# POLESTAR ELECTRONIC(P) LTD v. ADDL. COMMISSIONER, SALES TAX DELHI

- **Citation:** [1978] 3 S.C.R. 98
- **Court:** Supreme Court of India
- **Decided:** 1978-02-20
- **Case number:** Civil Appeal No. 1290 of 1977
- **Bench:** M. H. Beg, P. N. Bhagwati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/polestar-electronic-p-ltd-v-addl-commissioner-sales-tax-delhi-7480
- **Pages:** 29

## Headnote

l11terpretation of statutes-Pfa;n and
fUlturaf nzeaning--Construction
of a
taxing statute-letter of law or spirit of la1v-Construction of provi.Jion exposing an assessee to penalty,
Bengal Finance (Sales Tax) Act, 1947 as applied to Union Territory
of
Delhi-Sections 2(5) & 5(2)(a)(ii)-To get the benefit of sale for resale or
to a manufacturer-Whether subsequent sale (J'hould be wi!/1in Union Territory
of Delhi.
Bengal Finance (Sales Tax) Act, 1947 was applied to the Union Terdtorr.
of Delhi subject to certain
modifications by a notification
dated 28-4-195 .
Every dealer whose gross turnover exceeds the taxable quantum is liable to
pay tax on sales effected by him after a specified date and while ho is liable
to pay tax, he! cannot carry on business u'llless he gets himself registered and
possesses a registration certificate. The tax is leviable on a dealer in respect
of his taxable turnover. To compute
taxab:e turnover of a
dealer, certoa.in
deductions are required to be made from h's gross turnover and one of the
deductions is that set out in secticn
5(2) (a) (ii). What is permitted to
be
deducted under this provision is turnover of sales to a registered dealer of soeds
of the class or classes specified in his certificate of registratiion as being mten·
ded for resale by him or for use by him as raw materials in the manufacture
of goods for sale.
The first proviso enacts that the turnover of sales covered
by s. 5(2)(a)(ii) would be deductable only if a declaration duly filled in and
sign.ed by the Registered! dealer to whom the goods are sold and containing
the prescribed pa;~ticulars iri prescribed form is furnished by the Sellin$ dealer.
The requirement of such declaration as condition of deduction is clearly intended
to prf:vent fraud -and promote administrative efficiency. The second proviso
provides that where any goods specified in ~e certificate of registration are
purchased by a registered dec>.!er As being intended for resale· by him or for
use by him as raw materials in the manufacture of goods for sale but are
utilised by him for any other purpose the price of the goods purchased •hall
be allowed to be deducted from the gross turnover of tihe selling -dealer but
shall be included in the taxable turnover of the purchasing dea1er.
There are broadly two groups in which the appeals and the 'WTit petitions
can be divided. One group consists of appeals where the assessees purchased
goods of the cla'ls spe·cified in thC' certificate of registration as being_ intended
for resale by them and furnished to the dealers selling the goods, declarations
in the prescribed form stating that the
goods were
intended for resale and
thereafter resold the goods though not
within the territory of Delhi.
'I he
second group consists of appea.ls where the assessees purchased goods of the
class specified in the certificate of registration as being intended for use by
them as raw materials in the manufacture of goods for sale and furnished to
the prescribed particulars in prescribed form is furnished by the selling dealer,
the dealers selling the goods declarations in the prescribed form stating that
the goods were purchased by them for use as raw materials in the manufacture
of goods for sale and thereafter used the goods purch~sed as raw materials
in the mamufactnre of goods, in some· cases outside Delh: and in some others
inside, but in the lat!er. so.1d the: goods so manufactured outside Delhi.
TheHigh Court of Delhi negatived the oonteintion of the assessees that they
'W·ere
not covered by the second proviso to s. 5(2)(a)(ii). The High Court took
the view that for the purposes of s. 5(2) (a)(ii) and the second proviso, re6ale
of the goods purchased was confined to resa_Je inside Delhi and so also u..se
of the goods purchased as raw materials in the mooufacture of goods
and
'
i
POLESTAR LTD. v. c.s.T.
99
sale of manufactured goods were required to be inside Delhi and, theref<?re,
A
if the assessees resold the goods outside Delhi or used

## Text

_Characters 0–39,982 of 92,386. This is a partial read: ask again with offset=39982 for what follows._

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98
POLESTAR ELECTRONIC(P) LTD.
v.
ADDL. COMMISSIONER, SALES TAX DELHI
February 20, 1978
(M. H. BEG, C.J. AND P. N. BHAGWATI, J.]
l11terpretation of statutes-Pfa;n and
fUlturaf nzeaning--Construction
of a
taxing statute-letter of law or spirit of la1v-Construction of provi.Jion exposing an assessee to penalty,
Bengal Finance (Sales Tax) Act, 1947 as applied to Union Territory
of
Delhi-Sections 2(5) & 5(2)(a)(ii)-To get the benefit of sale for resale or
to a manufacturer-Whether subsequent sale (J'hould be wi!/1in Union Territory
of Delhi.
Bengal Finance (Sales Tax) Act, 1947 was applied to the Union Terdtorr.
of Delhi subject to certain
modifications by a notification
dated 28-4-195 .
