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

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/J1/2001/103 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 amendeddate. 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(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 deductinghis turnover during that period.....................(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 on0, 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 datedand from realising the sum of Rs.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 beforethe 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.945 thein Council announced the creation with effect fromof 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, onmade 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. The facts leading up to these appeals may shortly be stated as follows : The Government of India in the Ministry of Industry and Supply (which for the sake of brevity may be called "The Government") entered into a contract onwith Messers Shree Ganesh Jute Mills Ltd., which may be designated "The Mills", for the supply of hessian at certain rates and of certain description appearing in Exhibit A to the affidavit filed on behalf of the Mills. With reference to the question of sales tax the contract contains the following stipulationprice shown above are exclusive of the Bengal Sales Tax. The Government of India will arrange direct payment of sales tax to the Government of West Bengal if it is ultimately found that sales tax is payable in respect of this contract".It is also provided that "This contract will be governed by the conditions of contract specified in Form WSB. 133 as amended up to date". This contract was entered into and signed by "A. Huq Deputy Director of Supplies, for and on behalf of theof India". In pursuance of the aforesaid contract the Mills supplied hessian goods to Government of India of a certain valuation on which the Commercial Tax Officer of Bengal, the main contesting respondent, made a demand of Rs.as sales tax from the Mills.The Mills demurred to the payment and contended that the sales in question were exempt from payment of the sales tax demanded in view of the provisions of S. 5 (2) (a) (iii) of the Act. Eventually, the Mills moved the High of Calcutta for an appropriate writ under Art. 226 of the Constitution against the contesting respondents. The matter was heard by a Single Judge of that Court who by his judgment datedheld that the Mills were not liable to pay the sales tax demanded and cancelled the notice of demand and directed the respondents 1 and 2 to forbear from enforcing the demand.Respondents 1 and 2 went up in appeal under the Letters Patent. The appeal was heard by a Division Bench which came to the contrary conclusion. The major portion of the judgment of the Letters Patent Bench was devoted to the discussion of the question whether the judgment of the learned Single Judge in the writ matter was amenable to the appellate jurisdiction under the Letters Patent. That question has not been pressed during the arguments and is therefore no more in controversy.

Court's reasoning:
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