# A. V. FERNANDEZ v. THE STATE OF KERALA - **Citation:** [1957] 1 S.C.R. 837 - **Court:** Supreme Court of India - **Decided:** 1954-11-24 - **Case number:** CIVIL APPELLATE JupJSDICTION : Civil Appeal No. 232 of 1955 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-v-fernandez-v-the-state-of-kerala-1376 - **Pages:** 17 ## Headnote S.C.R. SUPREME COURT REPORTS A. V. FERNANDEZ v. THE STATE OF KERALA (BHAGWATI, JAGANNADHADAS,- JAFEK IMAM, GovINDA MENON and J. L. KAPUR JJ.) 837 Sales Tax-Assessment-Gross and net turnover-Purchase of copra-Sale of oil both inside and outside the State-Deductions -Assessable turnover-Constitution of India, Art. 28(r..TravancoreCochin General Sales Tax Act, 1125 (Act Xi of 1125 M.E.), ss. 2(i) (k), 3, 2(r..Travancore-Cochin General Saks Tax Rules, 1950, "· 7(k), 20(2). The business of the appellant consisted in the purchase of copra, manufacture of cocoanut oil and cake therefrom and sale of oil and cake to parties inside the State of Travancore-Cochin and sale of oil to parties outside the State. Before the coming into force of the Constitution of India, under the provisions of the Travancore-Cochin General Sales Tax Act, 1125, and the rules made thereunder, for the pus poses of assessment to sales tax, the appellant was entitled to include in his gross turnover the total value of the oil sold by him whether inside the State or outside the State and to deduct therefrom the whole of the value of the copra purchased by him. Sub.iequently, in 1951, the Act was amended by the addition of s. 26 which, inter alia, provided : "Notwithstanding anything contained in this Act. . . . a tax on tl:ie sale or purchase of any goods shall not, after the 31st day ot March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade .... ". For the year 1951-1952, the Saks Tax Officer assessed the appellant to sales tax on a net assessable turnover by taking the value of the whole of the copra purchased by him, adding thereto the respective values of tile oil and the cake sold inside the State and deducting only the value of the copra corresponding to the oil sold inside the State. It was contended for the appellant that in the calculation of the net tusnover, he was entitled to include the total value of the oil sold by him, both inside and outside the State, and deduct thuefrom the total value of the copra purchased by him, and further that, under the ·crriding provision of the Act under s. 26, he was entitled to have th value of the oil sold outside the State clcch 1 ctcd. Held, that the calculation made by the Sales Tax Officer of the net tll&nover was correct. The non-obstante provision contained in s. 26 of the Act has the effect of taking transactions relating to inter.State trarle out of the purview of the Act and they arc cxduded in the calculation ' 1957 A.pn1 2. 838 SUPREME COURT REPORTS [1957] 1957 of the gross turnover as well_ as the ner turnover on v.'hich sales tax can be assessed. A. V. Fmiamk< v. Asrvani Kumar Ghosh v. Arabinda Bose, (1953) S.C.R. I, T~ Stale of K1rala relied 011. BhagwaJi J. CIVIL APPELLATE JupJSDICTION : Civil Appeal No. 232 of 1955. Appeal under Article 132(1) of the Constitution of India from the Judgment and Order dated November 24, 1954, of the former Travancore-Cochin High Coun in Original Petition No. 53 of 1954. T. N. St-11, irrespective of the fact whether these sales were effected inside the State or outside the State and deduct therefrom the total value of copra purchased by him from which the whole quantity of oil sold by him was manufactured, viz., Rs. 7,16,048-1-4. The resultant figure, according to him, represents the net assessable turnover on which the Sales Tax Authorities would be entitled to ~tsSess him to sales tax if the position in law was as is stood before the .amendment of the Act by the Travancore-Cochin General Sales Tax (Amendment) Act, • 1951. He next contends that s •. 26 which was added to the Act by the Trav.mcore-Cochin General Sales Tax (Amendment) Act, 1951, prohibits the levy amongst others of a tax on the sale or purchase .of goods where such sale or purchase takes place in the course of inter-State trade or commerce. This is an overriding provision which, it is contended, entitled him to deduct the value of the oil sold outside the State, viz., Rs. 3,67,816.l(}.1, from the assessable turnover arrived at as above. The result of this mode of calculation is that he claims to deduct from the gross turnover the whole of the purcha5e ptice of copra, viz.1 Rs. 7,16,048-1-4 and not the purchase price of copra which can be allocated to his sales of oil inside fhe State. The Sales Ta)(: Authorities, on the other hand, conterd that the appellant is not entitled to take into 1957 .t. V. Fernantla Y>: The State ofKeroJd Bhagwati J. 1957 A.I'.