The exemption from sales tax under S. 5 of the Madras General Sales Tax Act (IX of 1939) is conditional upon the observance of prescribed conditions and restrictions, and contravention of these conditions renders the licensee liable to assessment.

Judgment

KAPUR, J. : Two suits were brought by the appellants for a declaration against the levy of sales tax by the State of Madras and an injunction was also prayed for. Both the suits were decreed by the Subordinate Judge of Salem and the decrees were confirmed on appeal by the District Judge of Salem. Two appeals were taken to the High Court by the State of Madras against those decrees and by a judgment dated February 18, 1955, the decrees were set aside by a common judgment. Against these decrees the appellants have brought these appeals by a certificate of that Court.

2. The appellants are merchants dealing in cotton yarn. They obtained a license under S. 5 of the Madras General Sales Tax Act (Act IX of 1939), hereinafter referred to as the Act . This license exempted them from assessment to sales tax under S. 3 of the Act on the sale of cotton yarn and on handloom cloth "subject to such restrictions and conditions as may be prescribed including as to license and license fees". The license was issued on March 31, 19541 and was renewed for the following years. On September 20, 1944, the Commercial Tax Authorities made a surprise inspection of the premises of the appellants and discovered that they were maintaining two separate sets of account on the basis of one of which the appellants submitted their returns to the Department. Because the other set of account books showed black-market activities of the firm Balakrishna Chetty was prosecuted and sentenced to six month s imprisonment for an offence connected with the breach of Cotton Yarn Cotton Order. During the pendency of those proceedings the Deputy Commercial Tax Officer made assessments for the year 1943-44 and 1944-45, the tax for the former was Rs. 37,039/- and for the latter Rs. 3,140/-. The appellants unsuccessfully appealed against these assessments and their revisions also failed. On August 24, 1945, the appellants brought a suit for a declaration and injunction in regard to the first assessment alleging that the assessment was against the Act. On September 2, 1946, a similar suit was brought in regard to the second assessment. It is out of these suits that the present appeal has arisen.

3. The controversy between the parties centres round the interpretation of the words "subject to" in S. 5 of the Act. The High Court has held that on a true interpretation of the provisions of the Act and the rules made thereunder, the observance of conditions of the license was necessary for the availability of exemption under S. 5; that as the appellants had contravened those conditions they were liable to pay tax for both the years notwithstanding the license which had been issued to them under S. 5 of the Act.

4. It will be convenient at this stage to refer to the provisions of the Act which are relevant for the purpose of this appeal.

Section 2(b) " "dealer" means any person who carried on the business of buying or selling goods;".

Section 2(f) " "prescribed" means prescribed by rules made under this Act;".

Section 3(1) "Subject to the provisions of this Act, every dealer shall pay in each year a tax in accordance with the scale specified below :-

(a) ..........................................

(b) if his turnover exceeds twenty thousand rupees. One half of 1 per cent of such turnover."

Section 5 "Subject to such restrictions and conditions as may be prescribed, including the conditions as to licenses and license fees, the scale of bullion and specie, of cotton, of cotton yearn and of any cloth woven on handlooms and sold by persons dealing exclusively in such cloth shall be exempt from taxation under Section 3."

Section 13 "Every dealer and every person licensed under section 8 shall keep and maintain a true and correct account showing the value of the goods sold and paid by them; and in case the accounts maintained in the ordinary course, do not show the same in an intelligible form, he shall maintain a true and correct account in such form as may be prescribed in this behalf :".

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