# STATE OF MADRAS v. R. NAJ."ID LAL & CO

- **Citation:** [1967] 3 S.C.R. 645
- **Court:** Supreme Court of India
- **Decided:** 1967-04-14
- **Case number:** Civil Appeal No. 604 of 1966
- **Bench:** J. C. Shah, S. M. Sikri, V. R.Amaswam!
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-madras-v-r-naj-id-lal-co-3982
- **Pages:** 8

## Headnote

Central Sales Tax Act,
1956, s. 8(4)-Form 'C' as prescribed by
Central Government to be filled by purchasing dealer for selling dealer
to get benefit of lower rate under s. 8(1)(b)-Central Sales Tax (Madras) Rules, 1951 R~le 10(1) requiring each declaration in 'J!'orm 'C' to
contain one transaction only-Sale by Madras dealer to Pun1ab dealer--
Punjab dealer declaring more than one transaction In one form-Whether
contravenes Rule 10(1)-State Government does not have power wukr
s. 13(3) ands. 13(4) (e) of the Cenlral Act to place such restriction on
outside deale1'-Deslrabillty of Central Government making rules uruler
s. 13 (1 )(d) in this regard.
The assessee firm was a 'dealer' ·in Madras State. For the year
1959-60 the firm was taxed at 7% on certain sales effected to registered
dealers in the Punjab on the ground that the declaratfons taken from
dealers in Punjab in Form 'C' were not in accordanee with r. 10(1) of
the Central Sales Tax (Madras) Rules, 1957. The latter rule required
that there must be a separate declaration in respect of each transaction
whereas the declarations in the present case were
in respect of several
transactions each. The appellant firm claimed that on the turnover in
9uestion it should have been a"essed at one per cent only, as laid down
Ill s. 8(1) of the Central Sales Tax Act, 1956. The claun was turned
down by the Sales-tax Authorities and the Tribunal, but the High Court
held that r. 10(1) of the Central Sales Tax (Madras) Rules, 1957 applied only to transactions of purchase by a dealer in the State of Madras
and not to the purchasing dealer in the State Of Punjab, that the Madras
State was incompetent to frame rules governing the conduct of the JIU!-
chasing dealers in the Punjab, and that in any event r. 10(1) was dtrectory and not mandatory. The State appealed.
.
HELD: (i) Ex facie r. 10(1) imposes no obligation upon a dealer
m the State of Madras wishing to sell goods : It applies to a clear wishing
''? purchase _goods from another dealer. The High
Court was fUrther
right m holdmg that under the scheine of the Central Sales Tax Act and
the . Rules framed under that Act by the State of Madras the injunction
agamst the J>Urchasing dealers in r. 10(1) did not apply to dealers in the
State of Pun1ab. [650B-651A]
A~cordingly the proviso to r. 10(1) which directs that no single declarat10n shall cov~r '!'Ore than one ln!DSaction of sale except in certain
cases has no apphcatton to a purchasmg dealer outside the State of
Madras. Nor does r. 10(2) impose any binding obligation upon the
selling dealer in Madras to obtain a separate declaration form in respect
of each sale transaction. [ 651 C-F]
The appellants were therefore to be taxed at the rate of one per cent
and not seven per cent on the turnover in question.
(ii) A rule prescribing that a declaration by a purchasing dealer shall
(!fl contam more than one transaction can only be made by the Central
overnment under s. 13(l)(d) and the State Governments do not have
\
646
SUPREME COURT REPORTS
[1967] 3 S.C.R.
power under s. 13(3) and s. 13(4) (e) to
make any such rule.
The
ft,.
situation which had arisen in this case could have been avoided if instead
of each State making its rules requiring that no single declaration shall
cover rnol'le than one transaction, the Central Government in exercise of
the power under s. 13(1) (d) of the Act had made the rule.
[6510-H;
652A-Bl

## Text

b
E
F
G
H
STATE OF MADRAS
v.
R. NAJ."ID LAL & CO.
April 14, 1967
[J. C. SHAH, S. M. SIKRI AND V. R.AMASWAM!, JJ.]
Central Sales Tax Act,
1956, s. 8(4)-Form 'C' as prescribed by
Central Government to be filled by purchasing dealer for selling dealer
to get benefit of lower rate under s. 8(1)(b)-Central Sales Tax (Madras) Rules, 1951 R~le 10(1) requiring each declaration in 'J!'orm 'C' to
contain one transaction only-Sale by Madras dealer to Pun1ab dealer--
Punjab dealer declaring more than one transaction In one form-Whether
contravenes Rule 10(1)-State Government does not have power wukr
s. 13(3) ands. 13(4) (e) of the Cenlral Act to place such restriction on
outside deale1'-Deslrabillty of Central Government making rules uruler
s. 13 (1 )(d) in this regard.
