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PETITIONER: BHAWANI COTTON MILLS LTD.

       Vs.

RESPONDENT: STATE OF PUNJAB & ANR.

DATE OF JUDGMENT: 10/04/1967

BENCH: VAIDYIALINGAM, C.A. BENCH: VAIDYIALINGAM, C.A. RAO, K. SUBBA (CJ) SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1967 AIR 1616            1967 SCR  (3) 577  CITATOR INFO :  RF         1970 SC1742  (3)  F          1972 SC1458  (40,43)  RF         1972 SC1760  (8,10,16,17)  D          1974 SC1111  (7)  RF         1976 SC 769  (3)  R          1985 SC1041  (11)  R          1989 SC1931  (3)

ACT: Punjab  General Sales Tax Act (46 of 1948),ss.  2(ff),  5(1) second proviso and 5(2)(a)(vi) and Central Sales Tax Act (74 of  1956),  s.  15(a)-Whether provisions  of  State  Act  in conflict with those of Central Act. Notification  in  1958  under s. 5(1)  prescribing  rate  of purchase   tax-Amendment   of   word   "purchase"-No   fresh Notification-Legality of levy of purchase tax.

HEADNOTE: The definition of the word "purchase" was first  introduced in the Punjab General Sales Tax Act, 1948, in 1958.  As  the rate  of  tax  to  be  levied  was  to  be  contained  in  a Notification  to  be  issued under s. 5(1) of  the,  Act,  a Notification was issued in April 1958 regarding the rate. of tax on the purchase of goods "for use in the manufacture  of good,% for -.is per the then definition of "purchase".   The definition of "purchase" was amended twice in 1959 and again by  Punjab  Act  19 of 1960.   The  definition  after  these amendments has reference to the goods specified in  Schedule C to the Act an item of which relates to cotton, and,  after the 1960 amendment the clause "for use in the manufacture of goods  for  sale" was omitted.  After those  amendments,  no fresh  Notification  prescribing  the rate  of  tax  on  the purchase of goods was issued till September 26, 1961. The appellant was a cotton ginning factory and was a  dealer registered  tinder  the Act.  Under s. 10, it  had  to  send quarterly returns within the time specified and when sending the returns had to pay the amount of tax, in accordance with the  returns  which  should also show  the  gross  turnover. Failure to do so was an offence and subjected the dealer  to

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heavy  penalties.   The  appellant  filed  returns  for  the assessment  years  1960-61, 1961-62) and  1962-63  and  paid certain amounts of tax which, according to it were due  from it.   The  assessing authority passed order  of  assessment, including  in  the appellant’s turnover the  amounts  repre- senting  the purchases of cotton made by the  appellant  for each  of  the  years.  The appellant  thereupon  filed  writ petitions  challenging  the three assessment orders  on  the ground   that  the  -second  proviso  to  s.  5(1)  and   s. 5(1)(a)(vi)  of  the  Act, enabling  the  State  to  collect purchase tax in respect of cotton, were opposed to s.  15(a) of the Central Sales Tax Act, 1956 and that, in consequence, it was not liable to pay any purchase tax far the assessment years  in  respect of cotton.  The High Court  rejected  the petitions. In appeal to this Court, HELD  :  (1) (By Full Court) As no  fresh  Notification  was issued  till September 26, 1961, the orders  of’  assessment for  the  two  years  1960-61  and  1961-62  could  not   be sustained. [592 H; 593 B] The   levy  of  tax  could  not  be  sustained   under   the Notification  of  1958 on the basis of s. 22 of  the  Punjab General  Clauses  Act.   That section  has  no  application, because the definition of "purchase" on the of Sup CI/67-7 578 which that Notification was issued is inconsistent with  the definition of "purchase" as it stood after its amendment  in 1960. [592E-F] Further, if the levy is to be sustained on the basis of  the Notification  of 1958, the State could levy tax only on  the category  of purchases "for use in the manufacture of  goods for sale".  But it was not open to the State to make such  a choice. [592G] (2)  (Per Subba Rao, C.J., Shah and Vaidialingam, JJ.)  Even though  there was a notification fixing the rate of tax  for the year 1962-63, the order of assessment for that year  and also for the two years 1960-61 and 1961-62 should be quashed on  the  ground that the provisions of the State  law  under which they were made violated s. 15 of the Central Act. [591A] Under s. 15(a) of the Central Act in respect of  commodities like  cotton  which  come under the  category  of  "declared goods"  is  defined  in  s. 2(c) of  the  Central  Act,  the purchase  tax can be levied only at one stage.  The  essence of one-stage taxation consists of fixation of a single point or  stage,  either  by the State Act  or  the  rules  framed thereunder.   A  mere  injunction  by  the  Legislature,  as contained in the second proviso to S. 5(1) of the State Act, that the rate should not be higher than the one fixed in the Central Act, and that the levy must be at one stage as  men- tioned  in the Central Act, will he of no avail, unless  the Act  or  the rules framed under it make it clear  that  them will  be  no  levy or collection of  lax,  except  from  the persons  who are bound to pay as per the Central  Act.   The proviso doe,-, not serve any material purpose. because, even if  it  did  not exist the authorities cannot  levy  tax  on declared  goods at a rate higher than that laid down in  the Central Act. [583H- 584G-H; 587F-H. 588] Further, there can be no legal liability for payment of  tax unless  the  Act or the rules prescribe a single  point  for taxation; but under s. 5(2)(a), in respect of the same  item of  declared goods, more than one person is made  liable  to pay tax. and the tax is levied at more than one stage.   For example, if A sells declared goods to B and B to C, (B and C being  registered  dealers)  and the sales  are  beyond  the

