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CASE NO.: Appeal (civil)  922 of 2007

PETITIONER: M/s Mahim Patram Private Ltd

RESPONDENT: Union of India & Others

DATE OF JUDGMENT: 23/02/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (Civil) No. 12868 of 2006] W I T H CIVIL APPEAL NO.       923              OF 2007 [Arising out of S.L.P. (Civil) No.13129 of 2006]

S.B. SINHA, J :

       Leave granted.

       Appellant herein is engaged, inter alia, in the printing of questions  papers for examination boards, competitive examination boards, recruitment  boards and various universities and boards situate outside the State of Uttar  Pradesh.  It carries on a highly specialized and secretive work.  The activities  of the appellant admittedly amounts to a works contract in the course of   inter-State trade or commerce.

       The Central Sales Tax Act, 1956 (for short, ’the 1956 Act) was  enacted to formulate principles for determining when a sale or purchase of  goods takes place in the course of inter-State trade or commerce or outside a  State or in the course of imports into or export from  India, to provide for the  levy, collection and distribution of taxes on sales of goods in the course of  inter-State trade or commerce.

       The said Act did not contain any provision to levy tax on works  contract, despite insertion of Clause 29A in Article 366 of the Constitution  of India.  The question of levy of sales tax on works contract, iner alia, came  up for consideration before this Court in M/s Gannon Dunkerley and Co. and  Others etc. v. State of Rajasthan and Others etc. [(1993) 1 SCC 364].  While  noticing that the 1956 Act did not contain any definition of works contract,  this Court held : "38. Since the question of levy of inter-State sales tax  under Section 6 of the Central Sales Tax Act is not in  issue in these cases which only relate to imposition of  sales tax by the States, we do not propose to go into the  question, whether such a tax can be levied on deemed  sales resulting from transfer of property in goods  involved in the execution of a works contract without  amending the definition of sale in Section 2(g) of the  Central Sales Tax Act, so as to include such transfers  within its ambit. It is, however, made clear that the  absence of any amendment in the definition of sale  contained in Section 2(g) of the Central Sales Tax Act,  1956 so as to include transfer of property in goods  involved in execution of a works contract does not in any  way affect the applicability of the Sections 3, 4 and 5 and  Sections 14 and 15 of the Central Sales Tax Act to such

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transfers."           It was, however, held while laying down that in the absence of law by  Parliament so providing, it was  not permissible for the State Legislatures to  impose such a tax;  it did not mean that the legislative power of the State  could not be exercised till the enactment of a law under sub-clause (b) of  clause (3) of Article 286 by Parliament, observing : "\005It only means that in the event of a law having been  made by Parliament under Article 286(3)(b) the exercise  of the legislative power of the State under Entry 54 in  List II to impose a tax of the nature referred to in sub- clauses (b), (c) and (d) of clause (29-A) of Article 366  would be subject to restrictions and conditions in regard  to the system of levy rates and other incidents of tax  contained in the said law. The existence of a law enacted  under Article 286(3)(b) cannot, therefore, be regarded as  a condition precedent for the exercise of the taxing power  of the State under Entry 54 in List II to impose a tax of  the nature referred to in sub-clauses (b), (c) and (d) of  clause (29-A) of Article 366. This does not, however,  absolve Parliament from enacting a law as envisaged by  Article 286(3)(b). Keeping in view the grievance of the  contractors that there is wide disparity in the sales tax  legislation of the various States in the matter of  imposition, mode of assessment, rates etc. of the tax on  deemed sales resulting from transfer of property in goods  involved in the execution of a works contract referred to  in sub-clause (b) of clause (29-A) of Article 366, the  need for the law envisaged by Article 286(3)(b) cannot  be minimised."

