IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 18054/2004 COMMISSIONER OF SALES TAX ...Petitioner through Mr. M.K. Aurora, Adv. Versus JAGANNATH DUDADHAR ...Respondent through Mr. Randhir Chawla with Mr. Abhar E., Advs. for Respondent No.2 Date of Hearing : 12th January, 2007 WITH W.P.(C) 11487/2005 JAGANNATH DUDADHAR ...Petitioner through Mr. Randhir Chawla with Mr. Abhar E., Advs. Versus THE SALES TAX OFFICER ...Respondent through Mr. M.K. Aurora, Adv. Date of Hearing : February 15, 2007 Date of Decision : February 26, 2007 CORAM: HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE J.P. SINGH 1. Whether reporters of local papers may be allowed to see the Judgment? Yes 2. To be referred to the Reporter or not? Yes CWP 18054/2004 page 1 of 41 3. Whether the Judgment should be reported Yes in the Digest? J U D G M E N T 1. The Commissioner of Sales Tax (hereinafter referred to as the 'Department' for the sake of brevity) has filed CWP No.18054/2004 under Articles 226/227 of the Constitution of India challenging the Orders dated 13.5.2004, 1.10.2004 and 14.10.2004 passed by the Appellate Tribunal, Sales Tax in which the Department had been directed to issue statutory Declaration Forms to the Respondent Jagannath Dudadhar. The Appellate Tribunal, Sales Tax, had also declined the Department's request to stay the operation of its Order during the pendency of the Reference under Section 45 of the Delhi Sales Tax Act, 1975 (DST Act for short). This Court has, time and again, disapproved the impleadment of Tribunals or any other Authority functioning in a judicial or quasi judicial capacity. Accordingly, we have suo moto struck off the Appellate Tribunal, Sales Tax, New Delhi from the array of Parties. 2. On 7.8.2003 Dudadhar applied for issuance of statutory Declaration Forms for the Assessment Years (AYs) 2001-2002 and 2002-2003 under the DST Act and Central Sales Tax Act, 1956 ('CST Act' for short) aggregating Rs.67,73,26,240/- stated to be CWP 18054/2004 page 2 of 41 involving a sales tax revenue of over Rs.13.3 crores. On 9.9.2003 the Sales Tax Officer (STO) issued a Deficiency Memo predicated on various demands remaining outstanding against Dudahdar in respect of the AYs 1989-1990 to 1993-1994, 1998-1999, 2000- 2001 and 2001-2002 and for the wrong utilisation of Declaration Forms already supplied to it. The Department proposed furnishing of additional surety and for withholding issuance of Declaration Forms under the provisions of Rule 8(4)(c)(ii) of the DST Rules, 1975. On 17.10.2003 the STO rejected the applications of Dudadhar for issuance of the statutory Declaration Forms. On 23.1.2004 Dudadhar filed Appeals against the said Orders dated 17.10.2003. On 6.4.2004 the Assistant Commissioner (Appeals) - VII, Sales Tax, dismissed these Appeals and confirmed the Order of the STO observing inter alia that Dudadhar had made claims of sales to registered dealers who were either found not to be functional or to be non- existent; and because the majority of the claims for exemption were found not to be genuine. On 15.4.2004 this Order was assailed before the Appellate Tribunal, Sales Tax and these Appeals were accepted on 13.5.2004. The Tribunal, inter alia, held that the surety provisions applicable to the proper use and custody of ST-I could not be applied to the grant or refusal of ST- CWP 18054/2004 page 3 of 41 35 and ST-35/1 Forms in the absence of specific provision under Section 18 of the DST Act. Rectification/Review application under Section 48 of the DST Act was filed by the Department which was rejected by Orders dated 26.5.2004. After the filing of and the subsequent withdrawal of WP(C) No.9879/2004 a Reference under Section 45 of the DST Act was initiated by the Department on 5.6.2004. On 5.8.2004 another application for Rectification under Section 48 of the DST Act of the Order dated 13.5.2004 was initiated which came to be dismissed by Orders dated 20.8.2004. It appears that four questions are awaiting final adjudication by this Court in the pending Reference. On 6.10.2004 the Appellate Tribunal disposed of the Department's application for stay of the operation of the Order dated 13.5.2004 by requiring Dudadhar to furnish Securities amounting to Rs.60,00,000/- in the form of Bank Guarantees. A week later, on 14.10.2004, the preceding Order dated 6.10.2004 stipulating security in the form of Bank Guarantees was modified to require the furnishing of a Surety instead, even in the face of the Department's vehement opposition. It is in these circumstances that WP(C) No.18054/2004 has been initiated. CWP 18054/2004 page 4 of 41 3. CWP No.11487/2005 has been filed by Dudadhar invoking Articles 226/227 of the Constitution of India for mandating the Respondents to rectify two Declaration