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period of 6 months mentioned in s. 5(2) (a) (vi), both A and B will be liable to pay purchase tax. [588A-B, G-H] Moreover,  in the final return sent by the dealer,  it  will have to show in the taxable turnover all purchases of cotton effected  by  it  during the accounting  year  and  the  tax payable  will  have  to  be paid.   The  dealer  can  get  a declaration  from the dealer to whom the goods  are  re-sold and claim exemption under s. 5(2) (a) (vi) and r. 27A of the rules  made under the Act.  But these provisions apply  only to  registered dealers, whereas s. 15 of the Central Act  is not  restricted  to  registered dealers.  Also,  if  a  non- registered dealer intervenes, there is no machinery by which the dealer can ascertain whether his vendor of the  declared good,-,, has paid the tax already. [584B; 588B-D, G] The orders of assessment could not be sustained on the basis of the provisions for refund in s. 12 and the rules.   These provisions  do not afford adequate relief.  If  the  Central Act makes it mandatory that the tax can be collected only at one  stage  it  is not enough for the State to  say  that  a person  who is not liable to pay tax, must nevertheless  pay it  in the first instance and then claim refund at  a  later stage.  If a person is not liable for payment of tax at all, at  any  time,  the  collection of a tax  from  him  with  a possible  contingency  of refund at a later stage  will  not make  the original levy valid.  Besides. even in the  matter of obtaining refunds the appellant will have to place before the officer concerned, particulars of transactions connected with the commodity and the  basis  on  which  it claims relief,  and  it  would  be extremely difficult to collect the materials in this behalf, because,  there is no provision in the Act or the  rules  on the  basis of which it will be entitled to be supplied  with such relevant materials. [589C-G] Modi Mills v. C.I.T., Punjab, [1965] 1 S.C.R. 592 and A.  V. Fernandez  v.   The  State of  Kerala,  [1957]  S.C.R.  837, followed. (Per Sikri and Ramaswami, JJ. dissenting) : The assessment for the year 1962-63 is valid. The  second  proviso  to s. 5  serves  one  useful  purpose, namely, it gives immunity to the State Act from challenge on the ground that its provisions infringe s. 15 of the Central Act.  The State Act is good and in -effect complies with the requirements  of  s. 15 of the Central Act, because,  it  is possible to find out the stage at which purchase tax become- leviable  on  goods mentioned in Schedule C, both  in  cases where  the  purchasers are registered dealers and  in  cases where unregistered dealers intervene.  Under ss. 4 and 5  of the Act the stage is the first purchase which is not  exempt from  taxation or which is not deductible from  the  taxable turnover  of a dealer under s. 5(2) of the State  Act.   For example,  if A buys cotton and sells it to B and B sells  to C,  where all are registered dealers, if A is liable to  pay purchase  tax, B and C could say to the assessing  authority that  they  are exempt from paying purchase  tax.   Since  A would be interested in obtaining the declaration from B  for claiming  exemption under s. 5 (2) (a) (vi) and B  would  be interested  in  knowing whether A’s was  the  first  taxable purchase,  they  will behave like ordinary  businessmen  and know  the true position is to whether A was liable  or  not. If A’s sale was within and B’s sale beyond, the period of  6 months mentioned in s. 5(2)(a)(vi), B will be liable to  pay purchase tax and the purchaser from him would be exempt.  If in the illustration C is an unregistered dealer, B will  ’be liable to pay purchase tax because he cannot claim exemption under s. 5(2)(a)(vi).  If B is also an unregistered  dealer,

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B  would  be  liable  and C would be exempt.   If  B  is  an unregistered dealer, and C is a registered dealer, B will be liable unless he obtains the prescribed declaration from  C. But if there is double taxation due to mischance in the case of   registered  dealer,,  or  ignorance  in  the  case   of unregistered dealers, the Act cannot be treated and void for that  reason especially when there is a  suitable  provision for refund. [593C-G; 594A-C, E-G] Modi  Mills v. C.I.T. Punjab, [1965] 1 S.C.R. 592,  referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Apppeals Nos. 2386 2388 of 1966. Appeals from the judgment and order dated November 23.  1965 of the Punjab High Court in Civil Writ Nos. 1591 of 1963 and 1913 and 1914 of 1962 respectively. S.   T.  Desai, A. N. Sinha, C. D. Garg and B. P.  Jha,  for tile appellant (in C.A. No. 2386 of 1966). H.   L.  Shibal, A. N. Sinha, C. D. Garg and B. P. Jha,  for the appellant (in C. As.  Nos. 2387 and 2388 of 1966). Bishan  Narain, O. P. Malhotra and R. N. Sachthey,  for  the respondents (in all the appeals). 580 The Judgment of SUBBA RAo, C.J., SHAH and VAIDIALINGAM,  JJ. was  delivered  by VAIDIALINGAM, J. SIKRI, J. on  behalf  of himself and RAMASWAMI, J. delivered a partially  dissenting, Opinion. Validialingam,   J.   In  all  these   three   appeals,   on certificate,  the  common  judgment of  the  High  Court  of Punjab,  dismissing  the three writ petitions filed  by  the appellant,  is  under attack, by Mr. S.  T.  Desai,  learned counsel for the appellant. The appellant, who is the same in all these appeals, is  the Bhawani Cotton Mills Ltd., running a cotton ginning factory, and  engaged  in  the business of  manufacturing  yarn  from cotton.  It is a dealer, registered under the Punjab General Sales  Tax  Act,  1948  (Punjab Act.   No.  XLVI  of  1948), hereinafter called the Act.  The appellant filed returns for the assessment years 1960-61, 1961-62 and 1962-63.  It  had- ’Paid  a certain amount of tax which, according to  it,  was alone due from it.  But, according to the appellant, it  was not  liable  to  pay Central sales tax on  the  purchase  of cotton during the relevant accounting years.  The  appellant had  taken various grounds of attack, before  the  assessing authority, but the most important contention raised, appears to  have  been  that the material  provisions  in  the  Act, particularly  the second proviso to s. 5(1) and cl. (vi)  of s.  5  (2) (a), of the Act, enabling the  State  to  collect purchase  tax,  in  respect of cotton, are  opposed  to  the material provisions of the Central Sales Tax Act, 1956  (Act LXXIV  of 1956) (hereinafter called the Central  Act).   The appellant  pleaded  that  it  was  not  liable  to  pay,  in consequence, any, purchase tax, for the assessment years  in question, in respect of cotton. The  Excise & Taxation Officer, Ferozepore, did  not  accept the  pica  of the petitioner-appellant  regarding  its  non- liability  to the purchase tax on cotton.  He,  accordingly, passed   orders  of  assessment,  including   the   turnover representing the purchases of cotton made by the  appellant. The assessment orders for the years 1960-61 and 1961-62, are ’dated November 15, 1962, and for the assessment year  1962-