~ .... Tn, Stab •f Xtml• B /oagra«1i J. 844 SUPREME COURT REPORTS [1957] computation at all his sales of oil outside the State and is also not entitled to deduct from his gross turnover the purchase price of copra allocated to the oil sold to persons outside the State. They claim to lift the whole of these sales of oil outside the State inclusive of the purchase price of the copra which can be allocated to them out of the calculations of the net turnover because of the provisions of s. 26 set out above, relying upon the non-obstante provision contained therein, viz., "Not•Nithstanding anything contained in this Act, a tax on the sale or purchase of goods shall not be imposed under this Act where such sale or purchase takes place in the course of inter-State trade or commerce." We have to decide which of these calculations of the net turnover is correct having regard to the relevant provmons of the Act and the rules made thereunder. The definition of "sale" contained in s. 2(j) is wide enough to include the sales of oil manufactured by the appellant whether these sales are effected inside the State or outside the State. The definition of "turnover" contained in s. 2(k) of the Act also makes no distinction between the sales inside the State and outside the State. The "turnover" is there defined as the aggregate amount for which goods are either bought or sold by a dealer and that definition comprises within its scope· both these types of sales whether inside the State or outside the State. This turnover of a dealer is under s. 3, sub-s. ( 4) to be determined in accordance with such rules as may be prescribed. Rule 4 made by the Government under the rulemaking power prescribes that the gross turnover of a dealer for the purposes of the rules shall be the amount for which the goods are sold by him. This rule also does not make any distinction between sales inside the State or outside the State. After having thus provided for the inclusion of all sales within the gross turnover. r. 7 provides that the tax or taxes under s. 3 (which is the c11arging section) shall be levied on the net turnover of a Jcaler. 3uch net turnover is to be arrived at aftei· deducting from the gross turnover various. S.C.R. SUPREME COU~T REPORTS 845 amounts specified in els. (a) to (k) thereof and cl. (k) provides that a registered manufacturer of cocoanut and/or groundnut oil and cake will be entitled to deduct from his gross turnover such amounts as are mentioned in r. 20 subject to the conditions specified therein. The deduction under r. 20 is available to a dealer who manufactures cocoanut/ groundnut oil and cake from cocoanut and/or copra or groundnut and/or kernel purchased by him anq he is entitled to deduct the vah.Je of the cocoanut and/or copra or groundnut and/or kernel purchased and converted by him into oil and cake provided that the amount for which the oil is sold is included in his turnover. Here also we find no distinction made between sales inside the State or outside ~he State. On a prim a f acie reading of these provlSlons contained in the Act and the rules made thereunder it would appear that a manufacturer of cocoanut or groundr:ut oil and cake would be entitled to include in his gross turnover thr: total value of the oil sold by him whether inside the State or outside the State and to deduct from such gross turnover the whole of the value of the copra purcha:;ed by him and converted into oil and cake irrespective of the fact whether such oil or cake was sold by him inside the State or outside the State. The onlv thing which he had to do under r. 20, sub-r. (2) was to include the amount for which the oil is sold in his turnover and he would then under r. 7(1)(k) be entitled tc, deduct from his gross turnover the whole of the price of the copra purchased and converted by him into oil and cake, again irrespective of the fact whether the same had been sold by him inside the State or outside the State. This was certainly the position as it obtained prior to the addition of the s. 26 to the Act by the Travancore-Cochin General Sales Tax (Amendment) Act, 1951. We have, therefore, to consider what is the impact of s. 26 on the other provisions of the Act and the rules made thereunder. The High Court decided against the appellant observing that the definitions given in s. (2)(j) and (k) of the Act applied only in the absence of "anything 1957 .d. V. Forna.uftr. "· Th# Stau of Kera/a Bli8gwati ]. 