1. Inter-State sale of goods — Claim for concessional sales tax rate under Section 8(1), Central Sales Tax Act, 1956 — Dispute over validity of Form C declarations. (Para 1 , 2 , 3 , 4 )
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1966 Supreme(SC) 137
SUPREME COURT OF INDIA
K.N. WANCHOO, J.C. SHAH AND S.M. SIKRI, JJ.
State of Madras (In all the appeals), Appellant
Versus
(1) M/s. Radio and Electricals Ltd., (In C. A. No. 334 of 1965), (2) M/s. Stanes Motors (South India) Ltd., (In C. As. Nos. 335 and 338 of 1965), Respondents.
Civil Appeals Nos. 334, 335 and 338 of 1965 dated 19-4-l966.
Advocates appeared
Mr. Bishan Narain, Senior Advocate (Mr. A V. Rangam, Advocate, with him), for Appellants (In C As. Nos. 334 and 335 of 1965); Mr. A. V. Rangam, Advocate, for Appellant (In C. A. No .338 of 1965);Mr. K. R. Chaudhuri, Advocate, for Respondent (In C. A No 334 of 1965): Mr. N. D. Karkhanis, Advocate and M/s. O. C. Mathur, J. B. Dadachanji and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., for Respondents (In CC. C. As Nos. 335 and 338 of 1965).
Advocates:
A.V.RANGAM, BISHAN NARAIN, J.B.DADACHAN, K.R.CHAUDHARY, N.D.Karkhanis, O.C.MATHUR, Ravindra Narayan
A.V.RANGAM, BISHAN NARAIN, J.B.DADACHAN, K.R.CHAUDHARY, N.D.Karkhanis, O.C.MATHUR, Ravindra Narayan
A selling dealer is entitled to concessional sales tax rates upon producing a valid Form C declaration from a registered purchaser. The assessing authority cannot deny this benefit by questioning the suitability or actual use of the goods, as such determination rests with the registration-issuing authority.
Headnote:(A) Central Sales Tax Act, 1956 - Sections 8(1) and 8(3)(b) - Central Sales Tax (Registration and Turnover) Rules, 1957 - Rule 5(1) and Rule 12 - Concessional rate of sales tax - Inter-State sale - Validity of declaration in Form C - Whether the tax authority can deny concessional rates if the declaration mentions multiple purposes or if the goods are deemed unsuitable for the declared purpose - If the selling dealer produces a valid certificate in Form C and the purchasing dealer is a registered dealer, the selling dealer is entitled to the concessional rate of tax - It is not the function of the assessing authority to inquire whether the goods are capable of being used for the purpose mentioned or whether they were actually used for that purpose, as such satisfaction is the domain of the authority issuing the registration certificate in Form B (Paras 10, 11 and 12).
(B) Penalty - Section 10 - Misapplication of goods by the purchasing dealer - Penalty for misapplication or fraudulent misrepresentation is to be borne by the purchasing dealer and cannot be visited upon the selling dealer who has acted upon a valid declaration in Form C (Para 12).
Facts of the case:
A selling dealer claimed concessional rates of tax on inter-State sales of electrical equipment and tractors. The tax authorities denied the benefit on the grounds that the purchasing entities were not dealers engaged in selling goods, the goods were not intended for use in the manufacture of goods for sale, or the goods were not directly relatable to the manufacturing process. The lower courts had ruled in favor of the selling dealer based on the production of valid registration certificates and declarations.
Findings of Court:
The court found that a declaration in Form C is valid even if it specifies more than one purpose for which the goods are intended to be used. The assessing authority's role is limited to verifying the genuineness of the certificate and whether the goods are covered by the purchaser's registration certificate.
Issues: Whether the Sales Tax authority can deny the benefit of concessional rates under Section 8(1) of the Act on the grounds that the Form C certificate mentions multiple purposes, that the goods are incapable of being used for the declared purpose, or that the goods were applied for a purpose not mentioned in the certificate.
Ratio Decidendi: The selling dealer is entitled to rely on the representation made by the registered purchasing dealer in Form C. Once the selling dealer satisfies himself that the purchaser is a registered dealer and the goods are specified in the registration certificate, he has no further obligation to ensure the actual application of the goods. The propriety of the registration certificate in Form B is determined by the notifying authority, and the assessing officer cannot re-examine whether the goods are suitable for the business purpose. Any misapplication of goods by the purchaser attracts penalty under Section 10 against the purchaser alone.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether tax authorities can deny concessional rates if Form C specifies multiple purposes or if goods are deemed unusable for the declared purpose. (Para 1 , 5 )
3. Selling dealers must rely on Form C representations; they are not required to verify the actual use or usability of goods specified in the purchaser's registration certificate. (Para 9 , 10 , 11 , 12 , 13 )
4. Concessional tax rates apply if the selling dealer produces a valid Form C and the goods are specified in the purchasing dealer's registration certificate. (Para 10 , 11 , 12 , 13 )
5. Appeals dismissed with costs. (Para 14 )
6. Is a Form C declaration invalid if it specifies more than one purpose for which the purchased goods are intended to be used?
