Case: State of Madras Vs. R. Nand Lal &amp; Co

1. M/s. R. Nand Lal and Company -hereinafter called the assessee - are dealers in wool at Vaniyambadi in North Arcot District in the State of Madras. In proceedings for assessment of sales-tax for the year 1959-60 the assessees were assessed to pay tax at the rate of sever, per cent, on a turnover of Rs. 2,08,343-05 from sales effected by them to certain registered dealers in the State of Punjab. The assessing authority declined to assess the turnover at one per cent. as prescribed by S. 8 (l) of the Central Sales-tax Act, 1956, because in his view the assessees had submitted declarations in Form C covering two or more transactions contrary to the first proviso to R. 10 (1) of the Central Sales Tax (Madras) Rules, 1957. The Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal, Madras confirmed the order of the assessing authority. The High Court of Madras, in exercise of its revisional jurisdiction, set aside the order of the Sales Tax Appellate Tribunal, and declared that the assessees were liable to pay tax on the turnover in dispute at the lower rate. The State of Madras has appealed to this Court with special leave.

Reasoning: 5. The assumption made by the High Court that no rule was framed by the State of Punjab under S. 13 (4) (e) of the Central Sales Tax Act requiring the purchasing dealers in the State of Punjab to issue a separate declaration form in respect of each individual transaction is erroneousBut for reasons which we will presently set out, the judgment of the High Court must still be affirmedEx facie, this rule imposes no obligation upon a dealer in the State of Madras wishing to sell goods; it applies to a dealer wishing to purchase goods from another dealer. The argument that Cl. (1) of R. 10 is intended to apply to a registered dealer in the State of Punjab is negatived by the scheme of the Central Sales Tax Act and the Rules framed thereunder. By S. 7 of the Central Sales Tax Act, every dealer liable to pay tax under the Act has to make an application for registration under the Act to such authority in the appropriate State as the Central Government may by general order specify. The authority to be specified is designated in the Central Sales Tax (Registration and Turnover) Rules, 1957, framed by the Central Government under S. 13 (1), the "notified authority": vide R. 2 (c). Rule 3 provides that an application for registration under S. 7 shall be made by a dealer to the notified authority in Form A. In exercise of the powers conferred by sub-s. (1) of S. 7 ofthe Central Sales Tax Act, 1956, the Central Government issued a notification No. S. R.O. 643, dated February 22, 1957, specifying the persons mentioned in Col. (3) of the Schedule thereto as the authorities to whom the dealers of the description in Col. (2) shall make the application for registration. Item 1 of the schedule requires a dealer having a single place of business in a State to make an application to, the authority competent to register him under the general sates tax law of the State if he were liable to be so registered and Item 2 provides that the dealer having more than one place of business in a State shall make an application to the authority competent to register him in respect of the principal place of business under the general sales tax law of the State if he were liable to be so registered. A registered dealer contemplated by R. 10 is, therefore, registered in the State where he has his place of business. The expression "assessing authority" is defined in the Central Sales Tax (Madras) Rules, 1957, as meaning any person authorized by the State Government to make any assessment under the Madras General Sales Tax Act, 1959 (Madras Act I of 1959). The dealer has again to obtain the form of declaration from the assessing authority in the State of Madras. These are clear indications that the rules framed by the Madras (government were intended to apply to dealers within the State of Madras. The High Court was, in our judgment right in holding that under the scheme of the Central Sales Tax Act and the Rules framed under that Act by the State of Madras, the injunction against the purchasing dealers in B. 10 (1) did not apply to dealers in the Stale of Punjab. It is unnecessary on that view to express any opinion on the question whether the State Government could. in exercise of the powers under S. 13 (4), impose upon dealers not within the State, obligations to comply with conditions relating to the contents of the C Form declarations8. Since R. 10 (1) requiring that a separate declaration form in respect of each individual transaction shall be furnished was intended only to apply to dealers in the State of Madras, and not to dealers outside the State. proviso to R. 10 (1) which directs that no single declaration shall cover more than one transaction of sale except in certain cases has no application to a purchasing dealer outside the State of MadrasBut this rule does not direct that a declaration covering more than one transaction of sale shall not be given. The rules framed by the Madras Government do not otherwise impose any binding obligation upon the selling dealer in the State of Madras to obtain a separate declaration form in respect of each sale transaction, nor do the rules visit him with a penalty on failure to comply with the requirement9. We are constrained to observe that the rule-making authorities have failed to appreciate the scheme of S. 13 of the Central Sales TaxAct. We are of the opinion that it was not within the competence of the State authorities under S. 13 (3) and (4) of the Central Sales Tax Act to provide that a single declaration covering more than one transaction shall not be made. Authority to prescribe such an injunction cannot have its source in S. 13(3) or S. 13 (4) (N): it can only be in the authority conferred by 01. (d) of S. 13 (1) by the Central Government. The Central Government has, in exercise of the power under S. 13 (1) (d), prescribed the form of declaration and the particulars to be contained in the declaration. A direction that there shall be a separate declaration in respect of each individual transaction may appropriately be made in exercise of the power conferred under S. 13 (1) (d). The State Government is undoubtedly empowered to make, rules under sub-ss. (3) and (4) of S. 13: but the rules made by the State Government must not he inconsistent with the provisions of the Act and the rules made under sub-s. (1) of S. 13 to carry out the purposes of the Act. If the authority to make a rule prescribing that the declaration shall not contain more than one transaction can be made only under S. 13 (1) (d), the State Government cannot exercise that authority. The situation which has arisen in this case could have been avoided, if instead of each State making its rules requiring that no single declaration shall cover more than one transaction, the Central Government in exercise of the power under Section 13 (1) (d) of the Act had made the rules3. It is common ground that the turnover was in respect of goods of the class 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 process of manufacture of goods for sale. A registered dealer selling goods in the course ofe trade or commerce of the description referred to in. (3) is liable under S. 8 (1) of the Central Sales Tax Act to pay tax only at the rate of one per cent on his turnover. But to qualify himself for that rate of tax, he has to furnish to the prescribed authority a declaration duly filled and signed by the registered dealer to whom the goods are sold. Such a declaration must contain the prescribed particulars in the prescribed form obtained from the prescribed authority. If the selling dealer fails to furnish the declaration in the prescribed form, he is liable to pay tax at the higher rate mentioned in. (2)(b) of S. 8.