# BHAWANI COITON MILLS LTD v. STATE OF PUNJAB & ANR

- **Citation:** [1967] 3 S.C.R. 577
- **Court:** Supreme Court of India
- **Decided:** 1967-04-10
- **Case number:** Civil Appeals Nos. 2386· 2388 of 1966
- **Bench:** K. Subba Rao, J. C. Shah, S. M. Sikri, V. Ramaswami, C. A. Vaidialingam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bhawani-coiton-mills-ltd-v-state-of-punjab-anr-4083
- **Pages:** 18

## Headnote

Pun;ah General Sales Tax Act (46 of 1948), ss. 2(ff), 5(1) second
proviso and 5(2)(a) (vi) and Central Sale. Tax Act (74 of 1956), s.
IS(a)-Wltetlter provisions of State Act in conflict with those of Central
Act.
c
Notification in 1958 under s. 5(1) prescribing rate of purchase taxAmendment of word "purchase"-No fresh Notifictltfon-Lega/ity of levy
of purchase tax.
D
E
The definition of the word "purchase"
was first introduced in the
Punjab General Sales !ax ~t, 194~, in, 1958. As .the rate of tax to b<>
levied was to be contained m a Not1ficat1on to be issued under s. 5 (I)
of the Act, a Notification was issued in Aptil 195S regarding the rate
of tax on tbe purchase of goods "for use in the manufacture of goods.
for sale", as per the tben definition of "purchase". The definition of
"purchase" was amended twice in 1959 and again by Punjab Act 18 of
1960. The definition after these amendments has reference to the good~
specified in Schedule C to the Act an item of which relates to cotton.
and, after the 1960 amendment the clause "for use in the manufacture·
of ~oods for sale" was omitted. After those
amendments,
no fresh
Notification prescribing the rate of tax on the purchase of goods
was
issued till September 26, 1961.
F
The appe,Jlant was a cotton ginning factory and was a dealer re¥is·
tered under the Act. Under s. 10, it had to send quarterly returns within the time specified and when sending the returns had to pay the amount
of tax, in accordance with the returns which should also show the gross
turnover. Failure to do so was an offence and subjected the dealer to
heavy penalties. The appellant filed returns for the assessment years
1960-61, 1961-62 and 1962-63 and paid certain amounts of tax which,
according to it were due from it. The assessing authority passed orders
of assessment, including in the appellant's turnover the amounts representing the purchases of cotton made by the appellant for each of the
yfla(s. The appellant thereupon filed writ petitions challenging the three
assessment orders on the ground that the second proviso to s. 5 ( 1) and
s. 5(2)(a) (vi) of the Act, enabling the State to collect purchase tax in
respect of cotton, were opposed to s. 15(a) of the Central Sales Tax Act,
1956 and that, in consequence, it was not liable to pay any purchase tux
for tbe. ~Slles,,ment years in respect of cotton. The High Court rejected
the petrt11ons.
G
In appeal to this Court,
HELD: (1) (By Full Court) As no fresh Notification was issued tiU
September 26, 1961, the orders of assessment for the two years 1960-61
H
and 1961-62 could not be sustained. [592 H; 593 BJ
The levy of tax could not be sustaiiied under the Notification of 195S
on the basts of s. ~2 of the Punjab General Clauses· Act. That ~ection
ha, no application, because the definition of "purchase" on the basis of
L7Sup.Cl/67-7
578
Sl!Plll!Mll COllllT llllPO!lTS
[t 967] 3 s.c.R
wblch that NotHlcatlon wu 111ued 11 lnconalltent with the dellnltlon of
"purchue" 111 It atoocl a!tor lta nmll!ldment In 1%0. (5928-P]
Pu:lher, If tho levy la to be 1ull1lned on the bull et the Not!aaadon
of 1958 the State coilld levy tax only on the cateaory of purobu• "tor
UJO In iho manufacture of 1oods for ·1111", But II wu not open to Ille
State to make 8uch a cholee.
(5!120)
(2) (Per Subba Rao, C.J., Shih and Voldlallnaam, JI.) f!ven though
there w11 A notlllcatlon bin& the rate of tu tor Ille yw 1962-63, tho
order of 111H1ment for that yur and alto for tho two yoal'I 1960-51 and
1961·62 1hould be ctUAlhld on tho ground thot tha 11rovl1lon1 of tho
St1to law under whlcll they were made violated 1. 15 ot the Central Aot.
[591Al
Under 1. 15(a) of thr Central Aet In mpoct of eommodltlu llko
eotton which coma und1r tht ca«igory of "doclartd good~" ftl dt&ned In
s, 2(c) of tho Ctntrlll .Ut, tilt purclim Ill OA11 be levied only at on•
litAg1.
'1111 1111nH of ono .. t1p tu111lon oon1l118 of llnllon of 11 1lnat1
f)Oint or 1tag1, olther by the Stolt Aot or th@ l'llll!i framl!ll th11r1

## Text

_Characters 0–39,780 of 51,438. This is a partial read: ask again with offset=39780 for what follows._

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BHAWANI COITON MILLS LTD.
v.
STATE OF PUNJAB & ANR.
April 10, 1967
[K. SUBBA RAO, C.J., J. C. SHAH, S. M. SIKRI, V. RAMASWAMI
AND C. A. VAIDIALINGAM, JJ.]
Pun;ah General Sales Tax Act (46 of 1948), ss. 2(ff), 5(1) second
proviso and 5(2)(a) (vi) and Central Sale. Tax Act (74 of 1956), s.