1957 A. V. Fernattdli v. 1"M State oj K"aJa Bhagwati ,1. 846 SUPREME COURT REPORTS [1957] repugnant in the su\Jitct or context", and on a perusal of the relevant provmions of the Act and the rules made thereunder, it was of opinion that these definitions were clearly inapplicable for the following reasons : "There can be no doubt that what has been intended is a taxation of copra at the purchase point and the avoidance of sales tax in respect of the oil extracted by a registered manufacturer from such copra to the extent of the value of the copra used for the said manufacture in all those cases where but for the concession he would have been liable to pay both the purchase tax on copra and the sales tax on oil under the Travancore-Cochin General Sales Tax Act, 1125. In other words, the object is the avoidance of a double taxation by the State, one at the purchase point of copra and the other at the sale point of oil, and it is impossible to invoke the definition and say that the concession will be available to a registered manufacturer even in those cases where only one and not both the taxes can be realized from him under the provisions of the Act." The answer given by the learned counsel tor the appellant to the above reasoning was that in fiscal statutes what you have got to look to is not the spirit of the statute but the letter of the law; and if you could not bring a particular tax within the letter of the law, the subject could not be made liable for the same. Our attention was drawn in this . connection to the observations of Lord Rmse! of Killowen in lrzland Revenue Commissioners v. Duke of Westminster( 1 ) : "I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if in accordance with a Couit's view of what it considers the sub•tance of the tramaction, the Court thinks that the case falls within the contemplation or spirit of the statute. The subject is not mxable by inference or by analogy, but only by the plain words of a statute applicable to the facts and circumstances of his case." As Lord Cairns said many years ago in Partington v. The Attorney General(') :-"As I understand the (!) [1936] A. C. 1, 04. (•) (1869) 4 ILL. 100, 102. S.C.R. SUPREME COURT REPORT..S S47 \ principle of all fiscal legislation it is this : if the person sought to be taxed comes wi.thi.n the letter of the law he must be taxel'l, however gn:at the hardship .may appear to the judicial mind to be. On the .other ha~d, if the Crown, seeking to recover the! t~, cannot bnng the subject within the letter of the law, the subj~ct is free, however apparently within the spirit of the law the case might otherwise appear to be." The passage was quoted with approval by the Privy Council in the Bank of Chettinail v. Income Tax Commissioner(') and the Privy Council registered its protest against the suggestion that 'in revenue cases "the substance of the matter" may be regarded as distinguished from the strict legal position. (See also F. L. Smith & Co. v. F. Greenwood(2)) It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the,case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was· the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the ·rules made thereunder before we can come to the conclusion that the appellant was liable to assessment as contehded by the Sales Tax Authorities. It may be noted at the outset that the main bulk of the Sales Tax Acts enacted by the various Provincial Legislatures was enacted before the Constitution. There were on the Statute Book various Sales Tax Acts enacted by the Provincial Legislatures; viz., Bihar Sales Tax Act, 1947, Bengal Finance (Sales Tax) Act, 1941, Madhya Pradesh Sales Tax Act, 1947, Madras Sales Tax Act, 1939, Mysore Sales Tax Act, 1948, Orissa Sales Tax Act, 1947, East Punjab Gener~l Sales Tax Act, 1948, and clie Uttar Pradesh Sales Tax Act, (1) A.'I. R. (1940) P. C. 183. (2) VIII T. C. 193, 2o6. 1957 A,V. Ftrnilndt~ v. T Ill Stale of K wal(J B/iagwati ]. 1957 A. V. Fernanthi: V. The Stale 6f KeraJ.a BhagwatiJ. 