# Rajalzmundry Eketric Supp/;! Corporation Ltd v. A· Nageswara Rao and others

- **Citation:** [1955] 2 S.C.R. 1076
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeals Nos. 9 and 10 of 1954
- **Bench:** R. DAs, Acting C. J, VIVIAN BosE, Bhagwati, Jagannadhadas, B. P. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rajalzmundry-eketric-supp-corporation-ltd-v-a-nageswara-rao-and-others-1235
- **Pages:** 26

## Headnote

Sales
Tax-Sale of hessian to the Ministry of Industry and
Supplies of the Government of India-If exempt from payment of
sales tax-Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of
1941), s. 5(2)(•)(iii).
.
-Per S. R. DAs,
AcTING
C.J.,
V1v1AN
BosE,
BHAGWATI
AND
JAGANNADHADAS JJ., SINHA
J. · dissenting.-The exemption
created
by the provisions of s. 5(2)(a)(iii) of the Bengal Finance (Sales Tax)
Act of 1941 must be
construed strictly and cannot be extended to
sales to Government departments other than those mentioned therein.
The Department of Industries and Supplies,
which was subsequently rcdesignated as the Ministry of Industries and Supplies, was
not ·the same as the Indian Stores Department or the Supply Dc--
partmcnt of the Government. of India and~ consequently, sales _made
to the Ministry of Industries and. Supplies are not exempt from pay~
ment of sales tax under that section.
In a welfare State with
ever
expanding activities in different
fields including trade and commerce,
Government departments arc
often entrusted with the performance of well~defined activities and
are authorised to deal with the outside world and enter into transactions in the .same way as an ordinary person or a Company may do
and may well
0be. regarded as distinct units or quasi-legal entities for
μie ·purpose for which they are created.
Consequently,
the. sales _of hessian made to the Ministry of
Industries and Supplies of the Government of India by the appellant Mills were hot exempt from payment of sales tax under the
Act and the State of West Bengal was entitled to levy the same.
2 S.C.R.
SUPREME COURT REPORTS
um
Per S1NHA J.-The language of a statute has sometimes to be
construed in a modified form in order to give effect to the real intentions of the legislature where, as in the present case, the language is
only of a descriptive nature and not a definitive one.
Miller v. Salomons ([1852] 7 Exchequer 475), referred to.
Commissioners of Inland Revenue v. Forest ( [1890] 15 A. C.
334 ), held inapplicable.
The terms of s. 5(2)(a)(iii) indicate that the exemption created
attaches to a particular function of
the Government of India described by a certain name.
The change of nomenclature was, therefore, of no consequence
so long as a particular department continued to discharge that func·
tion, namely, that of purchasing articles
including hessian for the
Government of India.
History of the department shows that the Ministry of Industry
and Supply is a lineal descendant of the Tndian Stores Department
and was at the time of the contract discharging its function on behalf of the Government of India and, consequently, the sales made
to it must ~ held to be exempt from payment of sales tax.
A department of the Government is
neither a natural nor a
legal person but is one of the
many functions of a Government
placed in charge of a hierarchy of officials with the head of the department at the apex.
CIVIL
APPELLATE
JuRISDICTION:
Civil
Appeals
Nos. 9 and 10 of 1954.
On appeal from the Judgment and Order dated
the 9th day of June 1952 of the Calcutta High Court
in Appeal No. 26 of 1952 arising out of the Order
dated the 6th day of December 1951 of the said High
Court exercising its Ordinary Original Civil Jurisdiction in Matter No. 110 of 1950.
C . . K. Daphtary, Solicitor-General of India, (R.
Ganapathy Iyer and R. H. Dhebar, with him) for the
appellant in C. A. No. 9 of 1954 and respondent No.
3 in No. lO·of 1954.
S. Chowdhury, (S. N. Mukherji, B. N. Ghosh and
A. K. Bose, with him) for the appellant in C. A. No.
10 of 1954.
S. M. Bose, Advocate-Genera/. of West Bengal, (B.
Sen and P. K. Bose, with him) for respondents Nos. 1
and 2 in both appeals.
1955
Thi Union of India
v.
The Commneial
T tJJt Ojfim, Wut
B1ngal and otlwrs
19!>5
The Union of India
v.
T!w Commercial
T 4" Officer, West
Bengal and others
1078
-SUPREME COURT REPORTS
[1955]
1955. December 19.
DAs
AcTING
C. J.-The only question canvassed
before us in the above appeals, which have been
he

## Text

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1955
Rajalzmundry
Eketric Supp/;!
Corporation Ltd.
v.
A· Nageswara Rao
and others
1955
D1tnnbt' 19.
1076
SUPREME COURT REPORTS
appointed to manage its affairs,
when action
under
section 153-C.
This
contention
must
ingly be rejected.
[1955]
is taken
accordIn the result, the appeal fails and is dismissed
with costs, of the
first respondent. The costs of the
administrator will come out of the estate.
THE UNION OF INDIA
v.
THE COMMERCIAL TAX OFFICER, WEST
BENGAL AND OTHERS
(WITH CONNECTED APPEAL)
[S, R. DAs, ACTING C. J., VIVIAN BosE, BHAGWATI,
JAGANNADHADAS and B. P. SINHA JJ.]