IS(a)-Wltetlter provisions of State Act in conflict with those of Central
Act.
c
Notification in 1958 under s. 5(1) prescribing rate of purchase taxAmendment of word "purchase"-No fresh Notifictltfon-Lega/ity of levy
of purchase tax.
D
E
The definition of the word "purchase"
was first introduced in the
Punjab General Sales !ax ~t, 194~, in, 1958. As .the rate of tax to b<>
levied was to be contained m a Not1ficat1on to be issued under s. 5 (I)
of the Act, a Notification was issued in Aptil 195S regarding the rate
of tax on tbe purchase of goods "for use in the manufacture of goods.
for sale", as per the tben definition of "purchase". The definition of
"purchase" was amended twice in 1959 and again by Punjab Act 18 of
1960. The definition after these amendments has reference to the good~
specified in Schedule C to the Act an item of which relates to cotton.
and, after the 1960 amendment the clause "for use in the manufacture·
of ~oods for sale" was omitted. After those
amendments,
no fresh
Notification prescribing the rate of tax on the purchase of goods
was
issued till September 26, 1961.
F
The appe,Jlant was a cotton ginning factory and was a dealer re¥is·
tered under the Act. Under s. 10, it had to send quarterly returns within the time specified and when sending the returns had to pay the amount
of tax, in accordance with the returns which should also show the gross
turnover. Failure to do so was an offence and subjected the dealer to
heavy penalties. The appellant filed returns for the assessment years
1960-61, 1961-62 and 1962-63 and paid certain amounts of tax which,
according to it were due from it. The assessing authority passed orders
of assessment, including in the appellant's turnover the amounts representing the purchases of cotton made by the appellant for each of the
yfla(s. The appellant thereupon filed writ petitions challenging the three
assessment orders on the ground that the second proviso to s. 5 ( 1) and
s. 5(2)(a) (vi) of the Act, enabling the State to collect purchase tax in
respect of cotton, were opposed to s. 15(a) of the Central Sales Tax Act,
1956 and that, in consequence, it was not liable to pay any purchase tux
for tbe. ~Slles,,ment years in respect of cotton. The High Court rejected
the petrt11ons.
G
In appeal to this Court,
HELD: (1) (By Full Court) As no fresh Notification was issued tiU
September 26, 1961, the orders of assessment for the two years 1960-61
H
and 1961-62 could not be sustained. [592 H; 593 BJ
The levy of tax could not be sustaiiied under the Notification of 195S
on the basts of s. ~2 of the Punjab General Clauses· Act. That ~ection
ha, no application, because the definition of "purchase" on the basis of
L7Sup.Cl/67-7
578
Sl!Plll!Mll COllllT llllPO!lTS
[t 967] 3 s.c.R
wblch that NotHlcatlon wu 111ued 11 lnconalltent with the dellnltlon of
"purchue" 111 It atoocl a!tor lta nmll!ldment In 1%0. (5928-P]
Pu:lher, If tho levy la to be 1ull1lned on the bull et the Not!aaadon
of 1958 the State coilld levy tax only on the cateaory of purobu• "tor
UJO In iho manufacture of 1oods for ·1111", But II wu not open to Ille
State to make 8uch a cholee.
(5!120)
(2) (Per Subba Rao, C.J., Shih and Voldlallnaam, JI.) f!ven though
there w11 A notlllcatlon bin& the rate of tu tor Ille yw 1962-63, tho
order of 111H1ment for that yur and alto for tho two yoal'I 1960-51 and
1961·62 1hould be ctUAlhld on tho ground thot tha 11rovl1lon1 of tho
St1to law under whlcll they were made violated 1. 15 ot the Central Aot.
[591Al
Under 1. 15(a) of thr Central Aet In mpoct of eommodltlu llko
eotton which coma und1r tht ca«igory of "doclartd good~" ftl dt&ned In
s, 2(c) of tho Ctntrlll .Ut, tilt purclim Ill OA11 be levied only at on•
litAg1.
'1111 1111nH of ono .. t1p tu111lon oon1l118 of llnllon of 11 1lnat1
f)Oint or 1tag1, olther by the Stolt Aot or th@ l'llll!i framl!ll th11r1u11dor. A
mero lnju111t111n by the Loll1l111ur1, ft! oontilnld In the Heond ~llO to
"· s (I) llf Iii@ Sthill Alli, tllat the fAlll 1hould 1101 Ila hll!htr lhAll tho 000
find In the Central Aot, n11d thM tho levy mmt be nt one ~Inge 01 ml!IP
t1011ed hi the Ceotul Aet, will b@ of 116 ttval!, UJ1lm the A@t or tho ruh111
framld under It make It otw tluH tl!eN wUI ht 1111 levy or e11tltetloo of
1 u, ootpt from the ptr1ti111 who MO b!lund lo pny 11!1 pl!F tht Cntrlll
A@t,
Tiit pl'll\lilo d11e1 116t 1etve ony mateFllll Plll'l!lllt
beenu11 mn
If ii did ntll @Xiii th@ aulhll!'lli@! CdllHlll le'.I}' tn on deellll1!d go0d1 II b
mt~ higher thnn that laid d11wn lo the C1ntrn! A@I,
l'8Ht1 5840"11!'