848 SUPREME COURT REPORTS [1957] I 1948,-all of which levied sales tax on a more or less uniform basis bringing within their ken not only the sales which were actually effected within the territory but also sales where adopting the nexus theory even one of the ingredients of sale was found to have taken place within the territory. The Assam Sales Tax Act, 1947, and the Hyderabad General Sales Tax Act, 1950, also followed the same pattern. When the Constitution came to be inaugurated on January 26, 1950, Art. 286(2) laid down restrictions on the State Legislatures to enact laws imposing or authorising the imposition of tax on the sale or purchase of goods in certain cases therein specified, so that after January 26, 1950, no State could impose a tax on the sale or purchase of goods falling within these categories. The Sales .Tax Acts enacted by the various Provincial Legislatures had, therefore, to be brought in line with this provision of the Comtitution and various expedients were devised by the State Legislatures in order to effectuate this object. This object was sought to be achieved in the main bulk of the Sales Tax Acts by adding towards the end of the Acts sections like s. 26 of the TravancoreCochin General Sales Tax Act, 1125, incorporating therein the terms of Ar 286 of the Constitution. The non-obstante provision was thus enacted in the main bulk of the Sales Tax Acts which laid down : "Notwithstanding anything contained in this Act the tax on the sales or purchase of goods shall not be imposed under this Act where .............. (and the provisions of Art. 286 were in terms incorporated therein)." A different expedient was adopted in the Assam Sales Tax Act, 1947 and the Hyderabad General Sales Tax Act, 1950. The Assam Sales Tax Act, 1947, had incorporated therein an addition to the charging section (section 3 of the Act) and s. 3 (1-A) which was inserted by s. 3 of the Assam Sales Tax (Amendment) Act, 1947 (Assam Act IV of 1951) was to the following effect : "Nothing in sub-section (1) shall, except in cases covered by the first proviso to sub-section (12) of section ?, of th:s Act be deemed to render any dealer S.C.R. SUPREME COURT REPORTS 849 liable to tax on the sale of goods where such sale takes place : ( 1) outside the State of Assam; . (2) in the course of the import o~ the goods. mto, or export of the goods out of, the terntory of India; or (3) in the course of inter-State trade or comme~ce except in so far as Parliament may by law otherwise provide." The Hyderabad General Sales Tax Act, 1950 had a similar provision incorporated in its definition of sale given in s. 2(k) of the Act. The Explanation (2) which was substitution for the original Explanation (2) by s. 2 of the Hyderabad General Sales Tax (Amrndrr.cnt) Act, 1950 (Hyderabad -Act XXXIr of 1950) read as under: Explanation (2)-"Notwithstanding anything to the contrary in any other law for the time being in force, a transfer of goods in respect of which no tax can be imposed by reason of the provision contained m Article 286 of the Constitution, shall no!: be deemed to be "sale" within the meaning of this clat:se." A further expedient which was adopted in this connection may be noted in r. 5 of the Bombay Sales Tax Rules, 1952, enacted under the Bombay Saks Tax Act, 1952-(Bombay Act XXIV of 1952), which authorised the deduction of certain sales coming within Art. 286 of the Constitution while calculating the taxable turnover of a dealer. We are not called upon to express any opm10n as to whether the incorporation of the provisions of Art. 286 of the Constitution in the charging section as it was done in the Assam Sales Tax Act, 1947, or in the definition of "sale" as it was done in the Hyderabad Grneral Sales Tax Act, 1950, or even in the rules in regard to the calculation of taxable turnover as it was done in the Bombay Sales Tax Rules, 1952, had the effect of ~king the sales falling withi°: the categories 5pecified m Art. 286 out of the purview of the respective Sales Tax Acts, so that they would not be included at all within the calculation of the net turnover on which only the sales tax could be levied. What was done in the instant case before us as in the bulk of the Sales 1957 A. V. F1rnmu/4 v. Tli• Stak of .Kerak Bhap;ati]. 1957 A. V. Fernand#~ v. The State of K1rala Bhagwati J. 850 SUPREME COURT REPORTS [1957] Tax Acts above noted was the incorporation of those prov1S1ons of Art. 286 of tk Constitution therein by adding a non-obstante provision at the end of the respective Sales Tax Acts in the manner above indicated. The definition of "sale" was not amended nor was the charging section. The rules as to the calculation of the net turnover also remained the same, without any deduction in regard to sales coming within Art. 286 of the Constitution being incorporated therein, with the result that the Sales Tax Authorities founded themselves upon the non-obstante provision incorporated in the Act by the addition of s. 26 therein by the Travancore-Cochin General Sales Tax (Amendment) Act, 