No. A purchasing dealer may use goods for multiple purposes, such as resale, manufacture, or execution of contracts. Retaining all alternatives in Form C is a representation that goods are intended for any or all those purposes and complies with the Act and Rules. (Para 10 )
7. Is a selling dealer obligated to verify if the purchased goods are actually usable or applied for the purpose declared in Form C?
No. The selling dealer's duty is limited to ensuring the purchaser is a registered dealer and the goods are specified in the registration certificate. They are not required to conduct an enquiry into the actual application or usability of the goods. (Para 10 , 12 , 13 )
8. Can a Sales Tax Officer deny concessional rates on the ground that the goods specified in the purchaser's registration certificate (Form B) should not have been specified?
No. The notified authority's objective satisfaction in issuing Form B is not open to challenge by another taxing authority during assessment. If the goods are specified in Form B, the benefit cannot be denied based on their suitability for the business. (Para 11 )
9. Who is liable if goods purchased under a concessional rate are misapplied by the purchasing dealer?
The purchasing dealer is liable for a penalty under Section 10 of the Act for failing to use the goods for the specified purpose without reasonable excuse. This penalty cannot be visited upon the selling dealer. (Para 7 , 12 )
Judgment
SHAH, J. : This is a group of appeals filed by the State of Madras against orders passed by the High Court of Judicature at Madras which raises the following common question as to applicability of concessional rate of sales tax to transactions of inter State sale and taxable under the Central Sales Tax Act, 1956 :
"When a purchasing dealer in one State furnishes in Form C prescribed under the Central Sales Tax (Registration and Turnover) Rules, 1957, to the selling dealer in another State a declaration, certifying that the goods ordered, purchased or supplied are covered by the certificate of registration obtained by the purchasing dealer in Form B prescribed under R. 5 (1) of the Central Sales Tax (Registration and Turnover) Rules, 1957 , and that the goods are intended for resale, or for use in manufacture of goods for sale or for use in the execution of contracts, or for packing of goods for resale, and that declaration produced by the selling dealer, is it open to the Sales Tax authority under the Central Sales Tax Act to deny to the selling dealer the benefit of concessional rates under S. 8. (1) of the Central Sales Tax Act, 1956, on the view that the certificate in Form C mentions more purposes than one for which the goods are intended to be used, or that the goods are incapable of being used for the purpose for which they are declared to be purchased, or that the goods are applied for some other purpose not mentioned in the certificate in Form C ?"
2. We may briefly set out the facts which give rise to two out of the appeals : Civil Appeals Nos., 334 and 335 of 1965.
3. Civil Appeal No. 334 of 1965: M/s Radio and Electricals Ltd.-respondents in this appeal-carry on business in the State of Madras in electrical equipment and are registered as dealers under the Central Sales Tax Act. The Bombay State Electricity Board, Saurashtra Division, which is engaged in the production of electric energy purchased transformers and other goods of the total value of Rs. 1,42,020 from M/s. Radio and Electricals Ltd.; and the latter claimed in proceeding for assessment for Central sales tax for the year 1957-58 that they were liable to pay tax at the rate of 1 per cent on the turnover under S. 8 (1) of the Central Sales Tax Act. The Deputy Commercial Tax Officer rejected the claim on the ground that the Bombay State Electricity Board was not a dealer engaged in selling goods and merely because they held a registration certificate, the goods sold to the Board could not be admitted to the concessional rate of tax under S. 8 (1) of the Act. The Appellate Assistant Commissioner of Commercial Taxes confirmed the order on the ground that transformers and other goods purchased by the Electricity Board for use in the production of electrical energy were not intended to be used in the manufacture of goods for sale within the meaning of S. 8 (3) (b) of the Central Sales-Tax Act, because electricity was not at the material time "goods" within the meaning of the Act. The order passed by the Appellate Assistant Commissioner was confirmed by the Sales Tax Appellate Tribunal, Madras. The High Court, following an earlier judgment in Deputy Commissioner of Commercial Taxes, Madras Division v. Manohar Brothers , 1962-13 STC 686: modified the order holding that if the selling dealer within the State produces a certificate in Form C, setting out one or more of the purposes in S. 8(3)(b) of the Act, and if the Sales Tax authorities on behalf of the State do not deny that the purchasing dealer is a registered dealer, the selling dealer will not be denied the concessional rate of tax under the Act, even if it transpire" that the purchasing dealer has utilised the goods for purposes other than those mentioned in the certificate of registration. The High Court then held that out of the certificates in Form C produced by the selling dealer, certificates in respect of a turnover of Rs. 42,080 set out the purpose as "manufacture of electrical energy" and sin