51!7P·H1 SH
l!urthor, thore e1n ho llCI ltg;tl llalJlllty ror paymtftt ol tlllt unl1111 lb•
A@l 11r tll@ NIH pmorlll11 11 slnlll• "6int f61' 1111~11!011• but undof
1,
S(2)(1i), In r~t or !ht Hmt ltom Ill dtollrod
1, mol'll thin on•
!lllf80ft 11 mndo tlnhl• to !II)' tax Md tho lllll 11 I od Al more th~n ont
•tap, Por OIM11!111 If Ii. 1ill1 doelM'ad l!(l0d1 to II and II to C CD ud
C Mini rogl1tlrell llHlont) Alld tht Wllll
Art btYond tilt w,..";loij Cl! 6
monlh1 mtntlonud In 1. 5(2)(&) (vi), both A and B will be lliiiiii to PAY
1•11reha" \lllt. !598A-ll, 0.Jll
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Moroover, In the final return Hnl by the dtlller, II will hAvo IO 1how
·II
In tho llll!nblo lurnovor nll purchw1 ot cotton etl'ooted b~_lt during the
uceounllna yeu ond tho tn1 l!AYAblo will haw to bu pnld. Tho delller 01111
~Ill a doolnntlon from the cleller to whom the J~1 m rMOld
and
claim oxempdon undtr
1. 5(2lCa)(vl) !Ind r. 27A of th1 rul11 mid•
und9r the Aot.
Dut th111 provll!Olll
ttpp!y onlY. to r!gl81eled dellon,
whurou 1. 15 of tho CentrAI Act 11 not mtrlctoil to reji!1~rad dealm.
Allo If 11 non-rogl11tred denier lntorvon11, lllora 11 no mtohlnery
by
which tit; dealer can n!Certaln whtlhtr hit vendor of the d.clared 1ooc!•
G
lm pold the IH alrendy.
(58411; !8811..0, OJ
The orden of ns11111ment oo'lld not be 1u1tnln1d on the bull of !hi
J1rovl1lo111 tnr refund In 1. 12 nnd the rul11, Th080 provl1\on1 do not
ufford ndoQURI~ relief. If the Centrnl Act mnkc1 It m1111dntory that th•
!AX can be· collected only at one 1taao It 11 not cnou;h !or th• State to
•Dy thRI a pcr1on who 11 not liable to pay tnx, mutt neverthcl111 pay 11
In the fll'lt ln1tnncc nnd then claim refund At n later 11a.ao. U 1 penon
11
I• not liable for Jlaymant of tsx RI nil, at any time, the collectlon of 1
lilt from him with n !lO!!lblc contingency of refund nt n Inter ataae will
not make Ille orlatnnl levy valid.
Bc~lde1, even In the matter of Obtain·
lni rotunda the appcllnnt will hnve to place before the oll\cer concemed,
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BHAWANI COTTON MILLS v. PUNJAB (Vaidialingam, J.) 579
particulars of transactions connected with the commodity and the basis
on which it claims relief, and It would be extremely dilllcult to collect .
the materials In this behalf, because, there is no provision in the Act or
tbe rules on the basis Of which It will be entitled to be supplied with 1uch
relevant materials. [S89C.OJ
Modi Mills v. C./.T., Pun/ab, [1965] 1 S.C.R. 592 and A. V, FerMn·
tlet v, The Stare of Kerala, [19S7) S.C.R. 837, followed,
(Per Sikrl and Rnmaswaml, JJ. dissenting) :
The assessment for tbe year 1962·63 is valid,
The second proviso to s. S serves one useful purpose, namely,
it
gives immunity to the State Act from challenge on the ground that it•
provisions infringe s. IS of the Central Act. The Stllte Act is good and
in effect complies with the requirements of s. 15 of the Central Act, because, it is possible to find out the stllge at which purchase tax become•
lcviable on goods mentioned in Schedule C, both in cases where the purchasers are registered dealers and in cases where unregistered dealen in·
tcrvene. Under ss. 4 and S of the Act the stage Is the first purchase
which Is not exempt from tuatlon or which Is no! deductible from the
taxable turnover of a dealer under s. 5(2) of the State Act. For eumple,
if A buys cotton and sells It to B and B sells to C, where all are register·
cd dealers, if A is liable to pay purchase tax, B and C could say to the
u~sessing authority that they are exempt from paying purchase tax. Since
A would be Interested in obtaining the declaration from B for clalmlll!!
exemption under s. 5(2)(a)(vi) and B would be lntetested in knowing
whether A's was the first taxable purchase, they will behave like ordinary
husinc•smen and know the true position as to whether A wa• liable or
not. · If A's sale was within and B's sale beyond, the period of 6 .months
mentioned in s. 5(2) (a) (vi), B will be liable to pay purchase tax and
the purchaser from him
would be exempt. If in the illustration C is
an unregistered dealer, B will be liable to pay purchase
tax
because
he cannot claim exemption under s. 5(2) (a)(vi). If B is also an unregistered dealer, B would be liable and C would be exempt. If B is an
unregistered dealer, and C is a registered dealer, B wlll be liable unless
he obtains the prescribed declaration
from C. But if there is double
taxation due to mischance in the case of registered dealers or ignornnce in
. the case of unre~•tered dealers, the Act cannot be treated as void for
F
that reason especially when there is a suitable provision for refund.
[S93C..CJ; S94A.C, E-01
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Modi Mlll.1 v. C.1.T. Punjab, [1965] 1 S.C.R. 592, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2386·
2388 of 1966,
Appeals from the judgment and order dated November 23.
1965 of the Punjab High Court in Civil Writ Nos. 1591 of 1963
and 1913 and 1914 of 1962 respectively.
