http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: GOVIND SARAN GANGA SARAN

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX AND ORS.

DATE OF JUDGMENT26/04/1985

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. VENKATARAMIAH, E.S. (J)

CITATION:  1985 AIR 1041            1985 SCR  (3) 985  1985 SCC  Supl.  205     1985 SCALE  (1)986  CITATOR INFO :  F          1986 SC2200  (2)

ACT:      Central Sales  Tax Act,  ss. 14 and 15 read with Bengal Finance (Sales  Tax) Act  1941, s.5  (2) (a)  (ii)-Scope of- Goods declared  to be  of special  importance in inter-State trade or  commerce-Omission to  specify the  single point at which the tax may be levied-Effcet of

HEADNOTE:      The appellant,  a registered  dealer under  the  Bengal Finance (Sales  Tax)  Act  1941  as  applied  to  the  Union Territory of  Delhi (for  short, the   State  Act)  used  to purchase Cotton  yarn and  sell it  to  registered  dealers, unregistered dealers  and consumers. He submitted his return of turnover  under the  State Act  for the  assessment  year 1968-69 and  claimed exemption in respect of the turnover of sales of cotton thread on the ground that it was an exempted item under  Entry 21  of the  Second Schedule. The Sales Tax Officer held  that the  sales were liable to tax as the same were effected  in respect  of  cotton  yarn.  The  appellant ultimately went  in revision  to the  Financial Commissioner who proceeding  on the  basis that the sales were in respect of cotton  yarn, which was a declared item under s.14 of the Central Sales  Tax Act allowed the revision petition holding that they could not be subjected to sales tax because one of the conditions  prescribed by  s.15 of that Act had not been complied with,  that is  to say,  the  law  had  omitted  to prescribe the  single point at which the levy could alone be imposed.  Aggrieved   by  the   order   of   the   Financial Commissioner, the  Revenue filed a writ petition in the High Court which,  relying on  the construction  placed by  it on sub-clause (ii)  of cl.(a)  of s.5  in Fitwell  Engineers  v Financial Commissioner  Delhi  Admn  (1975)  35  S.T.C.  66, allowed the  petition holding  that the  single point  in  a series of  sales is  the sale  made by  the last  registered dealer among successive dealers when he sold the goods to an unauthorised dealer or consumer. Hence this Appeal.      Allowing the Appeal, ^      HELD: 1. The components which enter into the concept of a tax  are well  known. The  first is  the character  of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

imposition known  by its nature which prescribes the taxable event attracting  the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay  the tax,  the third  is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If 986 these   components    are   not   clearly   and   definitely ascertainable it is difficult to say that the levy exists in point  of   law.  Any   uncertainty  or   vagueness  in  the legislative scheme  defining any  of those components of the levy will be fatal to its validity. [900D-E]          2. Where  the turnover  of goods  declared to be of special importance in inter-State trade or commerce under s. 14 of  the Central  Sales Tax Act is  subjected to sales tax law of  a State,  section 15  prescribes the maximum rate at which such  tax may  be imposed  and requires  that such tax shall not  be  levied  at  more  than  one  point.  The  two conditions have  been imposed in order to ensure that Inter- State trade  or commerce  in such  goods is  not hampered by heavy taxation  within the  State occasioned by an excessive rate of  tax or  by multpoint  taxation. Section  15  enacts restrictions and  conditions  which  are  essential  to  the validity of  an impost by the State on such goods. If either of the  two conditions are not satisfied, the impost will be invaid- Now  in order  that tax should not be levied at more than one  stage it  is imperative  that the sales tax law of the State  should specify  either expressly or b y necessary implication the  single point at which the tax may be levied Alternatively, it  may be  empower a  statutory authority to prescribe such  single point  for the  purpose.  Where  such point is  not prescribed,  either by  the statute  or by the statutory delegate,  no   compliance is possible with s. 15. The single  point at  which the tax may be imposed must be a definite ascertainable point so that both the dealer and the sales tax  authorities may  know clearly  the point at which the tax is to be levied. [989G-H: 900A-C]      3. On  the construction  which found  favour with  this Court in  Polestar Electronic (P) Ltd v. Addl. Commissioner, Sales Tax  & Anr.,  (1978) 41  S. T.  C.  409 it is apparent that no  support can  be found for the proposition that sub- cl. (ii)  of cl.  (a) of  sub-s. (2) of s.5 of the State Act implies that  the single  point of  taxation is Fixed by the State, Act  at the  resale by  a  registered  dealer  to  an unregistered dealer  or  to  a  consumer.  As  that  is  the reasoning on  which the  High Court  has  proceeded  in  The judgment under  appeal, it  must  be  held  that  the  basis underlying  the   decision  of  the  High  Court  cannot  be accepted. [992F-G]      Fitwell  Engineers  v.  Financial  Commissioner,  Delhi Administration, Delhi  and another,  (1975) 35  S. T.  C. 66 over-ruled.      4. It  is well  settled that  when the  language of the statute is clear and admits of no ambiguity, recourse to the Statement  of   Objects  and  Reasons  for  the  purpose  of construing a  statutory provision is not permissible Section SA Of  the State Act clearly empowers the Chief Commissioner to specify  the single  point in  a series of sales at which single point taxation may be levied. The widest amplitude of power has  been conferred  on the  Chief Commissioner in the matter of  selecting the  point for  taxation in a series of sales and,  if that  is so,  clearly do  single point can be spelled out, even by implication, from the provision of sub- cl. (ii) of cl. (a) of sub-s. (2) of s.5. For to do so would mean either  accepting  an  inconsistency  between  the  two