Sales
Tax-Sale of hessian to the Ministry of Industry and
Supplies of the Government of India-If exempt from payment of
sales tax-Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of
1941), s. 5(2)(•)(iii).
.
-Per S. R. DAs,
AcTING
C.J.,
V1v1AN
BosE,
BHAGWATI
AND
JAGANNADHADAS JJ., SINHA
J. · dissenting.-The exemption
created
by the provisions of s. 5(2)(a)(iii) of the Bengal Finance (Sales Tax)
Act of 1941 must be
construed strictly and cannot be extended to
sales to Government departments other than those mentioned therein.
The Department of Industries and Supplies,
which was subsequently rcdesignated as the Ministry of Industries and Supplies, was
not ·the same as the Indian Stores Department or the Supply Dc--
partmcnt of the Government. of India and~ consequently, sales _made
to the Ministry of Industries and. Supplies are not exempt from pay~
ment of sales tax under that section.
In a welfare State with
ever
expanding activities in different
fields including trade and commerce,
Government departments arc
often entrusted with the performance of well~defined activities and
are authorised to deal with the outside world and enter into transactions in the .same way as an ordinary person or a Company may do
and may well
0be. regarded as distinct units or quasi-legal entities for
μie ·purpose for which they are created.
Consequently,
the. sales _of hessian made to the Ministry of
Industries and Supplies of the Government of India by the appellant Mills were hot exempt from payment of sales tax under the
Act and the State of West Bengal was entitled to levy the same.
2 S.C.R.
SUPREME COURT REPORTS
um
Per S1NHA J.-The language of a statute has sometimes to be
construed in a modified form in order to give effect to the real intentions of the legislature where, as in the present case, the language is
only of a descriptive nature and not a definitive one.
Miller v. Salomons ([1852] 7 Exchequer 475), referred to.
Commissioners of Inland Revenue v. Forest ( [1890] 15 A. C.
334 ), held inapplicable.
The terms of s. 5(2)(a)(iii) indicate that the exemption created
attaches to a particular function of
the Government of India described by a certain name.
The change of nomenclature was, therefore, of no consequence
so long as a particular department continued to discharge that func·
tion, namely, that of purchasing articles
including hessian for the
Government of India.
History of the department shows that the Ministry of Industry
and Supply is a lineal descendant of the Tndian Stores Department
and was at the time of the contract discharging its function on behalf of the Government of India and, consequently, the sales made
to it must ~ held to be exempt from payment of sales tax.
A department of the Government is
neither a natural nor a
legal person but is one of the
many functions of a Government
placed in charge of a hierarchy of officials with the head of the department at the apex.
CIVIL
APPELLATE
JuRISDICTION:
Civil
Appeals
Nos. 9 and 10 of 1954.
On appeal from the Judgment and Order dated
the 9th day of June 1952 of the Calcutta High Court
in Appeal No. 26 of 1952 arising out of the Order
dated the 6th day of December 1951 of the said High
Court exercising its Ordinary Original Civil Jurisdiction in Matter No. 110 of 1950.
C . . K. Daphtary, Solicitor-General of India, (R.
Ganapathy Iyer and R. H. Dhebar, with him) for the
appellant in C. A. No. 9 of 1954 and respondent No.
3 in No. lO·of 1954.
S. Chowdhury, (S. N. Mukherji, B. N. Ghosh and
A. K. Bose, with him) for the appellant in C. A. No.
10 of 1954.
S. M. Bose, Advocate-Genera/. of West Bengal, (B.
Sen and P. K. Bose, with him) for respondents Nos. 1
and 2 in both appeals.
1955
Thi Union of India
v.
The Commneial
T tJJt Ojfim, Wut
B1ngal and otlwrs
19!>5
The Union of India
v.
T!w Commercial
T 4" Officer, West
Bengal and others
1078
-SUPREME COURT REPORTS
[1955]
1955. December 19.
DAs
AcTING
C. J.-The only question canvassed
before us in the above appeals, which have been
heard together, is whether certain sales of goods made
by Shri Ganesh Jute Mills, Ltd. (hereinafter referred
to as the Mills) to the Government of India, Ministry
of Industry and Supplies are to be deducted from
the
taxable turnover
of
the Mills so as
to
be
exempt
from sales tax dernanded by
the Commercial Tax
Officer of the State of West Bengal. The relevant
facts are stated beki.w.
On the first of September 1948 the Government of
India, Ministry of Industry and Supplies, in Calcutta,
placed with the Mills a confirmatory order in writing
bearing No. Cal/J-1/2001/103 for the supply
to the
Government of India of a large quantity of hessian
cloth of
different descriptions
at
different prices
therein
mentioned.
It was
stipulated
that the contract would be governed by the conditions of contract
specified in Form WSB 133 as amended up-to-date.
It
was
specifically
mentioned
that
the goods
ordered
were required
to meet an international obligation of
the Government of India and as such the execution
of the contract in accordance with the programme of
deliveries
as given
in the schedule
attached
thereto
was essential. The agreed prices were stated to be
exclusive of the Bengal Sales Tax and it was stipulated that the
Government of India would arrange
direct payment of sales tax to the Government of
West Bengal if it was ultimately found that Sales
Tax was payable in respect of that contract. Pursuant
to the aforesaid contract, the Mills supplied goods to
the Government of India of the aggregate value of
Rs.
