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PETITIONER: STATE OF MADRAS

       Vs.

RESPONDENT: R.NAND LAL & CO.

DATE OF JUDGMENT: 14/04/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1967 AIR 1758            1967 SCR  (3) 645  CITATOR INFO :  R          1972 SC 845  (25)

ACT: Central Sales Tax Act, 1956, s. 8(4)-Form ’C’ as  prescribed by Central Government to be filled by purchasing dealer  for selling  dealer  to  get  benefit of  lower  rate  under  s. 8(1)(b)-Central  Sales Tax (Madras) Rules, 1957  Rule  10(1) requiring  each  declaration  in Form  ’C’  to  contain  one transaction  only-Sale  by Madras dealer to  Punjab  dealer- Punjab  dealer  declaring more than one transaction  in  one form-Whether  contravenes Rule 10(1)-State  Government  does not have power under s. 13(3) and s. 13(4)(e) of the Central Act to place such restriction on outside dealer-Desirability of Central Government making rules under s.  13(1)(d)     in this regard.

HEADNOTE: The  assessee firm was a ’dealer’ in Madras State.  For  the year  1959-60  the  firm was taxed at 7%  on  certain  sales effected  to registered dealers in the Punjab on the  ground that  the declarations taken from dealers in Punjab in  Form ’C’  were  not in accordance with r. 10(1)  of  the  Central Sales  Tax (Madras) Rules, 1957.  The latter  rule  required ,that there must be a separate declaration in  respect  of each  transaction  whereas the declarations in  the  present case  were  in respect of several  transactions  each.   The appellant  firm claimed that on the turnover in question  it should have been assessed at one Per cent only, as laid down in  s. 8(1) of the Central Sales Tax Act, 1056.   The  claim was  turned  down  by  the  Sales-tax  Authorities  and  the Tribunal,  but  the  High Court held that r.  10(1)  of  the Central  Sales  Tax  (Madras) Rules, 1957  applied  only  to transactions of purchase by a dealer in the State of  Madras and  not  to the purchasing dealer in the State  of  Punjab, that  the  Madras  State  was  incompetent  to  frame  rules governing the conduct of the chasing dealers in the  Punjab, and that in any event r. 10(1) was tory and not mandatory. The State appealed. HELD:     (i) Ex facie r. 10(1) imposes no obligation upon a dealer  in  the State of Madras wishing to sell goods  :  It applies  to a clear wishing to purchase goods  from  another

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dealer.   The High Court was further right in  holding  that under the scheme of the Central Sales Tax Act and the  Rules framed under that Act by the State of Madras the  injunction against the purchasing dealers in r. 10(1) did not apply- to dealers in the State of Punjab. [650B-651A] Accordingly  the proviso to r. 10(1) which,directs  that  no single declaration shall cover more than one transaction  of sale  except  in  certain cases has  no  application  to  a. purchasing dealer outside the State of Madras.  Nor does  r. 10(2). impose any binding obligation upon the selling dealer in Madras to obtain a separate declaration form in  respect of each sale transaction. [651C-F] The appellants were therefore to be taxed at the rate of one per cent and not seven per cent on the turnover in question.  (ii) A rule prescribing that a declaration by a  purchasing dealer shall not contain more than one transaction can only be made by the Central Government under s. 13(1)(d) and  the State Governments do not have 646 power under s. 13(3) and s. 13(4)(e) to make any such  rule. The situation which had arisen in this case could have  been avoided if instead of each State making its rules  requiring that  no  single  declaration  shall  cover  more  than  one transaction, the Central Government in exercise of the power under  s.  13(1)(d) of the Act had made the  rule.  [651G-H; 652A-B]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 604 of 1966. Appeal  by special leave from the judgment and  order  dated August 5, 1964 of the Madras High Court in Tax Case No.  131 of 1963 (Revision No. 87). G.   Ramanujam and A. V. Rangam, for the appellant. K.   Srinivasan and R. Gopalakrishnan, for the respondent. The Judgment of the Court was delivered by Shah, J. M/s.  R. Nand Lal & Company-hereinafter called ’the assessee  are dealers in wool at Vaniyambadi in North  Arcot District  in’  the  State of  Madras.   In  proceedings  for assessment  of sales-tax for the year 1959-60 the  assessees were assessed to pay tax at the rate, of seven per cent.  on a turnover of Rs. 2,08,343-05 from sales effected by them to certain  registered  dealers in the State  of  Punjab.   The assessing  authority declined to assess the turnover at  one per cent. as prescribed by s. 8(1) of the Central Sales  Tax Act,  1956, because in his view the assessees had  submitted declarations  in Form ’C’ covering two or more  transactions contrary  to  the first proviso to r. 10(1) of  the  Central Sales  Tax  (Madras) Rules, 1957.  The  Appellate  Assistant Commissioner  and the Sales Tax Appellate  Tribunal,  Madras confirmed  the order of the assessing authority.   The  High Court of Madras, in exercise of its revisional jurisdiction, set aside the order of the Sales Tax Appellate Tribunal, and declared that the ass    s  were  liable to pay tax  on  the turnover in dispute at the lower   rate.    The   State   of Madras has appealed to this Court with special    leave. Section 8 of the Central Sales Tax Act, 1956 (as amended  by Act’31 of 1958) insofar as it is material provided               "(1) Every dealer, who in the course of inter-               State trade or commerce-               (a)               (b)   sells to a registered dealer other  than               the   Government  goods  of  the   description               referred to in sub-section (3);