S. T. Desai, A. N. Sinha, C. D. Garg and B. P. Jira,. for the
appellant (in C.A. No. 2386 of 1966).
H. L. S/1ibal, A. N. Sinha, C. D. Garg and B. P. Jha, for the
appellant (in C. As. Nos. 2387 and 2388 of 1966).
Bishan N(JJ'ain, 0. P. Malhotra and R. N. Sachthey, for the
r~pondents (in all the appeals).
580
SUPREME COURT REPORTS
(1967] 3 S.C.R.
The Judgment of SUBBA R.Ao, C.J., SHAH
1 and VAIDIALIN•
GAM, JJ. was delivered by VAIDIALINGAM, J. S~t. J. on behalf
of hims.elf and RAMASWAMI, J. delivered a partially dissenting
Opinion.
Vaidialingam, J.
In all these three appeals, on certificate,
the common judgment of the High Court of Punjab, dismissing
the three writ petitions filed by the appellant, is under attack, by
Mr. S. T. Desai, learned counsel for the appellant.
The appellant, who is the same in all these appeals, is. the
Bhawani Cotton Mills Ltd., running a cotton ginning factory,
and engaged in the business of manufactming yarn from cotton.
It is a dealer, registered under the Punjab General Sales Tax
Act, 1948 (Punjab Act. No. XLVI of 1948), hereinafter called
the Act.
The appellant filed returns for the assessment years
1960-61, 1961-62 and 1962-63. It had-paid a certain amount
of tax which, according to it, was alone due from
it.
But,
according to the appellant, it was not liable to P!IY Central sales
tax on the purchase of cotton during the relevant
accounting
years.
The appellant had taken various grounds of ~ttack, before the assessing authority, but the most important contention
rarsed, appears to have been that the material provisions iii the
Act, particularly the second proviso to s. 5 (1) and cl. (vi) of
s. 5(2)(a), of the Act, enabling the State to collect purchase tax,
in respect of cotton, are opposed to the material provisions of
the Central Sales Tax Act, 1956 (Act LXXIV of 1956) (hereinafter called the Central Act).
The appellant pleaded that it
was not liable to pay, in consequence,_ any purchase tax, for the
assessment years in question, in respect of cotton
The Excise & Taxation Officer, Ferozepore, did not accept
the plea of the petitioner-appellant regarding its non-liability to
pay the purchase tax on cotton. He, accordingly, passed orders
of assessment, including the turnover representing the purchases
of cotton made by the appellant. The l!Ssessment orders for the
years 1960-61 and 1961-62. are dated November 15, 1962, and
for the assessment year 1962-63, is dated July 30, 1963.
The appellant, thereupon, filed Civil Writ Petitions, Nos. 1913
and 1914 of 1962 and 1591 of 1963, challenging the assessment
orders for the years 1961-62 and 1960-61, and 1962-63 respe<:tively.
The High Court, by its common order, rejected the
writ petitions filed by the appellant and confinned the orders of
assessment. passed by the assessing authority.
Tl1e common question, that arises for consideration, in these
three appeals, is as to whether the second proviso to s. 5 (1) and
cl. (vi) ef s. 5{2)(a) of the Act, are opposed to any of the relevant provisions of the Central Act.
A further question arises
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BHAWANI COTTON MILLS v. PUNJAB (Vaidialingam, /.) 58!
A
in Civil Appeals Nos. 2387 and 2388 of 1966, regarding the
validity of a Notification, issued by the State Government, under
s. 5 of the Act, on September 26, 1961. We shall consider this
further question, after expressing our opinion, on the more important question, which is common to all the appeals.
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In order to appreciate the contentions that have been taken
before us, by Mr. S. T. Desai, learned counsel for the. appellant,
and Mr. Bishan Narain, learned counsel for the State, it 1s necessary to refer to the relevant provisions in both the Acts. It is
only necessary to refer to the provisions of the Act, as they stood
on April 1, 1960.
The Act of 1948, has been amended from
time to time, and it may not be necessary
t.o refer
t~ those
amendments, excepting on one aspect, when we deal with the
validit~ of the Notification, referred to earlier.
Coming to the Act, according to its preamble, it is an Act
to provide for the levy of a general tax on the sale or purchase
of goods in Punjab;
The expressions "dealer", "goods", "prescribed"' "purchase"' "sale"' uturnover" and "year" are defined
in els. (d), (e), (f), (ff), (h), (i) and (j) of s. 2. Particularly,
s. 2(ff), defining- "purchase'', is as follows :-
"2.(ff) In this Act, unless there is anything repugnant in the subject or context,-
'purchase' with all its grammatical or cognate expressions, means the acquisition of goods specified in
Schedule C for cash or deferred payment or other valuable consideration otherwise than under a mortgage,
hypothecation, charge or pledge."
In Schedule C ·to the Act, the item with which we are concerned,
relates to cotton, and it is as follows :-
"Cotton, that is to say, all kinds of cotton (indigenous or imported) in its
unmanufactured
state,
whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste."
Therefore, the definition of the expre$sion "purchase", has reference to the goods specified in Schedule C.
The expression
"turnover", in s. 2(i), will include the aggregate of the amounts
of sales and purchases a~d parts _of sales . and purchases actually
made ~y any dealer, durmg the given penod. No doubt, certain
deductmns are also. mentioned in the definition of that expression.
In thes~ appeals, smce we are concerned only with tax on purchases, 1t is not necessary for us to advert to the
definition of
'.'sale", in s. 2(h), except to note that it excludes goods specified
m Schedule C.