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63, is dated July 30, 1963. The  appellant, thereupon, filed Civil Writ Petitions,  Nos. 1913  and  1914 of 1962 and 1591 of  1963,  challenging  the assessment  orders  for the years 1961-62 and  1960-61,  and 1962-63 respectively.  The High Court, by its common  order, rejected  the  writ  petitions filed by  the  appellant  and confirmed the orders of assessment, passed by the  assessing authority. The common question, that arises for consideration in  these three  appeals,  is as to whether the second proviso  to  s. 5(1) and cl. (vi) of s. 5 (2) (a) of the Act, are opposed to any  of  the  relevant provisions of  the  Central  Act.   A further question arise,; 581 in  Civil Appeals Nos. 2387 and 2388 of 1966, regarding  the validity of a Notification, issued by the State  Government, under  s.  5 of the Act, on September 26,  1961.   We  shall consider   this  further  question,  after  expressing   our opinion, on the more important question, which is common  to all the appeals. In order to appreciate the contentions that have been  taken before  us,  by Mr. S. ’F.  Desai, learned counsel  for  the appellant,  and Mr. Bislian Narain, learned counsel for  the State, it is necesarily to refer to the relevant  provisions in  both  the Acts.  It is only necessary to  refer  to  the provisions of the Act, as they stood on April 1, 1960.  The, Act of 1948, has been amended from time to time, and it  may not ’be necessary to refer to those amendments, excepting on one   aspect,  when  we  deal  with  the  validity  of   the Notification, referred to earlier. Corning to the Act, according, to its preamble, it is an Act to  provide  for the levy of a general tax on  the  sale  or purchase  of  goods in Pun ab.   The  expressions  "dealer", "goods",  "prescribed", "purchase", " sale", "turnover"  and "year" are defined in cls. (d), (e), (f), (ff), (h), (i) and (j) of S. 2. Particularly, s. 2(ff), defining "purchase", is as follows               "2.(ff) In this Act, unless there is  anything               repugnant in the subject or context-                purchase’ with all its grammatical or cognate               expressions,  means the acquisition  of  goods               specified  in Schedule C for cash or  deferred               payment   or  other   valuable   consideration               otherwise,    than    under    a     mortgage,               hypothecation, charge or pledge."               In Schedule C to the Act, the item with  which               we  are concerned, relates to, cotton, and  it               is as follows :-               "Cotton,  that is to say, all kinds of  cotton               (indigenous or imported) in its unmanufactured               state,  whether  _ginned or  unpinned,  baled,               pressed or otherwise, but not including cotton               waste." Therefore, the definition of the expression "purchase",  has reference  to  the  goods  specified  in  Schedule  C.   The expression   "turnover",  in  s.  2(i),  will  include   the aggregate of the amounts of sales and purchases and parts of sales and purchases actually made by any dealer, during  the given  period.   No,  doubt,  certain  deductions  are  also mentioned  in the definition of that expression.   In  these appeals, since we ire concerned only with tax on  purchases, it is not necessary for us to advert to the definition of  " sale",  in  s. 2(h) except to note that  it  excludes  goods specified in Schedule C. Section 4 deals with the incidence of taxation, and it makes

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a  dealer,  whose  gross  turnover,  during  the  year,   in question, 582 exceeded the taxable quantum, being liable to pay tax on all sales and purchases, subject to the provisions of ss. 5  and 6.  In  fact, the purchases, for being made  liable,  should have  been effected after the commencement of the  Amendment Act  of  1958, amending the original  Act.   Section  4(2-A) provides  that  no  tax on the sale of any  goods  shall  be levied, if a tax on their purchase is payable under the Act, and this is notwithstanding anything contained in sub-ss.  ( 1) and (2) of s. 4. The effect of this provision is that  if a  tax on purchase is payable, then, in respect of the  same goods, no tax shall be levied on their sale.  Sub-s. (5)  of s.  4 defines the expression "taxable quantum".   Section  5 deals  with  the rate of tax and it provides for  levying  a tax,  on  the  taxable turnover of a dealer,  at  rates  not exceeding six naye paise in a rupee, is the State Government may,  by notification, direct, and the levy must be  subject to  the provisions of the Act.  The second proviso to  s.  5 (1) is, as follows :-               "Provided  further that the rate of tax  shall               not  exceed  two  naye paise  in  a  rupee  in               respect  of any declared goods as  defined  in               clause  (e) of section 2 of the Central  Sales               Tax  Act,  1956,  and such tax  shall  not  be               levied  on the purchase or sale of such  goods               at more than one stage." The  expression  "taxable turnover" is defined in  s.  5(2), but,  in  arriving  at the  taxable  turnover,  the  various deductions, mentioned in the sub-clauses of s. 5 (2) (a) and s.  5 (2) (b), ire exempt.  Sub-cl. (vi), of s. 5  (2)  (a), which  mentions  one  of the items which  is  deductible  in arriving at the taxable turnover ’is as follows :-               turnover during that period on the purchase of               goods which ire sold not later than six months               after  the close of the year, to a  registered               dealer, or in the course of inter-State  trade               or commerce, or in the course of export out of               the territory of India :               Provided that in the case of such a sale to  a               registered  dealer,  a  declaration,  in   the               prescribed form and duly filled and signed  by                             the  registered  dealer to whom the  g oods  ire               sold,  is  furnished by  the  dealer  claiming               deduction.!’ Section  7 deals with the registration of dealers.   Section 10 relates to payment of tax and the filing of returns.  Its sub-s.   1  provides that the tax payable,  under  the  Act, shall  be noticed in the manner provided, it such  intervals as  may be prescribed.  It may be mentioned here that  there is  no dispute that the appellant is one of those  types  of dealers  who his to send quarterly returns, within the  time specified.  Sub-s. (4) of s. 10 makes it  583 obligatory  on the registered dealer to pay the full  amount of  tax  due  from  him, under the  Act,  according  to  his returns,  before the returns are furnished, and it  provides for  the returns being accompanied by the Treasury  or  Bank receipts  evidencing such payment.  It is only necessary  to note that the appellant, when sending its quarterly returns, during  the middle of a year, has to pay the amount of  tax, in accordance with that return, and that return should  also show the gross turnover, in accordance with the Act.  Sub-s.