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shall  be liable to pay tax under this Act, which  shall  be one per cent. of his turnover. (2)  The tax payable by any dealer on his turnover in so far as  the turnover or any part thereof relates to the sale  of goods                             647 in  the course of inter-State trade or commerce not  falling within sub-section (1)-               (a)...............               (b)   in the case of goods other than declared               goods,  shall  be calculated at  the  rate  of               seven  per cent. or at the rate applicable  to               the sale or purchase of such goods inside  the               appropriate State, whichever is higher;               (2A)               (3)               (4)   The  povisions of sub-section  1)  shall               not apply to any sale in the course of  inter-               State  trade  or commerce  unless  the  dealer               selling the goods furnishes to the  prescribed               authority in the prescribed manner-               (a)   a  declaration duly filed and signed  by               the  registered dealer to whom the  goods  are               sold containing the prescribed particulars  in               a prescribed form obtained from the prescribed               authority; or               (b)...............               (5) It  is  common ground that the turnover was  in  respect  of goods   of  the  class  specified  in  the  certificate   of registration  of the registered dealer purchasing the  goods as being intended for resale by him or for use by him in the process  of  manufacture of goods for  sale.   A  registered dealer  selling goods in the course of inter-State trade  or commerce  of  the description referred to in sub-s.  (3)  is viable under s. 8 ( 1 ) of the Central Sales Tax Act, to pay tax only if the rate of one per cent. on his turnover.   But to qualify himself for that rate of tax he has to furnish to the  prescribed  authority  a declaration  duly  filled  and signed by the registered dealer to whom the goods are  sold. Such  a declaration must contain the Prescribed  particulars in   the  prescribed  form  obtained  from  the   Prescribed authority.   If  the  selling dealer fails  to  furnish  the declaration in the prescribed form, he is liable to pay  tax at the higher rate mentioned in sub-s. (2) (b) of s. 8. The  respondents did furnish declarations in Form ’C’  pres- cribed under the Rules framed’ by the Central Government  in exercise  of  the, powers vested by S. 1 3 (1)  (d)  of  the Central  Sales Tax Act.  But each such  declaration  covered more  transactions of sale than one and the aggregate  value of  the transactions recorded in each  declaration  exceeded Rs. 5,0001- The sales-tax authorities and the Tribunal  were of the view that these declarations contravened the  express direction of the rule made by 648 the  Madras State in exercise of the powers under s. 13  (4) (e) of the Central Sales Tax Act.  The High Court held  that r.  10(1)  of the Central Sales Tax  (Madras)  Rules,  1957, applied only to a transaction of purchase by a dealer in the State  of  Madras, and not to the purchasing dealer  in  the State  of Punjab; that the Madras State was  incompetent  to frame rules governing  the conduct of the purchasing dealers in the Punjab- that since the corresponding rules framed  by the State of Punjab under s. 13 (4) (e) of the Central Sales Tax Act did not include a provision requiring separate  form