Section 4 deals with the incidence of taxation,
a dealer, whose gross turnover, during the year, and it makes
in
question,
582
SUPREME COURT REPORTS
[19~7] 3 S.C.R.
exceeded the taxable quantum, being liable to pay tax on all sales
and purchases, subject to the provisions of ss. S and 6. In fact,
the purchases, for jleing made liable, should have been e.~tcd
after tho cOlllllWncement of the Amendment Act of 1958, amending the original Act.
Section 4(2·A) provides that no tax on.
the sale of any goods shall be levied, if a tax on their purchase
is parable under the Act, and this is notwithstanding an)'lhing
contained in sub-ss. ( 1) and (2) of s. 4. The effict Of this provision is that if a tax on purchase is payable, then, in respect
of the same goods, no tax shall be levied on their sale. Sub-s. ( 5)
of s. 4 defines the expression "taxable quantum''. Section S deals
with the rate of tax and it provides for )evying a tax, on the tax,
able tumovet of a dealer, at rates not exceeding six naye paise
in a rupee, as the State Government may, by· notification, dueci,
and the levy must be subject to the provisions of the Act.
~e
second proviso to s. S ( 1) is, as follows :-
"Provided further that the rate of tax shall not ex·
ceed two naye paise in a rupee in respect of any dee·
Jared goods as defined in clause ( c) of section 2 of
the Central Sales Tax Act, 1956, and such tax shall
not be levied 011 th!' ~urchase or sale of such AOOds at
more than one stage. '
The expression "taxable turnover" is defined in S• s (2) I but, in
arriving at the taxable turnover, the various deductions, men·
tioned in the sub-clauses of s. 5(2)(a) and s. S{2)(b), are
exempt.
Sub-cl, (vi), of s. S ( 2) (a), which mentiom OJIC of the
items which is deductible in arriving at the taxable turnover is.
as follows :-
" .... turnover during that period on the purchase
of goods which are sold not later than six months after
the close of the year, to a registered dealer, or in, the
course of inter-State trade or commerce, or in the
course of export out of the territory of India :
Provided that in the case of such a sale to a regis·
tered dealer, . a declaration, in the prescribed form and
duly filled and signed by the registered dealer to w)!om
the goods are sold, is furnished by the dealer claiming
deduction."
Section 7 deals with the registration of dealers.
Section 10
relates to payment of tax and the filing of returns. Its sub-s. ( 1)
provides that the tax payable, under the Act, shall be paid in
the manner provided, at such intervals as may be prescri])ed.
It may be mentioned here that there is no dispute that the· appellant is one of those types of dealers who has to send quarterly
returns, within the time specified. Sub-s. ( 4) of s. 10 makes it
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B
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BHAWANI COTTON MILLS v. PUNJAB (Vaidialingam, J.) 583
obligatory on the registered dealer tq pay the full amount of tax
due from him, under the Act, according to his returns, before
the returns are furnished, and it provides for the returns being
accompanied by the Treasury or Bank receipts evidencing such
payment. It is only necessary to note that the appellant, when
sending its quarterly returns, during the middle of a year, has to
pay the amount of tax, in accordance with that return, and that
return should also show the gross turnover, in accordance with
the Act. Sub-s. (6) of s. 10 makes a dealer liable for penalty,
in the circumstances mentioned therein.
Section 11 of the Act deals with assessment of tax. Section
12 deals with refunds and, in the circumstances mentioned therein, a registered dealer can claim refunds from and out of the
amounts which he has already paid.
Section 23 provides for
offences and penalties; and, particularly, cl. (b) of s. 23 (1) makes
failure, without sufficient cause, to submit a return, as required
by s.10(3), an offence.
Section 27 enables the State Government to make rules under the Act.
Rules have been framed, by the State Government, and it
is only necessary to refer to some of the rules. Rule 20 makes
it obligatory on the dealers concerned, other than those referred
to in rr. 17, 18 and 19, to furnish returns,_ quarterly, within thirty
days from the expiry of each quarter. We have already referred
to the fact that the appellant is liable to send quarterly returns.
Rule 27-A is as follows :-
"A dealer who wishes to deduct from
his gross
turnover the amount in respect of a purchase on the
ground that he is entitled to make such · deduction
under sub-clause (vi) of clause (a) of sub-section (2)
of section 5 of the Act, shall append to his return in
form STVIDA, a list in form STXXVlIB or form
STXXVIIC as the case may be, and produce on demand by the Assessing Authority a declaration in
writing in form. . . . . . . . by the dealer to whom such
goods are sold or by his agent."
Rules 48 to 55 deal with the procedure to be adopted for obtaining a refund of tax paid, under s. 12 of the Act.
Co!Iling to the Centr~l Act, o~e of the P,UqJOscs sought to
be achieved by that Act 1s to specify the restncuons and conditions to. which State .laws, imposing taxes on the sale or purchase
of certam g?<Jds, which are declared to be of special importance,
sh8Jl be sub1ect. The expressions "dealer" and "declared goods"
are defined in ss. 2(b) and 2(c), respectively. "Declared goods"
~1eans goods declared, under s.14, to be of special importance in
mter-State' trade or commerce.
Section
14 enumerates
the
584
SUPREME COURT REPORTS
[J 96 7) 3 S.C.k.
various good~ which are declared to be of special importance in
A
inter-State trade or commerce.
One of the items, so declar!d,
is "cotton", under item (ii), which is described as follows :-
"cotton, that is to say, all kinds of cotton ( indigenous or imported)
in its unmanufactured state,
whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste."