       This Court noticed the matters which are envisaged for imposition of  tax on sale or purchase of goods after the Constitution 46th Amendment.  It  furthermore considered the deductions which were required to be made from  the value of the entire contract in order to arrive at the value of the goods  involved in the execution of a works contract.  It was held : "The value of the goods involved in the execution of a  works contract will, therefore, have to be determined by  taking into account the value of the entire works contract  and deducting therefrom the charges towards labour and  services which would cover - (a)Labour charges for execution of the works; (b)amount paid to a sub-contractor for labour and  services; (c)charges for planning, designing and architect’s fees; (d)charges for obtaining on hire or otherwise machinery  and tools used for the execution of the works contract; (e)cost of consumables such as water, electricity, fuel,  etc. used in the execution of the works contract the  property in which is not transferred in the course of  execution of a works contract; and (f)cost of establishment of the contractor to the extent it  is relatable to supply of labour and services; (g)other similar expenses relatable to supply of labour  and services; (h)profit earned by the contractor to the extent it is  relatable to supply of labour and services. The amounts deductible under these heads will have to be  determined in the light of the facts of a particular case on  the basis of the material produced by the contractor."

       In deference to the aforementioned judgment of this Court, the  Parliament amended Section 2(g) of the 1956 Act by Finance Act,  2002.   No rule, however, has till date been framed in regard to the manner in which  sales price of such transfer is to be calculated.  The Assessing Authority,

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however, relying on or on the basis of Section 9(2) of the 1956 Act applied  the provisions of the Uttar Pradesh Trade Tax Act, 1948 (for short, ’the 1948  Act’) and the rules framed thereunder for calculating  the sale price of the  transfer of property in goods involved in the execution of the works contract  in the course of inter-State trade and commerce for the Assessment Years  2002-03 and 2003-04.

       Writ petitions were filed by the appellant questioning the said orders  of assessment before the High Court of Judicature at Allahabad.  It is not in  dispute that a writ petition had also been filed by the appellant contending  that its activities did not come within the purview of the works contract as  envisaged under Section 2(g) of the 1956 Act.  The said writ petition,  however, is pending.  We, therefore, are not called upon to answer the said  question. By reason of the impugned judgments and orders dated 03.05.2006  and 05.05.2006, the Allahabad High Court dismissed the said writ petitions  relying on the decision of this Court in Gannon Dunkerley (supra).

       Mr. Dhruv Agrawal, the learned counsel appearing on behalf of the  appellant, would submit that in the absence of any rule for determination of  the sale price in respect of transfer of property in goods involved in the  execution of the works contract as envisaged under Section 2(h) of the 1956  Act, the taxable turnover under Section 8A of the said Act cannot be  computed for the purpose of levy of tax on the transfer of property  in goods  involved in the execution of works contract in the course of inter-State trade  and commerce.   

It was submitted that in absence of any rule required to be prescribed  in terms of the provisions of the 1956 Act, the determination of sale price of  such goods cannot be left to the whims and fancies of the Assessing  Authority.

       Mr. Kabin Gulati, the learned counsel appearing on behalf of the  State, on the other hand, submitted that the 1956 Act having provided for the  charging section, the deductions could be granted for the purpose of  determination of quantum of tax and furthermore by reason of the provisions  of Sections 9 and 13 of the 1956 Act, the mode and manner having been  provided in terms whereof  the quantum of tax is required to be determined,  the impugned judgments are unassailable.   

       Our attention, in this connection, has been drawn to Section 3-F of the  1948 Act and Rule 44B of Uttar Pradesh Trade Tax Rules, 1948.  It was  urged that only because no rules have been framed, the same by itself would  not lead to the  conclusion that the provisions of the Act cannot be given  effect to.

       Before embarking on the questions raised at the Bar, we may notice  the legislative background and history.  A Constitution Bench of this Court  in State of Madras v. Gannon Dunkerley & Company (Madras) Ltd. [(1959  SCR 379], inter alia, held that in an indivisible contract no sales tax could  be imposed on the supply of materials used therein treating it as a sale, as the  same did not involve any sale of goods.   

The constitutional provision was amended by the Constitution (Forty- sixth Amendment) Act,  pursuant to the recommendations of the Law  Commission of India in its 61st report whereby and whereunder a new clause  29A was inserted in Article 366 thereof, which, inter alia, lays down :   

"366. Definitions \026 In this Constitution, unless the  context otherwise requires, the following expressions  have  the meanings hereby respectively assigned to them,  that is to say \026                                         \005            \005            \005

