05 October 1964
Supreme Court


Case number: Appeal (civil) 534 of 1964






DATE OF JUDGMENT: 05/10/1964


CITATION:  1965 AIR  957            1965 SCR  (1) 592  CITATOR INFO :  F          1967 SC1022  (6)  R          1967 SC1616  (19,35)  RF         1967 SC1895  (38)  D          1978 SC 897  (19)

ACT: Punjab General Sales Tax Act, 1948 (XLVI of 1948) as amended by  Punjab  Act XIII of 1959, s. 5 (2)  (a)  (ii)  Exemption clause  amended without consequential amendment of  form  of registration-Effect   of  discrepanary   -Charging   section whether incomplete without amendment of said Form. Constitution of India, Art. 286(3)-Rates of tax provided  in State  Act higher than maximum rates provided under  ss.  14 and  15  of  Central Sales Tax Act-Provision  in  State  Act whether becomes inoperative.

HEADNOTE: Section 7 of the Punjab General Sales Tax Act, 1948 (XLVI of 1948) required from all dealers liable to pay tax under  the Act  as  a condition of carrying on business in  the  State, that  they should secure a registration certificate  in  the prescribed form i.e. Form III which would specify the  class or  classes of goods for the purposes of s. 5 (2) (a)  (ii). The  said section provided for exemption from  inclusion  in the taxable turnover of a dealer of goods which were sold to a registered dealer who purchased them with the intention of using them "in the manufacture in the State of Punjab of any goods for sale".  The said section also provided that if the goods were not used for the purpose declared, the  purchaser would  have  to  pay sales tax on them.   The  form  of  the declaration  was prescribed in r. 26 under the Act  as  Form S.T. XXII.  The words ’in the State of Punjab’ appearing  in s.  5(2)(a)(ii)  were introduced by an  amendment  in  1959. Consequential  amendments were also made in rule 26  and  in Form XXII but Form III remained  unamended, till 1961.   The appellants  who  were registered dealers under the  Act  had secured  a  certificate of registration in Form III  in  the year  1956.  For the year 1959-60 they claimed exemption  on account  of  unginned cotton purchased by  them  which  they



ginned in the Punjab and thereafter sent to Modinagar,  U.P, for use in the manufacture of cloth there.  Their claim  was disallowed  by  the Sales Tax authorities and they  filed  a writ petition in the High Court.  The same being  dismissed, they  came  to  the  Supreme Court  with  a  certificate  of fitness. It was contended on behalf of the appellants : (1)  According to the certificate in Form III granted to the appellant there was no condition that cotton purchased under that  certificate should be subjected to manufacture in  the Punjab. (2)  If the section required that the manufacture should  be in  the  Punjab, then as the raw cotton was  ginned  in  the Punjab, that condition was satisfied.  Ginning of cotton was a manufacturing process. (3)  There could be no tax because the charge in s. 5 of the Act  was not complete after its amendment in  1959,  because the  section  and  the amended  rules  required  a  modified certificate of registration which was not issued as the form was not prescribed. (4)  Sections  4 and 5 of the Act which provided for tax  at 4%  must be held to be inoperative as they were in  conflict with the provisions of ss. 14                             593 and  15 of the Central Sales Tax Act, 1956 which  created  a maximum limit. HELD : (i) The company was wrong in reading the  certificate of Registration by itself.  Sections 5 and 7 had to be  read with  rule 26 and Form S.T. XXII, and the  declaration.   So read the old registration certificate even though it did not contain  the  words  "in the State of  Punjab"  would  stand impliedly modified by the sections, the rule, and Form  S.T. XXII operating together.  The company had to comply with the Act  and  the Rules, and could not take shelter  behind  the unamended certificate. [598 C-E]. (ii) Whether  the  process  of  ginning  was  a  process  of manufacturing  or  not was unnecessary  to  decide,  because another  requirement  of  the provision,  namely,  that  the manufacture must result in goods for sale, was not satisfied by  the  appellants.  They admittedly used  the  cotton  for manufacturing cloth. [598 D-F]. (iii)   The  contention  that  the  charging   section   was incomplete  without the prescription of the proper Form  for the certificate of registration was without force.  The  old form  must be deemed to be modified, and even otherwise  the section  and the rules were complete, and did not depend  on the  new  Form.  The registration certificate was  only  the evidence  that  the  Company was a  ’registered  dealer  for purposes  of certain commodities to be used in  manufacture, one of them being cotton.  The omission to prescribe the new form  or to issue it did not render s. 5 or the  ruler.  in- effective. [599 A-C]. (iv) The impugned provisions in the Punjab General Sales Tax Act  cannot be said to be improperly enacted because of  the discrepancy in rates between that Act and the maximum  rates provided in s. 15 of the Central Sales Tax Act.  The meaning or  intention of Art. 286(3) Is not to destroy all  charging sections  in  the  Sales Tax Acts of the  States  which  are discrepant  with s. 15(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 protanto stand modified.  So the effect  of  the provisions of the Central Act  was  only  to modify the provision in the State Act without destroying it.