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(6)  of  s.  10 makes a dealer liable for  penalty,  in  the circumstances mentioned therein. Section 11 of the Act deals with assessment of tax.  Section 12  deals with refunds and, in the  circumstances  mentioned therein, a registered dealer can claim refunds from and  out of  the  :Amounts  which he has already  paid.   Section  23 provides for offences and penalties; and, particularly,  cl. (b)  of  s.  2 3 ( 1. ) makes  failure,  without  sufficient cause,  to  submit  a return, as required.  by  s.10(3),  an offence.   Section 27 enables the State Government  to  make rules under the Act. Rules  have been framed, by the State Government, and it  is only necessary to refer to some of the rules.  Rule 20 makes it  obligatory  on the dealers concerned, other  than  those referred  to  in  rr. 17, 18 and 19,  to  furnish  returns._ quarterly,  within  thirty  days from  the  expiry  of  each quarter.   We  have already referred to the  fact  that  the appellant is liable to send quarterly returns, Rule 27-A  is as follows :-               "A dealer who wishes to deduct from his  gross               turnover  the amount in respect of a  purchase               on the ground that he is entitled to make such               deduction under sub-clause (vi) of clause  (a)               of  sub-section (2) of section 5 of  the  Act.               shall append to his return in form STVIIIA,  a               list in form STXXVILB or form STXXVIIC as  the               case  may  be, and produce on  demand  by  the               Assessing  Authority a declaration in  writing               in  form........ by the de-,tier to whom  such               goods are sold or by his agent." Rules  48  to 55 deal with the procedure to be  adopted  for obtain a refund of tax paid, under s. 12 of the Act. Coming to the Central Act, one of the purposes sought to  be achieved  by  that Act is to specify  the  restrictions  and conditions  to which State laws, imposing taxes on the  sale or  purchase of certain goods, which ,ire declared to be  of special  importance,  shall  be  subject.   The  expressions "dealer"  and "declared goods" are defined in ss.  2(b)  and 2(c). respectively.  "Declared goods" means goods  declared, under  s.14,  to be. of special  importance  in  inter-State trade    or    commerce.                       Section    14 enumerates      the 584 various goods which are declared to be of special importance in  inter-State  trade or commerce.  One of  the  items,  so declared,  is "cotton", under item (ii), which is  described as follows :-               "cotton,  that is to say, all kinds of  cotton               (indigenous or imported) in its unmanufactured               state,  whether  ginned  or  unginned,  baled,               pressed or otherwise, but not including cotton               waste.  " Section  15, imposing restrictions and conditions in  regard to tax on sale or purchase of declared goods, within a State is as follows:-               "15.  Every sales tax law of a State shall, in               so far as  it   imposes  or   authorises   the               imposition of a tax on               the  sale or- purchase of declared  goods,  be               subject  to  the  following  restrictions  and               conditions, namely :-               (a)   the  tax  payable  under  that  law   in               respect of an), sale or purchase of such goods               inside  tile State shall not exceed three  per               cent  of the sale or purchase  price  thereof,

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             and such tax shall not be levied at more  than               one stage;               (b)   where, a tax has been levied under  that               law in respect of the sale or purchase  inside               the State of any declared goods and such goods               are sold in the course of inter-State trade or               commerce, the tax so levied shall be  refunded               to  such person in such manner and subject  to               such conditions as may be provided in any  law               in force in that State." Pausing here for a minutes it may be stated that the attack, regarding the validity of some of the provisions of the Act, by  the appellant, is rested on s.15(a) of the Central  Act, on  the ground that such a levy of purchase  tax,  regarding cotton, is neither definite nor ascertainable in the Act and that, as the provisions now stand, there is a possibility of the  tax being levied at more than one stage.  According  to the  appellant, the State legislation, which deals with  the imposition  of  tax  in respect of a  sale  or  purchase  of declared goods, must conform to the provisions of s.15(a) of the Central Act.  The ingredients of those provisions are  : (i)  In respect of "declared goods", a tax, either Oil  sale or purchase, alone, can be levied; and it cannot be on  both sale  and purchase. (ii) The rate of tax should  not  exceed the  maximum limit fixed by the Central Act, and  (iii)  The tax can be levied only at one -stage.  The essence of a one- stage  taxation  consists of fixation of a single  point  or stage,  either  by  the  State  Act  or  the  rules   framed thereunder.   In this case’, according to the appellant,  it has  to send quarterly returns, even during  the  accounting year and, as per S. 10(4) of the Act, it  585 has  to  pay  also  tax,  in  accordance  with  the  returns submitted by it for every quarter.  In the returns that  are being  sent, the dealer will have to include all  purchases’ of cotton, effected by him during the quarter for which  the return  is sent.  There is no indication, either in the  Act or  in the rules or the forms prescribed, as to whether  the persons, from whom the appellant purchased cotton, have paid tax or not.  Section 15 of the Central Act is not restricted only  to registered dealers.  There will also be nothing  to guide  the  appellant  to  know as  to  whether  the  goods, purchased  by it, have been sold to it by its vendor  within the period mentioned in cl. (vi) of s. 5 (2) (a) of the Act. Under those circumstances, there is always a possibility, or even  a certainty, of more persons than one having paid  tax or being made liable to pay tax in respect of the same goods at   different  stages.   That  is  quite  opposed  to   the provisions of s.15(a) of the Central.  Act.  Even otherwise, it is pointed out that if a person has purchased cotton  and sells it after the period provided for in S. 5 (2) (a) (vi), that  party is liable to pay sales tax and would  have  also paid  the same.  Another purchaser from the said party  will also  be,  liable to pay tax, on the same commodity,  if  he sells  the  goods, after the period mentioned in  cl.  (vi). That is, two, persons are made liable for payment of tax, in respect  of  the  same  commodity.   In  other  works,   the purchases of the same item of declared goods, by the persons indicated above, are made liable for tax, whereas under  the Central  Act, there can be only one levy and  collection  of tax at one stage, either on sale or on purchase. Further, it is argued that the second proviso to s. 5(1)  of the Act, is contrary to s.15(a) of the Central Act, inasmuch as  the main section, which levies the rate of tax viz.,  s. 5(1),  as well as the Notification issued under it,  Clearly