Every dealer whose gross turnover exceeds the taxable quantum is liable to
pay tax on sales effected by him after a specified date and while ho is liable
to pay tax, he! cannot carry on business u'llless he gets himself registered and
possesses a registration certificate. The tax is leviable on a dealer in respect
of his taxable turnover. To compute
taxab:e turnover of a
dealer, certoa.in
deductions are required to be made from h's gross turnover and one of the
deductions is that set out in secticn
5(2) (a) (ii). What is permitted to
be
deducted under this provision is turnover of sales to a registered dealer of soeds
of the class or classes specified in his certificate of registratiion as being mten·
ded for resale by him or for use by him as raw materials in the manufacture
of goods for sale.
The first proviso enacts that the turnover of sales covered
by s. 5(2)(a)(ii) would be deductable only if a declaration duly filled in and
sign.ed by the Registered! dealer to whom the goods are sold and containing
the prescribed pa;~ticulars iri prescribed form is furnished by the Sellin$ dealer.
The requirement of such declaration as condition of deduction is clearly intended
to prf:vent fraud -and promote administrative efficiency. The second proviso
provides that where any goods specified in ~e certificate of registration are
purchased by a registered dec>.!er As being intended for resale· by him or for
use by him as raw materials in the manufacture of goods for sale but are
utilised by him for any other purpose the price of the goods purchased •hall
be allowed to be deducted from the gross turnover of tihe selling -dealer but
shall be included in the taxable turnover of the purchasing dea1er.
There are broadly two groups in which the appeals and the 'WTit petitions
can be divided. One group consists of appeals where the assessees purchased
goods of the cla'ls spe·cified in thC' certificate of registration as being_ intended
for resale by them and furnished to the dealers selling the goods, declarations
in the prescribed form stating that the
goods were
intended for resale and
thereafter resold the goods though not
within the territory of Delhi.
'I he
second group consists of appea.ls where the assessees purchased goods of the
class specified in the certificate of registration as being intended for use by
them as raw materials in the manufacture of goods for sale and furnished to
the prescribed particulars in prescribed form is furnished by the selling dealer,
the dealers selling the goods declarations in the prescribed form stating that
the goods were purchased by them for use as raw materials in the manufacture
of goods for sale and thereafter used the goods purch~sed as raw materials
in the mamufactnre of goods, in some· cases outside Delh: and in some others
inside, but in the lat!er. so.1d the: goods so manufactured outside Delhi.
TheHigh Court of Delhi negatived the oonteintion of the assessees that they
'W·ere
not covered by the second proviso to s. 5(2)(a)(ii). The High Court took
the view that for the purposes of s. 5(2) (a)(ii) and the second proviso, re6ale
of the goods purchased was confined to resa_Je inside Delhi and so also u..se
of the goods purchased as raw materials in the mooufacture of goods
and
'
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POLESTAR LTD. v. c.s.T.
99
sale of manufactured goods were required to be inside Delhi and, theref<?re,
A
if the assessees resold the goods outside Delhi or used them as raw ma-t~n~Is
in the manufacture outside
Delhi, or even if the
manufacture ·woo inside
Delhi sold the goods manufactured outside Delhi, there was utilisation of the
goods by the assessees for a purpose other than that for which they were purchased an4 hence the· second proviso to s. 5(2) (a) (ii) was attracted a.:J<l the
price of the goods purchased was liable to be included in, .. ,the taxable turnover of the assessees.
The question for cons1deration \.Va1:. whether '·resale" under s.
5(2)\a) (ii)
B
ct'lld the second proviso means resale any where without any geographical limr-
~
tation. or it is confined only to resale inside Delhi.
J
The Revenue contended
(i) the words "ins'.de the L'nion territory or Delhi" are not to be found
ins. 5(2)(a)(ii) and the second proviso but they must be read in these provisions as a matter of construction because
(a)
(b)
(c)
if resale
outside
Delhi were
held
to be
within the
ternts of
s. 5 (2) (a) (ii) and! the second proviso. the Union territory of Delhi
V.'Ould lose tax altogether in ca.ses where the goods were resold
outside Delhi. The intention of the Legislature was to recover tax
at only 0~1e1 point while the goods were in the stream of trade.
the Legislature had no legislative competence to tax sale . outside
Delhi. Therefore, resale within the meaning of s. 5(2)(a)tii) and
the second proviso could not possibly include resale outsiUe Delhi.
the words "by him"
following
upon
the
word
"resale"
in
s. 5(2)(a)(ii) and the second proviso clearly indicated that the
resale contemplated under these provisicns was resale by the purchasing dealer
~.s a registered
dealer and since the concept
of
registered dealer has relation only to sale inside Delhi, the resale
must be within the territory of Delhi.
Allowing the appeals and Writ Petitions,
HELD : J. It is a well settled principle of interpretation that a statutory eri.~
actment must or ordinarily be construed according to the plain natural meaning
of its language and that no words should be added, altered or modified unless
it is plainly necessary to do so in order to prevent a provision from being unin~
telligible absurd unreasonable unworkable or totally irreconcilable with the
rest of the statute.
