TMI Blog1994 (11) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant exemption notification issued by the Government of Maharashtra under section 41 of the Bombay Sales Tax Act, 1959, the petitioner No. 1 is entitled to (i) exemption from payment of purchase tax/sales tax payable under the Bombay Sales Tax Act, 1959, on purchase of raw materials; (ii) sales tax payable under the said Act on sales of finished goods and (iii) Central sales tax payable under the Central Sales Tax Act, 1956, on sale of finished goods effected in the course of inter-State trade and commerce up to a ceiling limit of Rs. 1,00,16,675 during the period March 27, 1989 to March 26, 1996. With a view to ensuring that the eligible unit does not avail of the tax exemption in excess of the stipulated ceiling limit, the notional sales tax liability of the unit is required to be assessed every year so as to debit the unit against its total entitlement of tax exemption as aforesaid. The rights and obligations of the eligible unit in respect of tax exemption are governed by the notification issued by the Government of Maharashtra under section 41 of the Bombay Sales Tax Act, 1959. The said notification is of legislative character. The said 1983 Scheme, inter alia, treats bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax exemption available to petitioner No. 1 is governed by exemption notification issued by the Government of Maharashtra in exercise of its power of delegated legislation under section 41(1) of the Bombay Sales Tax Act, 1959, i.e., entry 136 of the Schedule appended to the exemption notification and not by Government circulars or schemes as such. Nevertheless for purpose of understanding the background of relevant provisions of law concerning the extent of tax exemption available to the eligible unit and the computation of benefits enjoyed or availed of by the unit, it is necessary to refer to at least two clauses of the 1983 Package Scheme here and now. "5. Sales tax incentive under Part I: 5.1(A) Exemption: By way of sales tax incentive as an exemption, the eligible unit will be entitled to exemption from payment of- (i) purchase tax/sales tax payable under the Bombay Sales Tax Act, 1959, on the purchases of raw materials; (ii) sales tax payable under the Bombay Sales Tax Act, 1959, on the sales of finished products of the eligible unit; and (iii) Central sales tax payable under the Central Sales Tax Act, 1956, on the sales of finished products of the eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mere transfer of stocks from one branch to another within the State or outside the State can never constitute sale. The State Legislature has neither legislative nor executive competence to treat the "branch transfer" of goods as deemed sales. Even the magic power of the Legislature to create fictions by enacting "deeming" provisions cannot transgress the width of legislative power. The State Legislature has no power to treat "consignment of goods" as deemed sales or levy Here italicised. consignment tax" thereon. Similarly the State has no power to levy any tax on the transaction of sale in the course of inter-State trade or commerce. (b) The power of the State executive is co-extensive with power of the State Legislature. No fiction can be resorted to or provided in a Government circular, resolution or scheme which transgresses directly or indirectly the legislative jurisdiction of the State Legislature. The State executive cannot do what the State Legislature is prohibited from enacting. (c) The petitioner No. 1 is entitled to exemption from payment of sales tax, purchase tax, Central sales tax, within the period specified in the certificate of entitlement, subject to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p with the entire scheme of grant of incentives in such a manner so as to make the doctrine of severability inapplicable in the situation. (h) The impugned assessment orders are liable to be set aside and modified so as to exclude the "branch transfers" or "consignment of goods" from the computation of turnover of sales for purpose of computation of notional sales tax liability of petitioner No. 1. 5.. The State of Maharashtra does not dispute the correctness of the basic submission made on behalf of the petitioners to the effect that the State has no jurisdiction to levy sales tax or purchase tax on branch transfers or on consignment of goods within the State or outside the State. The respondents contend that the respondents have merely provided a measure for ascertainment of notional sales tax liability so as to compute the tax exemption availed of by the eligible unit. The respondents have contended that such measure need not coincide with actual tax liability under the Act and the notification but for the exemption. The respondents have contended that if the impugned provisions of 1983 Scheme are viewed in this perspective, it would be found that the impugned provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Incentives for any period whether before or after the date of commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 1994 (hereinafter, in this section, referred to as 'the commencement date'), the Commissioner shall calculate the cumulative quantum of benefits in the manner prescribed in respect of all the relevant periods and the Package Scheme of Incentives. (2) If it is found that the cumulative quantum of benefits so calculated in respect of any eligible unit has exceeded the relevant monetary ceiling where such ceiling is provided in the package scheme of incentives, then the Commissioner shall, require the dealer by order in writing to pay the tax, interest or penalty in respect of each relevant period and shall for the purpose of recovery of such tax, interest or penalty, serve on the dealer a notice: Provided that, no order under this section shall be passed without giving the dealer a reasonable opportunity of being heard. (3) The notice so issued, shall be deemed to be a notice issued under subsection (4) of section 38 and the relevant provisions of this Act shall apply to such notice as