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to be used for each sale transaction, the purchasing dealers were  not  obliged  to comply with r. 10(1)  of  the  Madras Rules,  and that since the Madras selling dealers could  not compel  the  purchasing  dealers to comply  with  the  rules relating   to  furnishing  of  separate  declaration   forms ordained  by  the Madras Rules, the  declarations  were  not defective.   In any event, the High Court held, r. 10(1)  of the Madras Rules was directory and not mandatory. The  assumption  made  by the High Court that  no  rule  was framed  by  the State of Punjab under S. 13 (4) (e)  of  the Central  Sales Tax Act requiring the purchasing  dealers  in the State of Punjab to issue a separate declaration form  in respect of each individual transaction is erroneous.  It  is conceded  before  us  that the  Punjab  Government    had  in purported, exercise of the powers under sub-ss. (3) & (4) of S.  13 of the Central Sales Tax, 1956, made r.  7(2-A)  with effect from February 17, 1958 that:               "No single declaration in Form ’C’  prescribed               under  the Central.  Sales  Tax  (Registration               and  Turnover) Rules ’ 1957, shall cover  more               than  one transaction of sale except when  the               total  amount  of sales does not  exceed  five               thousand rupees." But,  for  reasons  which we will  presently  set  out,  the judgment of the-High Court must still be, affirmed. Sub-section  (4)  of  s.  8 of the  Central  Sales  Tax  Act provides  that  in order to, qualify himself for  the  lower rate  of  tax it, respect of sales in the course  of  inter- State  trade  or commerce, the dealer selling goods  has  to furnish to the prescribed authority in the prescribed manner a  declaration  duly  filled and signed  by  the  registered dealer  to  whom  the  goods  are  sold.   The   expressions "prescribed  authority"  and "prescribed  manner"  mean  the authority  and  manner prescribed by rules  under  the  Act. Section 13(1) of the Central Sales Tax Act, 1956, authorises the Central Government to make rules, providing, inter alia, the form in which and the particulars to be contained in any declaration  of certificate to be given under the  Act.   By sub-s.  (3) of S. 13 the State Government is  authorised  to make  rules not inconsistent with the provisions of the  Act and the rules made under sub-s. (1) to 64 9 carry out the purposes of the Act, and by sub-s (4) of s. 13 the State Government is, in particular and without prejudice to  the powers conferred by sub-s. (3), authorised  to  make rules  for  all  or  any of the  purposes  set  out  therein including  "the authority from whom, the Conditions  subject to  which and the fees subject to payment of which any  form of declaration prescribed under sub-s. (4) of section 8  may be  obtained, the manner in which the form shall be kept  in custody and records relating thereto maintained, the  manner in which any such form may be used and any such  declaration may be furnished." In exercise of the power conferred by S. 131 (d) the Central Government  has  prescribed the form of  declaration  to  be furnished by the purchasing dealer under s. 8 (4).  That  is Form ’C’.  The form is in three sections-the  "counterfoil", the "duplicate" and the "original".  The "original" contains at the foot of the Form the following Note:-               "(To be furnished to the prescribed  authority               in  accordance  with the  rules  framed  under               section  13(4)  (e) by the  appropriate  State               Government.)" The Madras State Government presuming to act in exercise  of authority under S. 13(3) and S. 13(4)(e) framed the  Central

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-Sales Tax (Madras) Rules, 1957, r. 10(1) of which reads  as follows’:               "A  registered dealer, who wishes to  purchase               goods  from another such dealer on payment  of               tax  at the rate applicable under the  Act  to               sales  of  goods by one registered  dealer  to               another,  for  the purpose  specified  in  the               purchasing     dealer’s     certificate     of               registration, shall obtain from the  assessing               authority  in  the  City  of  Madras  and  the               registering authority at other places a  blank               declaration  form prescribed under rule 12  of               the   Central  Sales  Tax  (Registration   and               Turnover) Rules, 1957 for furnishing it to the               selling   dealer.    Before   furnishing   the               declaration   to  the  selling   dealer,   the               purchasing  dealer,or any  responsible  person               authorized by him in this behalf shall fill in               all  the required particulars in the form  and               shall  also affix his usual signature  in  the               space  provided in the form for this  purpose.               Thereafter  the counterfoil of the form  shall               be  retained by the purchasing dealer and  the               other  two  portions  marked  "original"   and               "duplicate"  shall be made over by him to  the               selling dealer Provided  that no single declaration shall cover  more  than one transaction of sales except- 650               (a)   in cases where the total amount  covered               by  one declaration is equal to or  less  than               Rs.  5,000 or such other amount as  the  State               Government may, by a general order, notify  in               the Fort.  St. George Gazette, and               (b) Ex  facie, this rule imposes no obligation upon a dealer  in the State of Madras wishing to sell goods : it applies to  a dealer  wishing to purchase goods from another dealer.   The argument  that  cl. (1) of r. 10 is intended to apply  to  a registered dealer in the State of Punjab is negatived by the scheme  of  the Central Sales Tax Act and the  Rules  framed thereunder.   By  s. 7 of the Central Sales Tax  Act,  every dealer  liable  to  pay tax under the Act  has  to  make  an application for registration under the Act to such authority in  the appropriate State as the Central Government  may  by general  order  specify.  The authority to be  specified  is designated in the Central Sales Tax (Registration and  Turn- over) Rules, 1957, framed by the Central Government under s. 13(1),  the  "notified authority" : vide r.  2(c).   Rule  3 provides  that an application for registration under S.  7 shall be made by a dealer to the notified authority in  Form ’A’.   In exercise of the powers conferred by sub-s. (1)  of s.  7  of  the  Central Sales Tax  Act,  1956,  the  Central Government  issued  a  notification  No.  S.R.O.  643  dated February 22, 1957, specifying the persons mentioned in  Col. (3)  of the Schedule thereto as the authorities to whom  the dealers  of  the  description in Col.  (2)  shall  make  the application  for  registration.   Item  1  of  the  Schedule requires  a  dealer having a single place of business  in  a State  to make an application to the authority competent  to register him under the general sales tax law of the State if he  were liable to, be so registered : and item 2  provides that the dealer having more than one place of business in  a State  shall make an application to the authority  competent to  register  him  in  respect of  the  principal  place  of