[llOAl
c
D
E
R. v. Dakees [1959] 2 All E.R. 350. Federal Steam Navigatio11 Co. Ltd. v.
v. Department of Trade & llldustry, [1974] 2 All E.R. 97, Narayanaswami v.
F
Panr~ersalvarn & Ors. f19731 1 SCR 172 relied on.
2. Addition to er modification of words
used in statutory provision
is
generally not pern1issible but the court may depart from this rule to avoid a
ratent a.bsurdity. There are1 no words such as 'imide the Union territory of
Delhi" qualifying resale so as to limit it to resale within the territory of Delhi.
The· -Legislature could have easily used such words if its intention Wa':! to
confine resale within the territory of Delhi but it omitted to do so. [11 lA, B,
El
G
Attorney General-Sillen [1964] 2 H & C at 526 referred to.
The absence of specific words limiting resale inside the territory of Delhi
is not without significance and it cannot be made good by a process of judi·
cial construction. for to do so would be to attribute to the Legislature and
intention which it has not chosen to express and to usurp the legislative fnilctioin.
It is obvious that resale is subsequent ·sale after the first and it must,
therefore, have the sMne meaning as 'sale' defined it;t s. 2(g). The definition
of sale in s. Z(g) is a general definition
which does not limit it to a sale
H
inside- the territory of Delhi. Even a sale outside the territory of Delhi is
within the coverage of the definifon.
SectiQln 5(2)(a)(ii) does not see to
imrose any tax Ct;) resale. What it does is to provide deduction in respect of
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100
SUPREME COURT REPORTS
ll 978] 3 S.C.R.
sale . to a registered dea.ler.
Even under the second provisb, what is taxed is
the: Just sale made by the selling dealer and not the resale made by the purchasing dealer.
Thus there is no tax sought to be
imposed on the resale
under sec,tion 5(2)(a)(ii) or the second proviso a•.1d
the argument of Jack.
of legislative competence has no substance. It would be straining the language of the enactment toa much to say that the words '·by him" ilre intended
to mean by him~ a registered dealer.
(112B-D, E. G, 113D]
3. The argument of the Revenue that the Legislature could never have
intended that the Union territory of Delhi should be altogether deprived of
tax in cases of this kind is erroneous.
rt is not correct that the legislative
intent was to exempt the sale to the purchasing dealer only in those cases
\\•here the Union territory of Delhi \vould be able to recover the tax on resale
of the goods by the purchasing dealer.
It is nciW well settled that when
the Court is construing a statutory e~1actment the intention of the Lc,gislature
should be gathered from the Jang1wge used by it 111,J.d it is not permissible to
the court to speculate about the Legislative intent.
[114C-D]
Salo111a11 v. Salo111a11 & Co. Ltd. P897] A.C. 22. at 38 :tnG
llflck-Claw.\-on
l11ternatio11al Ltd. v. Papienverke Wnldhof-Aschaffenburg [1975] 1 All E.R.
810 al 814, relied on.
4. Section 5(l)(a)(ii) and the second proviso occur in, a taxing statute
and it is a well settled rule of interpretation that in construing a taxin2 statute
one must have regan.I to the strict letter of the law and not nlerely to
the
spirit of the Statute or the substance of the law.
[1 I6A]
Cape Brandy Syndicnt<: v. /11fa11d RP1·en11e Cnnunissioner [1921] 1 K. B. 64
referred to.
5. It \vould be flying in the face of \vcll settled rules of construction of a
taxing statute to read the words "inside the Un.ion territory of Delhi" in
section 5(2) (a) (ii) and the secondi proviso. when the plain U:nd undoubted
effect of the addition of such words \vOuld be to expose a purchasin'R" Oealer
to penalty.
IHI 16El
6. During the period the department administered the Act in West Beng11l
and for few years in Delhi, they administered it on the basis that resale was
not confined to resale inside the State of West Bengar or Union territory of
Delhi. It is true that the view of the department as to the meaning of
a
Statute which is administered by them is not admissible as an aid to construction, because wrong practice does not make the law, but long acquiescence of
the Legislature in the interpretation put upon an enactment may be rej?ardcd
as some sanctioti and approval of it.
The circumstance that for long years
the Legislature did not intervene to amend the law by adding words "ingide
the Union territory of Delhi" even though the Revenue was continually administering the Jaw on the basis that resale means resale anywhere does thtO\V
some light on the intention of the Legislature. The subsequent amencjmcnt
also throws light on the intention of the Legislature.
[117 A-E, 118A]
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1290 of 1977.
H
(Appeal by Special leave from the Order dated the 31-1-1977 of
the Additional Commr. of Sales Tax New Delhi in Appeal No. 665 of
1976-77).
AND
CIVIL APPEAL NO. 11 J I OF 1977
(Appeal by Special leave from the Judgment and Order dated the
17-7-1975 of the Allahabad High Court in C.M.W.P. No. 494 or
1975).
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POLESTAR LTD. v. c.s.T.
IO 11
AND
CIVIL APPEAL NO. 1352 OF 1977
(Appeal by Special Leave from the Judgment and Order dated the
30th April, 1977 of the Sales Tax Office at New Delhi).