they apply to a notice issued under sub-section (4) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said scheme provided for grant of sales tax exemption to the eligible unit as set out under clause 5.1(A) thereof. The eligible unit was given an option to opt for grant of sales tax exemption or the grant of "sales tax deferral". Clause 5.2 of the said scheme provided that the quantum of the sales tax incentive contemplated under the scheme either as an exemption or as deferral under para 5.1 will be as per the scales and subject to ceilings as provided in the table forming part of the said scheme. Clause 2 of the said scheme provided for definitions of various words and expressions used in the said scheme. Clause 2.9 of the scheme provided that "local sales tax law" would mean the Bombay Sales Tax Act, 1959, as modified from time to time and the rules made thereunder as modified from time to time. (b) The said scheme contemplated that the maximum entitlement of sales tax incentives by way of sales tax exemption shall be specified in the eligibility certificate for sales tax incentive under Part I of the above referred scheme and the figure of such maximum entitlement shall be worked out in light of the provisions contained in the said scheme, i.e., on the basis of "fixed capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption under entry 136 of the Schedule appended to Government Notification, Finance Department, No. STA-1059(iii) G-1, dated December 28, 1959, as more particularly set out therein. By the said certificate, it was directed that the petitioner No. 1 shall be entitled to exemption in respect of payment of tax on sale and purchase effected during the period of validity of the said certificate subject to the petitioner No. 1 incorporating a declaration in the sales bill or cash memorandum issued by petitioner No. 1 in the format set out therein which is as under: "This sale is exempt from tax under the provisions of entry No. 136 of the Schedule appended to the Government Notification, Finance Department No. STA1059(iii)G-1 dated December 28, 1959, at the buyer purchasing these goods and any subsequent buyer purchasing these goods shall- (i) not be entitled to claim drawback, set-off or refund under any provisions of the Act or the Rules framed thereunder, in respect of the purchases of these goods. (ii) not give any certificate in form 31 or 31-A under the Bombay Sales Tax Rules, 1959 to any subsequent purchaser of these goods." By the said certificate of entitlement it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid are annexures "D" and "E" to the writ petition. In the assessment order, exhibit "E", to the petition, it is, inter alia, observed as under: "The dealers have sales depots out of Maharashtra State for sales of their own products (pesticides). The manufacturing unit is at Mahad and office at Thane. The goods manufactured are brought to Thane godown and then despatched out of Maharashtra State from Thane. This is done due to transport facility at Thane. The godown at Thane is a central warehouse for products at Mahad. "The goods are despatched to sales depots out of Maharashtra State as per tentative requirements of these depots. However, if any depot is surplus of stock the goods are called lock, and again, despatched to the depots as per the requirements. As the dealers do not deal in the products of others and the sales depots out of Maharashtra State are exclusively for the sales of their own products, despatched from this office, the claim of branch transfers is accepted after reducing the amount of stock returned from the sales depots." Thus the assessing authority has calculated notional sales tax liability on branch transfers, the branches outside Maharashtra, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge, and the words 'sell', 'buy' and 'purchase' with all their grammatical variations, and cognate expressions, shall be construed accordingly; Explanation.-For the purpose of this clause,- (a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956; (b)(i) every disposal of goods referred to in Explanation to clause (11); (ii) a delivery of goods on hire-purchase or any system of payment by instalments; (iii) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is made or given on or after the 2nd day of February 1983, for cash, deferred payment or other valuable consideration; (iv) the transfer, otherwise than in pursuance of a contract, or property in any goods for cash, deferred payment or other valuable consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it set-up in the developing regions of the State of Maharashtra and certified by the State Industrial and Investment Corporation of Maharashtra Limited or as the case may be the relevant Regional Deve-lopment Corporation as an eligible unit under the 1979 Scheme or the 1983 Scheme falling under the Package Scheme of Incentives and to whom a certificate of entitlement has been granted by the Commissioner for the purposes of this entry, of goods manufactured in the said unit, made during the period covered by the certificate of entitlement. Whole of tax (b) Sales of any goods being raw material as explained in Explanation II given below by a registered dealer to a registered dealer being an eligible industrial unit referred to in clause (a) during the period covered by the certificate of entitlement. Whole of tax (c) Purchase of any goods being raw materials as Explained in Explanation II given below, by a Registered dealer, being an eligible industrial unit referred to in clause (a), from an unregistered dealer, during the period covered by the certificate of entitlement. Whole of tax 2. (a) Sale, by a registered dealer, being an industrial unit set-up in the devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases of these goods; and 4 5 6 (ii) Shall not give any certificate in form 31 under the Bombay Sales Tax Rules, 1959 to any Subsequent purchaser of these goods. 2. If the selling dealer fulfils the conditions specified in the appendix hereto. 