Important pointThe selling dealers cannot canvass that the Department has no authority to refuse to issue sales tax forms to purchasing dealers or allow the deduction to the selling dealers.

Headnote:Delhi Sales Tax Act, 1975—Sections 4(2)(v) and 71—Delhi Sales Tax Rules, 1975—Rules 7 and 8(4)—Refusal to issue sales tax forms to purchasing dealers or allow deduction to selling dealers—Appellants had sold goods to registered dealers who are not being issued the declaration form on account that they being in arrears of some tax—Appellants filed writ petitions in the High Court praying for an order or direction be issued quashing Rule 8(4)(c) of the Rules on ground that it is ultra vires the provision of Section 4(2)(a)(v) of the Act—Appellants as the selling dealers sold goods to respondents on the latter’s assurance that they will supply requisite ST-1 forms to the former—Consequence of Department’s declining to issue ST-1 form—Whether the State is entitled to its tax, where the requisite ST-1 form is unavailable for any reason—(Yes).
       Held : It is settled law that equity plays only a minuscule role in fiscal matters, even if such considerations were to be applied, there would still be no justification for an application adverse to the interest of the State. The dealer who has chosen to trust the other dealer must suffer for his mercantile recklessness. This is the risk they run and if for any reason, including a subsequent decision of the Sales Tax Department to withhold the supply of ST-1 forms to a purchasing dealer they are put in an uncomfortable position of having to pay the tax and initiate appropriate legal action for recovering it from the purchasing dealer. The state is entitled to its tax, where the requisite ST-1 Form is unavailable for any reason. The scheme of the Act is that either ST-1 Form should be available or tax should be collected. If a dealer shows such indulgence as to delivery of ST-1 Forms for a particular period, he takes the risk. It would have been further the best advised to insist on their supply even for the transaction intended to be completed by them. (Paras 31 and 32)
       It is the contention of the selling/purchasing dealers that selling dealers are made to suffer the consequences of failures and defaults on the part of the purchasing dealers in which they have played no part whatsoever they are in hapless position and would be compelled to incur Sales Tax liability for events which are not within their control and that Rule 8(4)(c) travels beyond the ambit of Section 4(2)(a)(v) of the Act. A Division Bench of the Delhi High Court, by their judgment dated 12.07.2002, which is impugned in these civil appeals dismissed the challenge in regard to the vires of Rule 8(4)(c). We have carefully gone through the judgment of the Division Bench in Simran Engineering Works etc. The reasoning given by the Bench in rejecting the challenge in regard to the vires of Rule 8(4)(c) are very sound. As rightly pointed out by the Division Bench, the Sales Tax Department is neither privy to nor is it concerned with any assurances that might have been exchanged inter se between the selling and purchasing dealers in the matter of furnishing ST-1 Forms. There is no reason for the consequences of the dealers acts of omission or commission to visit the Department. The Act and the Rules do not prohibit the simultaneous furnishing of ST-1 Forms, they, in fact, envisage it. Supply of ST-1 Forms by the Department under the Rules is an advance, however, the actual practice may be different (para 7 onwards of page 36 of the judgment). In our opinion, the generality of the provision of Section 71(1) should be given its full effect so as to enable the making of Rules for the full implementation of any provisions of the Act. The impugned rule also gives effect to Section 43(5) of the Act which deals with appeals and contains the requirement of pre-deposit of tax and penalty. Other situations where the Commissioner has the discretion to cancel the dealers registration for failure to pay tax including penalty, furnishing a false declaration etc. which must be borne in mind while considering the sweep of Section 71(1) of the Act. Thus, the primary intendment of the Act is to levy and collect tax and every devise, including of stipulations pertaining to the dealer friendly declaration forms are incorporated to implement the objective of the Act itself as pointed out by the High Court they cannot be conceived as ultra vires the statute (Paras 38 to 40)
       We are of the opinion that the judgment and order of the High Court in Shri Krishna Engineering Co. case (CWP 3304 of 1997) is passed on a mis-construction of the clear statutory provisions contained in Section 4, 71(1), 71(2)(b) and (s) of the Delhi Sales Tax Act, 1975 and that the High Court has also not appreciated the true scope of the rule making power which has been conferred on the Lt. Governor of Delhi by Section 71(1) of the Act which lays down that the administrator may make rules for carrying out the purposes of the Act. A general power has thus been conferred upon the administrator to make appropriate rules to carry out the purposes of the Act. The purpose of the Act is not just to fix liability but also to recover the liabilities which are so fixed. The High Court also has not noticed that Section 71(2)(s) of the Act which confers a residual power on the administrator to make rules in respect of any other matter which is required to be or may be prescribed. We are, therefore, of the opinion that the impugned amendment was within the rule making power of the Lt. Governor of Delhi under Section 71(2)(b) read in conjunction and harmoniously with Section 71(2)(s). (Para 42)

