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PETITIONER: STATE OF ORISSA

       Vs.

RESPONDENT: M.A. TULLOCH AND CO.

DATE OF JUDGMENT: 21/04/1964

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. SUBBARAO, K. SHAH, J.C.

CITATION:  1966 AIR  365            1964 SCR  (7) 816

ACT: Sales  Tax-Sale  to Registered dealer-Claim  for  deduction- Production  of  declaration under r.  27(2)  if  obligatory- Orissa  Sales Tax Act, 1947 (Orissa 14 of 1947), s.  5(2)(a) (ii), Orissa Sales Tax Rules, 1947 r. 27(2)-Orissa Sales Tax (Amendment) Act (Orissa 10 of 1957).

HEADNOTE: Assessment  orders  were  passed by the  Sales  Tax  Officer allowing  the  deductions  of two  amounts  claimed  by  the respondent-dealer  under s. 5(2)(a)(ii) of the Orissa  Sales Tax  Act  in respect of goods sold to a  registered  dealer. The   respondent-dealer  filed  appeals  to  the   Assistant Collector  Sales Tax, challenging the assessment on  grounds which   were  not  relevant  and  against  those   decisions revisions  were  filed by the dealer.  While  the  revisions were pending the Orissa Sales Tax Act was amended by  Orissa Sales Tax (Amendment) Act (Orissa Act, 10 of 1957) with  the result  that revisions were treated as appeals to the  Sales Tax  Tribunal, and it enabled the Government to file  cross- objections.  In pursuance, the State filed  cross-objections challenging the deductions on the ground that the dealer had not  produced any declaration as required under r. 27(2)  of the Orissa Sales Tax Rules, 1947.  The Tribunal upheld  this objection  and directed that fresh assessments be made.   On statement  of  the case, the High Court  answered  that  the assessing officer was not wrong in allowing the  deductions. On appeal by special leave). Held:(i)  There is nothing in s. 5 (2) (a) (ii)  itself that disentitles a selling dealer to a deduction, but if the contingency  provided in the proviso occurs, then the  price of  goods is included in the taxable turnover of the  buying dealer. (ii)The  production of a declaration under r. 7(2)  is  not always  obligatory  on  the part of a  selling  dealer  when claiming  the  exemption.   It  is  open  to  him  to  claim exemption  by  adducing other evidence so as  to  bring  the transaction within the scope of s. 5(2)(a)(ii).  Rule  27(2) must  be  reconciled with the section and the  rule  can  be reconciled  by treating it as directory.  But the rule  must be substantially complied with in every case.  It is for the

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Sales-tax  Officer  to  be  satisfied  that,  in  fact.  the certificate  of registration of the buying  dealer  contains the requisite statement, and if he has any doubts about  it, the  selling dealer must satisfy his doubts.  But if  he  is satisfied  from  other  facts  on  the  record,  it  is  not necessary   that  the  selling  dealer  should   produce   a declaration  in the form required in r. 27(2). before  being entitled to a deduction. Member  Sales-tax  Tribunal, Orissa v. Mls.  S.  Lai  &  Co. (1961) 12 S.T.C. 25, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 507-508  of 1963.   Appeal by special leave from the judgment and  order dated November 4, 1950, of the Orissa High Court in  Special Jurisdiction Cases Nos. 38 and 39 of 1958. R.Ganapathy  Iyer and R. N. Sachthey, for  the  appellant (in both the appeals). 817 B.Sen  and S. N. Mukherjee, for the respondents (in  both the appeals). April 21, 1964.  The Judgment of the Court was delivered by SIKRI, J.-The respondent, hereinafter referred to as the the dealer, filed a return for the quarter ending June 30, 1951, under  the  Orirsa Sales Tax Act (Orissa Act  XIV  of  1947) (hereinafter  referred  to  as  the  Act).   He  claimed   a deduction of Rs. 2,40,000/- under s. 5(2)(a)(ii) in  respect of the goods sold to a registered dealer, named M/s.  Lal  & Co.  Ltd.,  BA  1335.  Similarly,  for  the  quarter  ending September   30.  1951,  he  claimed  a  deduction   of   Rs. 15,677/1/3.  By two assessment orders passed under s.  12(2) of  the  Act,  the Sales Tax Officer,  Cuttack  III  circle, Jaipur,  Orissa,  determined the tax  payable  allowing  the deduction  of  Rs. 2,40,000/- and Rs. 15,677/l/3,  under  s. 5(2)(a)(ii).   The  dealer filed appeals  to  the  Assistant Collector,  Sales Tax, challenging the assesment on  grounds which  are not relevant.  The dealer later  filed  revisions against the decision of the Assistant Collector.  While  the revisions  were pending, the legislature amended the  Orissa Sales Tax Act, in 1957, by Orissa Sales Tax (Amendment)  Act (Orissa  Act XX of 1957).  The effect of this amendment  was that  revisions  were  treated  as  appeals  to  Sales   Tax Tribunal, and it enabled the Government to file cross-objec- tions.  The State of Orissa, in pursuance of this amendment, filed memorandum of cross-objections challenging the  deduc- tion  of  Rs. 2,40,000/- and Rs. 15,677/l/3, on  the  ground that  the  dealer  had  not  produced  any  declaration,  as required under r. 27(2) of the Orissa Sales Tax Rules, 1947, as  evidenced  from  the Check Sheet kept  on  record.   The Tribunal  upheld  this  objection and  directed  that  fresh assessments  be made.  Certain other questions  were  raised before  the Tribunal by the dealer, but as nothing turns  on them  as  far as these appeals are concerned, they  are  not being  mentioned.   The Tribunal stated a case to  the  High Court and one of the questions referred to was "whether  the assessing officer was not wrong in allowing deduction of Rs. 2,40,000/-  for  the  quarter  ending  on  30-6-51  and  Rs. 15,677/1/3  for  the  quarter ending  on  30-9-51  from  the respective gross turnover of the applicant." The High Court, following   its  earlier  decision  in   Member,   Sales-tax Tribunal, Orissa v. Messrs S. Lal & Co. Limited (1) answered the question in the affirmative.  The State of Orissa having obtained  special leave from this Court, these  appeals  are

