Case: Union of India Vs. Commercial Tax Officer, West Bengal & Others

S.R. Das A.C.J.1. The only question canvassed before us in the above appeals, which have been heard together, is whether certain sales of goods made by Shri Ganesh Jute Mills, Ltd. (hereinafter referred to as the Mills) to the Government of India, Ministry of Industry and Supplies are to be deducted from the taxable turnover of the Mills so as to be exempt from sales tax demanded by the Commercial Tax Officer of the State of West Bengal. The relevant facts are stated below.2. On the first of September 1948 the Government of India, Ministry of Industry and Supplies, in Calcutta, placed with the Mills, a confirmatory order in writing bearing No. Cal/J - 1/2001/103 for the supply to the Government of India, of a large quantity of hessian cloth of different descriptions at different prices therein mentioned. It was stipulated that the contract would be governed by the conditions of contract specified in Form WSB 133 as amended up-to date. It was specifically mentioned that the goods ordered were required to meet an international obligation of the Government of India and as such the execution of the contract in accordance with the programme of deliveries as given in the schedule attached thereto was essential.The agreed prices were stated to be exclusive of the Bengal Sales Tax and it was stipulated that the Government of India would arrange direct payment of sales tax to the Government of West Bengal if it was ultimately found that Sales tax was payable in respect of the contract. Pursuant to the aforesaid contract, the Mills supplied goods to the Government of India of the aggregate value of Rs. 2,10,040 calculated at the prices agreed upon.3. The Commercial Tax Officer, Beadon Street, District II Charge, claimed that the aforesaid sales should be included in the taxable turnover of the Mills and assessed to sales tax. The Mills, on the other hand, claimed exemption under section 5 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941). The relevant portion of section 5 ran as follows : -"5. (1) The tax payable by a dealer under this Act shall be levied at the rate of one quarter of an anna in the rupee on his taxable turnover.2. In this Act the expression "taxable turnover" means that part of a dealers gross turnover during any period which remains, after deducting therefrom -(a) his turnover during that period on -(i) .....................(ii) ....................(iii) sales to the Indian Stores Department, the Supply Department of the Government of India, and, any railway or water transport administration.(iv) .................(v) .................(vi) ................(b) ..........................."The Mills further contended that if any sales tax was at all payable, the same was payable by the Government of India and not by them. The Commercial Tax Officer overruled both these objections and on 8-11-1950, he assessed the Mills to sales tax in respect of the supplies made by the Mills to the Government of India under the aforesaid contract and demanded a sum of Rs. 9,401-10-6.4. On 6-12-1950, the Mills filed a petition under Art. 226 of the Constitution of India before the High Court at Calcutta. In the petition the Mills impleaded as respondents the Commercial Tax Officer the State of West Bengal and the Union of India. The Mills prayed for a writ of Mandamus on the respondents to cancel and / or recall and / or for bear from acting or giving effect to the demand dated 8-11-1950 and from realising the sum of Rs. 9,401-10-6 and for a writ of certiorari for production of the records and proceedings before the Commercial Tax Officer and for quashing the same and for other incidental reliefs. On the same day a rule was issued on the respondents to show cause why the orders prayed for should not be made.5. The Commercial Tax Officer filed an affidavit in opposition disputing the contentions put forward by the Mills in support of their claim for exemption and maintaining that sales tax was due and had been legitimately assessed and demanded. On behalf of the Union of India was filed an affidavit affirmed by one M. P. Pai, the then Joint Secretary in the Ministry of Works, Production And Supply.It was therein stated that a department of the Government of India named the Department of Supply came into existence in the month of September 1939 immediately on the commencement of the World War II and before the enactment of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941). It was averred that before 7-1-1948 the said Department of Supply was charged with the procurement of Stores from all places in India including Bengal and that it also directed the work of Indian Stores Department in the United Kingdom and of the India Supply Mission in the United States of America.It was added that by Resolution No. 227/45-Pub (c) dated 31-12-1945 the Governor-General in Council announced the creation with effect from 7-1-1946 of the Department of Industries and Supply in place of the existing Department of Supply and of Industries and Civil Supplies. It was claimed that the powers and functions of the Department of Industries and Supplies were the same as