AND
CIVIL APPEAL NO. 1110 OF 1977
(Appeal by Special Leave from the Judgment and Order dated the
22nd March, 1977 of the Sales Tax Officer at New Delhi in R.C. No
13754).
AND
CIVIL APPEAL NO. 1085 OF 1977
(Appeal by Special Leave from the Judgment and Order dated
30-3-1977 of the Sales Tax Officer, New Delhi.)
AND
CIVIL APPEAL NO. 236 OF 1976
(Appeals by Special Leave from the Judgment and Orders dated the
18th December 1975 of the Sales Tax Officer, Ward No. 40, Delhi for
the assessment year 1973-74 in Order No. 856A).
AND
CIVIL APPEAL NO. 456 OF 1976
c
(Appeal by the Special Leave from the Judgment and Order dated
the ·16th September, 1975 of the Delhi High Court in Civil Writ No.
E
343 of 1975).
AND
CIVIL APPEAL NO. 816 OF 1976
(Appeal by Special Leave from the Order dated the 30th June
1976 'of the Addi. Commr. of Sales Tax, New Delhi in Appeal No.
F
8945 of 1975-76).
AND
CIVIL APPEAL NO. 18 OF 1975
(Appeal by Special Leave from the Assessment Order No. 2667
dated the 6th September, 1974 of the Sales-tax Officer, Assessing
Authority, Ward No. 40, Delhi, for the year 1971-72).
AND
CIVIL APPEAL NO. 1522 OF 1974
(From the Judgment and Order dated the 26th April, 1974 of the
Delhi High Court in Civil Writ No. 1426 of 1973) .
AND
CIVIL APPEAL NO. 1526 OF 1974
G
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102
SUPREME COCRT REPORTS
I 1978] 3 S.C.R.
A
(From the Judgment and Order dated the 26th April, 1974 of the
Delhi High Conli in Civil Writ No. 947 of 1973).
B
c
AND
WRIT PETITIONS NOS. 166/77 & 329 OF 1975 WITH SLPs.
NOs. 2522 & 2524 OF 1977
F. S. Nariman (in CA 1290, 1085 & 1352) A. K. Sen (in 1111),
S. T. Desai (in 1110), Ravinder Narain,
Talat Ansari & Bairam
Sallgal (in CA 1290 & 111 lJ, Shri Narain (in CAs. 1352, 1085 &
1110) Arjun Anand for J. B. Dadachanji & Co. for the appellants in
CAS. Nos. 1290, 1111, 1085, 1352, 1110 & 1526.
Shyamala Pappu, J. Ramamurthi & R. Vaigai in CAs. 236, 456/76
718 of 1975 for the appellants.
Sardar Bahadur & Bishnu Bahadur Saharya for the appellant in
CA 1522 of 1974.
'
Yogeshwar Prasad, Rani Arora & Meera Bali for the appellant
1
D
CAs. Nos. 816 & in W.P. No. 166.
G. S. Chatterjee, D. P. Mukherjee & A. K. Ganguli for the Petitioners in SLPs 2522 & 2524.
K. B; Rohatgi & M. K. Garg for the petitioners in W.P. No. 329 /
75.
S. V. Gupte Attorney General (in CAs. 1290, 1352, 816 & 1110),
E
R. C. Chawla (in 1290 & W.P. 166 & CA 18/75) R. N. Sachthey and
A. Subhashini for the respondents in C.A. Nos. 1290, 1111, 1085,
1352, 1110, 236, 456, 816 of 1976, 18 of 1975, 1522 & 1526/74,
W.P. Nos. 166, 329 & SLPs. Nos. 2522 & 2524/77.
The Judgment of the Court was delivered by
BHAGWATI, J. These appeals raise a short but interesting quesF lion of law relating to the interpretation of section 5(2)(a)(ii) of
the Bengal Finance (Sales Tax) Act, 1941 as applied to the Union
Territory of Delhi (hereinafter, for the sake of convenience referred
to as Delhi). The Act was extended to Delhi subject to certain
modifications by a Notification dated 28th April, 1951 issued by the
Central Government in exercise of the powers conferred by seciion
G
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2 of the Part C States (Laws) Act, 1950 and ii: came into force in
Delhi on 28th May, 1951 by virtue of a Notification issued uncjer
section J, sub-section (3) of the
Act.
There have been several
amendments made in the Act from time to time since the date of its
application to Delhi but we are concerned in these appeals only with
the assessment periods 1971-72 and 1972-73
and hence we snall
confine ourselves to the relevant provisions of the Act as they stood
during these assessment periods.
·
'
Section 2 enacted the definition provision and clause (c) of that
section defined a 'dealer' to mean any person who carries on the business of selling goods in Delhi.
Clause (g) of section 2 contained the
_;.
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POLESTAR LTD. v. C.S.T. (Bhagwati, J.)
I 03
definition of 'sale'. It was a definition in general tenm and it made
no reference to the situs of the sale. It did not limit the definition to a
sale inside Delhi.
There was an explanation to this clause which iaid
down as to when a sale or purchase shall be deemed to take place
inside Delhi.