Forms in ST-35/1 or issue fresh Declarations in lieu thereof in conformity with the provisions of the DST Act and the Rules framed thereunder. As already adumbrated, on 10.9.2001, the Petitioner had applied to the Department for the supply of five Declaration ST-35/1 Forms to be issued to Bharat Petroleum Corporation Ltd. (BPCL). Consequent upon its request being turned down Dudadhar filed CWP No.6976/2001 which was disposed of by Orders dated 21.11.2001. The concerned STO had submitted to the Court that a fresh speaking Order would be passed. On 22.12.2001 the STO called upon Dudadhar to furnish a surety for Rs.50,00,000/- and Rs.10,00,000/- under the Local and Central Acts respectively, which were duly furnished. While on this aspect of the dispute it may be mentioned, as submitted by Mr. Aurora, learned counsel for the Department, that a surety produced by Dudahdar came to be withdrawn because the surety/Jainsons had stated that its signatures on the Deed had been forged. This event should not be lost sight of since the interests of the State in collection of sales tax should not be put to peril. Thereupon, on 24.12.2001, the STO issued five Declaration Forms in ST-35/1 in respect of CWP 18054/2004 page 5 of 41 transactions with BPCL but specifically restricting their user to AY 2001-02. Three of these Declaration Forms were issued to BPCL for supplies made during 2001-2002 and the remaining two Declaration Forms were issued to BPCL for supplies made during 2002-2003. On 29.3.2004 the STO rejected the two Declaration Forms while framing the assessment of BPCL for the AY 2002- 2003 and created Sales Tax demands against BPCL for these transactions. It is undisputed that recovery of the sales tax from BPCL has been effected. BPCL had filed an Appeal against this assessment, in the course of which it had been directed to make a pre-deposit, which Orders had been assailed by BPCL by means of another writ petition. It was in these circumstances that Dudadhar had requested the STO to rectify or validate the two Declaration Forms unauthorisedly used by it during 2002-2003. This request having not been acceded to by the STO has occasioned the filing of CWP No.11487/2005. It is admitted that Dudadhar had unilaterally scored out the 'AY 2001-2002' and instead written 'AY 2002-2003' on two of the five Declaration Forms supplied to it. The Department has also made a grievance of the fact that Dudadhar attempted to illegally use these two Declaration Forms ST-35/1 as ST-35 Forms. CWP 18054/2004 page 6 of 41 4. In Prince Plastics & Chemical Industries -vs- Commissioner of Sales Tax, [2003] 131 STR 372 and S.N.E. (India) Pvt. Ltd. -vs- Commissioner of Sales Tax, [2003] 131 STR 417 another Division Bench had the occasion to cogitate upon the various aspects of ST-1 Declaration Forms, from the standpoint of selling dealers and also purchasing dealers. In Prince Plastics the registered dealers had sold goods without charging sales tax allegedly on the false assurance that Declaration Forms would be furnished. It was contended by those Petitioners that predicated purely on their status as registered dealers, they were entitled to exemption from payment of sales tax and that, therefore, Rule 8 (4)(c) of the DST Rules was ultra vires the DST Act. The Division Bench underscored that the charging section of the DST Act does not prohibit either multiple taxation or multi-point taxation, but on the contrary envisages it; that the intent behind the devising of the “C” Forms or “ST-1” Forms is to avoid multi-point taxation; that Declaration Forms enable a dealer to pass on the burden of sales tax in such a fashion that it ultimately reaches the buyer- consumer; that none of the provisions of the Act postulate that all sales to registered dealers per se qualify for deductions; that the penultimate of the three provisos to Section 4(2)(a) of the DST Act declares that no deduction in respect of any sale referred to CWP 18054/2004 page 7 of 41 in sub-section(v) shall be allowed unless a true declaration in the prescribed form duly filled and signed by the dealer is furnished; that there is no foundation for the argument that the selling dealer cannot charge sales tax where the purchasing dealer does not simultaneously furnish ST-1 forms; that even if the purchasing dealer has applied for ST-1 forms but has not received them for any reason, the selling dealer is not automatically exonerated from the statutory duty to collect sales tax; that it is not uncommon for dealers to renege on their commitment to supply ST-1 forms or for the Department to decline to supply these forms to them because of their falling in arrears of payment of tax; that the State does not forfeit its rights and entitlement to collect sales tax; that the