"(29A) ’tax on the sale or purchase of goods’  includes \026

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(a)             \005            \005            \005         (b)     a tax on the transfer of property in goods                       (whether as goods or in some other form)                         involved   in  the  execution  of  a  works                      contract;                                        (c)             \005            \005            \005                         (d)             \005            \005            \005                         (e)             \005            \005            \005                         (f)             \005            \005            \005

and such transfer, delivery or supply of any goods shall  be deemed to be a sale of those goods by the person  making the transfer, delivery or supply and a purchase of  those goods by the person to whom such transfer,  delivery or supply is made;"

       Clause 3 of Article 286 of the Constitution was also amended to  enable the Parliament to specify by law restrictions and conditions in regard  to the system of levy rates and other incidents of the tax on the transfer of  goods involved in the execution of works contract.  Pursuant to or in  furtherance of the said enabling provision, as noticed hereinbefore, and in  deference to observations made in Gammon Dunkerley (supra), clause (g) of  Section 2 was substituted by a new clause defining ’sale’ in the following  terms :   

"2(g). "Sale" with its grammatical variations and cognate  expressions means any transfer of property in goods by  one person to another for cash or deferred payment or for  any other valuable consideration and includes,

(i)     a transfer, otherwise than in pursuance of a  contract, of property in any goods for cash,  deferred payment or other valuable consideration;

(ii)    a transfer of property in goods (whether as goods  or in some other form) involved in the execution of  a works contract;

(iii)   a delivery of goods on hire-purchase or any system  of payment by installments;

(iv)    a transfer of the right to use any goods for any  purpose (whether or not for a specified period) for  cash, deferred payment or other valuation  consideration;

(v)     a supply of goods by any incorporated association  or body of persons to a member thereof for cash,  deferred payment or other valuable consideration;

(vi)    a supply,  by way of or as part of any service or in  any other manner whatsoever, of goods, being  food or any other article for human consumption or  any drink (whether or not intoxicating), where  such supply or service, is for cash, deferred  payment or other valuable consideration,    

but does not include a mortgage or hypothecation  of or a charge or pledge on goods;"                                       

       However, no corresponding amendments in other provisions of the  1956 Act were made.  By reason of Section 89 of the Finance Act, 2005,  Section 2 of the 1956 Act was amended incorporating clause (ja) defining

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’works contract’ in the following terms :

"(ja) "works contract" means a contract for carrying out  any work which includes assembling, construction,  building, altering, manufacturing, processing, fabricating,  erection, installation, fitting out, improvement, repair or  commissioning of any movable or immovable property."  

       Section 13 of the 1956 Act was also amended.  The amended  provision reads thus :

"92.-Amendment of Section 13,-In Section 13 of the  Central Sales Tax Act, in sub-section (1), clause (aa)  shall be re-lettered as clause (ab) thereof, and before  clause (ab) as so re-lettered, the following clause shall be  inserted, namely :

"(aa) the manner of determination of the sale price  and the deductions from the total consideration for  a works contract under the proviso to clause (h) of  section 2."                                       Section 6 is the charging provision making a dealer liable to pay tax  under the said Act on all sales of goods other than electrical energy effected  by him in the course of inter-State trade or commerce during any year on  and from the date so notified therefor.  Section 8A provides for  determination of turnover.  We may at this juncture notice the provisions of  Sections 9(2) and 13(3) of the 1956 Act, which  read as under :

               "9.  Levy and collection of tax and penalties.-                         (1)     \005            \005            \005         (2)     Subject to the other provisions of this Act  and the rules made thereunder, the authorities for the  time being empowered to assess, re-assess, collect and  enforce payment of any tax under general sales tax law of  the appropriate State shall, on behalf of the Government  of India, assess, re-assess, collect and enforce payment of  tax, including any interest or penalty, payable by a dealer  under this Act as if the tax or interest or penalty payable  by such a dealer under this Act is a tax or interest or  penalty payable under the general sales tax law of the  State; and for this purpose they may exercise all or any of  the powers they have under the general sales tax law of  the State; and the provisions of such law, including  provisions relating to returns, provisional assessment,  advance payment of tax, registration of the transferee of  any business, imposition of the tax liability of a person  carrying on business on the transferee of, or successor to,  such business, transfer of liability of any firm or Hindu  undivided family to pay tax in the event of the  dissolution of such firm or partition of such family,  recovery of tax from third parties, appeals, reviews,  revisions, references, refunds, rebates, penalties, charging  or payment of interest, compounding of offences and  treatment of documents furnished by a dealer as  confidential, shall apply accordingly.

