Tax Officer took the view that the assessee, contrary to the certificate given by it in form 19 at the time of purchase, had used the fireclay as raw material in the manufacture of goods for sale which were non-taxable and that, therefore, purchase tax was leviable under section 16 of the Act in respect of such purchases of fireclay. The Sales Tax Officer accordingly levied purchase tax on the turnover of purchases of fireclay made by the assessee against declarations in form 19. Against the levy of purchase tax as aforesaid, the assessee preferred an appeal before the Assistant Commissioner of Sales Tax, which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions of the concerned certificate, or when the goods so purchased are resold in the course of inter-State trade or commerce without payment of any tax under the Central Sales Tax Act, 1956. The scheme of the Act involves four inter-related but distinct concepts which may, for the sake of convenience, be described as: (1) taxable person, (2) taxable turnover, (3) taxable transaction, and (4) taxable goods. It is necessary to expound those concepts in order to appreciate the working of the Act. The identity of the "taxable person" is established by reference to the provisions of section 6, which says that..........there shall be paid by every dealer, who is liable to pay tax under this Act, the tax or taxes leviable..." It is apparent, therefore, that the taxable person must be a dealer who is liable to pay tax under the Act. The word "dealer" is defined in clause (10) of section 2 and, accordingly, any person who buys or sells goods in connection with his business, including the Central Government, a State Government or any local authority and also any society, club or other association of persons which buys goods from or sells goods to its members or to other persons, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered dealer, who manufactures taxable goods for sale. Under sections 7(iii), 8(iii) and 10(1)(iii) read with section 13(1)(B), the vendor of taxable goods would be entitled to deduct from the turnover of his sales, the sales or resales of certain goods effected in favour of a recognised dealer provided the recognised dealer certifies in the prescribed form 19, inter alia, that the said goods (other than prohibited goods) are purchased by him for use by him as raw or processing materials or as consumable stores in the manufacture of taxable goods for sale by him within the State of Gujarat. This deduction in the case of a recognised dealer is allowed with reference to the end-use of the goods and the certificate to be given in form 19 would afford evidence that the goods are purchased by the recognised dealer for the said purpose. The requirement of such certificate as a condition of deduction is clearly intended to prevent fraud and facilitate administrative efficiency (see Kedarnath Jute Manufacturing Co. v. Commercial Tax Officer[1965] 16 S.T.C. 607 (S.C.). The object and purpose intended to be served by the provision relating to statutory deductions upon furnishing of a cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to them the classes of sales or purchases, enumerated in the said sub-section, are exempt from the payment of the whole of tax payable under the provisions of the Act. Under sub-section (2), subject to such conditions as it may impose, the State Government is authorised, if it considers it necessary so to do in the public interest, to exempt by notification in the official Gazette any specified class of sales or purchases from payment inter alia of the whole of any tax payable under the provisions of the Act. In exercise of those powers, the State Government has issued a notification dated 29th April, 1970, exempting from the payment of the whole of tax, conditionally or unconditionally, several classes of sales or purchases of taxable goods. This illustrative list, which is not intended to be exhaustive, exemplifies that excepting such or similar transactions, all other transactions of sales or purchases, as the case may be, of taxable goods effected by a taxable person are taxable transactions under the Act. Out of the four concepts referred to above, the only one that is statutorily defined is "taxable goods". We shall presently come to the definition of the said term in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions of sale or purchase, as the case may be, which have been exempted from the payment of the whole of any tax under the provisions of section 49(1) and (2). The enlarged exclusion clause has the effect of giving a more restrictive meaning to the words "taxable goods" in the present Act. In other words, the range of taxable goods for the purposes of the Act is narrower. In defining the said term accordingly, the legislature must be presumed to have acted deliberately inasmuch as it has departed from the definition of the said term as contained in the Bombay Sales Tax Act, 1959. It is manifest, therefore, that all goods other than (a) those to whom exemption attaches by virtue of their inclusion in Schedule I and (b) those that are the subject-matter of transactions of sale or purchase, as the case may be, which are wholly exempt from payment of any tax under section 49(1) and (2), are taxable goods. One more thing before we proceed to deal with the question in hand. Under section 5, the exemption need not necessarily be unqualified. The opening words of sub-section (1) of section 5 make it clear that the exemption is subject to the conditions or exceptions, if any, set out aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (2) also, exemption may be subject to conditions which the State Government may impose. The schedule to the notification dated 29th April, 1970, issued by the State Government under sub-section (2) contains instances of transactions of sales or purchases, as the case may be, or of both, in specified goods which are generally exempt as also instances where such transactions, in order to be wholly exempt from payment of any tax, have to satisfy certain conditions. To illustrate, under