those of the Department of Supply and that there was no variation in the nature of the said functions whatsoever.6. The rule came up for hearing before Bose, J., who took the view that the newly created Department of Industries and Supplies was charged with the same work of procurement of stores for Government as had been entrusted to the Department of Supply and certain additional works and that later on the name was again changed to Ministry of Industry and Supply.The learned Judge pointed out that although there was a change in the designation of the Indian Stores Department and the Supply Department of the Government of India S. 5(2) (a) (iii) was not amended in any way until 1949 when by an amending Act (West Bengal Act X of 1949) the exemption granted under S. 5(2), (a) (iii) was withdrawn. The learned Judge appears to have regarded this continuance of S. 5(2) (a) (iii) in the Bengal Finance (Sales Tax) Act, 1941 as indicative of the fact that in view of the State of West Bengal the Ministry of Industry and Supply was the same as the India Stores Department and the Supply Department of the Government of India referred to in the section.The learned Judge accordingly held that the Mills were entitled to the benefit of the exemption and were not liable to pay sales tax in respect of the supplies in question. He accordingly, on 3-1-1952, made the rule absolute.7. The Commercial Tax Officer and the State of West Bengal went up on appeal from the said judgement and order of Bose J. The appeal came up for hearing before a Bench consisting of K. C. Das Gupta, J, and P. N. Mookerjee, J. In separate but concurring judgement both the learned judges rejected the preliminary objection taken by the Mills and the Union of India as to the maintainability of the appeal.On the merits both of them held that the Department of Industries and Supplies was not the same as the Indian Stores Department or the Supply Department of the Government of India. The old departments ceased to exist and a new department combining some of the functions was created and that, therefore sales to the newly created department could not be deducted from the taxable turnover under S. 5 (2) (a) (iii).In the result, the Appeal Court allowed the appeal with costs, set aside, the order of Bose, J. and dismissed the application of the Mills under Art. 226. The Mills as well as the Union of India have now come up on appeal before us with a certificate of fitness granted by the High Court.8. In view of the decision of this Court in National Sewing Thread Co., Ltd. V. James Chadwick and Bros Ltd., AIR 1953 SC 357 (A) the question of maintainability of the appeal before the High Court has not been raised before us. The appeals have been fought out on the merits only.9. The appeal came up before this Court for hearing on the 22nd and 23rd September 1955. After going through the records it was felt that the materials on record were not sufficient to enable the Court to determine the real point of controversy between the parties. The appeals were accordingly adjourned and directions were given for the filing of supplementary affidavits setting out the facts relied on by the parties respectively. Fresh affidavit have since been filed.10. It appears from the affidavit of one A. R. Iyer, Deputy Director, Directorate General of Supplies and Disposals, under the Ministry of Works, Housing and Supply that in 1918 a department called the Contracts Directorate had been constituted as a purchasing organisation for the needs of the Army. With effect from 1-1-1922 the Indian Stores Department was constituted as a result of the recommendations of the Stores Purchase Committee. The functions of this department were to act as a purchasing and inspection agency in respect of certain commodities including textile goods for all Central departments and minor Local Governments and such other authorities as might desire to avail themselves of the service of this department.Annexure III of the affidavit of Iyer indicates that is was not obligatory on the other departments to make purchase through the Indian Stores Department, Originally this department was constituted for a period of two years but by Resolution No. S. 217 of the Government of India, dated 6-5-1924, it was placed on a permanent basis and continued to discharge the same functions. Rules 5 to 6 attached to this Resolution show that purchases could also be made locally by other departments in case of emergency or for convenience.11. In 1939 when the outbreak of World War II was imminent the necessity for creating a new department was keenly felt and the Governor-General in Council by a Resolution of the Home Department dated 26-8-1939 (Annexure V to Iyers affidavit) announced the creation from that date of a department of Supply "to deal directly with questions concerning supplies of all kinds required for the prosecution of war." Annexure VIII to Iyers affidavit shows that the control of the Indian Stores Department and all other matters relating to the purchase of stores in India which were being then dealt with in the Department of Commerce were to be dealt with in the department of Supply as a temporary measure for