B
Section 15, imposing restrictions and conditions in regard to
tax on sale or purchase of declared goods, within a State 'is as
follows :-
"15. Every sales tax law of a State shall, in so far
as it imposes or authorises· the imposition of a ,tax on
c
the sale or purchase of declared goods, be subject to
the following restrictions and conditions, namely :-
(a) the tax payable under that law in respect of
any sale or purchase of such goods inside the State
shall not exceed three per cent of the sal~ or purchase
price thereof, and such tax shall not be levied at more
D
than one stage;
(b) where a tax has been levied under that Jaw in
respect of the sale or purchase inside the State of any
declared goods and such goods are sold in the course
of inter-State trade or commerce, the tax so levied shall
be refunded to such person in such manner and subject
E
to such conditions a• may be provided in any law in
force in that State."
Pausing here for a minute, it may be stated that the attack,
regarding the validity of some of the provisions of the Act, by
the appellant, is rested on s.15 (a) of the Central Act, on the
ground that such a levy of purchase tax, regarding cotton is
F
neither definite nor ascertainable in the Act and that, as 'the
provisions now stand, there is a possibility of the tax being levied
at more _than one stage. According to the appellant, the State
legislation, which deals with the imposition of tax in respect of
a sale or purchase of declared goods, must conform to the provisions of s.15(a) of the Central Act. The ingredients of those
G
provisions are : (i) In respect of "declared goods", a tax, either
on sale or purchase, alone, can be levied; and it _cannot be on
both sale and purchase.
(ii) The rate of tax should not exceed
the maximum limit fixed bv the Central Act, and (iii) The tax
can be levied only at one "stage. The essence of a one-stage
taxation consists of fixation of a single point or stage, either by
H
the State Act or the rules framed
thereunder. In this case,
according to the appellant, it has to send quarterly returns, even
during the accounting year and, as per s. 10(4) .of the Act, it
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BHAWANI COTTON MILLS v. PUNJAB (Vaidia/ingam, !.) 585
has to pay also tax, in accordance with the returns submitted
by it for every quarter. In the returns that are being sent, the
dealer will have to include all purchases' of cotton, effected by
him during the quarter for which the return is sent.
There is
no indication, either in the Act or in the rules or the forms prescribed, as to whether the persons, from whom the app~llant purchased cotton, have paid tax or _!lot.
~tion 15 of the Central
Act is not restricted only to registered dealers.
'flt~re will also
be nothing to guide the appellant to know as to whether the
goods, purc:hased by it, have been sold to it by its vendor within the period mentioned in cl. (vi) of s. 5 (2)(a) of the Act.
Under thase circumstances, there is always a possibility, or even
a certainty, of more persons than one having paid tax or being
made liabll~ to pay tax in respect of the same goods at diff~rent
stages.
That is quite opposed to the provisions of s.15(a) of
the Central Act.
Even otherwise, it is pointed out that if a person has purchased cotton and sells it after the period provided
for in s. 5 ( 2 )(a) (vi) , that party is liable to pay sales tax and
would hav1~ also paid the same.
Another purchaser from the
said party will al~o be liable to pay tax, Q.n.the same commodity,
if he. sells the goods, after the period mentioned in cl. (yi). '.fhat
is, two persons are made liable for payment of tax, in respect of
the same commodity. In other works, the purchases of the same
item of dec:lared goods, by the persons indicated above, are made
liable for tax, whereas under the Central Act, there can be only
one levy and collection of tax at one stage, either on sale or on
purchase.
Furthe1~ it is argued that the second proviso to s. 5 ( 1) of the
A1:t, is conirary to s.15(a) of the Central Act, inasmuch as the
main section, which levies the rate of tax viz., s. ~ (1 ). as well as
the Notification issued under it, clearly show that the Act levies
tax at a far higher rate than the maximum provided under s. 15 (a)
of the Central Act. Under these circumstances, it is pointed out,
that both the second proviso to s. 5 (1), and cl. (vi) of s. 5 (2 )(a).
of the Act, will have to be struck down.
Counsel has also drawn our attention, to the relevant provisions in the Sales-tax Acts in force In the States of Madras
Mysore, Andhra Pradesh and Uttar Pradesh,· where the stage. ai
which the .. tax is to be levied either on purchase or on sale, has
~n definitely and clearly indicated. Such a provision, it is
pointed out, has not been made in the Act.
On behalf of the State, it is urged that the provisions of the
Act are quite consistent withs. 15(a) of the Central Act. Coun-
~l points out that the second proviso to s. 5( 1) of the Act, makes
1t very clear that the. rate of tax, in respect of declared goods,
shall not exceed the rate mentioned in s.15(a) of the Central
586
SUPREME COUR'f REPORTS
[1967] 3.S.C.R.
Act, either on purchase or on sale. Counsel afso points out that
the said proviso further reiterates that the levy of tax, either on
purchase or on sale, shall not be at more than· one stage.
eounsel further developed his argument by staung that the
normal rule, under the Act, in respect of decla~ed goods, is to
levy thti tax, on sale or purchase, at the very first sta'ge, that is,
when the first sale or first purchase talces place. Therefore, the
stage is definitely fixed, but the Act itself gives, as will be seen
by sub-s. (2) of s. 5, various types of transactions which are to
be excluded, in arriving at the dealer's taxable turnover.
It is
open to a dealer to claim exemption, in respect of any particular
transaction, under one or other of the various clauses in s. S (2).