Section 4, sub-section ( l) provided that every dealer
whose gross turnover during the year immediately preceding the commencement of the Act exceeded the taxable quantum at any time within
such year shall be liable to pay tax under the Act on all sales effected
after the date notified by the Chief Commissioner and sub-section (2)
of that section said that every dealer to whom sub-section ( 1) does not
apply, shall, if his gross turnover calculated from the commencement
of any year exceeds the taxable quantum at any time within such year,
be liable to pay tax under the Act, on the expiry of two months from
the date on which such gross turnover first exceeds the taxable quantum, on all sales effected after such expiry. Sub-section (5) of section
4 defined 'taxable quantum' to mean, in relation to any dealer who
imports for sale any goods into Delhi or manufactures or produces any
goods for sale, regardless of, the value of the goods imported, manufac,
tured or produced, ten thousand rupees, and in relation to any other
dealer, thirty thousand rupees. Sub-section ( 1) of section 5 provided
different rates of tax, according as the goods fell within one category or
another, at which the tax payable by a dealer shall be levied on his
.taxable turnover. What is 'taxable turnover' was defined
in subsection (2) of section 5 to mean :
"that part of a dealer's gross turnover dudng any period
which remains after deducting therefrom-
(a) h;s turnover during that period on-
(i) the sale of goods
declared
tax-free under
section 6;
(ii) sales to a registered dealer-of goods of t.he
class or classes specified in the certificate of
registration of snch dealer, as being intended
for re-sale by him, or for use by him as raw
materials in the manufacture of goods for sale;
and of containers or other materials for the
packing of goods of the class or classes so
specified for sal\" :
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F
Provided that in the case of such sales a declaration duly
filled up and signed by the registered dealer to whom the
goods are sold and containing the prescribed particulars on a
G
prescribed form obtainable from the prescribed authority is
furnished _in the prescribed manner by the dealer who sells
the goods:
Provided further that where any goods specified
in the
certificate of registration are purchased by a registered
dealer as being intended for re-sale by him or for use by him
as raw materials iri the manufacture of goods for sale, but are
utilised by him for any other purpose, the price of the goods
purchased shall be allowed to be deducted from the gross
H
)
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164
SUPREME COURT REPORTS
[1978] 3 S.C.R.
turnover of the selling dealer but shall be included in the
taxable turnover of the purchasing dealer.
(iii) Sales to a registered dealer engaged in the business
of raising coal, of any goods which are shown to the
satisfaction of the Commissioner to be required directly for use in connection with the raising of coal;
(iv) sales to any undertaking supplying electrical energy
to the public under a licence or sanction granted or
deemed to have been granted under the Indian Electricity Act, 1910 (IX of 1910) of goods for use by it
in the generation or distribution of such energy;
(v) Sales of goods which are shown to the satisfaction of
the Commissioner to have been despatched by, or on
behalf of dealer to an address outside the (Union
Territory) of Delhi;
(vi) such other sales as may be prescribed;"
This was the definition until 28th May, 1972, when by Finance Act,
1972 the main enactment in section 5(2) {a) (ii) was substituted by the
following provision :
"(2) In this Act the expression 'taxable turnover" means
that part of a dealer's gross turnover during any period which
remains after deducting therefrom-
( a) his turnover during that period on-
(i)
x
x
x
(ii) sales to a registered dealer-.
of goods of the class or classes specified in the certificate of
registration of such dealer, as being intended for re-sale by
him, or "for use by him as raw-materials in the manufacture
in the Union Territory of Delhi (hereinafter in this subclause referred to as Delhi), of goods
(other than goods
declared tax free under section 6) :-
(A) for sale inside Delhi; or
(B) for sale in the course of inter-State trade or commerce, being a sale occasioning or effected by transfer of documents of title to such goods during the
movement of such goods from Delhi; or
(C) for sale in the course of export outside India being a
sale occasioning the movement of such goods from
Delhi, or a sale effected by transfer of documents
of title to such goods effected during the movement
of such goods from Delhi, to a place outside India
and after the goods have crosSed the customs frontiers of India; and
of containers or other materials for the packing of
goods of the class or classes so specified for sale;"
. .
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POLESTAR LTD. v. C.S.T. (Bhagwati, l.)
I 05
Section 7, sub-section (1) laid down that no dealer shall, while being
A
liable to pay tax under section 4, carry on business as a dealer unless
he has been registered and possesses a registration certificate and subsection ( 3) of that section provided for grant of a certificate of registration to a dealer on an application being made by him under subsection (2) and said that such certificate of registration shall specify
the class or classes of goods for the purposes of sub-clause (ii)
of
clause (a) of sub-section (2) of section 5.
Section 26 conferred
B
power on the Chief Commissioner to make rules for carrying out the
purposes of the Act and in exercise of this power, the Delhi Sales Tax
Rules, 1951 were made by the Chief Commissioner. These rules
prescribed not only the form of the application for registration but also
the form of the certificate of registration. Clause (3) of the form of
the certificate of registration provided that the sale of the specified
goods to the dealer "for purposes of manufacture" and "for re-sale"
C
will be free of tax. This was in conformity with. the requirement of
section 5(2) (a) (ii) as it stood prior to its amendment and though
section 5(2)(a)(ii) was substituted by the Finance Act of 1972, no
amendment was made in the form of the certificate of registration and
it was only on 29th March, 1973 that clause (3) of the form of the
certificate of registration was substituted so as to declare that the sales
of the specified goods to the dealer will be free of tax when they arc
D
"for use as raw materials in the manufacture in the Union territory o{
Delhi of goods-for sale in
the
manner specified in
ocction
5(2) (a) (ii) or "for resale".