dealer who has mistakenly chosen to trust another dealer for supply of Declaration Forms must suffer for his mercantile recklessness; that selling dealers have the remedy of filing suits against the purchasing dealers for the recovery of money, i.e. the sales tax component which has to be paid to the State by it because of the failure or inability or plain refusal of the purchasing dealer to forward the requisite Declaration Forms. Rule 8(4)(c) of the DST Rules was held to be intra vires Section 4(2)(a)(v) of the DST Act. CWP 18054/2004 page 8 of 41 5. In Prince Plastics the Division Bench had by means of the common Judgments decided writ petitions filed by other dealers including Messrs Simran Engineering Works, Messrs Swastik Industrial Power Lines and Messrs National Products, who thereafter filed Appeals before the Supreme Court numbered as Appeal Civil 314/2003, 315/2003 and 308/2003 respectively. S.N.E. (India) Pvt. Ltd. similarly also assailed the Division Bench Judgment against it by filing a Special Leave Petition bearing No.313 of 2003. Meanwhile, the Department, on the other hand had already filed Appeals Civil 1717-1719/1999 against the Division Bench Judgment dated November 30, 1998 reported as Shri Krishna Engg. Co. -vs- Commissioner of Sales Tax, Delhi, [2003] 131 STC 321, which according to counsel had preferred a different view. All these Appeals came to be decided by the Apex Court as Commissioner of Sales Tax, Delhi -vs- Shri Krishna Engg. Co., AIR 2005 SC 958. We have laboured to give these details since it is not readily forthcoming and obvious from the Judgment of their Lordship that the enunciation of the law made by the Division Bench of this Court in Prince Plastics and S.N.E. (India) Pvt. Ltd. had been affirmed, and that expressed by the Division Bench of this Court in Shri Krishna Engg. Co. came to be rejected. CWP 18054/2004 page 9 of 41 6. In Shri Krishna the Supreme Court upheld the ratio of Prince Plastics (which also decided Simran Engineering Works) in these words:- 38. It is the contention of the selling/purchasing dealers that selling dealers are made to suffer the consequences of failures and defaults on the part of the purchasing dealers in which they have played no part whatsoever, they are in hapless position and would be compelled to incur Sales Tax liability for events which are not within their control and that Rule 8(4)(c) travels beyond the ambit of Section 4(2)(a)(v) of the Act. A Division Bench of the Delhi High Court, by their judgment dated 12-7-2002, which is impugned in these civil appeals dismissed the challenge in regard to the vires of Rule 8(4)(c). 39. We have carefully gone through the judgment of the Division Bench in Simran Engineering Works etc. The reasoning given by the Bench in rejecting the challenge in regard to the vires of Rule 8(4)(c) are very sound. As rightly pointed out by the Division Bench, the Sales Tax Department is neither privy to nor is it concerned with any assurances that might have been exchanged inter se between the selling and purchasing dealers in the matter of furnishing ST-1 Forms. There is no reason for the consequences of the dealers acts of omission or commission to visit the Department. The Act and the Rules do not prohibit the simultaneous furnishing of ST-1 Forms, they, in fact, CWP 18054/2004 page 10 of 41 envisage it. Supply of ST-1 Forms by the Department under the Rules is an advance, however, the actual practice may be different (para 7 onwards of page 36 of the judgment). 40. In our opinion, the generality of the provision of Section 71(1) should be given its full effect so as to enable the making of Rules for the full implementation of any provisions of the Act. The impugned rule also gives effect to Section 43(5) of the Act which deals with appeals and contains the requirement of pre- deposit of tax and penalty. Other situations where the Commissioner has the discretion to cancel the dealers registration for failure to pay tax including penalty, furnishing a false declaration etc. which must be borne in mind while considering the sweep of Section 71(1) of the Act. Thus, the primary intendment of the Act is to levy and collect tax and every devise, including of stipulations pertaining to the dealer friendly declaration Forms are incorporated to implement the objective of the Act itself as pointed out by the High Court they cannot be conceived as ultra vires the statute (pages 63-64 of the judgment). ...... 