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PETITIONER: STATE OF U.P. & ANOTHER

       Vs.

RESPONDENT: HAJI ISMAIL NOOR MOHAMMAD & CO.

DATE OF JUDGMENT09/05/1988

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1409            1988 SCR  Supl. (1) 261  1988 SCC  (3) 398        JT 1988 (2)   468  1988 SCALE  (1)1050

ACT:      U.P. Sales  Tax Act,  1948/U.P. Sales  Tax Rules,  1948 Sections 3D  and 4B/Rule 25A(5)-Tax-Special relief to dealer holding recognition  certificate-Date  of  actual  issue  of certificate  immaterial-Dealer   to  be   in  possession  of certificate at assessment.

HEADNOTE:      The respondent "dealer" registered under the U.P. Sales Tax Act, 1948 was carrying on the business of manufacture of oils from  groundnuts and  other oil  seeds, and  was  under section 3-D  of the Act, liable to purchase-tax on oil seeds at 3%  ad valorem  on the turnover of its purchases from the cultivators or  other unregistered  dealers. Section  4-B of the Act  contemplated special  reliefs  in  purchase-tax  to certain manufacturers  of ’notified  goods’, if  the "dealer holds a  recognitioncertificate issued under sub-section (2) in respect  thereof". Sub-rule  (5) of Rule 25-A of the U.P. Sales  Tax   Rules,  1948,   however,  stipulated   that   a ’recognition-certificate’ issued for purposes of Section 4-B of the Act "shall take effect from the date of its issue."      On 10.2.1969  the State Government notified oils of all kinds to  be "notified  goods" for  purposes of  section 4-B entitling the  dealer to a concessional rate of purchase tax at 2%  on the  raw material  required for the manufacture of the "notified goods". On 21.3.1969, respondent applied under section 4-B(2)  for the  grant of a recognition certificate, which was  granted only  on 5.12.1969.  The  relief  to  the respondent in  the form of concessional rate of purchase tax was accordingly confined and limited to the turnover of such first-purchases made only after 5.12.1969, the date of issue of the recognition certificate.      In the  writ petition filed by the respondent, the Full Bench of the Allahabad High Court, by majority, accepted its contention that  the clause  in sub-rule  (5) of  Rule  25-A regarding the  effective date of the recognition certificate was at cross-purposes with and did not carry out the objects of Section  4-B and  was therefore, ultra-vires section 4-B. The High  Court held  that the  requirements of  section 4-B were substantially  complied with if the dealer, at the time of assessment,  held a  recognition certificate,  subject to

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the requirement  that the turnover was after the date of the application. 262      Before  this  Court  the  Revenue  contended  that  the interpretation placed by the High Court runs in the teeth of the express  statutory language  and the clear intendment of the provision  that the  dealer should hold the ’recognition certificate’ at the time of the purchases.      Dismissing the appeal, it was, ^      HELD: (1)  There is  nothing  basically  wrong  in  the approach of  the High Court that the statutory language does not insist  upon the  contemporaneity of  the holding of the certificate with  the purchases and that it was suffcient if the dealer,  subsequently, came  to hold  a certificate  "in respect thereof". [267D-E]      (2) To  insist upon  a contemporaneity  would amount to qualifying the  word ’holds’  in section  4-B by  adding the words "at the time of the purchases". [267E]      (3) The  words "in  respect  thereof"  are  "colourless words", but  in section  4-B they are, in their reference to the certificate,  suffciently, though non-specifically, wide enough  to   include  a   certificate  obtained   later  but pertaining to the turnover in question. [267F-G]      (4)  The   rule  which  compels  only  its  prospective operation  might,   not  unreasonably,   be   held   to   be inconsistent with  the ultra  vires of section 4-B. There is nothing unreasonable  in this  construction of  section 4-B. Indeed, by  the 1978  Amendment, this position has been made clear  in  the  rule  itself,  which  after  the  amendment, expressly provides  that the  certificate will  take  effect from the  date of the application made by the dealer and not merely from the date of the issue. [267G-H; 268A]      Trustees v. IRC., [1946] 174 LT 133, referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 768 (NT) of 1975.      From the  Judgment and  Order  dated  3.1.1973  of  the Allahabad High Court in Writ Petition No. 4225 of 1971.      S.C. Manchanda and A.K. Srivastava for the Appellants.      NEMO for the Respondents.      The Judgment of the Court was delivered by 263      VENKATACHALIAH,  J.   This   appeal   by   certificate, preferred by  the State of U.P. against the Judgment, dated, 3.1.1973 of  the Allahabad High Court in W.P. No. 4225/1971, raises a short question whether the Rule 25-A(5) of the U.P. Sales Tax Rules 1948 (Rules) in so far as it stipulates that a ’recognition-certificate’  issued for  purposes of Section 4-B of  the U.P. Sales Tax Act 1948 (Act) "shall take effect from the  date of  its issue"  is inconsistent with does not carry-out the  purposes of  and, therefore,  is  ultra-vires Section 4-B of the U.P. Sales Tax Act 1948 (Act).      The full  bench of  the  Allahabad  High  Court,  by  a majority, has,  by the judgment under appeal, preferred this view.      2. So far as the declaration on the law on the point is concerned, the  matter loses much of its edge in view of the relevant amendment  brought about  by the U.P. Taxation Laws (Amendment &  Validation) Act  1978, which now provides that such a  recognition certificate  shall take  effect from the anterior date  of the presentation of the application by the