2,10,040
calculated
at
the prices agreed upon.
The Commercial Tax Officer, Beadon Street, District
II
Charge,
claimed
that the
aforesaid
sales
should be included in the taxable turnover of the
Mills and assessed to sales
tax. The Mills,
on
the
other hand, claimed exemption under section 5 of the
Bengal Finance (Sales Tax) Act,
1941 (Bengal Act VI
of 194.1).
The relevant portion of section 5 ran as
follows:-
2 S.C.R.
SUPREME -COURT REPORTS
1079
"5. (1) The tax
payable
by a dealer
under
this
Act shall be kYie,\
at the rate of one quarter of an
anna in the rupee on his u:uble turnover ;
(2) In
thi.;
Act
the
expression
"taxable
turno\'cr" means
tlut part of a dealer's gross
turno\'cr
during any
period
\\"hich
renums, after
deducting
r hcrdrom-
( a) his tunwYer during th:1t period 011-
(i) .................. ..
(ii) .................. ..
(iii) sales
to
the
Indian
Stores
Department:
the
Sul'Ph
Department tli. the CoYc·rnment of India,
:md any r;1ilway or water transport ::,lministration ;
(iY) ................... .
(Y) ........ .° .......... .
(Yi) ................... .
1.__\,) .•.•••.••••••••••••• "
The J-.[ills further rnntended tlut if anv sales tax was
at all payable
the same was payable
l1\;
the Government of Jn,\ia and not bv
them. The Commercial
Tax Officer o\'erruk,I both· these obiections an,\ on
the 8th November 1950 he assessed the Mills to sales
tax in respect of the· supplies made by the Mills to
the Government of India under the aforesaid contract an,\ demanded a sum of Rs. 9,401-10-6.
On the 6th December 1950 the Mills filed a petition
under article 226 of the
Constitution of India before
the High Court at Calcutta. In the petition the Mills
impkadeJ as n:spondents the Commercial Tax Officer,
the State of West Bengal and the Union of India.
The Mills praved for a writ of
m1111dam11.r on the respon,knts to cancel an,l/or reca II
:md/or forbear
from
acting or giving effect to the demand date,! the 8th
Nm-ember
1950
and from realising
tht· sum of Rs.
9,401-10-6 an,\ for a writ of
cer!ion1ri for
production
of the records and proceedings before the Commercial
Tax Officer an,! for quashing the same and for other
incident:il reliefs. On the same day a rule was issued
on the respondents to show cause why the orders
prayed for should not be made.
The Commercial Tax Officer filed an affidavit m
opposition disputing the contentions put forward by
1955
Tht l,"nim1 ~( ln.Jia
\".
T ht ctmmztrcial
Tax OJfim·, Wes!
Ben~:al and othtrs
Dru Actg. C.].
1955
Tiu Union of India
v.
Th1 Comm"cial
T 6't Officer, Wtsl
Bengal and others
D., Actg. C.J.
1080
SUPREME COURT REPORTS
[1955]
the Mills in support of their claim for exemption and
maintaining that sales tax was due and had been
legitimately
assessed
and demanded. On behalf of
the Union of India was filed an affidavit affirmed by
one
M. P.
Pai,
the
then
Joint
Secretary in the
Ministry of Works, Production
&
Supply. It was
therein stated that a department of
the
Government
of India named the Department of Supply came into
existence
in the month
of
September
1939 immediately on the commencement of World War II and
before the enactment of the
Bengal
Finance
(Sales
Tax) Act, 1941 (Bengal Act VI of 1941). It was
averred that before
the 7th January 1946 the said Department of Supply was charged with the
procurement of Stores from all places In India including
Bengal and that it also directed the work of Indian
Stores Department in the United
Kin~dom and of the
India
Supply
Mission
in the United
States
of
America.
It was
added
that
by
Resolution
No.
227/45-Pub(c) dated the 31st December 1945 the Governor-General in Council announced the creation with
effect from the 7th January 1946 of the Department
of Industries & Supply in place of the existing Department of Supply and of Industries and Civil Supplies. It was claimed that the powers and functions
of the Department of Industries and Supplies were
the same as those of the Department of Supply and
that there was no variation in the nature of the said
functions whatsoever.
The rule came up for hearing before Bose, J., who
took the view that the newly created Department of
Industries &
Supplies
was
charged
with the
same
work of procurement of stores for Government as had
been entrusted to the Department of Supply and·
certain additional works and that later on the name
was again changed
to
Ministry of Industry and
Supply. The learned Judge pointed out that although
there was a change in the designation of the Indian
Stores Department and
the Supply Department of
the Government of India, section. 5(2) (a)(iii) was not
amended in any way until 1949 ·when by an amending Act (West Bengal Act X of 1949) the exemption
2 S.C.:R.
SUPREME COURT REPORTS
1081
granted under section
5(2)(a)(iii)
was
withdrawn.
The learned Judge appears to have regarded this continuance of section 5(2)(a) (iii) in the Bengal Finance
(Sales Tax)
Act,
1941 as indicative of the fact
that
in view of the State of West Bengal the Ministry of
Industry & Supply was the same as the Indian Stores
Department and the Supply Department of the Government of
India
referred to in
the
section.