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business under the general sales tax law of the State if  he were  liable  to  be so  registered.   A  registered  dealer contemplated by r. 10 is therefore registered in the  State where   he  has  his  place  of  business.  The   expression "assessing  authority" is defined in the Central  Sales  Tax (Madras)  Rules, 1957, as meaning any person  authorized  by the State Government to make any assessment under the Madras General  Sales  Tax Act, 1959 (Madras Act 1 of  1959).   The dealer has again to obtain the form of declaration from  the assessing.authority in the State of Madras.  These are clear indications  that the rules framed by the Madras  Government were  intended  to  apply to dealers  within  the  State  of Madras.   The  High  Court was, in our  judgment,  right  in holding  that under the scheme of the Central Sales Tax  Act and the Rules framed under that Act by the State of  Madras, the injunc- 651 tion  against  the purchasing dealers in r.  10(1)  did  not apply to, dealers in the State of Punjab.  It is unnecessary on that view to, express any opinion on the question whether the State Government could, in exercise of the powers  under S.  13  (4),  impose  upon dealers  not  within  the  State, obligations  to  comply  with  conditions  relating  to  the contents of the ’C’ Form declarations. Since,  r.  10 ( 1 ) requiring that a  separate  declaration form  in  respect of each individual  transaction  shall  be furnished was intended only to apply to dealers in the State of Madras, and not to dealers outside the State, proviso  to r.  10(1)  which directs that no  single  declaration  shall cover  more than one transaction of sale except  in  certain cases has no application to a purchasing dealer outside  the State of Madras.  Rule 10(2), provides :               "A registered dealer who claims to have made a               sale  to another registered dealer  shall,  in               respect of such claim attach to his return  in               Form   the  portion marked "original"  of  the               declaration   received   by   him   from   the               purchasing  dealer.  The  assessing  authority               may,  in  its  discretion,  also  direct   the               selling  dealer to produce for inspection  the               portion of the declaration marked "duplicate".               " But  this rule does not direct that a  declaration  covering more  than one transaction of sale shall not be given.   The rules  framed  by  the Madras Government  do  not  otherwise impose any binding obligation upon the selling dealer in the State  of  Madras to obtain a separate declaration  form  in respect of each sale transaction, nor do the rules visit him with a penalty on failure to comply with the requirement. We are constrained to observe that the rule making  authori- ties  have failed to appreciate the scheme of S. 13  of  the Central  Sales Tax Act.  We are of the opinion that  it  was not within the competence of the State authorities under  S. 13(3)  & (4) of the Central Sales Tax Act to provide that  a single declaration covering more than one transaction  shall not  be  made.  Authority to prescribe  such  an  injunction cannot have its source in s. 13(3) or s. 13 (4) (e) : it can only be in the authority conferred by cl. (d) of s. 13(1) by the  Central  Government.  The Central  Government  has,  in exercise  of the power under s. 1 3 (1) (d), prescribed  the form  of declaration and the particulars to be contained  in them  declaration.   A  direction  that  there  shall  be  a separate   declaration   in  respect  of   each   individual transaction  may  appropriately be made in exercise  of  the power  conferred under s. 13 (1) (d).  The State  Government

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is undoubtedly empowered to make rules under sub-ss. (3) and (4) of s. 13 but the rules made by them 652 State   Government  must  not  be  inconsistent   with   the provisions  of ,the Act and the rules made under sub-s.  (1) of  s.  13  to carry out the purposes of the  Act.   If  the authority  to make a rule prescribing that  the  declaration shall not contain more than one transaction can be made only under  s. 13 (1) (d), the State Government  cannot  exercise that authority.  The situation which has arisen in this case could have been avoided, if instead of each State making its rules requiring that no single declaration shall ,cover more than one transaction, the Central Government in exercise  of the power under s. 13 (1) (d) of the Act had made the rules. The  appeal fails and is dismissed with costs.  G.C.  Appeal dismissed. 653