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show  that the Act levies tax at a far higher rate than  the maximum provided under S. 15 (a) of the Central Act.   Under these circumstances, it is pointed out. that both the second proviso  to s. 5 (1 ), and cl. (vi) of s. 5 (2) (a). of  the Act, will have to be struck down. Counsel  has also drawn our attention, to the relevant  pro- visions  in the Sales-tax Acts in force ’in’ the  States  of Madras, Mysore Andhra Pradesh and Uttar Pradesh, where  the, stage. -,it which the tax is to be levied either on purchase or on sale, his been definitely and clearly indicated.  Such a  provision,  it is pointed out, has not been made  in  the Act. On  behalf of the State, it is urged that the provisions  of the  Act are quite consistent with s. 15(a) of  the  Central Act.  Counsel points out that the second proviso to s. 5 ( 1 )  of the Act, makes it very clear that the rate of tax,  in respect  of  declared  goods, ,-,hall not  exceed  the  rate mentioned in s.15(a) of the Central 586 Act, either on purchase or on sale.  Counsel also points Out that  the said proviso further reiterates that the  levy  of tax,  either  on purchase or on sale, shall not be  at  more thin one stage. Counsel further developed his argument by stating that  the, normal rule, under the Act, in respect of declared goods, is to  levy  the tax, on sale or purchase, it  the  very  first stage, that is, when the first sale or first purchase  takes place.   Therefore, the stage is definitely fixed,  but  the Act  itself  gives, as will be seen by sub-s. (2) of  s.  5, various  types of transactions which are to be excluded,  in arriving at the. dealer’s taxable turnover.  It is open to a dealer  to  claim exemption, in respect of  any  particular- transaction, under one or other of the various clauses in S. 5(2).   When  that  is so, the stage at  which  the  tax  is levied, gets changed, able  to claim any exemption.  But, ultimately, it  is  only one transaction, of sale or purchase, that is made liable to tax.   Counsel also points out that the first proviso to  S. 5(1), of the Act, which is quite in conformity with  s.15(a) of  the Central Act, is perfectly valid.  It is pointed  out that  in  respect of persons claiming exemption,  under  cl. (vi)  of  S.  5  (2) (a), the procedure  to  be  adopted  is indicated  in  r.  27A,  of  such  a  purchaser  getting   a declaration, in the form mentioned therein, from the dealer, to  whom such goods are sold, or by his  agent.   Therefore, tinder  those  circumstances,  if  once  a  dealer  gives  a declaration  to  his vendor, -the former will  clearly  know that  the latter is exempt from taxation, and the  liability to  pay  tax  is his, unless lie is able to pass  it  on  to others.   There is no uncertainty, in the matter  of  fixing the  stage,  regarding  the levy of sale  or  purchase  tax. Therefore,  that  provision  also is not  violative  of  the Central  Act.   Counsel also urges that in case a  party  is eligible for refund, on the ground that he is not liable  to pay, in respect of any particular purchase, ample  provision is  made  for  obtaining, refund, under s. 12  of  the  Act. Therefore, under those cirCumstances, the State presses  for the decision of the Punjab High Court, being upheld. We are not impressed with the contentions of the counsel for the  State.  A perusal of the judgment, under attack,  shows that tile learned Judges themselves were very much impressed by the various aspects presented before them, on behalf’ (if the appellant.  In fact, the learned Judges observe that the various  difficulties, pointed out by the petitioner  before them,  did exist in the actual working of the Act,  but  the

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view of the The Court was that s.12 of the Act provided  for obtaining  a  refund and, therefore, though  the  petitioner might have to deposit. initially, the tax in respect of  the purchases, when the quarterly returns were being  submitted, it  was  open to it to obtain refunds  ,it  the  appropriate stage. The  provisions  of  the statutes, in  question,  have  been referred  to by us earlier.  Section 15(a), of, the  Central Act, makes it mandatory that the tax shall not be levied  at more than one stage.  In this case, the State does not  levy any tax, both on the sale and purchase, of the same declared goods.   The  second  proviso to s. 5 ( 1 )  is,  no  doubt, substantially in accordance with the provisions of s. 15(a), of the Central Act.  That proviso was absolutely  necessary, because. without it, it would have been prima facie open  to the State to levy tax under s. 5, it a higher rate than that indicated  in  the,  Central Act, in  which  case  it  would certainly  have  been illegal.  The mere  existence  of  the second proviso, to s. 5 (1 ) of the Act, does not materially advance the case of the State. That  same proviso, came up for consideration,  before  this Court, in Modi Mills v. C.I.T., Punjab( 1 ). In dealing with the  proviso,  Hidayatullah,  J., speaking  for  the  Court, observed, at 600               "The  meaning  or the intention of  cl.(3)  of               Art. 286   is  not  to  destroy  all  charging               sections in the Sales               Tax   Acts of the States which are  discrepant               with s.t5 (a)   of the Central Sales Tax  Act,               but to modify them               in accordance therewith.  The law of the State               is declared to be subject to the  restrictions               and  conditions contained in the law  made  by               Parliament and the rate in the State Act would               pro tanto stand modified.  The effect of  Art.               286(3)  is  now  brought  out  by  the  second               proviso,  to s. 5 ( 1 ). But this  proviso  is               enacted  out  of  abundant  caution  and  even               without it the result was tile same." From the observations, noted above, it will be clearly  seen that  the proviso, in question, does not serve any  material purpose, because, even, if that proviso did not exist in the State  Act,  the authorities cannot levy  tax,  on  declared goods,  at a rate higher than that laid down in the  Central Act.  Therefore, the mere injunction, by the Legslature,  is contained  in the second proviso to S. 5(1), that  the  rate should not be higher than the one fixed in the Central  Act, and that the levy must be ,it one stage, as again  mentioned in the Central Act, will be of, no avail, unless the Act, or the  rules framed under it, make ’it very clear  that  there will  be  no  levy or collection of  tax,  except  from  the persons who are bound to pay, is per the Central Act.  It is here  that  there  considerable  difficulty  caused  by  the absence, of any provision, either in the Act or in the rules or the forms, indicating the stage at which the tax is to be levied.  In the case or commodities (1)  [1965] 1 S.C.R. 591. 588 like  cotton,  which come under the  category  of  "declared goods", tax can be levied only at a single point, as is made clear by s. 15 (a) of the Central Act, and, in our  opinion, there can be no legal liability for payment of tax accruing, until  and unless the Act, or the rules  framed  thereunder, prescribe  a single point for taxation.  For the  matter  of that, even in the final return to be sent by a dealer, under