The
learned Judge accordingly held that the Mills were
entitled to the benefit of the exemption and were not
liable to pay sales tax in respect of the supplies in
question. He accordingly,
on the 3rd January 1952,
made the rule absolute.
The Commercial Tax Officer and the State of West
Bengal went up on appeal from the said judgment
and order of Bose, J. The appeal came up fot hearing
before a Bench consisting of K. C. Das Gupta, J. and
P. N. Mookerjee,
J. In separate but concurring judgments both the learned Judges rejected the preliminary objection taken by the Mills and the Union of
India as to the maintainability of the appeal. On the
merits both of them held that the Department of
Industries & Supplies was not the same as the Indian
Stores · Department or
the Supply
Department of
the Government
of India.
The
old
departments
ceased to exist and a new department combining some
of the functions of these departments and some new
functions was
created and that, therefore, sales
to
the newly created department could not be deducted
from the taxable turnover under section 5(2)(a)(iii).
In the result, the Appeal Court allowed the appeal
with costs, set aside the order of Bose, J. and dismissed the application of the Mills under Article 226.
The Mills as well as the Union of India have now
come up on appeal before us with a certificate of fitness granted by the High Court.
In view of the• decision of this Court in National
Sewing Thread Co. Ltd. v. fames Chadwick & Bros.
Ltd.( ), the question of maintainability of the appeal
before the High Court has not been raised before us.
The appeals have been fought out on the merits only.
(I) [1953] S. C.R. 1028.
1955
T!.. Union of lrulia
v.
Thi Commercial
Tax Ojjicer, W tsl
Bengal and ot/urs
D1J1 Aclg. C. J.
'. \. "
lOSi
. SUPREME COURT REPORTS
. [1955]
1955
The appeals came: up before this·. Court for hearing
Th• Union ,j India
on the 22nd and -_ 23rd September 1955: After going
The c~ _ . through the r~cords ·.it-was • felt that the materials on
Tax Off~"• w,,1 record were not sufficient to enable the Court to· deBmgal. mu! ot"4rs c_ termine . tlie .real •point -of · controversy ' between the
Das A-;;:C.-j • . \parties.-· The appeals were accordingly adjourned and
directions were· -given for the filing of sup_plementary
affidavits· ·,setting . out the facts relied on by the parties
respectively •. -Fresh affidavits have since been filed.
·
It . appears from the affidavit of· · one - A. R. Iyer,
Deputy· · . Director, Directorate ' General
of Supplies
and Disposals, under the Ministry of Works, Housing
& Supply, that in 1918 a department called · the Contracts Directorate had
been - constituted · as _ a purchasing organisation ·for the needs of the Army. : With
effect from - the -lst January 1922 the Indian ·stores
· Department . .was constituted . as - a result of .the recommendations of the Stores Purchase Committee. The
functions of this department were to" act as a purchasing and inspection agency . in. respect of -. certain
commodities including textile goods for·
~ll Central
departments and minor Local · Governments and such
other authorities as
might desire to avail themselves
of the services of this · department. · Annexure III to
the
~davi.t _of Iyer indicates that it was not obligatory - on the · other departments
to inake purchases
through • the
Indian s;ores Department. Originally
this department . was constituted for a period of two
years but by Resolution No. S. 217 of the Government of India, dated the 6th May 1924, · -it was placed
on a permanent basis and continued to discharge the
-same functions. Rules 5 and 6 -attached to this Resolution -. show that purchases could - also be made
' locally. by other departments in case of emergency or
for convenience.
-
_
.
-
- In 1939 when the outbreak of World War II was
. -. - -- - imminent the necessity
for- creating -a new department was keenly felt and the Governor-General in
Council _ by a. Resolution:· of the-- Home Department
dated the 26th August 1939 (Annexure V to Iycr's
affidavit) announced the creation from that date of a
department of Supply "to deal directly with ques-
2S.C.R.
SUPREME COURT REPORTS
1083
tions
concerning supplies of all kinds required for
the prosecution
of
war".
Annexure VIII to
Iyer's
affidavit shows that the control of the Indian Stores
Department and
all
other
matters
relating
to
the
purchase
of stores
in
India which were being
then
dealt with in the
Department of Commerce were
to
be dealt
with in the
department Supply
as
a temporary measure for the
duration of
the war.
That
the
Indian
Stores
Department and
the
Contracts
Directorate did
not
lose
their identity,
is shown by
the Office Memorandum dated the 3rd August 1940
(Annexure X,
Clause 4)
and Office
Memorandum
dated the 2nd December
1941
(Annexure XI,
Clause
1(a) and Clause 4). It is thus clear that up to the
end of the year 1940 purchases used
to be made for
and on account of the Government of
India by
the
Contracts Directorate, the
Indian Stores Department
and
the
Department of Supply
and
that
purchases
were also made locally by other departments.
It was
then that on the 1st
July
1941 the Bengal Legislature
passed
the Bengal Finance
(Sales Tax) Act,
1941
which by section 5(2) (a)(iii)
exempted
sales
to the
Indian
Stores
Department,
the
Supply
Department
of the Government of India and any railway or water
transport
administration
from
sales
tax.
Sales
to
other departments of the Government of India were
not so exempted.
