# STATE OF TAMIL NADU v. M. K. KANDASWAMI ETC. ETC. July 1,, 1975

- **Citation:** [1976] 1 S.C.R. 38
- **Court:** Supreme Court of India
- **Decided:** 1976
- **Bench:** V. R. KRISHNA In.11, R. S. SA!l.ll:I!l.IA, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-tamil-nadu-v-m-k-kandaswami-etc-etc-july-1-1975-6611
- **Pages:** 11

## Headnote

lnterprt!tation of Statutes-/'rQl'fsion susceptible of two constructions--Construction defeatin6 purp~ of provision, if can bl! resorted to.
Ta1nilnaiu Central Sales-tMX Act, 1959, Stctidn 7-A(l)-InttrprttationSale or purchc.tSe of certain :o•ds gtnrrally taxable under tht! Act-Act prtscribing circumstancy,s whe11 no ta:f. b6 ~ttracted-!rovlsions of section charging such
goods to tax, if workable.
Section 7-A(J) of Tamilnadu General Sales-tax Act, 1959, provide.
that
every d•aler who in the courso of his bu8incss purchases from a re&istered dealer
or from any other pen;on, uy aoods (th• e:alo. or purchaso of' ~hich is liable
to tax under thi~ Act) in circumstance:iii in which no tax is payable under section 3, 4 or 5, as the case may be~ and cither,-(a)_ consumes such aoods in the
manufacture of other cood~ for sale or otherwi~; or (b) disposee Of -such good~
in any manner other than by way of sale in the State; or (c) de:!!patchei them
to a place outside the· State except a! a direct result of iile or purchase in the
course of inter-State trade or C(lmmerce shall pay tax on the turnover relating
to the purchase aforesaid at the rat• mentioned i~ s. 3, 4 or 5 a!ll the case m:iy
be whatever be the quantum of such turnover in a yea.r : The proviso to this
sub-section iexempt! a dealer (other than a casual trader or aient of a nonresident dealer), if his turnover i'or a. year ie less than Rit. 25,000/-.
All the respondents are dealers aaainst whom either pre-asgessment proceedings have been initiated or aseeesment' have been made under s. 7-A of the
Act on the purchaee turnover of 1oods like arecanuts, Gingelly 5t'Cds, butter,
turmeric anJ. grams and castor ~ede. All the respondentg filed wrjt petition~
under Art.
226 of the Constitution in the Hilh Court of Madra, challenging
the validity of the i:r ... asseMment
proceeding<J/assessment~ and tho demand
notices. The Hi:h Court allowed the writ petitiong and qua,hed the im~gned
proceedinc~ and assessment!,
The ,State ha, preferred thi~ appeal on the basi~
of the certificate granted by the Hi:h Court under Art. 133 (I) (c) of the
Constit11,tion.
It 'vas contended for the appel1ant that tho High Court was wrong in taking
the view that the expression "good' the tw.le or purchase of which i~ liable to
t::i:< under this Act" and the phrruie "purchases ..... in circumgtance! in \Vhich
no to.ix is payable under so:tion 3, 4 or 5" are a contradiction in terms and
therefore, s. 7-A( 1) beine: far from clear a~ to it" intention, the Joint~Cornmercial
1'ax Officer wa' not justified in invoking thi, section.
Ac:epting the contention and allowing 1:he appeal,
HELD: (i) Section 7-A i::i at once a charging as well as a remedial provision.
Its n1ain object i~ to plug leakage and prevent evasion of tax. In interpreting
such a provision, a construction which would defeat its purpo3C and, in effect,
obliterate it from the statute book, ~hould be e9Chewcd.
If more than one
con-:truction i3
po~:!!ible, that which pre!erVe! its v.·orkability and effi:acy is to
be preferred to the one which would render it otiose or sterile. [46F-G1
(ii) The scheme of the Act involve3 three inter-related but distinct concepts,
namely, taxable pereon', 'taxable good'' and 'taxable event'.
AU the three
must be eatisfied before a person can be ~addled with liability under the Act.
The ingredients of ~ction 7-A(i) are: (1) The person who
purchases the
goods ie a dealer : (2) The purcha~ jg made by him in the
course of his
business; (3) Such purchase j3 either from "a registered dealer or from anv
:Other person; ( 4) The goods purchased are goods the sale or purchase o.f
A
B
c
D
E
F
G
H
' •
•
).
1.
'
J
' I
l'AMIL NADU v. M. K. KANDASWAMI (Sarkaria, J.)
3!}
A
which is liable to tax under this Act." (5) Such purchase i! "in circumstancesr
in which no «ax is payable under s. 3, 4 or 5 as the case may be", and (6)
The dealer either (a) consumes such goods in the manufacture of other &ood!·
for sale or otherwise or (b) despatche

