Judgement

SARKARIA J. : These appeals by the State of Tamil Nadu on a certificate granted by the High Court under Article 133 (1) (c) of the Constitution raise a question as to the interpretation and scope of Section 7-A of the Madras General Sales Tax Act, 1959 (hereinafter called, the Madras Act).

2. All the respondents are dealers against whom either pre-assessment proceedings have been initiated or assessments have been made under Section 7-A of the Act on the purchase turnover of certain goods.

3. The assessee-respondents in Civil Appeals Nos. 1040. 1041, 1042 and 1044 of 1973 are said to have purchased arecanuts from agriculturists, and thereafter transported those goods outside the State for sale on consignment basis,

4. The twenty assessees in Civil Appeals Nos. 1046-48, 1054-1057, 1059-1060, 1061 to 1066, 1068 to 1072 of 1973 are alleged to have purchased Gingelly seeds from agriculturists. Gingelly seeds so purchased were crushed into oil by them.

5. The four respondents in Civil Appeals Nos. 1045, 1050, 1058 and 1067 of 1973 are alleged to have purchased butter from house-holders and then converted it into Ghee.

6. The three assessees in Civil Appeals Nos. 1051, 1052 and 1053 of 1973 purchased turmeric and grams from agriculturists and then transported those goods outside the State for sale on consignment basis.

7. The assessees in Civil Appeal No. 1043 of 1973 are alleged to have purchased castor seeds from (unregistered?) dealers on bought notes and thereafter crushed them into oil.

8. It will be convenient to take the last mentioned case as a model. Therein, the Joint Commercial Tax Officer, Leigh Bazar, and Gugai Division, Salem issued a notice dated 11-2-1970 to the assessee in these terms:

"You are liable to pay purchase tax under Section 7-A of the T. N. G. S. T. Act, 1959, on the purchase price of the Castor Seeds purchased and which was consumed in the manufacture of other goods for sales or disposed of otherwise.

The turnover of such purchases made from 27-11-1969 to 31-1-1970 amounts to Rs. 33,03,323.67 and the tax due works out to Rs. 9,099-69.

You are hereby requested to pay the amount as stated above within 10 days of the receipt of this notice,"

9. This was followed by a Memorandum dated 5-3-1970 in which it was inter alia stated :

"Admittedly you have purchased the castor seeds through your own bought notes from registered dealers whose transactions are not verifiable. As per Section 10 the burden of proof that any dealer or any of his transactions is not liable to tax under this Act shall lie on such dealer. Therefore, the purchases effected by you have suffered tax already , should be proved by you."

10. All the aforesaid dealers (thereafter referred to as the asseessees) filed writ petitions under Article 226 of the Constitution in the High Court of Madras challenging the validity of the pre-assessment proceedings / assessments and the demand notices. The High Court accepted the contention of the assessees that "the circumstances contemplated by that provision (Section 7-A) did not include the possibility or impossibility of verifiabilitv of the transactions with the dealers from whom the petitioner had purchased." and further observed:

"............that if the purpose of Section 7-A is as obviously it is to check evasion, the phraseology has fallen short of achieving that purpose. Section 7-A could have detailed the circumstances in which the tax liability under Section 7-A would arise, But. instead, the circumstances have been related by the section to sales or purchases which are liable to tax under the Act, but for some reason no tax is payable in respect of them. It appears to be a contradiction in terms, and we are unable to visualise the circumstances except what we have noticed above in which Section 7-A could be applied. In fact we are unable to visualise the circumstances in which the two-fold requirement of the sale being liable to tax but for some reason no tax is payable under Sections 3, 4 or 5 can