By a Press Note dated the 2nd September 1941
issued by the Government of India
in
the
Supply
Department
(Annexure
XIII
to
Iyer's
affidavit)
a
purchase branch of the
Supply
Department for
the
duration of the war was created with effect from the
1st
August 1941
and it shows that the Contracts
Directorate
and the
Indian Stores
Department had
then "ceased
to exist
as
separate entities"
for
the
duration of the war and a new branch was being organised in their place.
Then came the Office Memorandum dated the
23rd December 1941 issued by the Government of
India in the Department of Supply (Annexure XIV)
which
superseded
the
previous
office
memorandum
dated the
13th December 1940 (Annexure XII). The
14-85 s. C. lndia/59
1955
The Union of India
v.
The Commercial
Tax Officer,
West
Bengal and others
Das Actg. C. J.
195.'l
Tiu Union o.( Indict
v.
The Comm<"r..ial
T°'" Offeer, Jl'e.rt
Bengal and ffthl'rs
Das A~·t_i;. (.'. J.
1084
SUPREME COURT REPORTS
r 1955J
authorities under the Central Governmellt concerned
with the production, manufacture and p_urchase
of
supplies were shown in Statement I annexed thereto.
It
is
clearly
mentioned
therein
that
departments
other than the ones referred to therein were and, in
the absence of orders
to the
contrary,
would remain
independent
of the
department
though
working in
close touch with it (Clause 3). Powers of local purchase were also not disturbed in any way (Clause 4).
Statement I indicates
that
purchases
of various
supplies, e.g., medical
and veterinary supplies,
coal and
coke for
Railway and other civil and military authont1es
in
India, etc.,
and
Printing and
Stationery
stores,
were independent of
the
Supply
Department.
It is
thus clear that the Indian Stores Department
and the Supply Department of the Government of
India were not the only departments which had authority to make purchases for and on behalf of the Government of India in its various departments.
On the 21st April 1943 came Notification No. 2rBNo.
107/43-Pub(c)
whereby
the
Governor-Gcnrral in Council announced the creation, from the 22nd
April 1943, of a Department of Industries and Civil
Supplies to deal with (i) Statistics and Research, (ii)
Development
and
(iii)
Controls.
Shortly
thereafter
Office Memorandum No. E4(179) dated the 14th May
1943 issued by the Department of Supply intimated
that
the
Governor-General
in
Council had decided
that the Department of Industries and Civil Supplies
would, with effect from the 15th May 1943, take over
responsibility
for the
procurement
of cotton
textiles
and cotton
textile
stores
(Annexure
XVI to Iyer's
affidavit).
So this
Department of Industries
and Civil
Supplies became another
purchasing organisation of
the Government of India apart from the Department
of Supply.
The Government of India Resolution dated the 31st
December 1945
announced
the creation,
with effect
from
the
7th
January
1946,
of the Department of
Industries and Supplies in place of the existing Department of Supply and the Department of Industries
and
Civil Supplies.
By
this
Resolution
the
Indian
2S.C.R.
SUPREME COURT REPORTS
1085
Stores
Department
and
the
Contracts
Directorate
which during the war had been brought under the
Supply
Department, were incorporated in the newly
created department. It will be noticed that this newly
<:reated department had assigned to it the work of the
procurement of stores for the Government of India
which was formerly assigned to the Department of
Supply and the Department of Industries and Civil
Supplies. In addition to these duties this department
was authorised also to deal with other things, namely,
development of industries, administration of Government factories
not
allocated
to
specialised
departments, Disposals of Surplus and Civil Supplies. The
nature and
volume of the purchases made by this
newly created department became obviously different
from and larger than those of the two departments it
replaced.
It is also noteworthy
that the Department
of Supply which was created for the prosecution of
war was abolished as soon as the war was over (Annexure XVII to the affidavit of Iyer).
The Resolution of the Government of India dated
the 2nd September 1947 published in
the Gazette of
India
dated
the
6th
September
1947
(Annexure
XVIII) announced, amongst other things, that with
effect from the 29th August 1947 the Department of
Industries and Supplies would
be
re-designated
as
.the Ministry of Industries and Supply.
From the summary of the annexures to the affidavit
of Iyer filed in these proceedings it is quite clear that
while the Ministry of Industries and Supply was a
new designation of the Department of Industries and
Supplies, the Department of Industries
and Supplies
cannot be regarded merely as a new designation of
the
Department of Supply and the Department of
Industries and
Civil
Supplies.
Indeed,
the
Resolution announced the "creation" of the Department of
Industries and Supplies in place of the two existing
departments
mentioned
above.
This newly
created
department had wider powers and was a new department
altogether. The
exemption
granted by the
Bengal Finance (Sales-Tax) Act, 1941 was given to
two departments by name. It was not given to the
1955
The Union of India
v.
The Commercial
Tax Oificer, West
Bengal and others
Dar Aclg. C. ].
•,\
1086
·. SUPREME COURT REPORTS
[19551
1955
sales to· ilie·. Government 'of India in alh itS' depart-
.-· -
Th4 U•ionofl•dia
ments. It is true that the Indian Stores· ·Department
TM c:· . 1 . and the ·Supply ·Department of the Govetnment of
Tax o.ou:':'"W,,, . India were not corporate bodies but. they evidently
Bengal and •thtrs - were . sufficiently well defined organisations
to be
Das Jct&· C.J \ . referred to as. "entities" in some of the· Press Notes
and Resolutions mentioned above and even· in the
affidavits filed .. in· these.
proceedings.