42. We are of the opinion that the judgment and order of the High Court in Shri Krishna Engineering Co. case (CWP 3304 of 1997) is passed on a misconstruction of the clear statutory provisions contained in Sections 4, 71(1), 71(2)(b) and (s) of the Delhi Sales Tax Act, 1975 and that the High Court has also not appreciated the CWP 18054/2004 page 11 of 41 true scope of the rule-making power which has been conferred on the Lt. Governor of Delhi by Section 71 (1) of the Act which lays down that the administrator may make rules for carrying out the purposes of the Act. A general power has thus been conferred upon the administrator to make appropriate rules to carry out the purposes of the Act. The purpose of the Act is not just to fix liability but also to recover the liabilities which are so fixed. The High Court also has not noticed that Section 71(2)(s) of the Act which confers a residual power on the administrator to makes rules in respect of any other matter which is required to be or may be prescribed. We are, therefore, of the opinion that the impugned amendment was within the rule-making power of the Lt. Governor of Delhi under Section 71(2)(b) read in conjunction and harmoniously with Section 71(2)(s). 7. We should also briefly notice the decision of the Division Bench of the Patna High Court in I.T.C. Limited -vs- State of Bihar, [2004] 137 STC 15 which was pronounced one year prior to the authoritative Shri Krishna Judgment of the Supreme Court. The Bihar Finance Act, 1981 provided for the levy of tax on the sale and purchase of goods in Bihar. The Bench observed that any provision either under the Act or the Rules calculated to prevent evasion of tax on intra-state sales would be within the CWP 18054/2004 page 12 of 41 power of the State Legislature, which could not, however, make any law with regard to inter-state sale or commerce or in the course of export. The Bench thereafter noted that the purpose behind carrying a Declaration Form is for verification and assessment of tax payable as well as for the prevention of evasion of tax. However, applying the ratio of State of Bihar -vs- Harihar Prasad Debuka, [1989] 73 STC 353 : (1989) 2 SCC 192 it was held that Declaration Forms do not prohibit inter-state transportation of goods but differentiate and distinguish unauthorised trade or business to which freedom of trade and commerce would not apply. Such Declaration Forms would not affect the freedom of movement of goods throughout the country. On the contrary it would promote such movement as it would have the effect of distinguishing goods that would be transported across the territory of the State from those which would reach the consumption point within the State. The other point that was decided by the Division Bench was that insistence on payment of admitted dues for grant of Declaration Forms can be justified on the ground that the authorities may decline their issuance wherever admitted dues had not been deposited. However, refusal to issue Declaration Forms predicated on the non-deposit of disputed amount would be unjustified. In this context it should CWP 18054/2004 page 13 of 41 be recalled that in Dawar Brothers -vs- State of Madhya Pradesh, [1979] 44 STC 286 the Division Bench of the Madhya Pradesh High Court had opined that the rule-making powers of the State Government under Section 13 (3) and (4) of the Central Act cannot be employed by it as a device for the realisation of its own dues under the State Act. Reliance had been placed on Khemka & Co.(Agencies) Pvt. Ltd. -vs- State of Maharashtra, [1975] 35 STC 571: AIR 1975 SC 1549 where it was held that dues under the Central Act should be differentiated from those arising out of the State Act and that the powers and penalties contained in the Central Act cannot be extrapolated into the State Acts. The essence of all these Judgments, therefore, is that the objective of a State statute should ordinarily not extend to the recovery of dues under a Central Act. 8. However, the Division Bench of this Court in Gupta Trading Co. -vs- Delhi Administration, [1986] 62 STC 7 had clarified that sales ought not to be looked at in isolation as they were an integral part of the overall business activity of the dealer; that the clandestine disposal of goods to the detriment of sales tax collection could not be overlooked and preventive steps to preserve the Department's interests could be adopted. It was CWP 18054/2004 page 14 of 41 held that “Rule 8(4)(c) also permits the assessing authority to withhold the issue of ST-1 form for reasons to be recorded in writing, in case default in furnishing any return together with documents, etc. Discovery of adverse material suggesting any concealment of sale or purchase or furnishing inadequate particulars in the return may also result in disentitlement of such forms”. We prefer this analysis of law since laxity in approach inexorably enables the retention by the dealer of sales tax that has already been collected from the ultimate customer or consumer. 