The assessee firm was a 'dealer' ·in Madras State. For the year
1959-60 the firm was taxed at 7% on certain sales effected to registered
dealers in the Punjab on the ground that the declaratfons taken from
dealers in Punjab in Form 'C' were not in accordanee with r. 10(1) of
the Central Sales Tax (Madras) Rules, 1957. The latter rule required
that there must be a separate declaration in respect of each transaction
whereas the declarations in the present case were
in respect of several
transactions each. The appellant firm claimed that on the turnover in
9uestion it should have been a"essed at one per cent only, as laid down
Ill s. 8(1) of the Central Sales Tax Act, 1956. The claun was turned
down by the Sales-tax Authorities and the Tribunal, but the High Court
held that r. 10(1) of the Central Sales Tax (Madras) Rules, 1957 applied only to transactions of purchase by a dealer in the State of Madras
and not to the purchasing dealer in the State Of Punjab, that the Madras
State was incompetent to frame rules governing the conduct of the JIU!-
chasing dealers in the Punjab, and that in any event r. 10(1) was dtrectory and not mandatory. The State appealed.
.
HELD: (i) Ex facie r. 10(1) imposes no obligation upon a dealer
m the State of Madras wishing to sell goods : It applies to a clear wishing
''? purchase _goods from another dealer. The High
Court was fUrther
right m holdmg that under the scheine of the Central Sales Tax Act and
the . Rules framed under that Act by the State of Madras the injunction
agamst the J>Urchasing dealers in r. 10(1) did not apply to dealers in the
State of Pun1ab. [650B-651A]
A~cordingly the proviso to r. 10(1) which directs that no single declarat10n shall cov~r '!'Ore than one ln!DSaction of sale except in certain
cases has no apphcatton to a purchasmg dealer outside the State of
Madras. Nor does r. 10(2) impose any binding obligation upon the
selling dealer in Madras to obtain a separate declaration form in respect
of each sale transaction. [ 651 C-F]
The appellants were therefore to be taxed at the rate of one per cent
and not seven per cent on the turnover in question.
(ii) A rule prescribing that a declaration by a purchasing dealer shall
(!fl contam more than one transaction can only be made by the Central
overnment under s. 13(l)(d) and the State Governments do not have
\
646
SUPREME COURT REPORTS
[1967] 3 S.C.R.
power under s. 13(3) and s. 13(4) (e) to
make any such rule.
The
ft,.
situation which had arisen in this case could have been avoided if instead
of each State making its rules requiring that no single declaration shall
cover rnol'le than one transaction, the Central Government in exercise of
the power under s. 13(1) (d) of the Act had made the rule.
[6510-H;
652A-Bl
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 604 of
1966.
Appeal by special leave from the judgment and order dated
August 5, 1964 of the Madras High Court in Tax Case No. 131
of 1963 (Revision No. 87).
G. Ramanujam and A. V. Rangam, for the appellant.
K. Srinivasan and R. Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by
Shah, J.
M/s. R. Nand Lal & Company-hereinafter called
'the assessee'-are dealers in wool at Vaniyambadi in North
Arcot District in the State of Madras. In proceedings for assess·
ment of sales-tax for the year 1959-60 the assessees were assessed
to pay tax at the rate of seven per cent. on a turnover of
Rs. 2,08,343-05 from sales effected by them to certain registered
dealers in the State of Punjab. The assessing authority declined
to assess the turnover at one per cent. as prescribed by s. 8 ( 1) of
the Central Sales Tax Act, 1956, because in his view the assessees
B·
c
had submitted declarations in Form 'C'
covering two or more
transactions contrary to the first proviso tor. 10(1_) of the Central
E
Sales Tax (Madras)
Rules, 1957. The Appellate Assistant
Commissioner and the Sales Tax Appellate Tribunal, Madras
confirmed the order of the assessing authority. The High Court
of Madras, in exercise of its revisional jurisdiction, set aside the
order of the Sales Tax Appellate Tribunal, and declared that the
assessees were liable to pay tax on the turnover in dispute at the
lower rate. The State of Madras has appealed to this Court with
special leave.