Further, the
Bengal Finance (Sales Tax) Act, 1941 . by section· 5
(2)(a)(iii) certainly dealt with these two departments
as if they were distinct entities. · The Act, in a
manner, conferred ' on these . two
departments the
status, as it were, of well defined and distinct entities
at least for the purposes of that Act, namely for
making sales to them exempt from the tax .. If it were
the object of the Bengal Legislature to give exemption to all sales to all departments of the Government
of India it would ·have been quite easy · for it to frame
sub-clause
(iii) in a general way as
sub-clause (iv)
had been framed. Further,· if sales · to these two
departments were to be regarded as covering sales to
·all departments of the Government of India then the
sales to the Railways which at that time mostly, if
not wholly,
belonged to the Government of India
·need not have been separately mentioned in _ the way
it · has been in sub-clause (iii). As - already stated,
there were, at the date when the Act was passed,
various other departments of the Government
of
India which were concerned with purchase of stores
but quite dearly t)le exemption conferred by the
section was not intended to extend to the sales to
those departments. Therefore, the reference ·to these
two . particular
departments in
the section cannot
·possibly be read as a reference to the Government of
India generally.
·
It has · been urged that the real object of section
5(2)(a)(iii) was to give exemption not to the parti-
·cu1ar departments but to the sales of such goods as,
. at the date of the Act, used to -be made to those de,
partments ·and, therefore, sales · of those goods made
to any department of the Government of India which
came to be charged with the duty of purchasing those
·-
+
2S.C.R.
SUPREME COURT REPORTS
1087
goods
should also come within the purview of the
section and be entitled to the benefit of the exemption conferred by it. We are unable to accept this
line of
reasoning.
This
interpretation will unduly
narrow the scope and ambit of the exemption by limiting it to sales of only those goods as, at the date of
the Act, used to be sold
to those
two departments
and sales
of other goods even to those
two department',, however necessary for the prosecution of the
war, would not get the benefit of the exemption. Such
could not possibly be
the intention of the legislature
as fxpressed
by the language med by it in framing·
the section.
According to the section the exemption
is given to all sales made to those two deparunents,
no matter whether the sales were only of the kind of
goods which used to be sold to them at the date of
the
Act or of other kinds
of
goods. The suggested
interpretation
involves
the
addition
of
qualifying
words to the section which ordinarily it is not permissible for the court to do. Further, the press notes
and the resolutions
of the
Government of India summarised above
clearly
indicate that there were other
purchasing departments
which
were
independent
of
the Indian Stores Department or the Supply Department of the Government of India and that the authority of other departments of
making
local
purchases
was not interfered with by t~e creation of these · two
departments.
Therefore
it may well
have been
that,
at the date of the passing of the Act,
same or similar
kinds of goods used to be sold to these two departments as well as to other departments but surely it
cannot be contended, in view of the language of the
section, that the exemption
was
intended
to extend
to the
sales
of
the
same
or
similar
kinds
of
goods
to
those
other departments also.
It
is
not
necessary for us to
pronounce any opinion as to the
validity
or soundness
of the
extreme
position
taken
up by
the learned Advocate-General of West Bengal
namely _that as the exemption is given by a statute to
sales made to two departments eo nomine it will not
extend to sales made to the same department redesignated by a new name. It is enough for our present
1955
The Union of lndi•
v.
The CommtrciaJ
Ta, Ojf1ur, w,.i
&ngal and olhm
Da< A<tg. C.J.
1955
Tht Union of India
v.
The Commtrcial
Tax Olficer, We.\'t
Bengal and others
Das Artg. C.J.
1088
SUPREME COURT REPORTS
[1955}
purpose
to say
that the
Department of Industries
and Supplies which
was
subsequently re-designated
·as the Ministry of Industries and Supply was not the
same as the Indian Stores
Department or the Supply
Department of the Government of India under a different name. The scope and volume of the work entrusted to the Department of
Industries and
Supplies
was much wider and larger than that with· which the
two departments which it replaced had been charged.
Unlike those
of the two departments,
its
purchases
were not confined to goods necessary for the prq_secution of the war. To extend the benefit of the statutory exemption to the sales made to the newly created
department of Industries and Supplies, of goods not
required for war purposes but, say, for meeting international obligations as in the present case, will necessarily widen the scope of the exemption and impose
greater loss of revenue on the State of West Bengal
than what the Act by its language intends to do. In
view of the ever expanding activities of the modern
welfare State in different fields including that of trade
and commerce,
the
Government
departments are
often entrusted with the performance of well defined
activities and are authorised to deal with the outside
world and to enter into contracts of sale and purchase
and other transactions in the same way as an ordinary person or company may do. Such Government
departments, therefore, may well be regarded as distinct units or quasi
legal entities, at least for
the
particular
purposes for
which they are
created.
