Civil Appeals Nos 334 335 and 338 of 1965
Appeals by Special Leave from the judgment and orders dated January 1 1963 November 7 1962 and November 4 1963 of the Madras High Court in Tax Case No 170 of 1961 Civil Revision Petition No 105 of 1961 and Tax Case No 153 of 1963 respectively
Bishan Narain and A V Rangam for the appellants in CAs
Nos 334 and 335 of 1965
AV Rangam for the appellant in CA No 3381965
KR Chaudhuri for the respondent in C
A No 3341965
N D Karkhanis OC Mathur JB Dadachanji and Ravinder Narainfor the respondents in CAs
Nos 335 and 3381965
The Judgment of the Court was delivered by Shah J
This is a group of appeals filed by the State of Madras against orders passed by the High Court of Judicature at Madras which raises the following common question as to applicability of concessional rate of sales tax to transactions of inter State sale and taxable under the  When a purchasing dealer in one State furnishes in Form C  prescribed under the Central Sales Tax Registration  Turnover Rules 1957 to the selling dealer in another State a declaration certifying that the goods ordered purchased or supplied are covered by the certificate of registration obtained by the purchasing dealer in Form B  prescribed under r 51 of the Central Sales Tax Registration  Turnover Rules 1957 and that the goods are intended for resale or for use in manufacture of goods for sale or for use in the execution of contracts or for packing of goods for resale and that declaration is produced by the selling dealer is it open to the Sales Tax authority under the Central Sales ax Act to deny to the selling dealer the benefit of concessional rates under section 81 of the  200 on the view that the certificate in Form C  mentions more purposes than one for which the goods are intended to be used or that the goods are incapable of being used for the purpose for which they are declared to be purchased or that the goods are applied for some other purpose not mentioned in the certi ficate in Form C  We may briefly set out the facts which give rise to two out of the appeals Civil Appeals Nos 334  335 of 1965
Civil Appeal No 334 of 1965
Ms Radio  Electricals Ltd respondents in this appeal on business in the State of Madras in electrical equipment and are registered as dealers under the 
The Bombay State Electricity Board Saurashtra Division which is engaged in the production of electric energy purchased transformers and other goods of the total value of Rs 142020 from Ms Radio  Electricals Ltd and the latter claimed in proceeding for assessment for Central sales tax for the year 1957 58 that they were liable to pay tax at the rate of 1 per cent on the turnover under section 81 of the 
The Deputy Commercial Tax Officer rejected the claim on the ground that the Bombay State Electricity Board was not a dealer engaged in selling goods and merely because they held a registration certificate the goods sold to the Board could not be admitted to the concessional rate of tax under section 81 of the Act
The Appeal late Assistant Commissioner of Commercial Taxes confirmed the order on the ground that transformers and other goods purchased by the Electricity Board for use in the production of electrical energy were not intended to be used in the manufacture of goods for sale within the meaning of section 83 b of the Central Sales Tax  Act because electricity was not at the material time goods within the meaning of the Act
The order passed by the Appellate Assistant Commissioner was confirmed by the Sales Tax Appellate Tribunal Madras
The High Court following an earlier judgment in Deputy Commissioner of Commercial Taxes Madras Division vs Manohar Brothers1 modified the order holding that if the selling dealer within the State produces a certificate in Form C  setting out one or more of the purposes in section 83b of the Act and if the Sales Tax authorities on behalf of the State do not deny that the purchasing dealer is a registered dealer the selling dealer will not be denied the concessional rate of tax under the Act even if it transpires that the purchasing dealer has utilised the goods for purposes other than those mentioned in the certificate of registration
The High Court then held that out of the certificates in Form C  produced by the selling dealer certificates in respect of a turnover of Rs 42080 set out the purpose as manufacture of electrical energy and since this was not one of the purposes mentioned in section 83b of the Act as it stood at the relevant time the Sales Tax authority was right in denying the benefit of the rate under section 8 1 to the assessee but with regard to a turnover of 1 13 STC 686
201 Rs 47340 the Sales Tax authority was bound to accept the certificates in Form C  produced by the assessee even though the certificates contained all the purposes mentioned in the prescribed form and no purpose was struck out
The facts which give rise to Civil Appeal No 335 are these Ms Stanes Motors South India Ltd respondents in this appeal are dealers in automobiles tractors and spare parts
For the year 1957 58 they claimed benefit of concessional rates under section 81 on a turnover of Rs 13857212 resulting from sale of tractors supplied to certain tea factories in the State of Kerala
The purchasing dealers who were four tea factories registered as dealers under the Act delivered to the respondents certificates in Form C  declaring that the tractors purchased by them were in
tended for use in the manufacture of tea for sale
In the view of the Tax Officer benefit of the concessional rate could not be claimed in respect of those sales since the tractors were not for resale and the tractors were not directly relatable to the manufacturing process