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dealer. By  the same  amendment, the certificate is rendered valid, for  three successive  assessment years at a time and the renewals shall also be for like periods.      3. The  necessary and  material facts  are in  a  short compass and  may briefly  be stated:  Respondent Haji Ismail Noor Mohammad  & Co.  a registered  firm of  partners was  a "Dealer" registered  under the  Act. It, inter-alia, carried on the  business of  manufacture of oils from groundnuts and other oil  seeds. The  oil so  manufactured was  sold by the Dealer both intra-state; inter-state and by way of export.      Under Section  3-D of  the Act,  a dealer  is liable to purchase-tax on  oil seeds  at 3% ad-valorem on the turnover of the  purchases made by the dealer from the cultivators or other unregistered dealers. Section 4-B of the Act, however, contemplates special  reliefs  to  certain  manufactures  of notified goods, the relief being in the form of concessional rate of  purchase tax  or exemption  there from, as the case may be,  as notified  by the State-Government if the "dealer holds a recognition-certificate issued under sub-section (2) in respect thereof."      On 10.2.1969,  the State  Government notified that oils of all  kinds to be "notified goods" for purposes of Section 4-B and  that the  purchases by the dealer, liable to tax on the turnover  of the  firstpurchases shall  be entitled to a concessional rate of tax at 2% on the 264 raw-material required for the manufacture of notified-goods.      The  present   controversy  relates   to  the  Dealer’s entitlement  to   the  concessional  rate  of  purchase  tax respecting the  purchase turn-over  of  its  first-purchases under the said notification.      4. On  21.3.1969, Respondent  applied under  Section 4- B(2) to the prescribed-authority, in the prescribed-form for the grant  of a  recognition  certificate.  The  recognition certificate,  for  certain  reasons,  was  granted  only  on 5.2.1969. There appears no dispute that the turn-over of the first-purchases of  the  Respondent,  respecting  which  the claim for  reduced-rate of  tax was  made, constituted  raw- material required for the manufacture of notified goods and, therefore, satisfied  the requirement  of the  notification. However, the  relief was  confined to  the turnover  of such first-purchases made only after 5.12.1969, i.e., the date of issue of  the certificate  and the  relief in respect of the turnover prior  to that date was refused on the basis of the condition in  sub-rule 5  of Rule  25-A which  provided that "such certificate  shall take  effect from  the date  of its issue".      Respondent, in  its writ-petition before the High Court contended that  this clause  in Sub-Rule (5) of Rule 25-A is at cross-purposes  with and did not carry out the objects of Section 4-B  and is ultra-vires Section 4-B. The High Court, by majority opinion, has accepted this contention.      5. The  provisions of  Section 4-B  and Rule 25A(5) may now be noticed:           "4-B. Special relief to certain manufacturers.           (1) Notwithstanding anything contained in sections           3, 3-A, 3-AA and 3-D:-           (a)  where any  goods liable  to tax under section                3-D are  purchased by  a dealer who is liable                to tax on the turnover of his first purchases                under that  section and  the dealer"  holds a                recognition    certificate    issued    under                subsection (2)  in respect thereof," he shall                be liable in respect of those goods to tax at                such concessional  rate, or  be  exempt  from

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              tax, as may be notified in the Gazette by the                State Government in that behalf; 265           (b)  where any goods liable to tax under any other                section are  sold  by  a  dealer  to  another                dealer and such other dealer furnishes to the                selling dealer  in the  prescribed  form  and                manner a  certificate to  the effect  that he                holds a  recognition certificate issued under                sub-section  (2)   in  respect  thereof,  the                selling dealer  shall be liable in respect of                these  goods  to  tax  at  such  concessional                rates, or  be  exempt  from  tax  as  may  be                notified  in   the  Gazette   by  the   State                Government in that behalf.                (2) A  dealer who requires any goods referred           to in  sub-section (1) for use as raw material for           the purposes  of manufacture in the State of Uttar           Pradesh of  any notified  goods, and such notified           goods are  intended to be sold by him in the State           or in  the course of inter-state trade or commerce           or in the course of export out of India, may apply           within such  period, and  in such form and manner,           as may  be prescribed,  to the assessing authority           for  the   grant  of  recognition  certificate  in           respect thereof  and if  the  applicant  satisfied           such  requirements   and  conditions   as  may  be           prescribed, the assessing authority shall grant to           the dealer  in respect of such goods a recognition           certificate in  such  form  and  subject  to  such           conditions as may be prescribed."      Sub-Rule 5 of Rule 25-A provides:                "25-A(5). The  recognition certificate  shall           ordinarily  be   issued  within  30  days  of  the           presentation of  the application  to the Sales Tax           Officer. If,  however, it  may not  be possible to           issue the  certificate within  the time  specified           above, the  Sales Tax  Officer  shall  obtain  the           approval of the Assistant Commissioner (Executive)           of his  range for  an  extension  of  time,  after           stating the  reasons for  which it is not possible           to issue the certificate in time. Such certificate           shall take effect from the date of its issue."                                       (underlining supplied)      In reaching  such conclusion on the point as it did the reasoning that commended itself to the High Court was this:           ".... The  efficacy of the recognition certificate           under clause  (a) aforesaid  becomes material  and           relevant at  the time of the quantification of the           purchase tax, i.e., when 266           the assessment  order is  being drawn up. It is in           the assessment  proceedings that  the liability to           pay tax  at a  concessional rate  is fructified. A           dealer would  be entitled to the concessional rate           if he holds a recognition certificate........."           "........ The language of clause (b) does not make           it a condition precedent or a necessary obligation           that the purchasing dealer must at the time of the           purchase produce  the recognition  certificate. If           the   purchasing   dealer,   subsequent   to   the           transaction of  purchase, furnishes to the selling           dealer the certificate that he holds a recognition           certificate, the  requirements of  clause (b)  are           fully satisfied."