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

provisions or narrowing down correspondingly the scope of s. 5 A. No such notification has been placed before 987 the Court  which could  relate to  the assessment year under consideration. There-  fore a vital prerequisite of s. 15 of the Central Sales Tax Act, namely, that the tax shall not be levied at  more than  one stage,  has not  been satisfied in respect of  the turnover of cotton yarn, and accordingly the assessment complained of is liable to be quashed. [993BG]      Polestar   Electronic    (P)   Ltd.    v.    Additional Commissioner, Sales Tax and Another. (1978) 41 S. T. C. 409. followed.      Bhawani Cotton  Mills Ltd.  v. The  State of Punjab and Another, (1967)  20 S. T. C. 290 & Rattan Lal and Co. v. The Assessing Authority  and Another  (1970 25  S.  T.  C.  136, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2083 of 1974.      From the  judgment and  order dated  10. 9. 1974 of the Delhi High Court in Civil W. P. No. 460/1973.      L.M. Singhavi,  Mrs. Anjali  Verma,  R.C.  Chawla,  N.K Bhuraria and L. K. Pandey for the appellant.      S. C. Manchanda and R. N. Poddar for the Respondents.      The judgment of the Court was delivered by      PATHAK; J:  This appeal  by special  leave is  directed against the  judgment and  order of  the High Court of Delhi dismissing the  appellant’s writ  petition  questioning  the liability imposed in him on a sales taxassessment.      The appellant  carries on  business as  a dealer in the re-sale of  cotton yarn.  As a dealer he has been registered under the Bengal Finance (Sales Tax) Act, 1941 as applied to the Union Territory of Delhi (hereinafter referred to as the ’State Act’).  The appellant  says that  he purchases cotton yarn  and  sells  it  to  registered  dealers,  unregistered dealers and  consumers. For  the assessment year 1968-69 the appellant submitted  his return  of turnover under the state Act and  claimed exemption  in respect  of the  turnover  of sales of cotton thread on the ground that it was an exempted item under  Entry No.  21 of  the Second Schedule. The Sales Tax Officer,  by his  order dated October 29,1970, held that the sales were effected in respect of 988 cotton yarn  and, therefore,  they were liable to tax at one per cent on appeal, the Assistant (commissioner of Sales Tax took  a   contrary  view   and  on   his  finding  that  the transactions were in respect of cotton thread he allowed the appeal and  struck the  assessment down.  Acting suo motu in the exercise  of his  revisional  jurisdiction,  the  Deputy Commissioner of Sales Tax made an order under Sub-s.  (3) of S. 20  of the State Act reversing the order of the Assistant Commissioner and  restoring that of the Sales Tax Officer on the ground that what was sold was cotton yarn. The appellant now applied in revision to the Financial commissioner, Delhi Administration, and  the Financial  Commissioner, proceeding on the  basis that the sales were in respect of cotton yarn, which was  a declared item  under s. 14 of the Central Sales Tax Act,  held that they could not be subjected to sales tax because one  of the  conditions prescribed  by s. 15 of that Act had  not been complied with, that is to say, the law had omitted to  prescribe the  single point  at which  the  levy could  alone   be  imposed.   Accordingly,   the   Financial

