Judgment

BHAGWATI

( 1 ) THIS appeal by special leave raises a short but interesting question of construction of Section 8 (3) (b) of the Central Sales Tax Act, 1956. The determination of this question has given rise to divergence of opinion amongst different High Courts but if we have regard to the well recognised canons of construction of taxing statutes and also focus our attention on the object and intendment of the section, we do not think it presents much difficulty of solution. The facts giving rise to the appeal are few and may be briefly stated as follows.

( 2 ) THE assessee is a limited company registered under the Companies Act, 1956 and having its registered office at Calcutta. The assessee owns a factory in Faridabad, where it carries on business of manufacturing and processing textiles. The assessee is registered under the Punjab General Sales Tax Act, 1948 as in force in the State of Haryana and at all material times it also held a certificate of Registration under Section 7 of the Central Sales Tax Act, 1956 (hereinafter referred to as the Central Act ). The business mentioned in the Certificate of Registration was "textile manufacturing, sale, purchase, whole-sale distribution; sales and purchase of yarn and waste and textile machinery" and the Certificate of Registration also specified inter alia the following classes of goods for the purpose of sub-section (1) of Section 8, namely, "dyeing colours, and other chemicals for use in manufacture". The assessee purchased these goods in the course of inter-State trade and commerce on the basis of its Certificate of Registration and furnished to the selling dealers declarations in Form C stating that these goods were purchased for use by the assessee in the manufacturing of goods for sale. On the strength of these declarations the selling dealers were taxed in respect of the sales effected by them to the assessee at the rate of 3 per cent under Section 8 (1) (b) of the Central Act. The goods purchased by the assessee were used partly for sizing, bleaching and dyeing of textiles belonging to the assessee and partly for sizing, bleaching and dyeing of textiles belonging to third parties on job basis.

( 3 ) ON 17/09/1966, the Excise and Taxation Officer, Gurgaon issued a notice calling upon the assessee to show cause why action should not be taken against it under Section 10 of the Central Act on the ground that the assessee had been misusing the certificate of registration by doing sizing, bleaching and dyeing for third parties on job basis. This was followed by another notice dated 13/07/1967 in the same terms by the Excise and Taxation Officer in regard to the assessment years 1962-63 to- 1966-67. The assessee replied to these notices by its letter dated 21/07/1967 asking for details and circumstances in which, according to the Excise and Taxation Officer, the assessee had misused the certificate of registration so that the assessee could satisfy the Excise and Taxation Officer that no such misuse had, in fact, taken place. In response to this query made by the assessee, the Excise and Taxation Officer formulated the case against the assessee in the following words :

"the company purchased goods from outside the State of Punjab (now Haryana) on submission of c Forms for the purpose of use in manufacture of goods for sale. But instead of doing so, the company used those purchases partly in manufacturing its own goods for sale and partly for doing job work for other parties. The Company could not use the material concessionally purchased, for the job work as that does not constitute sale. "

THE assessee contended in reply that neither the terms and conditions of the certificate of registration nor the provisions of Section 8 (3) (b) of the Central Act required that the goods purchased by the assessee must be used by it in manufacture or processing of its own goods intended for sale by itself and that it would be sufficient compliance with the requirement of Section 8 (3) (