Section 8 of the Central Sales. Tax Act, 1956 (as amended by
Act 31 of 1958) insofar as it is material provided :
"(1) Every dealer, who in the course of inter-State
trade or commerce--
(a)
(b) sells to a registered dealer c;>t~er than the Goyernment goods of the description referred to in
sub-section ( 3) ;
shall be liable to pay tax under this Act, which shall be one per
cent. of his turnover.
( 2) The tax payable by any dealer on his turnover in so far
as the turnover or any part thereof relates to the sale of goods
F
H
MADRAS v. NAND LAL & CO. (Shah, J,)
647
A in the course of inter-State trade or commer4:e not falling within
sub-section (1 )-
B
c
D
(a)
(b) in the case of goods other than declared goods,
shall .be calculated at the rate of seven per cent.
or at the rate applicable to the sale or purchase
of such goods
inside the appropriate State,
whichever is higher;
(2A) .
(3)
.
" ( 4) The po visions of sub-section ( 1 ) shall not
apply to any sale in the course of ~r.State trade or
commerce unless the dealer selling the ~oods furnishes
to the prescribed authority in the prescribed manner-
( a) a declaration duly filed and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed
form obtained from the prescribed authority; or
(b)
(5)
.•
" ..
It is common ground that the turnover was in respect of goods ·
E
of the class specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by
him or for use by him in the process of manufacture of goods for
sale. A registered dealer selling goods in the course of inter.State
trade or commerce of the description referred to in sub-s. ( 3) is
liable under s. 8 (1) of the Central Sales Tax Act, to pay .tax only
r
at the rate of one per cent. on his turnover. But to qualify him•
self for that rate of tax he has to furnish to the prescn'bed authority a declaration duly filled and signed by the Tegistered dealer to
whom the goods are sold. Such a declaration must contain the
prescribed particulars in the prescribed form obtained from the
prescribed authority. If the selling dealer fails to furnish the
G declaration in the prescribed form, he is liable to pay tax at the
higher rate mentioned in sub-s. (2)(b) of s. 8.
The respondents did furnish declarations in Form 'C' prescribed under the Rules framed by the Central Government in
exercise of the powers ve&ted bys. 13 (1) (d) of the Central Sales
Tax Act. But each such declaration covered more transactions of
8
sale than one and the aggregate value of the transactions record•
ed in each declaration exceeded Rs. 5,000/-
The sales-tax
authorities and the Tribunal were of the view that these declara·
lions contravened the express direction of the rule made by
648
SUPRBMB COURT RBPORTS
(1967] 3.S.C.R.
the Madras State in exercise of the ~wers under s. 13(4)(e) of
the Central Sales Tax Act. The Htgh Court held that r. 10(1)
of the Central Sales Tax (Madras) Rules, 1957, applied orily to
a transaction of purchase by a dealer in the State of Madras, and
not to the purchasing dealer in the State of PU!!jab; that the
Madras State was incompetent to frame rules governing the conduct of the purchasing dealers in the Punjab; that since the corresponding rules framed by the State of Punjab under s. 13 ( 4) ( e)
of the Central Sales Tax Act did not include a provision requiring
separate form to be used for each sale transaction, the purchasing
dealers were not obliged to comply with r. 10(1) of the Madras
Rules, and that since the Madras selling dealers could not compel
the purchasing dealers to comply with the rules relating to furnishing of separate declaration forms ordained by the Madras Rules,
the declarations were not defective. In any event, the High Court
held, r. 10 (1 ) of the Madras Rules was directory and not mandatory.
The assumption made by the High Court that no rule was
framed by the State of Punjab under s. 13 ( 4 )_ ( e) ~f the Central
Sales Tax Act requiring tho purchasing dealers in the State of
Punjab to issue a separate declaration form in respect of each
individual transaction is erroneous. It is conceded before us that
the Punjab Government had in purported, exercise of the powers
under sub-ss. (3) & (4) of s. 13 of the Central Sales Tax, 1956,
made r. 7(2-A) with effect from February 17, 1958 that:
"No single declaration in Form 'C' prescribed under
the Central Sale<> Tax (Registration and
Turnover)
Rules, 1957, shall cover more thart one transaction of
sale except when the total amount of sales does not
exceed five thousand rupees."
A
B
c
D
But, for reasons which we will presently set out, the judgment of r
the High Court must still be affirmed.