Judgment

Dr. AR. Lakshmanan, J.—The appellants in the above appeals, namely, C.A.Nos. 308, 313, 314 and 315 of 2003 and SLP No. 1954 of 2003 are selling dealers. The respondents in Civil Appeal Nos. 1717-1719 of 1999 are the purchasing dealers. This batch of appeals raises common question of law. The facts are essentially similar.

2. We shall now take Civil Appeal No. 314 of 2003 filed by one of the selling dealers, namely, Simran Engineering Works. They filed the writ petition in the High Court of Delhi seeking the following reliefs :

“(a) issue a writ of certiorari or any other writ, order or direction quashing Rule 8(4)(c) which is ultra vires to the provisions of Sec. 4(2)(a)(v) of the Delhi Sales Tax Act, 1975.

(b) issue a writ of certiorari or any other writ, order or direction quashing Rule 8(4)(c) as the same is beyond the powers of the Administrator conferred under Section 71 of the Delhi Sales Tax Act, 1975 to the extent that prescribes a condition that the declaration will only be issued if he deposits the amount of tax.

(c) Issue a writ of mandamus or any other writ, order or direction quashing Rule 8(4)(c) which is ultra vires to the provisions of the Delhi Sales Tax Act.

(d) Issue a writ of mandamus or any other writ, order or direction directing respondent Nos. 1 to 3 to issue the forms withheld vide deficiency memo dated 29.9.1999 and rejection order dated 13.10.1999 (Annexure ‘c’ (colly), the respondent No. 4 without necessitating of deposit of arrears of Sales Tax who in turn will issue forms to the petitioners and/or also issue direction directing respondent No. 5 to allow deduction on account of sales made to respondent No. 4 by the petitioner.

(e) Issue any other appropriate writ, order or direction as this Hon’ble Court may deem fit and proper on the facts and circumstances of the case.”

3. Our concern in this batch of matters is whether the selling dealers can canvass that the Department has no authority to refuse to issue sales tax forms to purchasing dealers or allow the deduction to the selling dealers and whether any of the provisions of Rule 8 of the Rules empowers it to do so, if there is such a power.

4. In the present case the appellants had sold goods to registered dealers who are not being issued the declaration form on account that they being in arrears of some tax and thereby the selling dealers cannot claim the benefit of Section 4(2)(a)(v) and the figure of sales become liable to be included in the figure of his taxable turnover.

5. These appeals also involve interpretation of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 and Rules 7 and 8(4) of Delhi Sales Tax Rules, 1975.

6. As already noted the appellants filed writ petitions in the High Court praying for an order or direction be issued quashing Rule 8(4)(c) of the Delhi Sales Tax Rules, 1975 (herein after referred to as the “Rules”) on the ground that it is ultra vires the provision of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 (hereinafter referred to as the “Act”).

7. The grievance of the appellants (selling dealers) pertains to the non-issuance of Sales Tax Forms (ST-1). In the instant case, a legal question has arisen because the appellants as the selling dealers sold goods to the respondents-purchasing dealers on the latter’s assurance that they will supply requisite ST-1 forms to the former. Instead it had transpired that the Sales Tax Department has declined to issue ST-1 forms to the purchasing dealers, in this batch of appeals either for the reason that they have relinquished their registration or because they have not complied with the provisions of the Act and the Rules. The consequence of Department’s declining to issue ST-1 form is that the appellant (Selling dealers) would become liable to deposit the sales tax in respect of transactions in which they are the selling dealers. The further consequence would be that unless the appellants deposit the sales tax payable on these transactions they would render

Click Here to Read the rest of this document

2005 Supreme(SC) 146

Important pointThe selling dealers cannot canvass that the Department has no authority to refuse to issue sales tax forms to purchasing dealers or allow the deduction to the selling dealers.

Cases Referred (5)