In appeal the order passed by the Tax Officer was confirmed by the Appellate Assistant Commissioner
He held that the tractors which were used for transporting tea leaves from the plantations to the factories cannot be said to be used in the manufacture of goods for sale
In appeal to the Sales Tax Appellate Tribunal it was held that the respondents were entitled to the concessional rate in respect of sales to two out of the four factories which held certificates of registration in Form B  specifying machinery as one of the items under section 83b
The High Court of Madras confirmed the order passed by the Tribunal in exercise of its revisional jurisdiction
Counsel for the State of Madras contends that the Commercial Tax Officer is invested with authority under the Act to scrutinise the transactions in respect of which the claim to concessional rate of tax is made and he is competent to ascertain not only whether the certificate in Form C  is genuine but whether the certificate is valid in law whether the purchasing dealer holds a valid certificate of registration in Form B  whether the goods specified in the purchasing dealer s certificate can be used for the purpose mentioned in the certificate in Form C  and whether the goods were applied for the purpose for which they were purchased
Counsel also submitted that a certificate in Form C  which specifies more purposes than one for which the goods are intended to be used by the purchasing dealer is invalid
We may in the first instance set out the relevant Provisions of the Act and the Rules
The 74 of 1956 was enacted by the Parliament to formulate principles for determining when a sale or purchase of goods takes place in the course of inter
State trade or commerce or outside a State or in the course of import into or export from India
By Ch
11 principles for determining when a sale or purchase of goods takes place in the course of 202 inter State trade or commerce or outside a State or in the course of import or export are enacted
Chapter III deals with inter State sales tax
By section 6 liability is imposed upon every dealer to pay tax under the Act on all sales effected by him in the course of interState trade or commerce during any year
Section 7 provides for registration of dealers
Section 8 as originally enacted provided 1 Every dealer who in the course of inter State trade or commerce sells to a registered dealer goods of the description referred to in sub section 3 shall be liable to pay tax under this Act which shall be one per cent of his turnover Provided that if under the sales tax law of the appropriate State the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumstances or is subject to tax by whatever name called at a rate or rates which is or are lower than the rate specified in sub section 1 the tax payable under this Act on the turnover in relation to the sale of such goods in the course of inter State trade or commerce shall be nil or shall be calculated at the lower rate as the case may be
2    3 The goods referred to in sub section 1 a in the case of declared goods are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him and b in any other case are goods of the class or classes 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 manufacture of goods for sale or for use by him in the execution of any contract and in either case include the containers or other materials used for the packing of goods of the class or classes of goods so specified
Explanation 
4 The provisions 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 declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars con a prescribed form obtained from the prescribed authority
5 With effect from October 1 1958 by Act 31 of 1958 section 8 was extensively amended but we are in these appeals not concerned with the statute as amended
203 Section 10 provides for penalties
The section at the material time provided If any person a fails to get himself registered as required by section 7 or b being a registered dealer falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration  or c not being a registered dealer falsely represents when purchasing goods in the course of inter State trade or commerce that he is a registered dealer or d after purchasing any goods for any of the purposes specified in clause b of sub section 3 of section 8 fails without reasonable excuse to make use of the goods for any such purpose e has in his possession any form prescribed for the purpose of sub section 4 of section 8 which has not been obtained by him or by his principal or by his agent in accordance with the provisions of this Act or any rules made thereunder he shall be punishable with simple imprisonment
Section 14 deals with declared goods in respect of which by section 81 read with section 83a the concessional rate of tax applies when the goods are purchased as being intended for resale
Reading section 81 with section 83b it is clear that the Legislature intended to grant the benefit of concessional rates of tax under the Act to registered dealers provided that the goods sold were of the class or classes specified in the certificate of registration of the purchasing dealer and the goods were intended to be used for resale by him or for use in the manufacture of goods for sale or for use in the execution of contracts or for packing of goods for resale
In exercise of the power under section 13 the Central Government made rules called The Central Sales Tax Registration  Turnover Rules 1957
Rules 3 to 8 provide for registration and issue of certificate of registration