       Provided that if in any State or part thereof there is  no general sales tax law in force, the Central Government  may, by rules made in this behalf make necessary  provision for all or any of the matter specified in this sub- section."         

"S.13(3).- "State Government may make rules, not

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inconsistent with the provisions of this Act and the rules  made under sub-section (1) to carry out the purposes of  this Act."

       Sections 9(2) and Section 13(3) of the 1956 Act refer to the State Act.   The State of Uttar Pradesh inserted Section 3F of the 1948 Act, sub-section  (1) whereof reads as under :

"3F. Tax on the right to use any goods or goods involved  in the execution of works contract :

       (1) Notwithstanding anything contained in section  3 or section 3AAA or section 3D but subject to the  provisions of sections 14 and 15 of the Central Sales Tax  Act, 1956, every dealer shall, for each assessment year,  pay a tax on the net turnover of \026

       (a)     transfer of the right to use any goods for any                  purpose  (whether  or  not    for  a   specified                  period)  for  cash, deferred payment of other                    valuable consideration; or

       (b)     transfer  of  property  in   goods  (whether as                  goods or in some other form) involved in the                  execution of a works contract,

at such rate not exceeding twenty per cent as the  State Government may, by notification, declare  and different rates may be declared for different  goods or different classes of dealers."                                                    

       Sub-section (2) of Section 3F of the 1948 Act provides for the  amounts which were to be deducted from the total amount received or  receivable by a dealer in respect of a transfer referred to n clause (a) of sub- section (1),  where such transfer occurred during that assessment year or also  for the purpose of determining net turnover referred to in sub-section (1).

       The State of Uttar Pradesh framed Central Sales Tax (U.P.) Rules,  1957 in exercise of its power conferred upon it under sub-sections (3) and  (4) of Section 13 of the 1956 Act;  Rule 9 whereof reads as under :

"R.9.-Application to State Act and Rules : the provisions  of UP Sales Tax Act, 1948 and the UP Sales Tax Rules,  1948, as amended from time to time shall in so far as  they are not inconsistent with the Act, or the rules made  thereunder apply to the dealers liable to assessment under  the Act."                 The State has also framed Uttar Pradesh Trade Tax Rules, 1948,   Rules  44B and 44C whereof read as under :

"44B.- Determination of turnover of goods involved in  the execution of works contracts.- The tax under  Section 3-F on the turnover relating to the business of  transfer of property in goods (whether as goods or in  some other form) involved in the execution of a works  contract shall be computed on the net turnover relating  to works contracts.  In determining the net turnover, the  amounts specified below shall be deducted if they are  included in the gross turnover \026

(a)     the amounts representing the purchase price of  such goods, involved in the execution of such

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works contract, on the sale or purchase whereof  the tax under the Act is shown to the satisfaction  of the assessing authority to have been paid;

(b)     the amounts representing the purchase price of  such goods, involved in the execution of such  works contract, as are exempt from tax under  Section 4 or have been purchased  from an  industrial unit which is exempt from tax under  Section 4-A;

(c)     the amounts representing the value of such of the  goods, involved in the execution of such works  contract, as were supplied to the contractor by the  contractee himself; provided the property in such  goods remains under the terms of the contract  throughout with the contractee and the contractor  is bound to return the unused goods to the  contractee.

Explanation.-For the purposes of this rule, gross turnover  shall mean the aggregate of the amounts received or  receivable by a dealer in an assessment year as valuable  consideration for the transfer of property in goods used in  the execution of a works contract after the  commencement of this rule, whether or not the amount  receivable as valuable consideration for such transfer is  separately shown  in the works contract, and whether the  execution of such works contract commenced during the  year or earlier, and includes any advance received by the  dealer towards valuable consideration for the works  contract."     

"Rule 44-C Determination of turnover relating to the  transfer  of  right  to use  goods.- The tax under Section  3-F on the turnover relating to the business of transfer of  the right to use any goods for any purpose shall be  computed on the net turnover.  In determining the net  turnover, the amounts specified below shall be deducted  if they are included in the gross turnover \026

(a)     the      amount   representing    the   valuable          consideration   received  for  such transfer in          respect of goods exempt from tax under          Section 4;

(b)     the amounts received as penalty for defaults          in payment or as damages  for any loss or          damage caused to the goods by the person to          whom such transfer was made.