the duration of the war. That the Indian Stores Department and the Contracts Directorate did not lose their identity is shown by the Officer Memorandum dated 3-8-1940 (Annexure X, Clause 4) and Officer Memorandum dated 2-12-1941 (Annexure XI, Clause 1 (a) and Clause 4).It is thus clear that up to the end of the year 1940 purchases used to be made for and on account of the Government of India by the Contracts Directorate, the Indian Stores Department and the Department of Supply and that purchases were also made locally by other departments. It was then that on 1-7-1941 the Bengal Legislature passed the Bengal Finance (Sales Tax) Act, 1941 which by S. 5 (2) (a) (iii) exempted sales to the Indian Stores Department, the Supply Department of the Government of India and any railway or water transport administration from sales tax. Sales to other departments of the Government of India were not so exempted.12. By a Press Note dated 2-9-1941 issued by the Government of India in the Supply Department (Annexure XIII to Iyers affidavit) a purchase branch of the Supply Department for the duration of the war was created with effect from 1-8-1941 and it shows that the Contracts Directorate, and the Indian Stores Department had then "ceased to exist as separate entities" for the duration of the war and a new branch was being organised in their place.13. Then came the Office Memorandum dated 23-12-1941 issued by the Government of India in the Department of Supply (Annexure XIV) which superseded the previous office memorandum dated 13-12-1940 (Annexure XIII). The authorities under the Central Government concerned with the production, manufacture and purchases of supplies were shown in statement I annexed thereto.It is clearly mentioned therein that departments other than the ones referred to therein were and, in the absence of orders to the contrary, would remain independent of the department though working in close touch with it (Clause 3). Powers of local purchase were also not disturbed in any way (Clause 4). Statement I indicates that purchases of various supplies, e. g., medical and veterinary supplies, coal and coke for Railway and other civil and military authorities in India, etc., and Printing and Stationary stores, were independent of the Supply Department.It is thus clear that the Indian Stores Department and the Supply Department of the Government of India were not the only departments which had authority to make purchases for and on behalf of the Government of Indian in its various departments.14. On 21-4-1943 came Notification No. 209 - No. 107/43 - Pub (c) whereby the Governor-General in Council announced the creation from 22-4-1943, of a Department of Industries and Civil Supplies to deal with (i) statistics and Research, (ii) Development and (iii) Controls. Shortly thereafter Office Memorandum No. E4 (179) dated 14-5-1943 issued by the Department of Supply intimated that the Governor - General in Council had decided that the Department of Industries and Civil Supplies would, with effect from 15-5-1943, take over responsibility for the procurement of cotton textiles and cotton textile stores (Annexure XVI to Iyers affidavit). So this Department of Industries and Civil Supplies became another purchasing organisation of the Government of India apart from the Department of Supply.15. The Government of India Resolution dated 31-12-1945 announced the creation, with effect from 7-1-1946, the Department of Industries and Supplies in place of the existing Department of Supply and the Department of Industries and Civil Supplies. By this Resolution, the Indian Stores Department and the Contracts Directorate which during the war had been brought under the Supply Department were incorporated in the newly created department.It will be noticed that this newly created department had assigned to it the work of the procurement of stores for the Government of India which was formerly assigned to the Department of Supply and the Department of Industries and Civil Supplies. In addition to these duties this department was authorised also to deal with other things, namely, development of industries, administration of Government factories not allocated to specialised departments, Disposals of Surplus and Civil Supplies.The nature and volume of the purchases made by the newly created department became obviously different from and larger than those of the two departments it replaced. It is also noteworthy that the Department of Supply which was created for the prosecution of war was abolished as soon as the war was over (Annexure XVII to the affidavit of Iyer).16. The Resolution of the Government of India dated 2-9-1947 published in the Gazette of India dated 6-9-1947 (Annexure XVIII) announced, amongst other things, that with effect from 29-8-1947 the Department of Industries and Supplies would be re-designated as the Ministry of Industries and Supply.17. From the summary of the annexures to the affidavit of Iyer filed in these proceedings it is quite clear that while the Ministry of Industries and Supply was a new designation of the Department of Industries and Supplies, the Department of Industries and Supplies cannot be regarded merely