Rule 51 provides that when the notified authority is satisfied after making such enquiry as it thinks necessary that the particulars contained in the application are correct and complete it shall register the dealer and grant him a certificate of registration in Form B  and also a copy of such certificate for every place of business within the State other than the principal place of business mentioned therein
The material part of Form B  is as follows This is to certify that   whose principal place of business within the State of   is situated at     204 has been registered as a dealer under section 7172 of the 
The business is wholly mainly partly partly partly The classes of goods specified for the purpose of sub section 1 of section 8 of the said Act is are as follows and the sales of these goods in the course of inter State trade to the dealer shall be taxable at the rate specified in that subsection subject to the provisions of sub section 4 of the said section a For resale b For use in manufacture c For use in the execution of contracts
The dealer s year for the purpose of accounts runs from  day of   to the  It    Rules 9  10 deal with cancellation of registration and Rules 1 1  12 deal with determination of turnover
By r 12 the declaration referred to in sub section
3 of section 8 of the Act has to be in Form C  consisting of three sections a counterfoil a duplicate and the original
The duplicate section of the Form which in terms is identical with the original section is as follows Form C  Form of Declaration See rule 12
to be used at the time of making purchases from out of State sellers
Name of issuing State    
Issued to holder of Registration Certificate No 
Serial No   To       Seller   
Certified that the goods Ordered for in our purchase order No dt Purchased from you as per billcash memostated below
Supplied under your chalan No  dated  are for resale use in manufacture of goods for saleuse in the execution of contractspacking of goods for resale
205 and are covered by my our registration certificate No dated issued under the 
Name of the purchasing dealer in full
     Signature and status of the person sigming the declaration
Particulars of BillCash Memo Dated No Amount Strike out whichever is not applicable
Note To be retained by the selling dealer
The Scheme of the Rule read with the Act is that the pur chasing dealer as well as the selling dealer must register themselves under the 
If declared goods are specified in the certificate of registration of the purchasing dealer and if it be certified that the goods are intended for resale by him the sale is subject to concessional rate of tax under section 81
In respect of sales of other classes of goods specified in the certificate of registration of the purchasing dealer if the goods are purchased either for resale by him or for use in manufacture of goods for sale or for use in the execution of contracts the concessional rate of tax is available provided the selling dealer obtains from the purchasing dealer the declaration in the prescribed form duly filled in and signed by the latter containing the particulars that the goods are ordered purchased or supplied under a certain specific order bill or cash memo or chalan for all or any of the purposes mentioned and that the goods are covered by the registration certificate of the purchaser described therein and issued under the Act
If the certificate is defective in that it does not set out all the details or that it contains false particulars about the order bill cash memo or chalan or about the number and date of the registration certificate and specifications of goods covered by the certificate of the purchasing dealer the transaction will not be admitted to concessional rates
Now in certain certificates in Form C  furnished by the purchasing dealer in this group of appeals all the alternatives in the printed form were retained and in others one or more but not all the alternatives were retained
Counsel for the State of Madras urged that a certificate in Form C  is defective unless it specifies only one purpose for which the goods purchased are intended to be used
But that contention is not borne out by the Act and the Rules
Goods may be sold to a purchasing dealer under a single order bill cash memo or chalan one part to be used for resale another to be used in the execution of contracts and the rest ill manufacture of goods for sale but it is not enacted that separate certificates should be issued each relating to the quantity intended to be used for a specified purpose
A purchasing dealer may again be carrying on business as a manufacturer as a building installation or repair contractor and as a dealer in goods and if he purchases goods specified in his certificate but without making up his 206 mind about the precise purpose for which the goods will be used provided it is one of the purposes he will still be complying with the statutory requirements if he declared in Form C  that the goods are purchased for more than one purpose
The Act and the Rules do not impose an obligation upon the purchasing dealer to declare that goods purchased by him are intended to be used for one purpose only even though under his certificate of registration he is entitled to purchase goods of the classes mentioned in section 83b for more purposes than one
When the purchasing dealer furnishes a certificate in Form C  without striking out any of the four alternatives it is a representation that the goods purchased are intended to be used for all or any of the purposes and the certificate complies with the requirements of the Act and the Rules
The Sales Tax authority is of course competent to scrutinise the certificate to find out whether the certificate is genuine