Similarly, the form of declaration to
be furnished by the. purchasing dealer in order to entitle, the dealer
who has sold the goods to claim deduction of the amount in respect
of such sales under section 5(2) (iil, which was prescribed by Rufo
26, was also not amended until 29th March, 1973 and it continued
E
to be in the following terms :
"Certified that the goods mentioned in the cash memo/
Bill No.
dl!ted
have been purchased
by me/us from M/s.
and are duly covered by
our Registration Certificate No.
dated
and
are required by me/us for re-sale/for use as raw materials in
the manufacture of goods· for sale/for use in the execution of
contract.
Signature
Dealer"
It was only on 29th March, 1973 that the form of the declaration was
substituted by amending Rule 26 so as to bring it in line with the
amended section 5 (2) (a) (ii) and after the substitution it ran as
follows:-
"Certified that the goods mentioned in the Cash Memo/
Bill No.
ated
worth Rs.
have
been purchased by me/ns from M/s.
and are
duly covered l)y me/ our registration certificate No.---
valid from
and are required by me/\Js for
8-211 SCI {78
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SUPREME COURT REPORTS
[1978] 3 S.C.R.
re-sale/ for use as raw-material, in the manufacture in Delhi
in accordance with the provisions
contained
in
section
5 (2) (a) (ii) of the Bengal Finance (Sales Tax) Act, 1941
as in force in the Union Territory of Delhi, of goods for sale.
Signature ............. .
Dealer . ............. "
The Act as originally enacted ended with Section 26 hut by Amending
Act of 1959, Section 27 was introduced in the Act with effect from !st
October, 1959 and this section provided that nothing in the Act or
under the rules shall be deemed to impose or authorise the imposition
of a tax on any sale or purchase of any goods, if such sale or purchase
takes place :
(i) in the course of inter-state trade or commerce;
(ii) outside the· Union territory of Delhi, or
(iii) in the course of import of the goods into, or export of
the goods out of, the territory of India.
D
This section was obviously introduced with a view to bring the Act into
conformity with Article 286 of the Constitution.
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II
These are the relevant provisions of the Act in the light of which
we have to decide the question of law arising in the appeals.
The
assessees in all the appeals arc registered dealers and during the relevant
assessment periods they held certificates of registration specifying the
class or classes of goods intended for resale by them or for use by them
as raw-materials in the manufacture. of goods for sale.
The certificates
of registration were in the form as it stood prior to its amendment on
29th March, 1973 and they did not specify that the resale of the goods
purchased or their use as raw-materials in the manufacture of goods or
the sale of manufactured goods should be inside Delhi.
There are
broadly two groups in which the appeals can be divided for the sake
of convenience. One group consists of appeals where the assessces purchased goods of the class specified in the certificate of registration as
being intended for resale by them and furnished to the dealers selling
the goods declarations in the prescribed form, as it stood prior le> 29tli
March, 1973, stating that the goods were intended for resale and
thereafter resold the goods, though not within the territory of Delhi,
while the other consists of appeals where the assessees purchased goods
of the class specified in the certificate of registration as being intended
for use by them as raw materials in the manufacture of goods for sale
and furnished to the dealers selling the goods declarations in the prescribed form, as it stood prior to 29th March, 1973, stating that the
goods were purchased by them for use as raw-materials in the manufacture of goods for sale and thereafter used the goods purchased as rawmaterials in the manufacture of goods, in some cases outside Delhi and
in some others inside, but in the latter, sold the goods so manufactured
outside Delhi. Civil Appeals Nos. 1110 of 1977, 1111 of 1977 and
1290 of 1977 are representative appeals belonging to the first group
while Civil Appeals Nos. 1526 of 1972, 1085 of 1977, and 1352 of
..
...
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POLESTAR LTD. v. c.s.T. (Bhagwati, J.)
I 07
1977 are illustrative of the appeals belonging to the second group.
A
Some of the appeals are brought by special leave directly from the
orders of the assessing authonty and some others from the appellate or
revisional orders. Special leave was granted in these cases without
requiring the assessees to exhaust their remedies under the Act and to
approach the High Court of Delhi in the first instance, because " decision was already given by the High Court of Delhi on 26th April, 1974
in Fitwell Engineers v. Financial Commissioner of Delhi negativing the
B
contentions of the assessees.
The view taken in the orders impugned
in the appeals and accepted by the High Court of Delhi in Fitwell
Engineers' case was that for the purpose of section 5 (2) (a) (ii)
and
the Second Proviso, resale of the goods purchased was confined
~o
resale inside Delhi and so also, use of the goods purchased as raw-materials in the manufacture of goods and sale of manufactured goods were
required to be inside Delhi, and, therefore, if the assessees resold the
C
goods outside Delhi or used them as raw-materials in manufacture outside Delhi, or even if the manufacture was inside Delhi, sold the goods
manufactured, outside Delhi, there was utilisation of the goods by the
assessees for a purpose other than that for which they were purchased
and hence the Second Proviso to section 5 (2) (a) (ii) was attracted and
the price of the goods purchased was liable to be included in the taxable
turnover of the assessees.