Explanation.- For the purpose of this rule, gross turnover  shall mean the  total amount received or receivable by a  dealer in an assessment year as valuable consideration for  the transfer of the right to use the goods whether such  transfer was agreed to during that assessment year or  earlier :

       Provided that in cases where the transfer of the  right to use goods was agreed  to before the date of  commencement of this rule and the right to use has been  continued after the said date, only the amount received or  receivable after the said date shall form part of the gross  turnover."    

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Sales tax is an indirect tax.  It is leviable on  transfer of goods.  It is,  however, well-settled that while construing a taxing statute one has to look  merely at what is clearly said.  [See speech of Viscount Simon referred to in   State of West Bengal v. Kesoram Industries Ltd. & Others \026 (2004) 10 SCC  201], wherein it was noticed :  "105. Justice G.P. Singh in Principles of Statutory  Interpretation (8th Edn., 2001) while dealing with  general principles of strict construction of taxation  statutes states: A taxing statute is to be strictly construed. The  well-established rule in the familiar words of Lord  Wensleydale, reaffirmed by Lord Halsbury and  Lord Simonds, means: The subject is not to be  taxed without clear words for that purpose; and  also that every Act of Parliament must be read  according to the natural construction of its words.  In a classic passage Lord Cairns stated the  principle thus: If the person sought to be taxed  comes within the letter of the law he must be  taxed, however great the hardship may appear to  the judicial mind to be. On the other hand, if the  Crown seeking to recover the tax, cannot bring the  subject within the letter of the law, the subject is  free, however apparently within the spirit of law  the case might otherwise appear to be. In other  words, if there be admissible in any statute, what is  called an equitable construction, certainly, such a  construction is not admissible in a taxing statute  where you can simply adhere to the words of the  statute. Viscount Simon quoted with approval a  passage from Rowlatt, J. expressing the principle  in the following words: In a taxing Act one has to  look merely at what is clearly said. There is no  room for any intendment. There is no equity about  a tax. There is no presumption as to tax. Nothing is  to be read in, nothing is to be implied. One can  only look fairly at the language used. (at p. 635)"   The 1956 Act contains the charging provision.  Upon amendment of  the definition of ’sale’ in the year 2002,  the transfer of property in goods   involved in the execution of works contract would be treated to be a sale.  It  may be true that further amendments had been made in the year 2005 and for  certain purposes, the subsequent legislations may also be considered for the  construction of a statute, but in our opinion, it is not necessary to do so.

A taxing statute indisputably is to be strictly construed. [See J.  Srinivasa Rao v. Govt. of  Andhra Pradesh & Another -  2006 (13) SCALE  27].  It  is, however, also well-settled that the machinery provisions for  calculating the tax or the procedure for its calculation are to be construed by  ordinary rule of construction.  Whereas a liability has been imposed on a  dealer by the charging section, it is well-settled that the court would construe  the statute in such a manner so as to make the machinery workable.

In J. Srinivasa Rao (supra), this Court noticed the decisions of this  Court in Gursahai Saigal v. Commissioner of Income-tax, Punjab [(1963) 3  SCR 893] and M/s Ispat Industries Ltd. v. Commissioner of Customs,  Mumbai [2006 (9) SCALE 652] :

       "In Gursahai Saigal v. Commissioner of Income \026  Tax, Punjab [(1963) 3 SCR 893], the question which fell  for consideration before this Court was construction of  the machinery provisions vis-‘-vis the charging  provisions.  Schedule appended to the Motor Vehicles

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Act is not machinery provision.  It is a part of the  charging provision.

       By giving a plain meaning to the Schedule  appended to the Act, the machinery provision does not  become unworkable.  It did not prevent the clear  intention of the legislature from being defeated.  It can be  given an appropriate meaning.   

       In a case of doubt or dispute, it is well-settled,  construction has to be made in favour of the taxpayer and  against the Revenue.  [See Sneh Enterprises v.  Commissioner of Customs, New Delhi, (2006) 7 SCC  714]

       In M/s. Ispat Industries Ltd. v. Commissioner of  Customs, Mumbai [JT 2006 (12) SC 379 : 2006 (9)  SCALE 652], this Court opined:

"In our opinion if there are two possible  interpretations of a rule, one which subserves the  object of a provision in the parent statute and the  other which does not, we have to adopt the former,  because adopting the latter will make the rule ultra  vires the Act."