Subcsection ( 4) of s. 8 of the Central Sales Tax Act provides
that in order to qualify himself for the lower rate of tax in
respect of sales in. the course of inter-State trade or commerce,
the dealer selling goods has to furnish to the prescribed authority
in the prescribed manner a declaration duly filled and sign~ by
G
the registered dealer to whom the goods are sold. The expressions
"prescribed authority" and "prescribed manner" mean the authority and manner prescribed by rules under the Act. Section 13 (1)
of the Central Sale~ Tax Act, 1956, authorises the Central Government to make rules, providing, inter alia, the !orm in wh~ch
and the particulars to be contained in arty declart10n of cerufiu
cate to be given under the Act. By sub-s. (3) .of s. ~ 3 the St~te
Government is authorised to make rules not mcons1stent
With
the provisions of the Act and the rules made under sub-s. ( 1) to
, ,
MADRAS V, NAND LAL & CO. (Shah, J,)
649
carry out the purposes of the Act, and by sub-s. ( 4) of s. 13 the
State Government Js, iQ. particular and without prejudice to the
powers conferred by sub-s. (3), authorised to mak;e rules for all
or any of the purposes set out therein including "the authority
from whom, the conditions subjec,t to which and the fees subject
to payment of which any form of declaration prescribed under
B sub-s. ( 4) of section 8 may be obtained, the manner Jn which the
form. shall be kept in custody and records relating thereto maintained, the manner in which any such form may be used and any
such declara,tion may be furnished."
c
D
E
II
G
H
In exercise of the power conferred by s. 13 ( l) ( d) the Central
Government has prescribed the form of declaration to be furnish·
ed by the purchasing dealer under s. 8 ( 4). That is Form 'C'.
The form is in three sections-the "counterfoil", the "duplicate"
and the "original". The "original" contains at the foot of the
Form the following Note :-
"(To be furnished to the prescribed authority. in
accordance with the rules framed under section 13 ( 4)
( e) by the appropriate State Government.)"
The Madras State Government presuming to act in exercise of
autho~ty under s. 13(3) and s. 13(4)(e) framed the Central
sates Tax (Madras) Rules, 1957, r. 10(1) of which reads as
follows;
"A registered dealer, who wishes to purchase goods
from another such dealer on payment of tax at the rate
applicable under the Act to sales of goods by one registered dealer to another, for the purpose specified in !he
purchasing dealer's certificate of registration,
shall
obtain from the assessinii; authority Jn the City of
_Madras and the registenng ·authority af other places a
blank declaration form prescribed under rule 12 of the
Central Sales T~ (~egistration a!1d Turnover) Rules,
195? ~or furn:shing 1t ~o the selling dealer.
Before
furnish1!1g the declarl\tlon to the selling dealer, the
purc~as1!1g d~ler or any responsible person authorized
by hllll: in th1S behalf shall fill in all the required parti-
~ulars m the form ~nd s~all also affix his usual signature
m- the space proVlded m . the form for this purpose
Thereafter, the counterfoil of the form shall be retain:
ed by the purchasing dealer and the other two portions
marked "original" and "duplicate" shall be made over
by him to the selling dealer :
Provided that no single declaration shall cover more than on~
transa.ct!on of sales except-
..
650
SUPllJIMB COURT llJIPOllTS
(1967) 3 S.C.k.
(a) in cases where the total amount covered by one
A.
declaration is equal to or Jess than Rs. 5,000
or such other amount as the State Government
may, by a general order, notify in the Fort. St.
George Gazette, and
(b)
"
Ex facle, this rule imposes no obligation upon a dealer in the
State of Madras wishing to sell goods : it applies to a dealer
wishing to purchase goods from another dealer. The argument
B
that cl. ( 1) of r. 10 is intended to apply to a registered dealer in
the. State of Punjab is negatived by the scheme of the Central
Sales Tax Act and the Rules framed thereunder. By s. 7 of the
Central Sales Tax Act, every dealer liable to pay tax under tho
C
Ac.t has to make an application for registration under the Act
to such authority in the appropriate State as the Central Govern.
ment may by seneral order specify. The authority to be specified
is designated m the Central Sales Tax (Registration and Tum·
over) Rules, 1957, framed by the Central Government under
s. 13 ( 1 ) , the "notified authority" : vlde r. 2 ( c). Rule 3 provide11
D
that an application for registration under s. 7 shall be made by a
dealer to ,the notified authority in Fonn 'A'. In exercise of the
powers conferred by sub-s. ( 1) of s. 7 of the Central Sales Tax
Act,.1956,·the Central Government issued a notification No. S.R.O.