entry 35, sales or purchases of ropes made by hand from yarn waste are exempt from the whole of tax without any condition. This is an illustration of an unqualified exemption to a transaction of sale and purchase (both) of the specified commodity. Another instance of a similar nature, but where the unqualified exemption is confined only to the sale transactions, is to be found in entry 25, which relates to mechanically produced cattle feed. As an illustration of conditional exemption reference may be made to entry 5 with which we are immediately concerned in the present case. Thereunder, sales of goods other than prohibited goods by a registered dealer to an electrical undertaking certified for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to the certificate, the object and purpose of giving deduction to the selling dealer would be defeated. Even so, it would not be right to withdraw the deduction granted to the selling dealer for a breach of faith committed by the purchasing dealer. It stands to reason that the tax which is lost to the revenue by reason of deduction granted to the selling dealer should be recoverable from the recognised dealer. If no deductions were granted to the selling dealer, he would be liable to pay tax on the sale made by him and, ultimately, the incidence of that tax would be passed on to the purchasing dealer, but by reason of the deduction allowed to the selling dealer, the purchasing dealer escapes this incidence of tax and, therefore, section 16 in substance enacts that where the purchasing dealer acts contrary to the certificate, the selling dealer shall not be made liable to pay the tax and that he shall continue to have his deduction but the price of the goods purchased shall be included in the turnover of purchases of the purchasing dealer and purchase tax shall be levied upon him. The taxable transaction accordingly remains the same, namely, the sale of the goods against the cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance was carried out or whether in breach thereof the assessee used the goods for another purpose. The assessee contends that it has used the fireclay purchased against certificate for the manufacture of the specified goods, namely, stoneware pipes, firebricks and lime, all of which were taxable goods when manufactured. Merely because such taxable goods ultimately came to be sold to a certified electrical undertaking without recovery of tax because such transaction of sale was exempt under entry 5 of the Schedule to the Government notification issued under section 49(2), it cannot be said that the manufactured goods were not "taxable goods". In any case, contends the assessee, only generally exempted goods under section 5 or goods which are the subject-matter of generally exempted transactions of sale and purchase under section 49, are not taxable goods within the meaning of section 2(33) and since the manufactured goods in the present case do not fall in any of the said two categories, they do not cease to be taxable goods. According to the assessee, therefore, contrary to the certificate the goods are not used for another purpose and section 16 is not attracted so as to justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where a dealer "has purchased" any taxable goods under a certificate and contrary to such certificate the goods "are used" for another purpose. The use of the expression "has purchased" in relation to taxable goods purchased under a certificate is significant. This is the use of the verb "purchase" in the present perfect tense. It denotes a completed past transaction connected through its consequence with the present moment, that is to say, the moment when the question of levy of purchase tax arises on the ground of breach of the declaration as to its end-use contained in the certificate. Similarly, the use of the expression "are used" in the context in which it occurs is also significant. Its use accordingly indicates that it is at the point of time when the question of levy of purchase tax arises that it has to be seen whether the goods are used for another purpose contrary to the certificate. In view of the language used in the certificate as well as in section 16(1) and the content and collocation, the intention at the time of purchase or the taxable nature of the goods when manufactured are wholly irrelevant factors. What has to be seen is: (1) Whether taxable goods were purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. It is a settled rule of construction that 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 [see Crawford on Construction of Statutes (1940) Ed., at page 269, cited with approval in Polestar Electronic (P.) Ltd.'s case[1978] 41 S.T.C. 409 (S.C.). ]. Besides, no hardship, injustice, absurdity or anomaly will arise if words, as suggested by the assessee, are not added or read into the exclusion clause. It has been pointed out earlier that under section 5 goods can be and are exempted generally as also conditionally and it is not as if the goods which f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler uses them in the manufacture of goods which are not exigible to tax when sold, there is no reason why the goods which went into the manufacture of such non-taxable goods should not be made to bear the levy of purchase tax in the hands of the purchasing dealer. It is immaterial for that purpose whether the manufactured goods are generally or conditionally exempt or the transactions of sales or purchases of those goods are generally or conditionally exempt. If, in the course of assessment proceedings of the purchasing dealer, it is found that the manufactured goods when sold were, in fact, not subjected to levy of tax, there would be no justification in allowing the taxable goods which went into the manufacture of such goods escaping the levy of tax. By reading the words "taxable goods" in the manner in which the assessee contends and by assigning to those words the meaning which he canvasses, section 16, which is enacted to plug leakage and prevent evasion of tax, would become ineffective