## Text

38
STATE OF TAMIL NADU
v.
M. K. KANDASWAMI ETC. ETC.
July 1,, 1975
[V. R. KRISHNA In.11., R. S. SA!l.ll:I!l.IA AND A. C. GUPTA, JJ.]
lnterprt!tation of Statutes-/'rQl'fsion susceptible of two constructions--Construction defeatin6 purp~ of provision, if can bl! resorted to.
Ta1nilnaiu Central Sales-tMX Act, 1959, Stctidn 7-A(l)-InttrprttationSale or purchc.tSe of certain :o•ds gtnrrally taxable under tht! Act-Act prtscribing circumstancy,s whe11 no ta:f. b6 ~ttracted-!rovlsions of section charging such
goods to tax, if workable.
Section 7-A(J) of Tamilnadu General Sales-tax Act, 1959, provide.
that
every d•aler who in the courso of his bu8incss purchases from a re&istered dealer
or from any other pen;on, uy aoods (th• e:alo. or purchaso of' ~hich is liable
to tax under thi~ Act) in circumstance:iii in which no tax is payable under section 3, 4 or 5, as the case may be~ and cither,-(a)_ consumes such aoods in the
manufacture of other cood~ for sale or otherwi~; or (b) disposee Of -such good~
in any manner other than by way of sale in the State; or (c) de:!!patchei them
to a place outside the· State except a! a direct result of iile or purchase in the
course of inter-State trade or C(lmmerce shall pay tax on the turnover relating
to the purchase aforesaid at the rat• mentioned i~ s. 3, 4 or 5 a!ll the case m:iy
be whatever be the quantum of such turnover in a yea.r : The proviso to this
sub-section iexempt! a dealer (other than a casual trader or aient of a nonresident dealer), if his turnover i'or a. year ie less than Rit. 25,000/-.
All the respondents are dealers aaainst whom either pre-asgessment proceedings have been initiated or aseeesment' have been made under s. 7-A of the
Act on the purchaee turnover of 1oods like arecanuts, Gingelly 5t'Cds, butter,
turmeric anJ. grams and castor ~ede. All the respondentg filed wrjt petition~
under Art.
226 of the Constitution in the Hilh Court of Madra, challenging
the validity of the i:r ... asseMment
proceeding<J/assessment~ and tho demand
notices. The Hi:h Court allowed the writ petitiong and qua,hed the im~gned
proceedinc~ and assessment!,
The ,State ha, preferred thi~ appeal on the basi~
of the certificate granted by the Hi:h Court under Art. 133 (I) (c) of the
Constit11,tion.
It 'vas contended for the appel1ant that tho High Court was wrong in taking
the view that the expression "good' the tw.le or purchase of which i~ liable to
t::i:< under this Act" and the phrruie "purchases ..... in circumgtance! in \Vhich
no to.ix is payable under so:tion 3, 4 or 5" are a contradiction in terms and
therefore, s. 7-A( 1) beine: far from clear a~ to it" intention, the Joint~Cornmercial
1'ax Officer wa' not justified in invoking thi, section.
Ac:epting the contention and allowing 1:he appeal,
HELD: (i) Section 7-A i::i at once a charging as well as a remedial provision.
Its n1ain object i~ to plug leakage and prevent evasion of tax. In interpreting
such a provision, a construction which would defeat its purpo3C and, in effect,
obliterate it from the statute book, ~hould be e9Chewcd.
If more than one
con-:truction i3
po~:!!ible, that which pre!erVe! its v.·orkability and effi:acy is to
be preferred to the one which would render it otiose or sterile. [46F-G1
(ii) The scheme of the Act involve3 three inter-related but distinct concepts,
namely, taxable pereon', 'taxable good'' and 'taxable event'.
AU the three
must be eatisfied before a person can be ~addled with liability under the Act.
The ingredients of ~ction 7-A(i) are: (1) The person who
purchases the
goods ie a dealer : (2) The purcha~ jg made by him in the
course of his