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the  Act,  the  dealer will have to  show,  in  the  taxable turnover, all purchases of cotton effected by him during the accounting year.  We have already referred to the fact that, along  with  the returns, the tax payable on  the  basis  of those  returns,  will have to be paid.  At  that  stage  the question  naturally arises, as to whether there is  anywhere in the Act or the rules any provision, by which the  person, sending  the return, ’will be able to know that the tax,  in respect of the declared ,goods purchased by him, has already been  paid  by  another dealer and that  the  value  of  the Purchases, effected by him, need not be shown in his return. He cannot take, an off hand chance, in this matter,  because there  are  very heavy penalties imposed on  a  dealer,  for failure  to  include,  in  the returns  sent  by  him.  .any transactions  in respect of which he is liable to  pay  tax. If  that  is the position a,, the end of a  year,  when  the final return is sent, the position becomes still worse  when the  quarterly returns accompanied by payment of taxes,  are ’to be sent during the course of the accounting year itself. Counsel,  for  the respondent, has pointed out  that,  if  a dealer wants to claim exemption, under sub-cl. (vi) of s.  5 (2) (1), r. 27A provides for his getting a declaration  from the dealer, to whom the goods are resold, in which case, the dealer  is absolved from the liability to pay tax.  We  have gone  through the various statements contained in  the  said Rule, as well as the Forms, to which it refers, but they are not decisive, either way.  There also be cases where a  non- registered  dealer  may have intervened and,  even  if  such dealers  intervene, it is clear that tinder s. 15(a) of  the Central  Act,  the  tax cannot be levied at  more  than  one stage.   There  is  no  machinery  by  which  a  dealer  can ascertain  whether  his vendor, of the declared  goods,  has paid the tax already.  Even otherwise, it will be seen, that if  a dealer, A, the declared goods, to B, six months  after the  close of the (B being a registered dealer),  A  becomes liable  to  purchase  tax.  But, if B  sells  the  identical declared  goods, again, after the period, mentioned in  sub- cl. (vi), he will also be liable to pay purchase tax.   That means, inspect of the, same item of declared goods more than one  person  is made liable to pay tax and the tax  is  also levied  at  more than one stage.  That is  not  permissible, under s. 15(a) of the Central Act.  If goods are resold to a nonregistered dealer, within the period, sub-cl. (vi),  will not help tile original purchaser.  We may also point out, it this stage, 589 that sub-cl. (vi), of s. 5 (2) (a), negatives the assumption that the normal rule, under the Act, in respect of  declared goods, is to levy the tax on the first purchaser. Mr.  Bishan Narain, counsel for the State, faced with  these difficulties,  no  doubt  referred  us  to  the   provisions contained in s. 12 of the Act, relating to refunds.  Counsel pointed  out that the manner in which a purchaser can  claim refunds,  is also elaborately indicated in rr. 48 to  55  of the  Rules.  If persons, like the appellants, satisfied  the authorities concerned that they had paid amounts, by way  of tax,  which they were not legally bound to pay, it was  open to  them  to ask for refunds of such  excess  amounts  paid. Therefore,  even assuming that, in the first  instance,  the appellant  has  paid the purchase tax and, later on,  it  is found  that it is not liable for the same, S. 12 of the  Act would  afford  adequate relief.  We are not  impressed  with this argument.  The position is not so simple.  Even in  the matter  of obtaining refunds, there can be  no  controversy, that  the appellant will have to place, before  the  officer

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concerned,  particulars of transactions connected  with  the commodity, in question and also the basis on which it claims the  relief.   It  will  be  absolutely  difficult,  if  not impossible,  for  persons  like the  appellant,  to  collect materials  in this behalf, because, there is  no  provision, contained  either in the Act or the rules, on the  basis  of which  it  will be, entitled to be, supplied  with  all  the material information, relevant, for sustaining a request for refund.  If the Central Act makes it mandatory that the  tax can be collected only at one stage, in our opinion,it is not enough for the State to say that a person, who is not liable to  pay  tax,  must,  nevertheless,  pay  it  in  the  first instance,and  then claim refund, at a later stage.   We  may state  that  the,questionas to how far a party can  ask  for refund, without the order of assessment being set aside,  by appropriate proceedings, is highly doubtful; because, at the time  when  the  actual order of assessment  is  passed,  in certain  cases,  it may not be possible for a party  to  say whether  he is entitled to exemption, or not, under  Sub-cl. (vi)  of s. 5(2)(a) of the Act.  If a person is  not  liable for payment of tax at all, at any time, the collection of  a tax  front bim. with a possible contingency of refund  at  a later stage, will not make the original levy valid; because, if  particular  sales or purchase are exempt  from  taxation altogether,  they  can never be taken into account,  at  any stage,  for  the purpose of calculating or arriving  at  the taxable turnover and for levying tax. In this connection, we may refer to the observations of this Court  in A.  V. Fernandez v. The State of Kerala(1).   This Court.  after reffering to the observations-made earlier  in Messrs. Chatturam. Horilram Ltd. v. Commissioner of  Income- tax, Bihar & (1)  [1957] S.C.R. 837. 590 Orissa(1),  regarding the three stages in the imposition  of tax,  being  the declaration of liability,  assessment,  and recovery, said, at p. 852 :               "If there is a liability to tax, imposed under               the  terms of the taxing statute, then  follow               the provisions in regard to the assessment  of               such  liability.  If there is no liability  to               tax  there  cannot be any  assessment  either.               Sales  or purchases in respect of which  there               is no liability to tax imposed by the  statute               cannot  at all be included in the  calculation               of turnover for the purpose of assessment  and               the  exact sum which the dealer is  liable  to               pay must be ascertained without any  reference               whatever to the same.               There  is  a  broad  distinction  between  the               provisions contained in the statute in  regard               to  the exemptions of tax or refund or  rebate               of  tax on the one hand and in regard  to  the               non-liability to tax or non-imposition of  tax               on the other.  In the former case, but for the               provisions as regards the exemptions or refund               or rebate of tax, the sales or purchases would               have  to be included in the gross turnover  of               the dealer because they are prima facie liable               to tax and the only thing which the dealer  is               entitled   to  in  respect  thereof   is   the               deduction from the gross turnover in order  to               arrive  at the net turnover on which  the  tax               can be imposed.  In the latter case, the sales               or   purchases  are  exempted  from   taxation