9. Mr. Randhir Chawla, learned counsel for Dudadhar has not brought to our notice any decision to the effect that if a dealer is in arrears of tax or defaults in depositing the admitted tax dues so far as the State statute is concerned, the Department must nevertheless issue Declaration Forms pertaining to inter- state transactions. Having given careful consideration to the issue we are not persuaded to hold that even though a dealer is in default of payments of sales tax dues, the Department must issue Declaration Forms in respect of inter-state sales transactions. It seems to us that issuance of a Mandamus in these circumstances would be wholly inappropriate and a Writ Court would be fully CWP 18054/2004 page 15 of 41 justified in declining to give succour to the defaulting party or to another party which has been reckless or sanguine in going through transactions without insisting that Declaration Forms be furnished to it or exemplifies recalcitrance in depositing State dues. 10. In the backdrop of this legal analysis we shall now take up in detail the facts of the present case. Mr. Randhir Chawla, learned counsel for Dudadhar contends that the present dispute has already attracted the attention of this Court, yet the Department devises one stratagem or another to deny actual and consequential relief to it. Dudadhar had filed CW 2107/1997 which was allowed by the Division Bench vide Orders dated 28.5.1997, noticing, inter alia, that the Department had incorrectly taken into account dues of Rs.29,58,446/- in respect of AY 1986-1987 although this amount had been stayed and therefore there was no justification for the refusal to issue Declaration Forms. Our attention has thereafter been drawn to the Orders dated 21-11-2001 by which this Court had disposed of Dudadhar's writ petition CW 6976/2001. The STO was present in Court at that hearing and had undertaken to pass a fresh order after hearing the Petitioners. Pursuant to this undertaking the CWP 18054/2004 page 16 of 41 following Orders dated 22.12.2001 were passed, which according to Mr. Chawla finally and firmly settle the issues between the parties, operating, as it must, as res judicata. Therefore, he contends that upto the AY 2001-2002 the Department cannot require furnishing of any surety beyond Rs. 50 lacs under the DST Act and Rs.10 Lacs under the CST Act. The Order reads thus:- OFFICE OF THE COMMISSIONER OF SALES TAX WARD NO.64 No. Dated Speaking Order in r/o issue of declaration forms to Jagannath Dudadhar Jagannath Dudadhar has applied for issuance of 5 advance 'C' forms on 10.9.01 for the year 2001-2002 in which the dealer was asked to file bank guarantee of rupees one crore. The dealer further applied for these forms on 19.11.01. ST35-2-98-99 1169581 ST35-9-2000-01 8923408 C Form 1-98-99 28932392 ST35/1-5 2001-02 Advance It was mentioned on these applications that deficiency memo already issued on 10.9.01 and these application clubbed together with earlier application. The dealer challenged the deficiency memo in the Hon'ble High Court. The Hon'ble High Court has quashed the deficiency memo and directed the CWP 18054/2004 page 17 of 41 undersigned to pass speaking order in this case. Without prejudice of anything the status of the case is as under: The dealer was assessed for the year 1997-98 creating a demand of Rs.65845299/- under Local Act and Rs.2919304 under Central Act. The demand was raised due to the rejection of the sale version of the dealer under the Local Act as well as under the Central Act. The dealer has filed an appeal before the first appellate authority and went to High Court vide CWP No.6808/2001 for stay of the demand. The stay was granted by the Hon'ble High Court subject to filing of a surety of Rs.60 lacs and a cash deposit of Rs.12 lacs. The dealer has sent C portion of bank challan of this amount and filed surety of Rs.60 lacs for confirmation. The dealer was assessed for 1998-99 creating a demand of Rs.171206276/- under Local Act and Rs.867820/- under Central Act. The dealer has filed appeal against this demand alongwith stay application before the first appellate authority and the same is pending with the first appellant authority. The basis of the demand created was similar to the year 1997-98. The dealer has already obtained 21 'C' forms 30 ST1 forms 128 ST35 forms and 927 ST 35/1 forms for the year 1999-2000 involving a purchase of Rs.25-30 crores and involving crores of tax on these forms. Again dealer obtained 100 ST 35/1/-Rs.220194747 14 C forms for Rs. 57205693 ---------------------- CWP 18054/2004 page 18 of 41 Total Rs.277400440 --------------------- For the year 2000-01 involving purchase of 27.74 crores and a tax effect of Rs.5-6 crores. The assessment of the dealer is being framed by the Enforcement branch of the Sales Tax Deptt. The sales