1. If the purchasing dealer furnishes to the selling dealer a declaration in form BC bearing the seal and signature of the Sales Tax Officer or the Assistant Commissioner of Sales Tax as the case may be, having jurisdiction over the place of business of the purchaser, declaring, inter alia, that the goods are required for use in the manufacture of goods at the said unit for sale within the State or in the course of inter-State trade or commerce or in the course of export out of the territory of India or for transfer outside the State or in packing of goods so manufactured and that the purchase is made during the period covered by the certificate of entitlement. 5-7-1980 to date 2. The declaration furnished by the purchasing dealer shall be in printed form and shall be serially numbered in the chronological order of issue and the dealer shall keep mechanically duplicated copies or carbon copies of such certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for transfer outside the State or in packing of goods so manufactured and that the purchase is made during the period covered by the certificate of entitlement. 2. The declaration furnished by the purchasing dealer shall be in printed form and shall be serially numbered in the chronological order of issue and the dealer shall keep mechanically duplicated copies or carbon copies of such certificates duly signed and dated and if required by the Sales Tax Officer or the Assistant Commissioner of Sales Tax as the case may be in whose jurisdiction the unit is situated, produce before him such copies. 4 5 6 3. If the purchasing dealer fulfils the conditions specified in the appendix hereto. 1. If the goods are used by the purchasing dealer in the manufacture of goods at the said industrial unit for sale within the State or in the course of inter-State trade or commerce or in the course of export out of the territory of India or for transfer outside the State or in packing of goods so manufactured. 2. If the purchasing dealer fulfils the conditions Specified in the appendix hereto. Explanation I.-For the purpose of this entry "developing regions" means the regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time, it was clearly provided that sales and purchases by the registered dealers covered under the said entry were totally exempted from whole of the tax subject to the conditions specified in column 3 thereof. The said entry 136 was once again recast and the revised entry 136 is operative with effect from April 1, 1993. The changes made are of no material consequence for our purpose. (B) Entry 54 in the State List, i.e., List II appended to the Seventh Schedule of the Constitution of India reads as under: "54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I." By the Constitution (Sixth Amendment) Act, 1956, a new entry No. 92-A was inserted in the Union List so as to empower the Union Legislature to levy taxes on the sale or purchase of goods other than newspapers where such sales or purchases took place in the course of inter-State trade or commerce. By the said Constitution Amendment Act, the present entry No. 54 in the State List was substituted and the legislative power of the State was confined to levy "taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inter-State trade or commerce. By the said Constitution Amendment Act, sub-clause (29A) was inserted in article 366 of the Constitution. By the said article, enlarged definition of the expression "tax on the sale or purchase of goods" was provided. The said definition reads as under: "(29A) 'tax on the sale or purchase of goods' includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his decision is of considerable relevance for the purpose of understanding the constitutional history having bearing on the subject and for understanding the background which led to the enactment of the Constitution (Forty-sixth Amendment) Act, 1982 and insertion of sub-clause (29A) in article 366 of the Constitution. We are, firmly of the opinion that even the extended definition of the expression "tax on sale or purchase of goods" does not assist the respondents in this case so as to treat mere branch transfers or transfer of stocks from one branch to another as sale of goods. As far as consignment of tax is concerned, we need say nothing in this judgment save and except referring to the obvious fact that entry 54 in List II, Seventh Schedule to the Constitution in terms provides that the power conferred under the said entry was subject to the provisions of entry 92-A, List I and the subject-matter of consignment tax is directly the subjectmatter of specific Union entry contained in entry 92-B of List I. 10.. In Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204; [1993] 1 SCC 364, the Supreme Court interpreted various provisions of the Constitution (Forty-sixth Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y its creation." 12.. We have no hesitation in accepting the submission of Shri Seervai in light of the interpretation of the various provisions of the relevant Acts and the Constitution in the above referred cases and holding that neither the State Legislature nor the State executive is and/or has jurisdiction to treat directly or indirectly mere branch transfer from one State to another or mere transfer of goods on consignment basis as deemed sales for whatever purpose-not even for the purpose of computing "notional sales tax liability" under the above referred package scheme of 1983. 