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             altogether.   The Legislature cannot  enact  a               law imposing or authorising the imposition  of               a tax thereupon as they are not liable to  any               such imposition of tax.  If they are thus  not               liable to tax, no tax can be levied or imposed               on  them and they do not come within the  pur-               view  of  the Act at all.  The  very  fact  of               their  nonliability  to tax is  sufficient  to               exclude them from the calculation of the gross               turnover as well as the net turnover on  which               sales tax can be levied or imposed." The above observations clearly lay down that the  provisions contained in a statute, with respect to exemptions of tax or refund  or  rebate, on the one hand, must  be  distinguished from  the total non-liability or non-imposition of  tax,  on the  other.   These  observations,  also,  in  our  opinion, effectively  provide  In answer to the stand  taken  by  the State,  in  this case that s. 12 of the  Act  provides  -,in adequate relief, by way of refund, even if tax is  collected at an earlier stage. Having due regard to the various matters mentioned above. we  are  satisfied  that the decision  of  the  High  Court. upholding (1)  [1955] 2 S. C.R. 290, 297.  591 the orders of assessment passed by the Officer, in question, cannot be sustained. We  have  already indicated that there is one  other  point, arising for decision, in Civil Appeals Nos. 2387 and 2388 of 1966.   That  relates to the validity of  the  Notification, issued  by the State Government, under s. 5 of the  Act,  on September  26,  1961.  The assessment  periods,  covered  by these  two appeals, relate to 1960-61 and 1961-62.   At  the material time, the definition of the expression  "purchase," as  contained in s. 2(ff), has been already referred  to  by us.   The  definition  of  the  word  "purchase"  was  first introduced in the Act, by Punjab Act VII of 1958.  According to that definition, it was as follows :-                "  ’Purchase’,  with all its  grammatical  or               cognate expressions, means the acquisition  of               goods  other than sugarcane,  foodgrains,  and               pulses for use in the manufacture of goods for               sale,  for cash or deferred payment  or  other               valuable consideration, otherwise than under a               mortgage, hypothecation, charge or pledge." By Punjab Act XIII of 1959, the words "other than sugarcane, foodgrains  and  pulses", were omitted.  Then  there  was  a further  amendment, by -Punjab Act XXIV of 1959  and,  after the said amendment, cl. (ff) stood as follows :-               "  ’Purchase’,  with all  its  grammatical  or               cognate expressions, means the acquisition  of               goods  specified in Schedule C for use in  the               manufacture  of  goods for sale, for  cash  or               deferred  payment  or  other  valuable  consi-               deration,  otherwise  than under  a  mortgage,               hypothecation, charge or pledge." This  definition  was again amended by Punjab Act  XVIII  of 1960.  The rate of tax, provided by the Act, was 4% and,  we have  already indicated that the Central Act was enacted  in 1956;  and we have also adverted to the material  provisions therein. We  have adverted to the fact that, under 5 of the Act,  the rate of tax that is to be levied,, is to be contained in the notification  that  is  to  be issued under  S.  5  (  1  ). Accordingly, on April 19, 1958, the State Government issued,

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under s. 5(1), a.,; amended by the Punjab Act VII of 1958, a Notification   regarding   the   rate  of   tax.   in   that Notification, the rate of tax on the purchase of goods, by a dealer,  for  use in the manufacture of goods for  sale  was fixed  at  2 naye paise in the rupee.   Section  2(ff)  was, later  on amended in 1960, by Punjab Act XVIII of 1960,  and the   definition  of  "Purchase",  as  contained   in   this provision,  has already been referred to by us.   The  State Government  issued a Notification under S. 5(1) of the  Act, on September 26, 1961. 592 Under  this Notification, it was provided that the  rate  of tax  on  the  purchase of goods  specified  in  Schedule  C, appended to the Act, would be 2 naye paise in the rupee. The  contention  that was taken by the appellant  was  that, notwithstanding   the  fact  that  the  definition  of   the expression "purchase", was changed with effect from April 1, 1960,  the Notification fixing the rate of tax,  under  that amended definition, was not issued until September 26, 1961, and it was further urged that, in consequence, no assessment could  be  made of any tax on declared goods,  mentioned  in Schedule C, prior to September 26, 1961. It was not disputed by the State that no fresh  notification was  issued, after the expression "purchase" was amended  in 1960,  till September 26, 1961.  But the State attempted  to sustain   the   levy  on  the  ground  that   the   original notification,  of April 19, 1958, would be valid even  after the  amended definition in S. 2(ff), ,is it now stands.   It is open to the State to tax all purchases which conic within the definition of s. 2(ff) as it now stands, but the  State, it is pointed out, must be considered to have chosen to levy tax  only  if the purchases have been made for  use  in  the manufacture  of goods for sale.  Alternatively, it was  also pointed  out that the notification, issued in 1958, must  be considered  to have validity, even after the  amendment,  by virtue  of S. 22 of the Punjab General Clauses Act.  We  are not  impressed by these contentions, advanced on  behalf  of the, State. Section 22 of the Punjab General Clauses Act has no applica- tion, whatsoever, to these cases.  Apart from the fact  that there is no question of the 1958 Act being repealed, or  re- enacted,  it  is  also  clear that  the  definition  of  the expression,  under  S. 2(ff), as it stood in  1958,  on  the basis of which the notification of 1958 was issued, is quite inconsistent  with the amended definition of the  expression "purchase",  in  S.  2(ff), in 1960.   The  High  Court  has sustained  the levy of tax under the original  ’notification of 1958, on the basis of S. 22 of the Punjab General Clauses Act,  which, in our opinion, does not assist the State.   It is not open to the State to urge that it is entitled, in the matter  of levying tax, on transactions by way of  purchase, to  tax  only  the  category of purchases  for  use  in  the manufacture  of goods for sale.  Further, the State has  not been  able  to  satisfy  us that  there  is  any  reasonable classification made, which will enable this Court to sustain the  Notification.   Inasmuch as no fresh  notification  had been  issued,  under s. 5(1), till September 26,  1961,  the assessment  for the years 1960-61 and 1961-62, on the  basis of the Notification issued in 1958, cannot be sustained, on’ this additional ground also 593 We  therefore  allow the appeals, in  the  manner  indicated above.   The State will pay costs to the appellant in  Civil Appeal No. 2386 of 1966. Sikri,  J. I have read the judgment prepared by my  brother,