[600 D-E].

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 534 of 1964. Appeal from the judgment and order dated February 18,  1963, of the Punjab High Court in Civil Writ No. 1527 of 1962. G.   S. Pathak and K. K. Jain, for the appellant. S.   V. Gupte, Solicitor-General, S. Gopal Singh and R. N. Sachthey, for the respondents. The Judgment of the Court was delivered by Hidayatullah J. This appeal by certificate against the judg- ment  of the High Court of Punjab at Chandigarh  dated  Feb- ruary  18, 1963 questions the inclusion of certain items  in the turn-over of Messrs.  Modi Spinning & Weaving Mills  Co. Ltd., Modinagar in the assessment of sales-tax for the  year 1959-60.   In  that year the Company filed a return  of  its sales showing a                             594 gross  turn-over of Rs. 40,89,954-24 up and a taxable  turn- over of, Rs. 1,30,296.81nP.  In computing the taxable  turn- over the ’Company deducted Rs. 10,85,842-74nP on account  of unginned  -cotton  purchased  by  it  on  a  certificate  of registration  granted  to  it  on  January  3,  1956.   This deduction  was  not permitted by  the  Assessing  Authority, Patiala  District, also described as the  District  Taxation Officer,  Patiala  District.  Exemption from  tax  was  also claimed  in respect of purchases of oil seeds  amounting  to Rs. 4,47,437-33nP which the Company claimed to exclude  from the taxable turn-over under s. 5 (2) (a) (ii) of the  Punjab General Sales Tax Act, 1948.  This claim was also disallowed by the Taxing Authority.  The Company then filed a  petition under  Articles 226 and 227 of the Constitution in the  High Court  but  by  the  order under  appeal  the  petition  was dismissed.   In the course of the hearing Mr. G.  S.  Pathak abandoned the claim -about oil seeds and no reference  need, therefore, be made to that part of the case. The  tax is being levied under the Punjab General Sales  Tax Act, 1948 (XLVI of 1948).  This Act was amended from time to time  and  the amendments with which we are  concerned  were last made by Punjab Act XIII of 1959.  Section 2(1)  defines the  "turn-over" as including the aggregate of the  ’amounts of the sales and purchases and parts of sales and  purchases actually made by any dealer’ during a given period less  any sums  allowable as trade discount.  Section 4 lays down  the incidence  of  tax and makes every  dealer  whose  turn-over exceeds  the taxable quantum liable to tax.  In view of  the fact  that the turn-over of the Company exceeds the  taxable quantum  there is no need to discuss the section in  detail. The section lays down the definition of taxable quantum  and the  Company  is  within that  definition.  Section  5  then provides as follows:-               "5. Rate of tax.               (1)   Subject  to the provisions of this  Act,               there shall be levied on the taxable  turnover               every year of a dealer a tax at such rates not               exceeding  four  nay raise in a rupee  as  the               State Government may by’ notification direct :                           Provided..............               Provided  further that the rate of  tax  shall               not  exceed  two  name raise  in  a  rupee  in               respect  of any declared goods as  defined  in               clause (c) of section 2 of               595



             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 : (This  was               inserted  with effect from 1st April, 1960  by               Act No. 18 of 1960).               Provided..............                ....................               (2)   In  this  Act  the  expression  "taxable               turn-over" means that part of a dealer’s gross               turnover during any period which remains after               deducting therefrom-               (a) his turn-over during that period on-               (i)................               (ii)  sales  to a registered dealer  of  goods               declared by him in a prescribed form as  being               intended for resale in the State of Punjab  or               sale  in  the course of  interState  trade  or               commerce  or sale in the course of  export  of               goods  out  of the territory of  India  or  of               goods   specified   in  his   certificate   of               registration  for  the  use  by  him  in   the               manufacture  in  the State of  Punjab  of  any               goods  for sale and on sales to  a  registered               dealer  of containers or other  materials  for               the packing of such goods :               Provided  that  in  case  of  such  sales,   a               declaration  duly filled up and signed by  the               registered  dealer to whom the goods are  sold               and  containing  prescribed particulars  on  a               prescribed form is furnished by the dealer who               sells the goods               Provided further that when such goods are used               by  the  dealer  to whom these  are  sold  for               purposes other than those for which these               were  sold to him, he shall be liable  to  pay               tax on the purchase thereof at the rate of tax               leviable   on   the  sale   of   such   goods,               notwithstanding  that  such  purchase  is  not               covered by clause (ff) of section 2;                ....................                ...................." The  registration  of  dealers is provided  by  s.  7  which provides. inter alia               "7. Registration of dealers.               (1)   No  dealer shall, while being liable  to               pay tax under this Act, carry on business as a               dealer unless he               596               has   been   registered   and   possesses    a               registration certificate.               (2)   Every dealer required by sub-section (1)               to  be  registered shall make  application  in               this  behalf in the prescribed manner  to  the               prescribed authority.               (3)   If the said authority is satisfied  that               an  application for registration is in  order,               he shall, in accordance with such rules and on               payment  of  such fees as may  be  prescribed,               register   the  applicant  and  grant  him   a               certificate of registration in the  prescribed               form which may specify the class or classes of               goods  for the purposes of sub-clause (ii)  of               clause (a) of subsection (2) of section 5.                            ....................                            ....................