We are, however, not oblivious of the decision of this Court wherein  the measure or value to which the rate will be applied for computing the tax  liability is considered to be one of the components of tax Messrs Govind  Saran Ganga Saran v. Commissioner of Sales Tax and Others [See (1985)  Supp. SCC 205 \026 para 6].   But then measure or value to which rate would be  applied is one thing, but how the turnover would be determined is another.   Computation provisions may bear a relationship with the nature of charge and  charging section and computation provisions together constitute an integrated  code as was held in C.I.T., Bangalore etc. v. B.C. Srinivasa Setty etc. [(1981)  2 SCC 460 at 465]; but it is equally well-settled that only because rules had  not been framed under the Central Act, the same  per se would not mean that  no tax is leviable.

In Sudhir Chandra Nawn v. Wealth Tax Officer  [1969 (1) SCR 108],  this Court rejected the contention that Section 7(1) of the Wealth Tax Act  was unconstitutional as no rules had been framed to value the asset for the  purpose of the Act, stating :

       "The plea that s. 7(1) of the Wealth Tax Act is  ultra vires the Parliament is also wholly without  substance.  That clause provides :

       "Subject to any rules made in this behalf, the  value of an asset, other than cash, for the purposes  of this Act shall be estimated to be the price which  in the opinion of the Wealth Tax Officer it would  fetch if sold in the open market on the valuation  date" :

       It was urged that no rules were framed in respect  of the valuation of land and buildings.  But s. 7 only  directs that the valuation of any asset other than cash has  to be made subject to the rules.  It does not contemplate  that there shall  be rules before an asset can be valued.   Failure to make rules for valuation of a type of asset  cannot therefore affect the vires of s. 7.  It was also said  that s. 7 (1) which requires that the asset shall be valued  at the price which it would fetch if sold in the open

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market on the valuation date, was expropriatory.  This  contention was not raised in the petition, and no ground  is made out for holding that the rate at which wealth-tax  is levied is expropriatory."

The question which, in our opinion, is required to be posed and  answered,  is as to whether there exist sufficient guidelines for determination  of the turnover in the hands of the Assessing Authority for the purpose of  levy of tax.  The 1956 Act provides for levy of tax.  Works contract has been  brought within the purview of sale.  Wherever the said words have been  used, the new definition, therefore, would be applied.  Section 8 provides for  rates of tax on sales in the course of inter-State trade or commerce.  Section  8A provides for determination of turnover.  Section 9 provides for levy and  collection of tax and penalties.  The said provision would, thus, be applied in  respect of transfer of property in goods involved in the execution of works  contract.  The 1956 Act provides for grant of exemptions and various  provisions e.g. proviso appended to Section 6(1) and 6(2) of the Act.  

Section 9(2) of the Act is of wide amplitude.  It confers powers on the  officers of the State to make assessment or re-assessment, which the officers  of the State have, under the general sales tax laws, to carry on assessment  under the 1956 Act, as if it is an assessment under the State Act.  The  expression ’as if’ is of some significance. The powers conferred and the  procedures laid down under the State sales tax laws would, therefore, be  applicable also for the purpose of carrying out assessment under the State  Act. Sub-section (2) of Section 9 provides that the authorities under the State  Act for the purpose of making assessment and re-assessment under the 1956  Act shall have all the powers which they have under the general sales tax  law of the State.  Assessment would mean the entire  process of computation  and levy of tax. [See Additional ITO v. Alfred - 1962 Supp. 1 SCR 143 at  149 and S. Sankappa v. ITO 168 2 SCR 674 at 678].