At
any rate, the Bengal Finance (Sales Tax) Act, 1941 by
providing for the deduction of the sales to the two
named departments from
the
taxable
turnover certainly
treated those
two
departments
as distinct
entities. This exemption is the creation of the statute
and must be construed strictly and cannot be extended
to sales to other departments. The fact that
the section was not amended until 1949 does not at all
indicate that the Bengal Legislature intended to extend the benefit of the section to any but the departments specifically
mentioned in the section. In our
opinion
the
conclusion
arrived
at
by
the
Appeal
2 S.C.R.
SUPREME COURT REPORTS
1089
Court, namely that the sales tax is
payable on the
sale in question
is correct and these
appeals must be
dismissed with costs.
S1NHA J.-I regret to have to differ from my learned brethren
in the
determination of the
only question involved
in these
appeals,
namely, . whether
the
sales
by
the appellant in Civil
Appeal No. 10 of
1954
(Messrs Shrcc Ganesh
Jute
Mills Ltd.)
to the
appellant in Civil Appeal No. 9 of 1954, the Union of
India
(the Government of India at the time of the
transactions in
question)
were
liable
to payment of
<,a]es
tax under the Bengal Finance (Sales Tax) Act,
1941 (Bengal Act VI of 1941), to be
referred to hereinafter as " The Act".
The farn leading up to these appeals may shortly
be stated as follows : The Government of India in the
Ministry of Industry and Supply (which for
the
sake
of brevity
may be called
"The Government"
entered
into a contract on the 1st September 1948 with
Messrs
Shree Gane<,h
Jute
Mills Ltd., which may be designated "The
Mills",
for the
supply of hessian at
certain
rates
and
of certain
description appearing in
Exhibit A to the affidavit filed
on behalf of the
Mills.
With
reference
to
the
question
of
sales
tax
the
contract contains the following stipulation :-
"The prices
shown
above
are
exclusive
of the
Bengal
Sales
Tax. The Government of
India will
arrange direct payment of sales
tax
to the Government of
Wt'>t
Bengal
if it is
ultimately found
that
sales tax is payable in respect of this contract".
It is also provided that "This contract will be governc:.d
by
the
conditions
of contract specified
in Form
WSB. 133
as
amended
up
to
date". This
contract
was entered into
and
'>igned
by
"A Huq,
Deputy
Director of Supplies,
for and on behalf of the Governor-General
of India".
In
pursuance
of the aforesaid
contract the
Mills rnpplied hessian goods to the Government of India of a certain
valuation
on which the
:~ommercial Tax Officer of Bengal, the main contesting respondent,
made a demand
of Rs. 9,401-10-6
as
.sales tax from the Mills.
The Mills demurred
to
the
Tht~Union of India
\'.
'f ht Commtrcial
Tax Ojfuu, Wt>I
Bl!ngal ari.rl othtrJ
Do• Actg. C.J.
1955
The U11io11 of India
v
The CfJmmercial
Tax O.fficer, H'est
IJengal and others
Sinha].
1090
SUPREME COURT REPORTS
[1955]
payment and contended that
the sales in questjon
were exempt from
payment of the sales tax demanded in view of the provisions of section 5(2)(a)(iii) of
the Act. Eventually the Mills moved the High Court
of Calcutta for an appropriate writ under article 226 of
the
Constitution
against
the
contesting
respondents.
The matter was heard by a Single Judge of that Court
who by his judgment dated the 6th December
1951
held that the
Mills were not liable
to pay
the
sales
tax demanded and cancelled the notice of demand
and directed the respondents 1 and 2 to forbear from
enforcing the
demand. Respondents
1 and 2 went
up in appeal under the Letters Patent. The appeal
was heard by a Division Bench which came to the
contrary conclusion. The major portion of the judgment of the Letters Patent Bench was devoted to the
discussion of the question whether the judgment of
the learned
Single
Judge in the writ matter was
amenable to
the
appellate
jurisdiction
under the
Letters Patent. That question
has not been pressed
during the arguments and is therefore no more in
controversy. The only
question
that was
canvassed
before us was the applicability of section 5(2) (a) (iii)
of the Act which contains the exemption, the benefit
of which is being sought by the appellants in each
case. The exemption is in these terms :-
"Sales to
the
Indian
Stores Department, the
Supply
Di'partment of the Government of India, and
any railway or water transport administration".
It has
been contended on behalf of
the appellants
that the sale of hessian by the Mills to the Government of India in the Ministry of Industry and Supply
is within the terms of the exemption quoted above.
On the other hand, it is contended on behalf of the
Sales Tax Department of the Government of \Vest
Bengal that the sales in question were not covered by
the aforesaid exemption clause.
It is therefore
necessary to go into some detail of the formation and
development of the Department in question.
The supplementary affidavit filed on behalf of the
Government and sworn to by Shri
A. R. Iyer, Deputy
Director
of
Directorate
General
of Supplies
&
2S.C.R.
SUPREME COURT REPORTS
1091
Disposals, discloses
the following facts.
The Indian
Stores
Department was
constituted
with effect from
the 1st
January 1922 as a result
of the recommendations of the Stores Purchase Committee which had
been
constituted by the
Government of India to examine the whole question of the constitution of an expert agency
to carry out on a large scale purchase of
supplies
required
for
the public
services,
as recommended
by the
Indian Industrial
Commission, with
the object of encouraging
the
purchase · of
articles
made in
India for
Government
requirements.