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

Commissioner allowed  the revision  petition and quashed the assessment. The  Commissioner of  Sales Tax  thereupon filed Civil Writ  Petition No.  460 of  1973 in  the High Court of Delhi praying for the quashing of the order of the Financial Commissioner. The  writ petition  was allowed  by  the  High Court by  its judgment  and order  dated September 10, 1974. Against that  judgment and order the appellant has filed the present appeal.      S. 14  of the  Central S-ales  Tax Act  enumerates  the commodities declared  to be  goods of  special importance in inter-State trade  or commerce.  Among the goods so declared is cotton  yarn. S.  15 of  the Central  Sales Tax Act, 1956 provides :-         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 any           sale or  purchase of  such goods  inside the State           shall not  exceed three  per cent  of the  sale or           purchase price  thereof, and such tax shall not be           levied at more than one stage." The tax  is payable  by a  dealer under  the  State  Act  on taxable turnover, and sub-s. (2) of s. 5 provides; 989      "(2) In  this Act,  the expression  "taxable  turnover" means that   part  of a  dealer’s gross  turnover during any period, which remains after deducting thereform-        (a)     his turnover  during that  period on- (i) the           sale of  goods declared  tax free under section 6,           (ii) sale  to a  registered dealer-of goods of the           class or  classes specified  in the certificate of           registration of such dealer, as being intended for           re-sale by him, or for use by him as raw-materials           in the  manufacture of  goods  for  sale;  and  of           containers or  other materials  for the packing of           goods of  the class  or classes  so specified  for           sale:      Provided that  in the case of such sales, a declaration      duly filled  up and  signed by the registered dealer to      whom the  goods are  sold and containing the prescribed      particulars on  a prescribed  form obtainable  from the      prescribed authority  is furnished  in  the  prescribed      manner by the dealer who sells the good;      Provided further  that where any goods specified in the      certificate  of   registration  are   purchased  by   a      registered dealer  as being intended for re-sale by him      or for  use by  him as raw-materials in the manufacture      of goods  for sale,  but are  utilised by  him for  any      other purpose,  the price  of the  goods  so  purchased      shall be allowed to be deducted from the gross turnover      of the  selling dealer  but shall  be included  in  the      taxable turnover of the purchasing dealer."      In the instant case, we are concerned with the taxation of goods which under s. 14 of the Central Sales Tax Act have been declared  to be  of special  importance in  inter-State trade or  commerce. Where  the turnover  of  such  goods  is subjected to  tax under  the sales tax law of a State, s. 15 prescribes the maximum rate at which such tax may be imposed and requires  that such tax shall not be levied at more than one point.  The two conditions have been imposed in order to ensure that  inter-State trade  or commerce in such goods is not hampered  by heavy  taxation within the State occasioned by an excessive rate of tax or bymulti point taxation. S. 990