When that is so, the stage at which the tax is· levied, gets changed,
and the liability passes to the next dealer, urtless he himself is
able to claim any exemption. But, ultimately, it is only one
transaction, ·of sale or purchase, that is made Ua!)le
to tax.
Counsel also points out that the first proviso to s. S ( 1 ) , of the
Act, which is quite in conformity with s.15(a) of the Central
Act, is perfectly valid.
It Is pointed out that in relipect of persons clauning exemption, under cl. (vi) of s. 5 ( 2 )(a), the procedure to be adopted is indicated in r. 27 A, of such a purchaser
getting a declaration, in the form mentioned therein, from the
dealer, to whom such goods are sold, or by his agent. Therefore,
under those circumstances, if once a dealer gives a peclaration
to his vendor, the former will clearly know that the latter is
exempt from taxation, and the liability to pay tax is his, unless
he is able to pass it on to others. There is no uncertainty, in
the matter of fixing the stage, regarding the levy of sale or purchase tax.
Therefore, that provision also is not violative of the
Central Act.
Counsel also urges· that in case a party· is eligible
for refund, on the ground that he is not liable to pay, in ~pect
of any particular purchase, ample provision is made for obtaining refund, under s.12 of the Act.
Therefore, under those circumstances, the State presses for the decision of the Punjab High
Court, being upheld.
We are not 'impressed with the contentions of the
learned
counsel for the State. A perusal of the judgment, under attack,
shows that the learned Judges themselves were very much impressed by the various aspects presented before them, on behalf
of the appellant. In fact, the learned Judges observe that the
various difficulties, pointed out 1Jr the petitioner before them,
did exist in the actual working of the Act, but the view of the
High Court was that s.12 of the Act provided for obtaining a
refund and, therefore, though the petitioner might have to deposit.
initially, the tax in respect of th~ purchases, wh~n the quarterly
returns were being, submitted it \vas open to it to obtain refunds.
at the appropriate stage.
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BHAWAN! COTTON MILLS v. PUNJAB (Vaidialingam. /.) 587
The provisions of the statutes, in .<luestion, have been referred
to by us earlier.
Section 15(a), of the Central Act, makes it
mandatory that the tax shall not be levied at more than one
stage. In this case, the State does not levy any tax:, both on the
sale and purchase, of the same declared goods. The second proviso to s. 5 ( 1) is, no doubt, substantially in accordance with the
provisions of s. 15 (a), of the Central Act. That proviso was,
absolutely necessary, because, without it, it would have been
prima facie open to the State to levy tax: under s. 5, at a higher
rate than that indicated in the Central Act, in wliich case it would
certainly have peen illegal.
The mere existence of the second
proViso, to s. 5 ( 1) of the Act, does not materially advance the
case of the State.
That same proviso, came up for consideration, before this
Court, in Modi Mills v. C.I.T., Punjab('). In dealing with the
proviso, Hidayatul!ah, J., speaking for the Court, observed, at
p. 600 :
"The meaning or the intention of cl. ( 3) of
Art.
286 is not to destroy all charging sections in the Sales
Tax Acts of the States which are .discrepant with s.15
la) of the Central Sales Tax Act, but to modify them
in accordance therewith. The law of the State is declared to be subject to the restrictions and
conditions
contained in the law made by Parliament and the rate
in the State Act would pro tanto stand modified. The
effect of Art. 286(3) is now brought out by the second
proviso to s. 5 ( 1 ) . But this proviso is enacted out of
abundant caution and even without it the result was
the san1c."
From the observations, noted above, it will be clearly seen that
the proviso, in question, does not serve any material purpose,
because, even if that proviso did not exist, in the State Act, the
authorities cannot levy tax, on declared goods, at a rate higher
than that laid down in the Central Act. Therefore, the mere in3unclion, by the Legislature, as contain!:d in th(' si;cond proviso
to s. 5 (1 ) , that the rate should not be higher tha1' the one fixed·
in ~he Cen.tral A;ct, and that the lev~ must be at one ~tage, as
agam menuoned m the Central Act, will be of no avail unless the
A~t, or the rules framed. under it, make it very clear' that there
will be no levy or collecuon of tax, except from the persons who·
are bound to pay, as per the Central Act. It is here that there
is considerable difficulty caused by the absence of any provision,
either in the Act or in the rules or the forms, indicating 'the stage
at which the tax is to be levied. In the case of commodities,
(1) [I965J t s.c.R. 592.
588
SUPREME COURT REPORTS
[1967] 3 S.C.R.
like cotton, which come under the category of "decl~ed goods .. ,
tax can be levied only at a single point, as is made clear by s.15
(a) of the Central Act, and, in our opinion, there can be no
legal liability for payment of tax accruing, until and unless the
Act, or the rules framed thereunder, prescribe a single point for
taxation. For the matter of that, even in the final return to be
sent by a dealer, under the Act, the dealer will have to show, in
the taxable turnover, all purchases of cotton effected by him during the accounting year.
We have already referred to the fact
that, along with the returns, the tax payable on the basis cif
those returns, will have to be paid. At that ·stage, thti question
naturnlly arises, as to whether there is anywhere in the Act or
1he rules any provision, by which the person, sending the return,
·will be able to know that the tax, in respect of the declared
goods purchased by him, has already been paid by another
dealer and that the value of the purchases, effected by him, need
not be shown in his return. He cannot take, an off-Jiand chance,
in this matter, because there are very heavy penalties imposed
on a dealer, for failure to include, in the returns sent by him.
any transactions in respect of which he is liable to pay tax. If
that is the position at the end of a year, when the fin~! return is
sent, the position becomes still worse when the quarterly returns,
accompanied by payment of taxes, are to be sent during the
couise of the accounting year itself.