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now before us for disposal. Mr.  Ganapathy lyer, on behalf of the State of  Orissa,  has contended  before us that it is clear that r. 27(2) was  not complied  with,  and, therefore, the Sales Tax  Officer  was wrong (1)  (1961) 12 S.T.C. 25. 818 in allowing the said deduction.  The answer to the  question referred  depends  on  the  correct  interpretation  of   s. 5(2)(a)(ii), Co. and r. 27(2).  They read thus: -               "s.  5(2)(a)(ii)-sales to a registered  dealer               of goods specified in the purchasing  dealer’s               certificate of registration as being  intended               for resale by him in Orissa and on sales to  a               registered  dealer  of  containers  or   other               materials for the packing of such goods.               Provided that when such goods are used by  the               registered  dealer  for  purposes  other  than               those   specified   in  his   certificate   of               registration,  the price of goods so  utilised               shall be included in his taxable turnover."               "Rule 27(2).  Claims for deduction of turnover               under  sub-clause (ii) of clause (a)  of  sub-               section (2) of section 5-               A  dealer who wishes to deduct from his  gross               turnover  on sales which have taken  place  in               Orissa the amount of a sale on the ground that               he  is entitled to make such  deduction  under               sub-clause  (ii) of clause (a) of  sub-section               (2)  of section 5 of the Act, shall produce  a               copy  of  the relevant cash receipt  ,or  bill               according  as  the sale is a cash  sale  or  a               sale .on credit in respect of such sale and  a               true declaration in writing by the  purchasing               dealer or by such responsible person as may be               authorised  in writing in this behalf by  such               dealer   that  the  goods  in   question   are               specified    in   the   purchasing    dealer’s               certificate of registration as being  required               for  resale by him or in the execution of  any               contract:               Provided  that no dealer whose certificate  of               registration has not been renewed for the year               during  which the purchase is made shall  make               such a declaration and that the selling dealer               shall  not be entitled to claim any  deduction               of sales to such a dealer." It is, plain from the terms of s. 5(2)(a)(ii) that a selling ,dealer is entitled to a deduction in respect of sales to  a registered  dealer of goods, if the goods are  specified  in the purchasing dealer’s certificate of registration as being intended  for re-sale by him in Orissa.  No other  condition is  imposed  by the above section.  The proviso  deals  with consequences that follow if the purchasing dealer uses  them for  purposes other than those specified in his  certificate of registration, and ,directs that, in that event, the price of goods so utilised shall 819 be included in his turnover.  Therefore, there is nothing in the  section itself that disentitles a selling dealer  to  a deduction,  but if the contingency provided in  the  proviso occurs,  them the price of goods is included in the  taxable turnover of the buying dealer.  But Mr. Ganapathy lyer says, be it so, but the rule making authority is entitled to  make ruler,  for  carrying out the purposes of the  Act,  and  r.

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27(2)   is  designed  to  ensure  that  a  buying   dealer’s certificate of registration does, in fact, mention that  the goods  are intended for resale by him, and for that  purpose it  has  chosen  one exclusive method of  proving  the  fact before a Sales Tax Officer.  He further urges that no  other method  of proving that fact is permissible.  Rule 27(2)  is mandatory and if there is breach of it the selling dealer is not entitled to deduction.  The learned counsel for the res- pondent,  on  the  other hand, contends  that  r.  27(2)  is directory.   He points out that the word ’shall’  should  be read  as  ’may’,  in  the context.   He  further  says  that supposing   the   selling  dealer   brought   the   original certificate of registration of a buying dealer and  produced it before the Sales Tax Officer, according to the appellant, this  would  not be enough, but this could never  have  been intended.  In our opinion, r. 27(2) must be reconciled  with the section and the rule can be reconciled by treating it as directory.  But the rule must be substantially complied with in  every  case.   It is for the Sales  Tax  Officer  to  be satisfied that, in fact, the certificate of registration  of the  buying dealer contains the requisite Statement, and  if he has any doubts about it, the selling dealer must  satisfy his doubts.  But if he is satisfied from other facts on  the record,  it is not necessary that the selling dealer  should produce  a  declaration in the form required  in  r.  27(2), before being entitled to a deduction. We  are, therefore, of the opinion that the High Court  came to  a  correct  conclusion.  The High Court  is  correct  in holding that the production of a declaration under r.  27(2) is  not  always obligatory on the part of a  selling  dealer when  claiming  the exemption.  It is open to him  to  claim exemption  by  adducing other evidence so as  to  bring  the transaction  within the scope of s. 5(2)(a)(ii) of the  Act. In this case, the Sales Tax Officer was satisfied by a  mere statement  of the dealer and it has not been shown  that  in fact the registration certificate of the buying dealer, M  / s S. Lal & Co., did not contain the statement that the goods were intended for resale by him in Orissa. The  appeals accordingly fail and are dismissed with  costs. One set of hearing fee. Appeals dismissed. 820