Section 5(2) (a) (ii) was substituted by Act No. 13 of 1959. The  words underlined in it were inserted with  effect  from April 20, 1959 by Punjab Act No. 18 of 1960. When  s.  5(2) (a) (ii) was amended by the addition  of  the words  "in  the  State of Punjab", which  did  not  formerly exist,  rule 26 of the Punjab General Sales Tax Rules,  1949 was  also  amended.  Rule 26, amended by virtue  of  various notifications (last being on 29th September, 1961), reads as follows --               "26.  A dealer, who wishes to deduct from  his               turnover  the amount in respect of a  sale  on               the  ground that he is entitled to  make  such               deduction  under the provisions of  sub-clause               (ii)  of  clause  (a)  of  subsection  (2)  of               section 5 of the Act, shall on demand, produce               in  respect  of such a sale the  copy  of  the               relevant  cash memo or bill, according as  the               sale is a cash sale or a sale on credit, and a               declaration  in writing in Form S.T.  XXII  by               the  purchasing dealer or by his  agent,  that               the  goods in question are intended  for  are-               sale in the State of Punjab or such goods  are               specified  in his certificate of  registration               for use by him in the manufacture in the State               of Punjab of, any goods for sale." Though  the  words  "in  Form S.T. XXII"  to  the  end  were inserted  as  far back as June 28, 1955 the  words  "in  the State of Punjab" were inserted on February 1, 1960 after the passing of Act 13 597 of  1959.  Form S.T. XXII was altered on February  1,  1960. That Form is for declarations to be furnished by  registered dealers purchasing goods from another registered dealer  for exemption  of  tax under rule 26 read with S. 5 of  the  Act quoted above.  Form S.T. XXII required the dealer to declare in  respect of the goods that they were for the  purpose  of "manufacture   in   the   State   of   Punjab   for   sale". Unfortunately, though the section and the rule  contemplated the  certificate of registration also to be amended  in  the same  manner,  the  certificate in Form  S.T.  III  was  not amended  till a Government Notification dated September  29, 1961  prescribed  the new Form, that is to  say,  after  the period  of  assessment in the present  case.   The  Company, threfore, held a certificate of registration in which  there was  no condition that the goods were for use by the  dealer "in  the  manufacture in the State of Punjab  of  goods  for sale."  The  underlined words were not present  in  the  old certificate which the Company held. The  contention  of  the Company is that  according  to  the certificate granted to it there was no condition that cotton purchased  under  that certificate should  be  subjected  to manufacture in the Punjab.  The case of the Company was that it purchased raw cotton for manufacture and ginned it in its ginning mills in the Punjab and sent the bales to  Modinagar in  Uttar Pradesh for manufacture of cloth in the  Company’s mills  situated  there.   It  was  thus  claimed  that   the purchases of cotton were free of tax under S. 5 (2) (a) (ii) of the Sales Tax Act.  Alternatively, it was submitted  that if  the section required that the manufacture should  be  in the Punjab, then as the raw cotton was ginned in the  Punjab that  condition was satisfied.  It was claimed that  ginning of  cotton  was  a manufacturing process  which  turned  raw cotton  into ginned cotton.  It was thus contended that  the requirements  of the section were also fulfilled.   A  third argument was that there could be no tax because the charging