The question which arises for determination
D
in the appeals is whether this view taken by the Taxing Authorities and
approved by the High Court of Delhi in Fitwell Engineers' case is correct and can be sustained.
We may first examine the scheme of the relevant provisions of the
Act in so far as it bears on the present controversy.
Every dealer,
E
whose gross turnover exceeds the taxable quantum is liable to pay tax
on sales eiiected by him after a specified date and while he is liable to
pay tax, he cannot carry on business unless he gets himself registered
and po;sesses a registration certificate.
Though his liability to tax is
determined by reference to his gross turnover, whether it exceeds the
taxable quantum or not, tax is leviable on him only in respect of his
taxable turnover.
The concept of taxable turnover is different from
F
that of gross turnover and. to compute taxable turnover of a dealer,
certain deductions are required to be made from his gross turnover and
one of the deductions is that set out in section 5 (2) (a) (ii). What is
pennitted to be deducted under this provision is turnover on sales by a
registered dealer of goods of the class or classes specified in his certificate of registration as being intended for resale by him or for use by him
as raw-materials in the manufacture of' goods for sale. This deduction is
G
allowed with reference to the intended end-use of the goods, namely, that
they will be resold or they will be used as raw materials in the manufacture of goods for sale, according as they are purchased for one purpose or the other. But in view of the innumerable transactions that may
be entered into by the dealers, it would be well nigh impossible for the
taxing authorities to ascertain in each case whether the goods were
purchased as being intended for resale or for use as raw-materials in
H
the manufacture of goods for sale and hence the First Proviso was
·enacted qualifying the substantive provision by saying that the turn-
-0ver of sales covered by the terms of. section 5(2) (a) (ii)
would be
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SUPREME COURT REPORTS
[1978] 3 s.c.R.
deductible only if "a declaration duly filled in and signed by the registered dealer to whom the goods are sold and containing the prescribed
particulars on a prescribed form-is furnished" by the selling dealer.
The result is that a dealer cannot get deduction in respect of the turnover of his sales falling within section 5 (2) (a) (ii) unless he furnishes
a declaration containing the prescribed particulars on the prescribed
form duly filled in and signed by the purchasing dealer.
The form of
declaration prescribed under Rule 26 as it stood upto 29th March,
· 1973 contained an expression of intention of the purchasing deaier to
resell the goods purchased or to use them as raw-materials in the manufacture of goods for sale.
Such declaration given by the purchasing
dealer to the dealer selling the goods would afford evidence that the
goods were purchased by the purchasing dealer "as being intended for
resale by him or for use by him as raw-materials in tbe manufacture of
goods for sale".
The dealer selling the goods would be granted deduction ir. :espect of the sales on the strength of such declaration given by
the purchasing dealer.
The requirement of such declaration as condition of deduction is clearly intended to prevent fraud and promote administrative efficiency.
[Vide Kedarnath Jute Mfg. Co. Ltd. v. Commercial Tax Officer(').]
But what would be the position if the purchasing dealer does not act
according to the intention expressed by him in the declaration given to
the selling dealer and in the one case, does not resell the goods and in
the other, does not use them as raw-materials in the manufacture of
goods for sale.
The selling dealer is granted deduction in respect of
the sales made by him because the goods are purchased for resale or
for use as raw-materials in the manufacture of goods for sale and this
intended and-use of the goods purchased is sought to be ensured by
taking a declaration in the prescribed form from the purchasing dealer.
But if the goods are utilised by the purchasing dealer for some other
purpose contrary to the intention expressed by him in the declaration,
the object and purpose of giving deduction to the selling dealer would
be defeated.
Even so, it would not be right to withdraw the deduction granted to the selling dealer because that would be penalising
the selling dealer for a breach of faith committed by the purchasing
dealer.
The legislative wrath should in all fairness fall on the purchasing dealer and that is why the Second Proviso has been introduced in the Act by Delhi Amendment Act 20 of 1959. The object of
the Second Proviso is to ensure that the intention expressed by the
purchasing dealer in the declaration given by him is carried out ~nd
he acts in conformity with that intention.
Where
the
purchas111~
dealer gives a declaration of intention to resell the goods purchased
or to use them as raw-materials in the manufacture of goods for sale,
he must act in accordance with that intention, because it is on the
basis of that intention that deduction is allowed to the selling dealer
and if he does not carry out that intention and utilises the goods for
any other purpose, it stands to reason that the tax w~ich is lost to the
Revenue by reason of deduction granted to the selhn)! dealer should
be recoverable from him, that is, the purchasing
dealer. If no
deduction were granted to the selling dealer, he would be liable to
(!) 16 S.T. Cases, 607.
--
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I
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POLESTAR LTD. V. C.S.T. (Bhagwati, J.)