Counsel, for the respondent, has pointed out that, if a dealer
-wants to claim exemption, under sub-cl. (vi) of s, 5(2)(a),
r. 27 A provides for his getting a declaration from the dealer, to
-whom the goods are re-sold, in which case, the dealer is absoh·ed
from the liability to pay tax. We hiwe gone through the various
·statements contained in the said Rule, as well as the Forms, to
which it refers, but they are not decisive, either way. There will
also be cases where a non-registered dealer may have intervened
and, even if such dealers intervene, it is clear that under s. 15(a)
of the Central Act, the tax cannot be levied at more than one
stage. There is no machinery by which a dealer can ascertain
whether his vendor, of the declared goods, has paid the tax already. Even otherwise, it will be seen, that if a dealer, A, sells
the declared goods, to B, six months after the close of the year
(B being a registered dealer), A becomes lia6le to purchase tax.
But, if B sells the identical declared goods, again, after the period
mentioned in sub-cl. (vi), he will also be liable to pay purchase
tax. That means, in 1espect of the same item of dcc!nred goods.
more than one person is made liable to pay tax and the tax is
also levied at more . than one stage.
That is not permissible,
under s. 15(a) of the Central Act. If goods are resold to a nonTegistered dealer, within the period, sub-cl. (vi), will not help
·the original purchaser.
We may also point out, nt this stage,
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BHAWANI COTTON MILLS v. PUN.JAB (Vaidialingam, !.) 589'
that sub-cl. (vi), of s. 5(2)(a), negatives the assumption that
the . normal rule, under the Act, in respect of declared goods, is
to levy the tax on the first purchaser.
Mr. Bishan Narain, counsel for the State, faced with these
difficulties, no doubt referred us to the provisions contained in
s. 12 of the Act, relating to refunds.
Counsel pointed out that
the manner in which a purchaser can claim refunds, is also elaborately indicated· in rr. 48 to 55 of the Rules. If persons, like the·
appellants, satisfied the authorities concerned that they had paid
amounts, by way of tax, which they were not .legally bound to
pay, it was open to th~ to ask for refunds of such excess
«mounts paid.
Therefore, even assuming that, in the first
instance, the appellant has paid the purchase tax and, later on,
it is found that it is not liable for the same, s. 12 of the Act would
afford adequate relief. We are· not impressed with this argument.
The position is not so simple. Even in the matter of obtaining
refunds, there can be no controversy, that the appellant will have
to place, before the officer concerned, particulars of transactions
connectr.d with the commodity, in question and also the basis
on which it claims the relief. It will be absolutely difficult, if not
impo;sible, for persons °like the appellant, tQ collect materials in
this behalf, because, there is no provision, contained either in the
.Act or the rules, on the basis of which it will be entitled to be
'upplied with all the material Information, relevant, for sustaining a request for refund. If the Central Act makes it mandatory
that the tax can be collected only at one stage, in our opinion,
it is not enough for the State to say that a person, who is not
liable to pay tax, must, nevertheless, pay it in the first instance,
and then claim refund, at a later stage. We may state that the
question as to how far a party can ask for refund, without the
order of assessment being set aside, by ae£ropriate proceedings,
is highly doubtful; because, at the time whe·n the actual order of
assessment is passed, in certain cases, it may not be possible for
a party to say whether he is entitled to exemption, or not, under
sub-cl. (vi) of s. 5(2l(a) of the Act. If a person is not liable
for payment of tax at all, at any time, the collection of a tax from
him, with a possible contingency of refund at a later stage, will
not make the original levy valid; because, if particular sales or
purchase are exempt from taxation altogether, they can never
be takc:n into account, at any stage, for the purpose of caTculating
or arriving at the taxable turnover and for levying tax.
In this connection, we may refer to the observations of this
Court, in A. V. Fernandez v. The State of Kerala('). This Court,
after referring to the observations made earlier in Messrs. Chatturam Hori/ram Ltd. v. Commissioner of Income-tax, Bi/Jar &
(I) [19l7] S.C.R. 837.
590
SUPREME COURT REPORTS
[1967] 3 S.C.R.
Orissa('), regarding the three stages in the imposition of tax, being
the declaration of liability, assessment, and recovery, said, at
p. 852:
"If there is a liability to tax, imposed under the
terms of the taxing statute, then follow the provisions
. in regard to the assessment of such liability. If there is
no liability to tax there cannot be any assessment either.
Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of
assessment and the exact sum which the dealer is liable
to p~y must be ascertained without any reference whatever to the same.
There is a broad distinction between the provisions
contained in the statute in regard to the exemptions of
tax or refund or rebate of tax on the one hand and in
regard to the non-liability to tax or non-imposition of
tax on the other. In the former case, but for the 'provisions as regards the exemptions or refund or rebate of
tax, the sales or purchases would have to be included
in the gross turnover of the dealer because they are
prima facie liable to tax and the only thing which the
dealer is entitled to in respect thereof is the deduction
from the gross turnover in order to arrive at the net
turnover on which the tax can be imposed. In the latter
case, the sales or purchases are exempted frQID taxation
altogether. The Legislature cannot enact a Jaw imposing or authorising the imposition of a tax thereupon as
they are not liable to any such imposition of tax. If
they are thus not liable to tax, no tax can be levied or
imposed on them.