as a new designation of the Department of Supply and the Department of Industries and Civil Supplies.Indeed the Resolution announced the "creation" of the Department of Industries and Supplies in place of the two existing departments mentioned above.This newly created department had wider powers and was a new department altogether. The exemption granted by the Bengal Finance (Sales Tax) Act, 1941 was given to two departments by name. It was not given to the sales to the Government of India in all its departments.It is true that the Indian Stores Department and the Supply Department of the Government of India were not corporate bodies but they evidently were sufficiently well defined organizations to be referred to as "entities" in some of the press Notes and Resolution mentioned above and even in the affidavit filed in these proceedings. Further, the Bengal Finance (Sales Tax) Act, 1941 by S. 5 (2) (a) (iii) certainly dealt with these two departments as if they were distinct entities. The Act, in a manner conferred on these two departments the status, as it were, of well defined and distinct entities at least for the purpose of that Act, namely for making sales to them exempt from the tax. If it were the object of the Bengal Legislature to give exemption to all sales to all departments of the Government of India it would have been quite easy for it to frame sub-clause (iii) in a general way as sub-clause (iv) had been framed.Further, if sales to these two departments were to be regarded as covering sales to all departments of the Government of India than the sales to the Railways which at that time mostly, if not wholly, belonged to the Government of India, need not have been separately mentioned in the way it has been in sub-clause (iii). As already stated, there were, at the date when the Act was passed, various other departments of the Government of India which were concerned with purchase of stores but quite clearly the exemption conferred by the section was not intended to extend to the sales to those departments. Therefore, the reference to these two particular departments in the section cannot possibly be read as a reference to the Government of India generally.18. It has been urged that the real object of S. 5(2) (a) (iii) was to give exemption not to the particular departments but to the sales of such goods as, at the date of the Act, used to be made to those departments and, therefore, sales of those goods made to any department of the Government of India which came to be charged with the duty of purchasing those goods should also come within the purview of the section and be entitled to the benefit of the exemption conferred by it.We are unable to accept this line of reasoning. This interpretation will unduly narrow the scope and ambit of the exemption by limiting it to sales of only those goods as, at the date of the Act, used to be sold to those two departments and sales of other goods even to those two departments, however, necessary for the prosecution of the war, would not get the benefit of the exemption. Such could not possibly be the intention of the legislature as expressed by the language used by it in framing the section.According to the section, the exemption is given to all sales made to those two departments, no matter whether the sales were only of the kind of goods which used to be sold to them at the date of the Act or of other kinds of goods. The suggested interpretation involves the addition of qualifying words to the section which ordinarily it is not permissible for the Court to do.Further, the press notes and the resolutions of the Government of India summarised above clearly indicate that there were other purchasing departments which were independent of the Indian Stores Department or the Supply Department of the Government of India and that the authority of other departments of making local purchases was no interfered with by the creation of these two departments.Therefore, it may well have been that, at the date of the passing of the Act, same or similar kinds of goods used to be sold to these two departments as well as to other departments but surely it cannot be contended, in view of the language of the section, that the exemption was intended to extend to the sales of the same or similar kinds of goods to those other departments also.It is not necessary for us to pronounce any opinion as to the validity or soundness of the extreme position taken up by the learned Advocate-General of West Bengal namely that as the exemption is given by a statute to sales made to two departments co-nominee it will not extend to sales made to the same department re-designated by a new name.It is enough for our present purpose to say that the Department of Industries and Supplies which was subsequently re-designated as the Ministry of Industries and Supply was not the same as the Indian Stores Department or the Supply Department of the Government of India under a different name.The scope and volume of the work entrusted to the Department of Industries and supplies was much wider and larger than that with which the two departments which it replaced had been charged.Unlike those of the two departments, its