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

15 enacts restrictions and conditions which are essential to the validity  of an  impost by  the State  on such goods. If either of  the two  conditions are not satisfied, the impost will be  invalid. Now in order that tax should not be levied at more  than ond  stage it is imperative that the sales tax law of  the State  should specify  either   expressly or be, necessary implication  the single point at which the tax may be  levied.   Alternatively,  it  may  empower  a  statutory authority to  prescribe such  single point  for the purpose. Where such point is not prescribed, either by the statute or by the  statutory delegate, no compliance is possible with s 15. the single point at which the tax may be imposed must be a definite  ascertainable  point so that both the dealer and the sales  tax authorities  may know  clearly the  point  at which the tax is to be levied.      The components  which enter  into the  concept of a tax are well known. The first is the character of the imposition known by  its  nature which  prescribes the  taxable event attracting the levy,  the second is a clear indication of the person on whom the  levy is imposed and who is obliged to pay the tax, the third  is the  rate at which the tax is imposed, and the fourth is  the measure  or value  to which  the rate will be applied for computing the tax liability. If those components are  not   clearly  and   definitely  ascertainable,  it  is difficult to  say that  the levy exists in point of law. Any uncertainty or vagueness ill the legislative scheme defining any of  those components  of the  levy will  be fatal to its validity.      The charging  provision, s.  4, of the State Act enacts that   every dealer  whose gross  turnover during  the  year exceeds the  taxable quantum shall be liable to pay tax. The ordinary rule  under .  the State Act appears to be that the scale  made  by  every  dealer  in  a  series  of  sales  by successive dealers  is liable  to tax.  That is  multi point taxation. In  a scheme of single-point taxation, the levy is confined  to  a  single  point  in  a  series  of  sales  by successive dealers.  According to  the Revenue,  the present levy falls  in the  latter category, and sub-cl. (ii) of cl. (a) of  sub-s. (2)  of s.5 implies the single point at which the turnover  of goods  may be  taxed.  That  argument  from favour with  the High Court, and it held the single point in a series of sales to be the sale made by the last registered dealer among successive dealers when he sold the goods to an unregistered dealer  or a  consumer In  this connection, the High Court relied on  the construction placed by it on sub-cl. (ii) of cl. (a) of sub-s. (2) of 991 s.5 in  Fitwell Engineers  v. Financial  Commissioner, Delhi Administration, Delhi,  and Another’  (1) In  that case, the High Court  had held  that it  was for the purpose of taxing the goods at least at one point that sub-cl. (ii) of c1. (a) of sub-s. (2) of s.5 of the State Act had been enacted, that there would  be a  taxable sale  when the  registered dealer sold the  goods to  an unregistered dealer or to a consumer, and that  in order that such resale by the registered dealer should attract  tax the  resale to an unregistered dealer or to a  consumer had  to be  effected in Delhi, because if the resale was effected outside the Union Territory of Delhi the Union  Territory   of  Delhi   would  have   no  legislative competence to  tax the  resale. Now the question whether the expression "resale" in sub-cl. (ii) of cl. (a) of sub-s. (2) of s.5  of the  State Act  was confined  to a  resale in the Union Territory  of Delhi  by the last registered dealer was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

subsequently considered by this Court in Polestar Electronic (P)  Ltd.   v.  Additional   Commissioner,   Sales-Tax   And Another.(2) Overruling  the decision  of the  High Court  in Fitwell  Engineers   (supra)  this   Court  held   that  the expression "resale"  was not  confined to  a resale  in  the Union Territory  of Delhi and could include a resale outside it. That  was the  position upto  May 28,  1972 when sub-cl. (ii) of  cl. (a)  of sub-s.  (2) of  s.5 was  amended by the Finance Act,  1972. This  Court observed  that the  position before the  amendment  in  1972  was  not  affected  by  the possibility that  on the construction preferred by the Court the Union  Territory of  Delhi would  be unable to re- cover any tax. The Court said:      "It is  true that  if the purchasing dealer resells the      goods outside Delhi, the Union Territory of Delhi would      not be  able to  recover any  tax since the sale to the      purchasing  dealer  would  be  exempt  from  tax  under      section 5 (2) (a) (ii) and the resale by the purchasing      dealer would also be free from tax by reason of section      27. But  that is not such a consequence as would compel      us to  read the  word "resale"  as  limited  to  resale      inside Delhi.  The argument of the revenue was that the      legislature could  never have  intended that  the Union      Territory of Delhi should be altogether deprived of tax      in cases  of this  kind. The  legislative intent  could      only be to exempt the sale to the purchasing (1) [1975] 35 S. T. C. 66. (2) [1978] 41 S, T. C. 409. 992      dealer in  those cases  where the  Union  Territory  of      Delhi would  be able  to recover  tax on  resale of the      goods by the purchasing dealer. The goods must be taxed      at least  at one  point and  it  could  not  have  been      intended that  they should not be taxable at all at any      point by  the Union  Territory of  Delhi.  The  revenue      urged that  it was  for the purpose of taxing the goods      at least  at one  point that  the  second  proviso  was      enacted by  the  legislature.  We  do  not  think  this      contention based  on  the  presumed  intention  of  the      legislature is well-founded."      And again,         "The intention  of the  legislature was  clearly not      that the Union Territory of Delhi should be entitled to      tax the goods at least at one point so that if the sale      to the  purchasing dealer  is exempt, the resale by the      purchasing dealer  should be  taxable. We  do not  find      evidence of such legislative intent in any provision of      the Act"  (Emphasis supplied)  Further on,  in the same      passage, the Court reiterated:         "It will, therefore, be seen that it is not possible      to discover  any legislative intent to tax the goods at      least at  one point  and to  exempt  the  sale  to  the      purchasing dealer  only if the resale by the purchasing      dealer is liable to tax."      On the  construction which found favour with this Court in Polestar  Electronic (P) Ltd, (supra) it is apparent that no support  can be  found for  the proposition  that sub-cl. (ii) of  cl. (a)  of sub-s.  (2)   of s.5  of the  State Act implies that  the single  point of  taxation is fixed by the State Act  at the  resale  by  a  registered  dealer  to  an unregistered dealer  or  to  a  consumer.  As  that  is  the reasoning on  which the  High Court  has  proceeded  in  the judgment  under   appeal,  we   must  hold  that  the  basis underlying the  decision  of  the  High    Court  cannot  be accepted.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