1951. What, then, is the effect of this non-obstante provision? This Court in Aswani Kumar Ghosh v. Ara bind a Bose(' ) made the following observations in connection with the non-obstante clause : "lt should first be ascertained what the enacting p;rrt of the section provides on a fair construction of the words used according to their natural and ordinary meaning, and the non-obstante clause is to be understood as operating to set aside as no longer valid anything contained in relevant existing laws which is inconsistent with the new enactment." The same ratio applies to the construction of the nonobstante provision contained in s. 26 of the Act with reference to all the other provisions of the Act that preceded the same. In our opinion, s. 26 of the Act, i1, cases falling within the categories specified under Art. 286 of the Constitution has the effect of setting at nought and of obliterating in regard thereto the provisions contained in the Act relating to the imposition of tax on the sale or purchase of such goods and in particular the provisions contained in the charging section and the provisions contained in r. 20(2) and other provrsrons which are incidental to the process of levying such tax. So far as sales falling within the categories specified in Art. 286 of the Constitution and the corresponding s. 26 of the Act are concerned, they are, as it were, (1) f1953] S.C.R. I, 21, 22. S.C.R. SUPREME COURT REPORTS 851 taken out of the purview of the Act and no effect is to be given to those provisions which would otherwise have been applicable if s. 26 had not been added to the Act. If these provisions of the Act and the rules made thereunder do not apply to the sales falling within those categories, the value thereof cannot be included in the turnover of the dealer and no question woulci arise of the applicability of r. 7 (l)(k) and r. 20(2) at all to these cases. The amount for which the oil is sold in inter-State trade or commerce would not be lawfully included in the turnover of the dealer and if the amount for which such oil is sold cannot thus be included in his turnover no occasion would arise for the deduction under r. 7(1)(k) of the value of the cocoanut and/or copra or groundnut and/or kernel purchased and converted by the dealer into such oil and cake. A distinction was sought to be made between the inclusion of the value of such oil in the turnover of the dealer for the purpose of assessment and the levy of tax thereupon. It was urged that the inclusion of such oil in the turnover for the purpose of assessment was quite distinct from the liability for tax which was the only thing prohibited by s. 26 of the Act and therefore the value of such oil could be lawfully included in the turnover involving as a necessary consequence the deduction of the value of the copra purchased by the dealer and converted by him into such oil from such turnover, the resultant turnover being the net turnover for the purposes of assessment, the value of the oil sold in the course of inter-State trade or commerce being further deducted therefrom by reason of the operation of s. 26 of the Act, thus making in effect a distinction between assessable turnover and the taxable turnover. Reliance was placed in support of this position on the observations of this Court in Messrs. Chatturam Hori/ram Ltd. v. Commissioner of Income-Tax, Bihar and Orissa(1 ) : "As has been pointed out by the Federal Court in Chatturam v. Cl.T., Bihar( 2 ) (quoting from the (I) [1955] 2 S.C.R. 290, 297, (2) [1947] F.C.R.116, 126. 2~0 S. C. India/59. 1957 A. V. Fernandez v. Tht State of Kerala Bhagwati J. I95i A. V. Fernandel: v. The State of Kuala BIJagwati J. 852 SUPREME COURT REPORTS [1957] judgment of Lord Dunedin in Whitney v. Commissioners of Inland Revenue (1) 'there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what person in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex-hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay'.'' The appelbnt, however, forgets that the three stages in the imposition of a tax which are laid down here predicate, in the first instance, a declaration of liability as the starting point. If there is a liability to tax, imposed under the terms of the taxing statute, then follo\v the provisions in rcgJrd to the asscssrnent of such liability. If there is no liability to tax there cannot be any assessment either. Sales or purchases i:-. respect of which there is no liability to tax imposed by the .statute cannot al all be included in the calculation 0f turnmTr for the purpose of assessment an