109
pay tax on the sale made by him and ultimately the incidence of that
A
tax would be passed on to the purchasing dealer, but by reason of
deduction allowed to the selling dealer, the purchasing dealer escapes
this incidence of tax and, therefore, the Second Proviso enacts that
where the purchasing dealer acts contrary to the intention declared
by him, the selling dealer shall not be penalised for the sin of the
purchasing dealer and he shall continue to have his deduction, but
the price of the goods purchased shall be included in the taxable turnB
over of the purchasing dealer.
The Second Proviso is thus intended
to provide the consequence of the purchasing dealer not complying
with the statement of intention expressed in the declaration given by
him to the selhng dealer under the First Proviso.
This is broadly
the scheme and intendment of section 5(2) (a) (ii) and its two Provisos read in the context of the other provisions of the Act.
Now, the first question that arises for consideration is
whether
'resale' in section 5(2) (a) (ii) and the Second Proviso means resale
any where without any geographical limitation or it is confined only
c
to resale inside Delhi.
The contention of the Revenue
was
that
though the words "inside the Union Territory of Delhi" are not to be
found in section 5(2) (a) (ii) and the Second Proviso, they must be
D
read in these provisions as a matter of construction and three reasons
were given in support of this contention.
The first reason was that
if resale outside Delhi were held to be within the terms
of section
5 (2) (a) (ii) and the Second Proviso, the Union Territory of Delhi
would lose tax altogether in cases where the goods were resold outside Delhi, because in that event the first sale would escape tax
by
reason of the deduction granted under section 5 (2) (a) (ii) and the
E
resale would also be free from tax since it is outside Delhi and hence
covered by the exempting provision contained in section 27.
The
Legislature could never have intended to bring about such a result
where the Union Territory of Delhi would be deprived altogether of
tax.
The intention of the Legislature. was to recover tax at only one
point whilst the goods were in the stream of trade and the Legislature, therefore, granted deduction in respect of the first sale on the
F
basis that it would be levying tax when the goods were resold and
that postulated the requirement that the resale shoJld be inside Delhi.
Secondly, it was urged that the Legislature had no legislative competence to tax sale outside Delhi and moreover, by reason of section 27
sale outside Delhi was taken out of the purview of the Act and
resale within the meaning of section 5 (2) (a) (ii) and
the Second
Proviso could not, therefore, possibly include resale outside
Delhi.
G
The lasl argument was that the words 'by him' following upon the
word 'resale' in section 5 (2) (a) (ii) and the Second Proviso clearly
indicated that the resale contemplated under these
provisions
was
resale by the purchasing dealer as registered dealer and
since
the
concept of registered dealer has relation only to sale inside Delhi, the
resale must be within the territory of Delhi.
We do not think there
fa any substance or validity in these arguments and we see no cogent
H
or compelling reasons to add the words "inside the Union Territory
of Delhi., to qualify 'resale' in section 5(2)(a) (ii) and the Second
Proviso.
110
SUPREME COURT REPORTS
(J 978J J >.C·RA
Now, if there is one principle of interpretation more well settled
than any other, it is that a statutory enactment must ordinarily be
construed according to the plain natural meaning of its language and
that no words should be added, altered or modified unless it is plainly
necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable
with the rest of the statute.
This rule of
literal
construction
i~
B
firmly established and it has received judicial recognition in
numerous cases.
Crawford in his book on
"Construction of Statutes"
(1940 ed.) at page 269 explains the rule in the following terms :
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"'Where the statute's meaning is
clear
and
explicit,
words cannot be interpolated.
In the first place, in such
a case they are not needed.
If they should be interpolated,
the statute would more than likely fail to express the legislative intent as the thought intended to be conveyed might be
altered by the addition of new words.
They should not be
interpolated even though the remedy of the statute would
thereby be advanced, or a more desirable or
just result
would occur.
Even where the meaning of the statute
is
clear and sensible, either with or wlthout
the
omitted
word, interpolation is improper, since the primary source
of the legislative intent is in the language of the statute."
Lord Parker applied the rule in R. v. Dakes(') to construe "and",
as "or" in section 7 of the Official Secrets Act, 1920 and stated :
"It seems to this Court that where the literal reading of
a statute, and a penal statute, produces an intelligible result,
clearly there is no ground for reading in words or changing
words according to what may be the supposed intention of
Parliament.
But here we venture to think that the result
is unintelligible."
Lord Reid also with great clarity and precision which always characterise his judgments enunciated the rule as follows in Federal
Steam
Navigation Co. Ltd. v. Department of Trade and Industr)'(') :
"Cases where it has properly been held that a word can
be struck out of a deed or statute and another substituted can
as far as I am aware be grouped under three heads : where
without such substitution the provision is unintelligible or
absnrd or totally unreasonable where it is unworkable and
where it is totally irreconcilable with the plain intention shown
by the rest of the deed or statute."
This rule in regard to reading words into a statute was
also
affirmed by this Court in several decisions of which we may refer only
to one, namely, Naraynaswami v. Pannerselvam & Ors. ( 3) where the
Court pointed out that :
(!) [1959] 2 All E.R. 350.
(2) [1974] 2 All E.R. 97.
(3) [1973] I S.C.R. 172.
,..
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POLESTAR LTD. v. C.S.T.