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Vaidialingam,  J. I agree with him that assessments for  the years  1960-61  and  1961-62 on the  basis  of  notification issued  cannot be sustained and Civil Apeals Nos.  2387  and 2388  of  1966  have to be allowed.  But,  with  respect,  I regret  I  cannot  agree with him that  the  assessments  in question have to be quashed on the ground that they  violate s. 15 of the Central Sales Tax Act.  My brother has set  out the relevant statutory provisions and it is not necessary to extract  them  here.  In my opinion the Punjab Act  does  in effect comply with the requirements of s. 15 of the  Central Sales  Tax Act because it is possible to find out the  stage at which purchase tax becomes leviable on goods mentioned in Schedule  C. This stage is the first purchase by  a  dealer, which  is  not  exempted  from  taxation  or  which  is  not deductible from the taxable turnover of a dealer under s.  5 (2) of the Punjab Act.  In my view, this follows. from ss. 4 and 5 of the Punjab Act.  Subject to the provisions of ss. 5 and  6,  s.  4  makes a dealer  liable  in  respect  of  all purchases,  first  purchases,  second  purchases  and   last purchases,  but  the  second proviso to s.  5  provides,  in effect,  that the purchase tax shall not be levied  at  more than  one stage.  Which stage does the proviso cut out?   It seems  to me that every purchase except the  first  purchase has  been  eliminated.   Take  the  following  illustration: Dealer A buys cotton, A sells it to dealer B, and B sells it to dealer C. If dealer A is liable to pay purchase tax under s.  4, by virtue of the proviso no other dealer  is  liable, because otherwise this would amount to imposing tax at  more than  one  stage.   Could  not dealer B  or  C  say  to  the assessing authority that it is A who is liable, and if he is liable, the proviso exempts them from paying purchase tax  ? But  it is said that B and C may not know that A is  liable. While buying goods, B has only to enquire from A whether his is the first taxable purchase.  Indeed A, in order to  claim exemption  under s. 5 (2) (a) (vi) will ask B to give him  a declaration  form.   Therefore, both A and B will  know  the true position, and A will claim the exemption and B will pay purchase tax unless he sells to    another  dealer.   If   B sells to another dealer D after the expiry of     six months after the close of the year, the period mentioned in s.   5 (2)  (a) (vi), B will be liable to purchase tax.  B may  not asked  for  the prescribed declaration form for  it  may  be useless  for him, but D will find out whether he  is  buying goods liable to purchase tax or not.  B will tell D that  he has  not  to  pay  purchase tax  and  will  perhaps  include purchase  tax in the price.  It seems to me that if  dealers behave  like  businessmen, which they  will  ordinarily  do, there will be no difficulty in working the provisions. L7Sup.Cl/67-8 594 of  the  Punjab Act.  But if by mischance  there  is  double taxation  the State can only make a suitable  provision  for refunds. In  my view, the Punjab Act is in consonance with S.  15  of the  Central Act, and if there is a possibility of  taxation at  more  than  one stage, the Punjab Act  cannot  for  this reason be treated as void.  My brother does not say that the Punjab Act is void but in effect he implies it. Let  me now deal with the case when an  unregistered  dealer intervenes.   In the illustration I have given above let  us deem  C to be an unregistered dealer.  A sells to B,  and  B sells to C. B will be liable to pay purchase tax because  he cannot  claim exemption under s. 5 (2) (a) (vi).  Suppose  B in the above illustration is an unregistered dealer.  Here B is liable to purchase tax unless he sells to C, a registered

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dealer  and obtains the prescribed declaration.  If C is  an unregistered dealer, then B would be liable and not C. If  an unregistered dealer wants to escape taxation and  his transactions are not known to the Sales Tax authorities till he  is assessed under s. 11 (6) of the Punjab Act, the  only way  of complying with the second proviso to S. 5 and S.  15 of  the  Central Act is to give refund to a dealer  who  has been taxed in the meantime.  The same thing would happen  as far as I can see, under the State Acts which fix in terms  a specific stage. I  may here mention that according to me the second  proviso to s. 5 serves one useful purpose.  It makes the Punjab  Act immune  from  challenge on the ground  that  its  provisions -infringe  s. 15 of the Central Act.  The Punjab  Act  being good,  it is only the assessments that can be challenged  on the  ground that they violate the second proviso to S. 5  of the  Punjab Act.  This aspect was not apparently brought  to the notice of this Court in Modi Mills v. C.I.T. Punjab(1). Accordingly  I would dismiss Civil Appeal No. 2386  of  1966 with  costs, and allow Civil Appeals Nos. 2387 of  1966  and 2388 -of 1966, with costs.                            ORDER In  accordance with the opinion of the majority the  appeals are  allowed in the manner indicated in the  judgment.   The State  will pay costs to the appellant in Civil  Appeal  No. 2386 of 1966. V.P.S. (1)  [1965] S.C.R. 592. 595