He may also in appropriate cases when he has reasonable grounds to believe that the goods purchased are not covered by the registration certificate of the purchasing dealer make an enquiry about the contents of the certificate of registration of the purchasing dealer
But it is not for the Tax Officer to hold an enquiry whether the goods specified in the certificate of registration of the purchaser can be used by him for any of the purposes mentioned by him in Form C  or that the goods purchased have in fact not been used for the purpose declared in the certificate
The authority issuing the certificate under r 51 as expressly stated in the rule has before issuing a registration certificate to be satisfied after making such enquiry as it thinks necessary that the particulars contained in the application are correct and complete
The enquiry would obviously be made in the light of the nature of the business and goods which are likely to be needed either for resale or for use in the manufacture of goods for sale or for use in the execution of contracts
Satisfaction which is contemplated by r 5 is objective and may be arrived at upon a quasijudicial enquiry
This Court has in several cases had occasion to consider the legality of orders of the notified authority refusing to grant certificates of registration in Form B  in respect of cer tain classes of goods which it was claimed by the tax payer were necessary for the purpose of his business and were therefore requested to be specified in the certificate of registration eg Indian Copper Corporation Ltd vs Commissioner of Commercial Taxes Bihar  Others1 and J K Cotton Spinning  Weaving Co Ltd vs The Sales Tax Officer Kanpur  Another1
On the plain words used in section 7 and the Rules it is contemplated that the certificate of registration may only be issued after an objective satisfaction by the notified authority that the specified goods are likely to be needed for the purpose of the business of the registered dealer and that satisfaction is open to challenge in an appropriate proceeding before the High Court and even before this Court
Correctness or 1 STO 259
2  16 STC 563
207 propriety of satisfaction of the notified authority in issuing the certificate in Form B  that the goods are likely to be required for the purpose of the business would not however be again open to challenge before another taxing authority in proceedings for assessment of tax
If therefore goods are specified in the certificate of registration in Form B  it is not open when a claim is made in respect of the purchases of those goods for the application of concessional rate of tax to the Sales Tax Officer to deny to the selling dealer of those goods the benefit on the ground that the goods specified cannot be used by the purchasing dealer for the purpose of his busi ness
It is open to the Tax Officer to ascertain whether the goods in respect of which a claim for concessional rate is made are specified in the certificate of registration but if the class of goods is included in the certificate of registration in Form B  he cannot say that the class of goods should not have been specified
The Act seeks to impose tax on transactions amongst others of sale and purchase in inter State trade and commerce
Though the tax under the Act is levied primarily from the seller the burden is ultimately passed on the consumers of goods because it enters into the price paid by them
Parliament with a view to reduce the burden on the consumer arising out of multiple taxation has in respect of sales of declared goods which have special importance in inter State trade or commerce and other classes of goods which are purchased at an intermediate stage in the stream of trade or commerce prescribed low rates of taxation when transactions take place in the course of inter State trade or commerce
Indisputably the seller can have in these transactions no control over the purchaser
He has to rely upon the representations made to him
He must satisfy himself that the purchaser is a registered dealer and the goods purchased are specified in his certificates but his duty extends no further
If he is satisfied on these two matters on a representation made to him in the manner prescribed by the Rules
and the representation is recorded in the certificate in Form C  the selling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used
If the purchasing dealer misapplies the goods he incurs a penalty under section 10
That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer
The selling dealer is under the Act authorised to collect from the purchasing dealer the amount payable by him as tax on the transaction and he can collect that amount only in the light of the declaration mentioned in the certificate in Form C 
He cannot hold an enquiry whether the notified authority who issued the certificate of registration acted properly or ascertain whether the purchaser notwithstanding the declaration was likely to use the goods for a purpose other than the purpose mentioned in the certificate in Form C 
There is nothing in the Act or the Rules 208 that for infraction of the law committed by the purchasing dealer by misapplication of the goods after he purchased them or for any fraudulent misrepresentation by him penalty may be visited upon the selling dealer
Counsel for the appellant contended that the view expressed by the High Court in the judgments under appeal was in any case erroneous because they held that a C  Form certificate produced by the selling dealer is conclusive of the right to the concessional rate of tax and that no enquiry whatever may be made by the assessing authority