section  (s. 5) of the Sales Tax Act was not complete  after its  amendments in 1959 because the section and the  amended rules required a modified certificate of registration  which was  not issued as the Form was not prescribed.  Lastly,  it was  contended that ss. 4 and 5 of the Act provided for  tax at  4%  (4 paise per rupee) which was in conflict  with  the provisions  of ss. 14 and 15 of the Central Sales  Tax  Act, 1956  which created a maximum limit and must, therefore,  be held to be inoperative. All the arguments (except the last) that are raised in  this case  are based on the unfortunate omission to  prescribe  a new 598 certificate of registration in line with the amended section and the amended rule and to issue it.  The Company  admitted that  though  it  purchased the goods (raw  cotton)  in  the Punjab,  ginned  the  cotton in its  ginning  mills  in  the Punjab, it sent the bales to its spinning and weaving  mills situated  at  Modinagar in the State of  Uttar  Pradesh  for purposes of manufacture of cloth.  It was admitted before us in the arguments (as indeed it was narrated in the facts  in two  writ petitions which were filed under Art. 32 but  were withdrawn  at  the hearing of this appeal) that  the  ginned cotton bales were not sold but were used for manufacture  of cloth outside the State of Punjab. The  Company is wrong in reading the certificate  of  regis- tration  by itself.  Sections 5 and 7 have to be  read  with rule  26 and Form S.T. XXII, the declaration.  So  read  the old registration certificate even though it did not  contain the  words  "in  the State of Punjab"  would  stand  implied modified  by  the  sections, the rule  and  Form  S.T.  XXII operating together.  The Company had to comply with the  Act and  the  Rules and could not shelter  behind  the  unmended certificate.   We  have  to  consider  whether  the  Company complied  with  the Act and the Rules in the  present  case. Many rulings were cited to us as to the meaning of the  word ’manufacture’ to establish that ginning of raw cotton may in a  sense  be  called a manufacturing process.   We  are  not required  in this case to decide this because s. 5  (2)  (a) (ii) provides that the goods specified in the certificate of registration must be for the use of the dealer "in the manu- facture  in  the  State of Punjab of any  goods  for  sale". There are three conditions involved : the first is that they must  be for the use of the dealer; the second is they  must be for manufacture in the State of Punjab; and the third  is that  the manufacture must result in goods for sale.  It  is not  necessary to decide whether the sale should also be  in the  Punjab  for the reason that no sale  as  required  took place.   The exemption could only be claimed if the  Company satisfied all the three conditions.  The last condition does not  appear  to be fulfilled in this case.  The  words  "for sale"  show the quality of goods and it is clear  the  goods that  are  manufactured  in the Punjab  must  be  for  sale. According  to the section the goods which are the result  of manufacture  must  be  for  sale and  not  for  use  by  the manufacturer in some manufacture outside the State resulting in   different   goods.   The  goods   which   the   Company manufactured  in  the State of Punjab were bales  of  ginned cotton  and they were admittedly not for sale  because  they were sent to its spinning & weaving mills 599 in  Uttar Pradesh.  The exemption, therefore, could  not  be claimed in view of the fact that all the requirements of the section were not complied with. The contention that the charging section is incomplete with-



out the prescription of the proper Form for the  certificate of  registration need not detain us.  We have already  shown that  the  old Form must be deemed to be modified  and  even otherwise  the section and the Rules did not depend  on  the new   Form.    They  were  complete  and   effective.    The registration  certificate  was only the  evidence  that  the Company  was  a registered dealer for  purposes  of  certain commodities  to  be used in manufacture, one of  them  being cotton.  The omission to prescribe the new Form or to  issue it did not render s. 5 and the Rules ineffective. Mr.  G.  S. Pathak then raised the contention that  s.  5(1) which  prescribes the maximum rate of 4 nP in the  rupee  as the  tax must fail in view of ss. 14 and 15 of  the  Central Sales Tax Act.  He pointed out that the second proviso to s. 5(1)  was  added  with effect from April 1,  1960  only  and before that date the section could not operate.  Section  14 of the Central Sales Tax Act declares certain goods to be of special  importance  in inter-state trade  or  commerce  and mentions  cotton  of  all  kinds  in  unmanufactured  state, whether  ginned  or unpinned.  Section 15 then  provides  as follows :-               "15.  Restrictions and conditions in regard to               tax  on  sale or purchase  of  declared  goods               within a State.               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 two per cent               of  the  sale or purchase price  thereof,  and               such tax shall not be levied at more than  one               stage;               (b).......................... It  is  contended that by reason of the declaration  and  S. 15(a) quoted above the rate of tax is discrepant with s.  15 of the Central Sales Tax Act and sub-section (1) of s. 5  of the Punjab General Sales Tax Act must fail as a law properly enacted This   Sup.C.1/65-13 600 argument cannot be accepted because Art. 286(3) under  which the declaration is made provides as follows " 286(1)................  (2).................... (3)  Any  law of a State shall, in so far as it imposes,  or authorises the imposition of, a tax on the sale or  purchase of  goods  declared by Parliament by law to  be  of  special importance  in inter-State trade or commerce, be subject  to such restrictions and conditions in regard to the system  of levy, rates and other incidents of the tax as Parliament may by law specify." 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. 15(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  protanto stand  modified.  The effect of Art. 286(3) is  now  brought out  by the second proviso to s. 5(l).  But this proviso  is enacted  out  of abundant caution and even  without  it  the result was the same.



In our judgment none of the contentions urged by the Company can  be accepted.  The appeal, therefore, fails and will  be dismissed with costs. Appeal dismissed 601