    It may  be noted  that the  State Act as applied to the Union Territory  of Delhi was amended by Parliament in 1959, and s. 5A, was inserted. S. SA provides:         "Notwithstanding anything  to the  contrary in  this      Act, the Chief Commissioner may, by notification in the      Official 993      Gazette, specify  the point  in the  series of sales by      successive dealers at which any goods or class of goods      may be taxed."      That provision  clearly empowers the Chief Commissioner to specify  the single  point in  a series of sales at which single point taxation may be levied. The widest amplitude of power has  been conferred  on the  Chief Commissioner in the matter of  selecting the  point for  taxation in a series of sales and,  if that  is so,  clearly no  single point can be spelled out, even by implication, from the provision of sub- cl. (ii)  of cl.  (a) of  sub-s. (2)  of s.  5. For to do so would mean either accepting an inconsistency between the two provisions or narrowing down correspondingly the scope of s. 5A. We  have already  pointed out  that  the  provision  for single point  taxation cannot,  in the  view of  this  Court expressed  in  Polestar  Electronic  (P)  Ltd.  (supra),  be discovered in sub-cl. (ii) of cl. (a) of sub-s (2) of s.5 of the State  Act. To our mind, provision has been made in that behalf in  the statute  by the  insertion of  s.5A. The High Court has  referred to  the Statement of Objects and Reasons attached to the Bengal Finance (Sales Tax) (Delhi Amendment) Act 1959 in support of its conclusion that s.5A was inserted only to  provide for the levy of tax at any point other that the point  of last  sale so  that sales-tax may be levied at the first  point on certain items which were manufactured in factories. It  is well settled that when the language of the statute is clear and admits to no ambiguity, recourse to the Statement  of   Objects  and  Reasons  for  the  purpose  of construing a  statuory provision  is not permissible. We are of opinion that there is ample power under s 5A of the State Act enabling  the Chief  Commissioner to  specify the single point at  which tax may be levied in a series of sales. This can, however, be done by a him only by a notification in the Official Gazette.  No  such  notification  has  been  placed before us  which could  relate to  the assessment year under consideration. We  hold therefore  that a vital prerequisite of section 15 of the Central Sales Tax Act, namely, that the tax shall not be levied at more than one stage, has not been satisfied in  respect of  the turnover  of cotton  yarn, and accordingly the  assessment complained  of is  liable to  be quashed.      While concluding,  we may  point out  that  a  somewhat similar question  arose before  this Court in Bhawani Cotton Mills Ltd. v. The 994 State of  Punjab and Another, (1) the question being whether the second  proviso to  s. (i) of s.5 and sub-cl (vi) of cl. (a) of  sub-s. (2)  of s.  5 of the Punjab General Sales Tax Act 1948  implied the  single  point  at  which  goods  were taxable. The contention was negatived by This Court. That is how that  decision was understood by this Court subsequently in Rattan Lal and Co. And Another v. The Assessing Authority And Another.(2)              Accordingly, we hold that the assessment of the turnover of  cotton yarn  for the  assessment ytra 1968-1969 under the Bengal Finance (Sales Tax) Act, 1941 as applied to the Union Territory of Delhi cannot be sustained.           In the result, the appeal is allowed, the judgment

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

and order  of the  High Court of Delhi are set aside and the assessment of  the turnover  of cotton  yarn is quashed. The appellant is entitled to its costs. M. L. A.                                     Appeal allowed. (1). [1967] 20 S. T. C. 290. (2). 11970] 25 S, T. C. 136. 995