The expression ’assessment’, therefore, comprehends the power to  even compute the amount chargeable to tax in terms of the procedure  prescribed under the State Act.  Furthermore, Section 13(1) provides that the  Central Government ’may’ by notification make rules for computation of  turnover.  It is an enabling provision.  It is not obligatory for the Central  Government to do so.  When one looks at the language of Section 3 of the  1956 Act, it becomes clear that the State Government has also been given a  power to make rules, which are not inconsistent with the provisions of the  Act and any rules which may have been made under sub-section (1) of  Section 13 by the Central Government to carry out the purposes of the 1956  Act.  So long as there exists no inconsistency between the rules made by the  State Government and the rules framed by the Central Government, the rules  of the State Government may be made applicable.  The statute does not  impose any fetter on the part of the State Government to make rules.  The  State rules would be independent of the Central Government rules.  The only  fetter is that the State Rules should not be inconsistent with the provisions of  the Central Rules or the Act.  [See Hanuman  Prasad Singhania v. CTO - 27  STC 289 at 301].  

If the State Rules have been made applicable using Rule 9 of the State  Rules, it makes not only the original rule duly applicable in the case of  assessment of Central sales tax law, but also as amended from time to time.

So long as, therefore, the Central Government does not make any  rules, the determination of turnover may be carried out by the Assessing  Authority in terms of the State Rules, in view of Section 13(3) of the 1956  Act read with Rule 9 of the Central Sales Tax Act (U.P.) Rules, 1957.  The  rules made by the State Government as also the provisions of the Act are  incorporated by reference.  When a provision is incorporated by reference, it  need not be so stated again and again. [See Nagpur Improvement Trust etc.  v. Vasantrao and Others etc. (2002) 7 SCC 657 and Sneh Enterprises  (supra)]

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Validity of Rule 9 of the Central Tax Act (U.P.) Rules, 1957 is not  under challenge.  Furthermore, it is not necessary that the charging provision  and the machinery provisions must be found at the same place in the same  section, as the machinery provisions may be found elsewhere.  If the rules of  the State are applicable, Rule 44-B of the Uttar Pradesh Trade Tax Rules,  1948 would apply, which provides for computation of net turnover by  providing for deduction under Section 3F(2)(b) of the 1948 Act from the  gross turnover.  Section 3F(2)(b) of the 1948 Act in turn provides for all the  deductions as has been directed by this Court in M/s Gannon Dunkerley  (supra).            

In the aforementioned background, the submission of Mr. Agrawal  that the matter has to be considered from the point of view of amendments  of Section 2 and Section 13 of the 1956 Act by Finance Act, 2005 must be  held to be not applicable in the instant case.  Even if they are, they provide  only for an enabling provision.

A proviso inserted subsequently cannot be the determinative factor for  restricting the operation of the Act.  The proviso would be applicable subject  to the other provisions of the Act.  If  in absence of any rules, the  determination of turnover becomes payable, an assessee or a dealer cannot  derive any benefit by reason of non-framing of any rule which is  contemplated under the Act.  Strong reliance has been placed by Mr.  Agrawal on a decision of this Court in M/s Khemka & Co. (Agencies) Pvt.  Ltd. V. State of Maharashtra [(1975) 2 SCC 22].  Therein, this Court  observed : "15. It is only tax as well as penalty payable by a dealer  under the Central Act which can be assessed, reassessed,  collected and enforced in regard to payment. The words  as if the tax or penalty payable by such a dealer under the  Central Act is a tax or penalty payable under the general  Sales Tax law of the State have origin and root in the  words payment of tax including any penalty payable by  dealer under the Central Act. Just as tax under the State  Act cannot be payable and collected and enforced,  similarly penalty under the State Act cannot be assessed,  collected and enforced. 16. The words and for this purpose they may exercise all  or any of the powers they have under the general Sales  Tax law of the State in Section 9(2) of the Central Act  are important. The words and for this purpose relate to  assess, reassess, collect and enforce payment of tax  including any penalty payable by dealer under this Act.  In that context, the last limb of Section 9(2) of the  Central Act viz. and the provisions of such law ... shall  apply accordingly mean that the provisions of the State  Act are applicable for the purpose of assessment,  reassessment, collection and enforcement of payment of  tax including penalty payable under the Central Act. The  words of the last part of Section 9(2) viz. shall apply  accordingly relate clearly to the words and for this  purpose with the result that the provisions of the State  Act shall apply only for the purpose of assessment,  reassessment, collection and enforcement. The doctrine  of ejusdem generis shows that the genus in Section 9(2)  of the Central Act is for this purpose. In other words, the  genus is assessment, reassessment, collection and  enforcement of payment. The genus is applicable in  regard to the procedure for assessment, reassessment,  collection and enforcement of payment. The genus is  from whom to collect and against whom to enforce. It is  apparent that the extent of liability for tax as well as  penalty is not attracted by the doctrine of ejusdem generis  in the application of the provisions of the State Act in