He invited our attention to the following passage from the judgment which is under appeal in Civil Appeal No 335 of 1965  We are of the opinion that whether or not the goods were in fact used for the stated purposes or even usable for such a purpose so long as the purchasing dealer has furnished the required declaration to the selling dealer the selling dealer becomes under law entitled to the benefit of section 81 of the Act
It is no function of the selling dealer to enter into a judicial examination of whether the goods are in fact used or usable for the manufacture or processing of goods for sale by the purchasing dealer
The purchasing dealer declares that they are required for such a purpose and are further so specified in his form of registration granted by the sales tax authorities
It is not the function of the selling dealer to enquire whether the requirement of the purchasing dealer is bona fide or even is or is not within the certificate
of registration of that dealer
 It is implicit in the context in which these observations occur that if the purchasing dealer holds a valid certificate specifying the goods which are to be purchased and furnishes the required declaration to the selling dealer the selling dealer becomes on production of the certificate entitled to the benefit of section 81
It is of course open to the sales tax authority to satisfy himself that the goods which are purchased by the purchasing dealer under certificate in Form C  are specified in the purchasing dealer s certificate in Form B 
Observation of the High Court that the selling dealer may not enquire whether the requirement is not within the certificate of re gistration of the purchasing dealer is not accurate
But whether the goods specified in the registration certificate in From B  can be used for the purpose is not for the selling dealer to determine
That is a matter which has already been determined by the notified authority issuing the certificate of registration
Appeal No 334 therefore fails and is dismissed with costs
In Appeals Nos 335  338 the respondent is the same assessee and common questions for different periods are raised
These appeals also fail and are dismissed with costs
One hearing fee
Appeals dismissed


Summary:
The assessees carried on business in the State of Madras and were registered dealers under the 
In proceedings for assessment for central sales tax for the year 1957 58 the assessees claimed that they were liable to pay tax at the concessional rate of tax on the turnover under sec
81 of the Act where sales were made by them to registered purchasing dealers who furnished declaration in Form C
The common question considered in these appeals was When a purchasing dealer in one State furnishes in Form C  prescribed under the Central Sales Tax Registration  Turnover Rules 1957 to the selling dealer in another State a declaration certifying that the goods ordered purchased or supplied are covered by the certificate of registration obtained by the purchasing dealer in Form B  prescribed under r 51 of the Central Sales Tax Regis tration  Turnover Rule  1957 and that the goods are intended for resale or for use in manufacture of goods for sale or for use in the execution of contracts or for packing of goods for resale and that declaration is produced by the selling dealer is it open to the Sales Tax authority under the to deny to the selling dealer the benefit of concessional rates under section 81 of the  on the view that the certificate in Form C  mentions more purposes than one for which the goods are intended to be used or that the goods are incapable of being used for the purpose for which they are declared to be purchased or that the goods are applied for some other purpose not mentioned in the certificate in Form C  HELD The Act and the Rules do not impose an obligation upon the purchasing dealer to declare that goods purchased by him are intended to be used for one purpose only even though under his certificate of registration in Form B  he is entitled to purchase goods of the classes mentioned in section 83 b for more purposes than one
When the purchasing dealer furnishes a certificate in Form C without striking out any of the four alternatives it is a representation that the goods purchased are intended to be usedfor all or any of the purposes and the certificate complies with the requirements of the Act and the Rules
The Sales Tax Officer may scrutinise the certificate to find out whether it is genuine and may also examine the registration certificate of the purchasing dealer
to see if the goods are covered by it
But it is not for him to hold an enquiry whether the goods specified in the certificate of registration of the purchaser can be used by the purchasing dealer for any of the purpose mentioned in Form C 
or whether they should have been specified in the registration certificate or even that the goods purchased have in fact not been used for the purpose declared in the certificate
2O6 B D 199 It is contemplated in sec
7 and the Rules that the certificate of registration may only be issued after an objective satisfaction by the notified authority that the specified goods are likely to be needed for the purpose of business of the registered dealer and that satisfaction is open to challenge in an appropriate proceeding before the High Court and even before this Court
Correctness or propriety of satisfaction of the notified authority in issuing the certificate in Form E  that the goods are likely to be required for the purpose of the business would not however be again open to challenge before another taxing authority in proceedings for assessment of tax
206 G 207 B
Indian Copper Corporation Ltd vs Commissioner of Commercial Taxes Bihar  Others 16 STC 259 and JK Cotton Spinning Another 16 STC 563 referred to