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    The High  Court also  took into account that sub-Rule 5 of Rule  25-A while  rightly recognising  the need  for  the issue of the certificate with due despatch and within a time bound schedule,  could not, consistently with the scheme and purpose of  Section 4-B,  provide that the certificate shall take effect only from the date of its issue.      6. Shri Manchanda, learned Senior Advocate appearing in support of  the appeal,  contended that  the  interpretation placed by  the High  Court runs  in the teeth of the express statutory language  which stipulates that "the dealers holds a recognition  certificate" and the interpretation placed on it by  the High Court, if accepted, would have the effect of adding something to the language of the section which is not in the  Section. Learned  Counsel said  that the  High Court had, by  the judgment,  virtually introduced  a fiction that under certain  circumstances where there had been a delay in issuing the  certificate, the  dealer must be deemed to have held the certificate.      Shri Manchanda  submitted that  the clear intendment of the  provision   was  that   the  dealer   should  hold  the ’recognition-certificate’ at  the time  of the purchases and that it  would not be sufficient compliance with the statute if the  dealer comes to hold it subsequently. He accordingly commended the  view that found favour with the learned judge in the minority in the High Court.      We did  not have  the benefit of the arguments from the side of the respondent, which has remained unrepresented.      7. It  is  really  a  matter  of  construction  of  the language of Section 267 4-B;  whether   the  dealer   should  hold   a   recognition certificate at  the time  the purchases were made or whether the requirements  of the  ’Section  should  be  held  to  be satisfied  if   the  dealer   holds  such   a   "recognition certificate" at  the time  of the assessment of the turnover in question.  The High  Court has held that the requirements of the  Section  are  substantially  complied  with  if  the certificate is  available to  the dealer  at  the  time  the liability to tax of the turnover in question is sought to be determined, subject  to the requirement that the turnover is after the  date of  the application  filed by the dealer for issue of  a certificate.  According to  the High  Court, the date of  actual issue  of the certificate should not be held to be  material and  that the  benefit for  the concessional rate of tax should be available to the dealer if the dealer, at  the   time  of   the  assessment,  holds  a  recognition certificate "in  respect thereof’.  According  to  the  High Court the  language of  Section 4-B does support the extreme construction that the recognition certificate should be held at the time of the purchases themselves.      8. On a consideration of the matter we are persuaded to the view  that the  construction placed  on the provision by the High  Court is  an eminently  plausible  one.  There  is nothing basically  wrong in  the approach  of the High Court that  the  statutory  language  does  not  insist  upon  the contemporaneity of  the holding  of the certificate with the purchases  and   that  it   is  sufficient  if  the  dealer, subsequently,  comes   to  hold   certificate  "in   respect thereof". It  seems possible  to say  that to  insist upon a contemporaneity of  the purchases  and the certificate would also amount to qualifying the word ’holds’ in the section by adding the words "at the time of the purchases".      It is  true, the  words "in  respect thereof"  as  Lord Greene M.R.  said are  "colourless words",  See Trustees  v. IRC, [1946] 174 LT 133 but in Section 4-B, they are in their

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reference to  the  certificate,  sufficiently,  though  non- specifically wide  enough to  include a certificate obtained later but pertaining to the turnover in question. If this is the scheme  of Section  4-B in that it does not exclude from its contemplation  the efficacy  and  sufficiency,  for  its purpose of a certificate issued subsequently, then, the rule which compels  only its  prospective  operation  might,  not unreasonably, be  held to  be inconsistent  with and  ultra- vires of Section 4-B. We find therefore nothing unreasonable in this  construction of  Section 4-B.  Indeed by  the  1978 Amendment, this  position has  been made  clear in  the rule itself which,  after the  amendment, expressly provides that the certificate will take effect from the 268 date of  the application  made by  the dealer and not merely from the date of the issue.      9. In this view of the matter, the judgment of the High Court  does   not  call  for  interference.  The  appeal  is dismissed. However, there will be no order as to the cost. R.S.S.                                     Appeal dismissed. 269