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regard to assessment, reassessment, collection and  enforcement of payment of tax including any penalty  payable under the Central Act. 17. The deeming provision in the Central Act that the tax  as well as penalty levied under the Central Act will be  deemed as if payable under the general Sales Tax law of  the State cannot possibly mean that tax or penalty  imposed under any State Act will be deemed to be tax or  penalty payable under the Central Act. The entire  authority of the State machinery is that for this purpose  meaning thereby the purpose of assessing, reassessing,  collecting and enforcing payment of tax including any  penalty payable under the Central Act, they, meaning the  State agencies, may exercise powers under the general  Sales Tax law of the State. The words for this purpose  cannot have the effect of enlarging the content of tax and  the content of penalty payable under the Central Act.  Liability to pay tax as well as liability to pay penalty is  created by the Central Act. One of the reasons why tax as  well as penalty is the substantive provision in the Central  Act and is not incorporated by reference to the State Act  is illustrated by the history of Section 9(2) of the Central  Act. The present Section 9(2) of the Central Act was  formerly Section 9(3) of the Central Act. The Madras  High Court in D.H. Shah & Co. case pointed out that the  imposition of penalty under Section 12(3) of the Madras  Act, 1959 could not be attracted for levy of penalty. The  Madras High Court gave the reason that the then Section  9(3) of the Central Act only adopted the procedure of the  State Act for assessment, reassessment, collection and  enforcement of tax as well as penalty payable under the  Central Act."

The said decision does not run counter to what we have said  hereinbefore.  What is being emphasized is application of the State Rules for  the purpose of assessment or re-assessment.  Therein, the question which  arose for consideration was as to whether the assessee under the 1956 Act  could be made liable for penalty under the provisions of the State Sales Tax  Act.  Such a penalty was sought to be imposed for default in payment of tax  within the prescribed time.  The source of power to impose penalty under the  1956 Act cannot be drawn from the State Act and in that view of the matter,  the contention in regard to the application of sub-section (2) of Section 9 of  the 1956 Act in that case did not find favour with this Court. The said  decision, however, clearly is an authority for the proposition that the  recourse to the State Act and the rules framed thereunder can be resorted,  inter alia, for the purpose of assessment or re-assessment.

Reliance by Mr. Agrawal on Yogendra Nath Naskar v. CIT, Calcutta  [(1969) 1 SCC 555] for the proposition that a subsequent legislation can be  relied upon as the Parliamentary exposition of earlier Act has no application  in the instant case.  Recourse to a subsequent legislation is permissible if  there exists any ambiguity in the earlier legislation for the purpose of  ascertaining as to whether by a subsequent legislation proper interpretation  has been fixed which is to be put upon the earlier Act.  Therein the question  was as to whether an individual included a deity.  There was no ambiguity in  the definition of works contract as contained in Section 2(g) of the Act.

Application of proviso to an Act is well-known. [See Sadashiv Dada  Patil v. Purushottam Onkar Patil (D) by L.Rs. - 2006 (10 SCALE 21],  wherein it was observed :

       "As in 1957 the right of the respondent to purchase  the land became a vested right, proviso appended to  Section 8 of the 1962 Act  could not be read to mean that  such right stood divested.  Proviso appended to Section 8

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refers to the application of the provisions of the relevant  tenancy laws as the same does not abrogate a vested  right.  Proviso, it is well known, has a limited role to  play.  It may create an exception.  It ordinarily does not   create a right or takes away a vested or accrued right.   Proviso to Section 8 of the 1962 Act, in our considered  opinion, does not take away a vested right conferred  under the Tenancy Act."

We have noticed hereinbefore that the 2005 amendments are not  retrospective in operation.  Furthermore, they provide merely for an enabling  provision.  If enough machinery provisions can be found in the existing Act,  it is not necessary to construe the provisions having regard to the subsequent  legislation.

For the reasons aforementioned, we do not find any merit in these  appeals, which are dismissed accordingly.  However, in the facts and  circumstances of the cases, there shall be no order as to costs.