643 dated February 22, 1957, specifying the persons mentioned in
Col. ( 3) of the Schedule thereto as the authorities to whom the
dealer~ of the description in C-0L (2) shall make the application
for registration. Item 1 of the Schedule requires a dealer having
a singfe place of business in a S'ate to make an application to the
authority competent to register him under the general sales tax
law of the State if he were liable to be So registered : and item 2
provides that .the dealer having more than one place of business in
a State shall make an application to the authority competent to
register him in respect of the principal place o1 business under
the general sales tax Jaw of the State if he were liable to be so
regis!ered. A registered dealer contemplated by r. lO is therefore registered in . the State where he has his place of 'business.
E
f
G
The expression "assessing authority" is defined in the Central Sales
Tax (Madras) Rules; 1957, as meaning any person authorized by
the s•ate Government to make any assessment under the Maaras
General Sales Tax Act, 1959 (Madras Act 1 of 1959). The
dealer has again to obtain the form of declaration from • t¥
assessing authority in the State of Madras. These are clear 1ndi-
. cations that the rules framed by the Madras Government were
intended to apply to dealers within . the Stat~ of ~adras. ":he . H
High Court was, in
our judgment,
nght
m
holdmg
that under the scheme· of the Central Sales Tax Act
an~. the
Rules framed under that Act by the State of Madras, the m1unc-
MADRAS v. NAND LAL & CO. (Shah, /.)
651'
A tion against the purchasing dealers in r. 10( 1) did not apply to
dealers in the State of Punjab. It is unnecessary on rhat view to
express any opinion on the question whether the State Govvernment could, in exer<:ise of the powers under s.
13 ( 4),
impose upon dealers not within the State, obligations to comply
with conditions relating to the contents of the 'C' Form declaraB tions.
Since, r. 10( 1) requiring ,that a separate declaration form
in respect of each individual transaction shall be furnished was
intended only to apply to dealers in the State of Madras, and
not to dealers outside the State, proviso to r. 10( 1) which
directs that no single declaration shall cover more than one
c transaction of sale except in certain cases has no application to.
a purchasins dealer outside the State of Madras.
Rule 10(2)
D
provides:
"A registered dealer who claims to have made a
sale to another registered dealer shall, in respect of such
claim attach to his return in Form I the portion marked "original" of the declaration received by him from
the purchasing dealer.
nie assessing authority may,
in its discretion, also direct the selling .dealer to pro·
duce for inspection the portion of the declaration
marked "duplicate". "
But this rule does not direct that a declaration covering more
E than one transaction of sale shall not be given. The rules fram- ·'
ed by the Madras Government do not otherwise impose
any binding obligation upon the selling ·dealer in the State
of Madras to obtain a separate declaration form in respect of
each sale transaction, nor do the rules visit him with a penalty
on failure to comply with the requirement.
'
G
We are constrained to observe that the rule making authorities have failed to appreciate the scheme of s. 13 of the Central
Sales Tax Act. We are of the ?,Pinion that it was not within the
competence of the State authorities under s. 13 ( 3) & ( 4) of the
central Sa,Jes Tax Act to provide that a single declaration covering more than one transaction shall not be made. Authority to
prescribe such an injunction cannot have its source in s. 13 ( 3) or
s. 13 ( 4 )( e) : it can only be in the authority conferred by cl. ( d)
of s. 13 ( 1 ) by the Central Government. The Central Government has, in exercise of the power under s. 13 ( 1 )( d) prescribed'
the fonl?- of declaration and the particulars to be conWned in the·
~ecl8!'•tton. A directio~ ~a! there shall !'e a separate declara,.
H
ti:>n m ~pect of, each individual transaction may appropriately
be made m exercise of the power coriferred undet s. 13 (1 ) ( d) ..
The State Go\oernment is undoubtedly empowered to make rules
under sub-ss. (3) and (4) of s. 13: but the rules made by the·
•652
SUPllBMB COUllT llEPOllTS
[1967J 3 s.c.ll.
.State Government must not be inconsistent with the provisions of
the Act and the rules made under sub-s. ( 1) of s. 13 to carry out
.the purposes of the· Act. If the .authority to make a rule pres-
.cribmg that the declaration shall not contain more than one
transaction can be made only under s. 13(l)(d), the State Government cannot exercise that authority. The situation which has
arisen in this case could have been avoided, if instead of each
State making its rules requiring that no single declaration shall
cover more than one transaction, the Central Government in
exercise of the power under s. 13 (1 )( d) of the Act had made
the rules.
The appeal fails and is dismissed with costs.
o.c.
Appeal dismissed.
A
B
c