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1964 Supreme(SC) 242
SUPREME COURT OF INDIA
5th October 1964
P.B. GAJENDRAGADKAR, C.J.I., K.N. WANCHOO, M. HIDAYATULLAH, RAGHUBAR DAYAL AND J.R. MUDHOLKAR, JJ.
Modi Spinning and Weaving Mills, Co. Ltd. Appellant
Versus
The Commissioner of Sales Tax, Punjab and another, Respondents.
Civil Appeal No. 584 of 1964.
Advocates appeared
Mr. G. S. Pathak, Senior Advocate (Mr. K. K. Jain, Advocate with him), for Appellant; Mr. S. V. Gupta, Solicitor General of India (M/s. S. Gopal Singh and R. N. Sachthey, Advocates, with him), for Respondents.
* See Civil Writ No.1527 of 1962, dated 18-2-1963-Punj.
G.S.PATHAK, K.K.JAIN, R.N.SACH, S.GOPAL SINGH, S.V.Gupta
To claim a sales tax deduction for goods manufactured in a State, the resulting goods must be intended for sale. If they are used for further manufacture in another State, the exemption is unavailable. Additionally, Central tax restrictions modify State rates rather than invalidating the charging section.
Headnote:(A) Punjab General Sales Tax Act, 1948 - Sections 5(2)(a)(ii) and 7 - Central Sales Tax Act, 1956 - Sections 14 and 15 - Constitution of India - Article 286(3) - Taxable turnover - Deduction for goods used in manufacture - Conditions for exemption - Manufacture in the State for sale - Whether ginning of cotton and subsequent transfer to mills in another State satisfies the condition of "goods for sale" - Held: The exemption requires that the goods manufactured in the State must be for sale; if the resulting goods are used for further manufacture in another State, the condition is not met. (Paras 5, 6)
(B) Registration Certificate - Effect of omission to prescribe new form - Whether the charging section becomes incomplete if the government fails to issue a modified registration certificate in line with amended rules - Held: The registration certificate is evidence of status; the omission to prescribe a new form does not render the section or rules ineffective as the certificate is impliedly modified by the operating law and rules. (Paras 6, 7)
(C) Conflict between State and Central Sales Tax Laws - Article 286(3) of the Constitution - Whether a State tax rate exceeding the limit set by the Central Sales Tax Act renders the State's charging section inoperative - Held: The State law is subject to restrictions and conditions specified by Parliament; the effect is to modify the State rate pro tanto, not to destroy the charging section. (Para 8)
Facts of the case:
A dealer claimed a deduction from its taxable turnover for the purchase of raw cotton, asserting it was used for manufacture. The dealer ginned the cotton within the State but transported the ginned cotton to its own mills in another State for the manufacture of cloth. The taxing authority disallowed the deduction. The dealer further contended that the charging section was incomplete due to the non-prescription of a new registration form and that the State tax rate conflicted with the Central Sales Tax Act.
Findings of Court:
The court found that the dealer failed to satisfy the three-fold condition for exemption: use by the dealer, manufacture in the State, and that the resulting goods be for sale. Since the ginned cotton was used for further manufacture in another State and not sold, the exemption was unavailable. The court also held that the lack of a new registration form did not invalidate the law and that the Central Act modifies the State tax rate without rendering the State's charging section inoperative.
Issues: 1. Whether the purchase of raw cotton ginned in the State but used for manufacture in another State qualifies for deduction under the requirement of "manufacture in the State... of any goods for sale". 2. Whether the failure to prescribe a new registration form renders the charging section incomplete. 3. Whether a conflict between the State tax rate and the Central Sales Tax Act renders the State law inoperative.
Ratio Decidendi: For a deduction to be claimed under the relevant sales tax provision, the goods manufactured in the State must be intended for sale. If the manufactured goods are used as raw materials for further manufacture in another State, the "for sale" condition is not fulfilled. Furthermore, constitutional provisions allowing Parliament to restrict State tax rates result in the modification of those rates rather than the invalidation of the entire charging section.
Result: Appeal dismissed.
HIDAYATULLAH J.: This appeal by certificate against the judgment of the High Court of Punjab at Chandigarh, dated February 18, 1963 questions the inclusion of certain items in the turnover of Messrs Modi Spinning and Weaving Mills Co. Ltd., Modinagar in the assessment of sales-tax for the year 1959-60. In that year the Company filed a return of its sales showing a gross turnover of Rs. 40,89,954.24 nP and a taxable turnover of Rs. 1,30,296.81 np. In computing the taxable turnover the Company deducted Rs. 10,85,842. 74 nP on account of unginned cotton purchased by it on a certificate of registration granted to it on January 3, 1956. This deduction was not permitted by the assessing Authority, Patiala District, also described as the District Taxation Officer, Patiala District. Exemption from tax was also claimed in respect of purchases of oil seeds amounting to Rs. 4,47,437.33 nP which the Company claimed to exclude from the taxable turnover under S. 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948. This claim was also disallowed by the Taxing Authority. The Company then filed a petition under Arts. 226 and 227 of the Constitution in the High Court but by the order under appeal the petition was dismissed. During the course of the hearing Mr. G. S. Pathak abandoned the claim about oil seeds and no reference need, therefore, be made to that part of the case.
2. The tax is being levied under the Punjab General Sales Tax Act 1948, of 1948). This Act was amended from to time and the amendments with which we are concerned were last made by Punjab XIII of 1959. S. 2(i) defines the "turnover" as including the aggregate of the amounts of the sales and purchases and parts of sales and purchases actually made by any dealer during a given period less any sums allowable as trade discount. S. 4 lays down the incidence of tax and makes every dealer whose turnover exceed the taxable quantum liable to tax. In view of the fact that the turnover of the Company exceeds the taxable quantum there is no need to discuss the section in detail. The section lays down the definition of taxable quantum and the Company is within that definition. S. 5 then provides as follows:-
"5. Rate of tax.
(1) Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a dealer a tax at such rates not exceeding four naye paise in a rupee, as the State Government may by notification direct:
Provided. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Provided further that the rate of tax shall not exceed two naye paise in a rupee in respect of any declared goods as defined in cl. (c) of S. 2 of the Central Sales Tax Act, 1956, and such tax shall, not be levied on the purchase or sale of such goods at more than one stage: (This was inserted with effect from 1st April, 1960 by Act No. 18 of 1960).
Provided. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
(2) In this Act the 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 declared by him in a prescribed form as being intended for resale in the State of Punjab or sale in the course of inter-State trade or commerce or sale in the course of export of goods out of the territory of India or of goods specified in his certificate of registration for the use by him in the manufacture in the State of Punjab of any goods for sale and on sales to a registered dealer of containers or other materials for the packing of such goods.
Provided that in case of such sales, a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing prescribed particulars on a prescribed. form is furnished by the dealer who sells the goods:
Provided further that when such goods are used by the dealer to whom these are sold for purposes other than those for