purchases were not confined to goods necessary for the prosecution of the war.To extend the benefit of the statutory exemption to the sales made to the newly created department of Industries and Supplies, of goods not required for war purposes but, say, for meeting international obligations as in the present case, will necessarily widen the scope of the exemption and impose greater loss of revenue on the State of West Bengal than what the Act by its language intends to do.In view of the ever expanding activities of the modern welfare State in different fields including that of trade and commerce, the Government departments are often entrusted with the performance of well defined activities and are authorised to deal with the outside world and to enter into contracts of sale and purchase and other transactions in the same way as an ordinary person or company may do.Such Government departments, therefore, may well be regarded as distinct units or quasi legal entities, at least for the particular purposes for which they are created. At any rate, the Bengal Finance (Sales Tax) Act 1941 by providing for the deduction of the sales to the two named departments from the taxable turnover certainly treated those two departments as distinct entities.This exemption is the creation of the statute and must be construed strictly and cannot be extended to sales to other departments. The fact that the section was not amended until 1949 does not at all indicate that the Bengal Legislature intended to extend the benefit of the section to any but the departments specifically mentioned in the section.

Decision:
1[ds]Further, if sales to these two departments were to be regarded as covering sales to all departments of the Government of India than the sales to the Railways which at that time mostly, if not wholly, belonged to the Government of India, need not have been separately mentioned in the way it has been in(iii). As already stated, there were, at the date when the Act was passed, various other departments of the Government of India which were concerned with purchase of stores but quite clearly the exemption conferred by the section was not intended to extend to the sales to those departments. Therefore, the reference to these two particular departments in the section cannot possibly be read as a reference to the Government of Indiaare unable to accept this line of reasoning. This interpretation will unduly narrow the scope and ambit of the exemption by limiting it to sales of only those goods as, at the date of the Act, used to be sold to those two departments and sales of other goods even to those two departments, however, necessary for the prosecution of the war, would not get the benefit of the exemption. Such could not possibly be the intention of the legislature as expressed by the language used by it in framing the section.According to the section, the exemption is given to all sales made to those two departments, no matter whether the sales were only of the kind of goods which used to be sold to them at the date of the Act or of other kinds of goods. The suggested interpretation involves the addition of qualifying words to the section which ordinarily it is not permissible for the Court to do.Further, the press notes and the resolutions of the Government of India summarised above clearly indicate that there were other purchasing departments which were independent of the Indian Stores Department or the Supply Department of the Government of India and that the authority of other departments of making local purchases was no interfered with by the creation of these two departments.Therefore, it may well have been that, at the date of the passing of the Act, same or similar kinds of goods used to be sold to these two departments as well as to other departments but surely it cannot be contended, in view of the language of the section, that the exemption was intended to extend to the sales of the same or similar kinds of goods to those other departments also.It isenough for our present purpose to say that the Department of Industries and Supplies which was subsequentlyredesignated as the Ministry ofIndustries and Supply was not the same as the Indian Stores Department or the Supply Department of the Government of India under a different name.The scope and volume of the work entrusted to the Department of Industries and supplies was much wider and larger than that with which the two departments which it replaced had beenGovernment departments, therefore, may well be regarded as distinct units or quasi legal entities, at least for the particular purposes for which they are created. At any rate, the Bengal Finance (Sales Tax) Act 1941 by providing for the deduction of the sales to the two named departments from the taxable turnover certainly treated those two departments as distinct entities.This exemption is the creation of the statute and must be construed strictly and cannot be extended to sales to other departments. The fact that the section was not amended until 1949 does not at all indicate that the Bengal Legislature intended to extend the benefit of the section to any but the departments specifically mentioned in the