13.. There is another facet of the case as indicated below. Neither the State Legislature nor the State executive has any power to make any provision which is in the opinion of the court arbitrary or irrational or manifestly unreasonable or perverse. Such is the limitation on the powers of the State where the Legislature or executive enter in the sphere of public contracts. We shall now refer to the relevant case law cited by the learned counsel Shri Seervai on this aspect of the case. 14.. In Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay AIR 1989 SC 1642, the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 17.. Shri R.D. Soni, the learned Assistant Government Pleader, has heavily relied on ratio of the judgment of the Supreme Court in the case of Godrej Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax [1992] 87 STC 186; [1992] 3 SCC 624. In this case, the Supreme Court interpreted rules 41 and 41-A of the Bombay Sales Tax Rules, 1961. In this case, the apex Court observed that the State of Maharashtra was entitled to levy and collect sales tax only in respect of sales effected within the State and not in respect of goods which were despatched by the appellant to his branches and agents outside the State. In this context, the court held that rules 41 and 41-A of the Bombay Sales Tax Rules providing for set-off of the purchase tax paid by the manufacturing dealer did not suffer from any infirmity merely because the said rules provided for deduction of one per cent of sale price of goods sent out of State and sold there for purpose of computation of set-off. As a matter of fact, the observations made by the court in para 9 of the judgment (page 193 of STC) to the effect that no tax can be levied by the State in respect of goods despatched by the appellant to its branches and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Mr. Seervai, the doctrine of severability was applied so as to retain the beneficial part of the relevant memorandum and make the same applicable to the pensioners irrespective of date of their retirement. The blue pencil rule evolved and/or recognised by the eminent text book writers on law of contract like Anson and Cheshire supports the approach and submissions of the learned counsel for the petitioner in this behalf. Reasons and conclusions: 19.. In our opinion, the issues arising in this petition are far too simple and no complex questions as such arise for consideration of the court. 20.. It is well-settled law that the power of the State Legislature to enact a law for levy of sales tax or purchase tax is restricted to article 246(3) of the Constitution read with entry 54 in List II of the Seventh Schedule thereto. It is equally well-settled that the expression "sale" used in entry 54 of List II must be interpreted so as to be applicable only to transactions where there is a transfer of property in goods by one party to another for consideration. Whenever a dealer transfers stocks of goods from one branch to another, there is no transaction of sale. In such a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the forbidden device by treating transactions like branch transfers or consignment of goods as "deemed sales" for purpose of computation of notional sales tax liability or for purpose of calculation of tax exemption availed of by the eligible unit. No indirect circumvention is permissible. Under entry 136 of exemption notification, the petitioner No. 1 is entitled to exemption from payment of whole of tax as set out therein. No new restriction or condition could be or can be added thereto by a mere Government circular, scheme or resolution. 23.. We shall now summarise our conclusions with the formulation of further reasons in support thereof to the extent necessary in addition to reasons already set out in the earlier part of this judgment. (1) Neither the State Legislature nor the State executive has any jurisdiction to levy sales tax, directly or indirectly by enacting fiction or otherwise, on branch transfers or consignment of goods outside the State. None of such transactions can be treated as sales or "deemed sales" for purpose of levy of tax under entry 54, List II appended to the Seventh Schedule of the Constitution, "actually or notionally". (2) Neither the "branch t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of benefits availed of. (b) By virtue of entry 136 in the Schedule to the exemption notification, the petitioner No. 1 is entitled to exemption from whole of tax subject only to the condition specified therein and no other. The said entitlement cannot be whittled down directly or indirectly by providing for computation of amount of exemption availed of on a fictional or non-permissible basis or otherwise. The said entry does not provide for inclusion of branch transfers or transfer of goods on consignment basis in the turnover of sales. There is a clear conflict between the impugned portions of clause 2.11 of the impugned scheme and the above referred notification issued under section 41 of the Bombay Sales Tax Act, 1959. We have no doubt that the notification issued under section 41 of the Bombay Sales Tax Act, 1959, referred to hereinabove has an overriding effect and the impugned portion of clause 2.11 of the scheme is thus void to the extent of inconsistency with the above referred notification. (4) The petitioners are not precluded in law from impugning illegal portion of condition laid down in the 1983 Scheme merely because the relevant scheme was propounded by the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby quashed to the extent the branch transfers of goods and mere consignment of goods, within the State or outside the State, by petitioner No. 1, are treated as "deemed sales" and are included in the turnover of sales for purpose of computation of notional sales tax liability or for purpose of computation of tax exemption benefit availed of by petitioner No. 1. The prescribed authority under the Bombay Sales Tax Act, 1959, is hereby directed to pass supplementary assessment orders and re-calculate the figures of notional sales tax liability from inception in light of this judgment within 8 weeks from today as far as possible after giving a reasonable opportunity of being heard to the petitioners. It is hereby clarified that the petitioner shall be entitled to avail of the balance of tax exemption during the period specified in certificate of eligibility and subject to the ceiling prescribed therein forthwith on the footing that the petitioners have not received any benefit of tax exemption in respect of branch transfers or consignment of goods. (6) The respondents are hereby directed to permit the petitioners to avail of "the whole of tax exemption" as available under entry 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