in cases where, by virtue of the conditional exemption, the purchasing dealer in fact sells the manufactured goods without having to pay sales tax or general sales tax or both, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered in respect of the sale of those goods by the sellers. According to the Supreme Court, since those goods were dealt with after their purchase by the purchasing dealers in the manner prescribed in section 7-A, the provisions of section 7-A could have been and were rightly invoked by the taxing authorities. In terms the Supreme Court held: "Goods, the sale or purchase of which is liable to tax under this Act' in section 7-A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that section 7-A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act have not, due to the circumstances of particular sales, suffered tax under section 3, 4 or 5, and which, after the purchase, have been dealt by him in any of the modes indicated in clauses (a), (b) and (c) of section 7-A(1)." The Supreme Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s excluding only those goods on the sale or purchase of which no tax is "generally" payable under section 5 or section 49 or a notification issued thereunder. We are of the view that this involved exercise which the assessee wants us to undertake in order to interpret words whose meaning is plain is not warranted for more than one reason. It must be remembered that the sales tax law in each State has its own scheme and that it is couched in the language which suitably carries out such scheme. It is, therefore, not right or proper to build upon some observations in a judgment delivered in the context of the sales tax law of one State while considering the provisions of the sales tax law of another State, although the relevant provision might prima facie appear to be dealing with a comparable situation. That apart, in Kandaswami's case[1975] 36 S.T.C. 191 (S.C.)., the question which arose for consideration was entirely different. The question there was whether the relevant expressions in section 7-A(1), namely, "goods, the sale or purchase of which is liable to tax under this Act" and "purchases... in circumstances in which no tax is payable under section 3, 4 or 5" were a contradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to read the word "generally" in section 2(33) in the manner suggested by the assessee. In our opinion, therefore, the decision in Kandaswami's case[1975] 36 S.T.C. 191 (S.C.).is of no assistance to the assessee. An alternative argument was also advanced on behalf of the assessee and the argument was that the word "or" occurring between the words "sale" and "purchase" in the exclusion clause in section 2(33) must be read as "and " and that, accordingly, only those goods the sale and purchase (both) of which are wholly exempt from tax were intended to be covered by the exclusion clause. The argument, in other words, was that where either sale or purchase (one and not both) or any goods is exempt from the levy of any tax, those goods do not cease to be taxable goods within the meaning of section 2(33). In the present case, for example, under entry 5 of the notification dated 29th April, 1970, the sale of goods by a registered dealer to an electrical undertaking certified for the purpose by the Commissioner alone is exempt. The sale and purchase (both) of the goods covered by entry 5 are not wholly exempt and, therefore, the goods in question being not totally exempt, they are not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitory circumstance. In the next place, this argument is somewhat misconceived as it looks at the transaction of sale or purchase, as the case may be, in a disjointed manner. The sale or purchase, as the case may be, of goods results in change of ownership from one person to another. That must by its very nature be a bilateral transaction with the seller on the one hand and the purchaser on the other. It is only when there is a contract to which both are parties that there can be sale or purchase, as the case may be. When, therefore, either sale or purchase in respect of a class of goods or a class of transactions is exempted, there is in reality no tax payable at either end of the transaction so long as the conditions of exemption are and continue to be satisfied. In that sense, therefore, even if the word "or" is read disjunctively and the exemption is read as having been attached either to purchase or to sale alone, what happens in substance and reality is that both the parties to the transaction are not liable to pay tax. It is only when the conditions or any one of them attached to the exemption are or is contravened that the question of taxing the transaction would arise. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deliberately in contravention of the certificate or in conscious disregard of the declaration or was guilty of conduct contumacious or dishonest. Section 45(1) confers the power in relation to imposition of penalty on a high officer and it is a discretionary power to be exercised judicially on a consideration of all the relevant circumstances (see Hindustan Steel Ltd. v. State of Orissa[1970] 25 S.T.C. 211 (S.C.). It would thus appear that even in cases where a dealer becomes liable to pay purchase tax under sub-section (1) of section 16, for having acted in contravention of the certificate issued at the time of purchase of any taxable goods, the authority will have to consider all the facts and circumstances of the case and act judicially in the exercise of his discretion before imposing penalty. This discretion, like other judicial discretions, will have to be exercised with vigilance and circumspection according to justice, commonsense and sound judgment. The discretion is to know through law what is just (see Lonand Grampanchayat v. Ramgiri[1967] 33 F.J.R. 83 (S.C.); A.I.R. 1968 S.C. 222. Having regard to this wellsettled legal position, there is no basis for the apprehensi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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