The
scope
and functions of the
Department, inter alia,
were to act
as a purchasing and inspection
agency,
and in an advisory capacity in all matters connected
with the purchase of stores fqr the public services, on
behalf of all Central Departments of the Government
and of the minor local Governme11ts and also on behalf
of
such
major
local
Governments,
Companyworked Railways, Corporations, Port Trusts, Municipalities and quasi public bodies and Indian States as
might desire to avail themselves of the Department's
assistance.
The activities of the Department consisted
in the purchase and
inspection
in India of
a large
variety of goods and articles including "textile goods",
so that the purchase of hessian which is the particular
commodity involved in this case, would be included
in the activities of the Department. The Department
had been constituted in the first instance for a period
of two years. But by a
Resolution
of
the
Government of India dated the 6th May 1924 it was placed
on a permanent basis.
It continued to discharge the
same functions as before.
It made purchases not only
for the needs of the civilian departments of the Government of India but also of all the requirements of
the Army.
Hessian which had been purchased from
the Mills in this case was one of the products which
the Government of
India
used
to
purchase
only
through
the
Indian
Stores
Department
whenever
needed for Government purposes.
A Department called
the "Contracts Directorate" had been constituted in
1918 as a purchasing organization for the needs of the
Army.
But
after
the
constitution of
the Indian
1955
The Uni.on of India
v.
Thi Commercial
Tax Officer, Wtst
Bengal and others
Sinha J.
1955
The (/nifJn qf India
v;
TM Commtrcial
1·ax O.fficer, WtJl
IJ~ngal and r1lhtn
Sinha J.
1092
SUPREME COURT REPORTS
[1955]
Stores Department in 1922 the Army authorities alsr>
began to utilize
the services of the Indian Stores Department
for
procurement of
several
categories
of
stores
required
by
them.
By
a
Resolution of
the
Home Department dated the · 26th August
1939, apparently
to meet
the demands of the
imminent
second
world war,
the Contracts Directorate and the
Indian
Stores
Department
were
in· 1940. amalgamated with
the Department of Supply so that in 1941, when the
Act was
passed,
the ·position
was
that the Department of Supply as reorganized
on the 3rd August 1940
included
amongst
its
activities
and
functions
the
purchase of stores for the needs of the Government.
This branch of its
activity was
administered by
the
Directorate
General,
Supply
Branch,
located at New
Delhi.
Jute
products
and textiles
including
hessian
had to be purchased only by
placing. indents by
the
department
concerned
with
the Directorate
General
of Supply, New Delhi. Thus this Department absorbed for the duration of the war the purchasing sections
of
the
Indian
Store's
Department and
the
Contracts Directorate
which were placed
under completely
self-contained
organizations
empowered
to
procure
all
supplies,
whether
for
war
purposes
or
otherwise.
All
authorities
requmng
supplies
to
be
procured
in
India
had
to
place
their
indents
or
demands on the Directorate General concerned. With
effect from the 1st August
1941 the Contracts Directorate and the Indian Stores Department ceased to exist
as separate entities in the Supply Department and became one purchasing organization
in the said
Department.
This organisation
arranged
for
supply
of all
.classes
of stores for purposes of Government, such as
textiles, leather goods, etc. Thus hessian
which came
under the head of "textiles"
which was being purchased in the first instance only by
the Indian Stores
Department
continued
to be purchased
by the Supply
Department
when
the
Indian
Stores
Department
came under the control
of the
Supply
Department.
By a
notification dated the 21st
April· 1943
issued by
the Government
of India
in the
Home Department,
another
Department
called
the
Industries
and
2 S.C.R.
SUPREME COURT REPORTS
1093
Civil Supplies Department was created. This Department was primarily concerned
with
statistics and
research
and
development
of
industries,
as
also
controls
on
civil
supplies
(other
than foodstuffs).
\Vhen this Department was first
created, it had no
purchasing
activity.
But
with
effect
from
the
15th
May 1943
the Government directed that the new
department should
take over responsibility for
the
procurement
of
cotton
textiles
and
cotton
textile
stores which till then were being dealt with by the
Indian Stores Department which
later came
under
the Supply Department as aforesaid.
Purchase of jute
and woollen textiles
continued
to be
the
responsibility of the
Supply
Department.
By a Resolution
of
the
Government
of India
dated the
31st
December
1945
the Department of Industries
and Supplies
in
place
of the
existing Departments of
Supply and of
Industries and Civil Supplies was
created with effect
from the
7th
January
1946.
From
that
date
the
Department of Industries
and
Supplies
became
responsible for the procurement of stores from all places
in India in the same manner as
the Department of
Supply
had been doing previously to its
amalgamation with the new Department. The powers and functions
of the
Department of
Industries
and Supplies
in the matter of procurement of stores continued as
before.
The Department continued
to
procure and
purchase only the same kinds of articles as the Department of Supply had been doing before the coming
into existence
of the
Department of
Industries
and
Supplies
so
that the creation of the Department of
Industries and Supplies did not make any difference
in its
activities
relating to purchase of stores. There
was no
addition to or subtraction from its functions
in the matter of purchase of stores.
From what has been stated above, it is clear that
the purchasing functions of the Government of India
with special reference to the procurement of textiles
including hessian with which we are immediately concerned were discharged by the Indian Stores Department from 1st
January
1922.
Those functions
were
taken over
by the
Department
of .