business; (3) Such purchase j3 either from "a registered dealer or from anv
:Other person; ( 4) The goods purchased are goods the sale or purchase o.f
A
B
c
D
E
F
G
H
' •
•
).
1.
'
J
' I
l'AMIL NADU v. M. K. KANDASWAMI (Sarkaria, J.)
3!}
A
which is liable to tax under this Act." (5) Such purchase i! "in circumstancesr
in which no «ax is payable under s. 3, 4 or 5 as the case may be", and (6)
The dealer either (a) consumes such goods in the manufacture of other &ood!·
for sale or otherwise or (b) despatches all such goods in any manner other
than by way of sale in the State or (c) despatches them to ..a place outside
the State except as a direct resul~ of sale or purchase in the course of interstate trade or commerce.
Sectfon 7-A can be invoked only if all the~
ingredients are cumulatively satiSfied [43F; 42G-H; 43A-B]
B
c
D
E
(iii) InifCdients (4) and (5) are not mutually exclusive and the existenct:
of one dOC6 not necessarily nciate the other. Both can co-exi1t and in harmony.
Ingredient ( 4) would be satisfied if it is s.hown that the particular i:,oods were
'ta.xable goods' i.e., the goods the sale or purchase of which is &encrally taxable under the Act.
Notwitho:itandini the goods being 'taxable aoods', there
may be circumstances in a aiven case, by reason of which the particular sale
or purcha8C does not attract tax under s. 3, 4 or 5.
Section 7-A provide!
for such a eituation and makes the purchase of such goods taxable in the
hands of the purchasing dealer on his purchase turnover if any of the conditions (a), (b) and (c) al sub-section (I) of s. 7-A is satisfied.
[44G-H]
(iv) The goods in question are 'taxable goods.
The sale~ of arecanut,,
C Jingelly Seeds, turmeric and aram were not liablo to tax in the hands of the
sellers as they were agriculturiets and the goods were the produce
of
the
crops rajscd by them.
Similarly, butter was purchased ·by the as~ssees concerned directly from the house holders whose sales are not liable to tax under
the Act. Caster-seed' are eaid to have been purchased by the assessce con:erned
from unregistered dealers under bought-notes. If this is a fact, then such sales
_may not be liable to tax under the Act.
In all these cases, the purchases
have been m~de by the dealer' of goods, the sale or purchase of which is
generally liable to tax under the Act, but because of tho circumstances prc'-
cribed under the Act no tax WM 'uffercd in respect of the sale of these good'
by the sellers. If it i, a fact that the Gingelly seeds and Castor seeds were
crushed into oil and the butter was converted into ghee by the purchaser'-
dealers concerned, the c-ondition in clause (a) of section 7-A(l)
would
be
satisfied and s. 7-A would be attracted.
If in the case of arecane.ts, turmeric
and gram, the purchasing dealer, 1ran3ported these goods outside the State
for sale on consignment basi,, their case would also be covered by cla~
(b) or (c) of s. 7-A(l) and such dealers would be liable to tax on the
pur.:hase-turnover of these goods.
[46B-F]
Ganes!i Prasad Dixit v.
Con1n1ission~r of Sales~tax [1959·] 3 S.C.R. 490,
applied.
F
Malabo .. Fruit Prdduct.J Con1pany, Bharanangano.'n Kottayam and ors.
v.
G
H
The Sales Tax Officer, Palo: and ors.
30 S..T.C. 537, Yusuf Shabeer and ors. v.
Stco!e o.f Kera/a and ors. 32 S.T.C. 359, referred to.
CIVIL APPELLATE JuRISD!CTION : Civil Appeals
Nos. 1040 to
1 on of 1973.
From the Judgment and order dated the 23rd April, 1971 of the
Madras High Court iu W.Ps. Nos. 585, 860, 861, 864. 3349, 4149/
1970 and 508, 577, 578, 605-609, 629, 694-697, 797, 838, 884,
894-897, 902, 909, 934-936, 1015 & 1049 of 1971.
·S. Govind Swaminathan, A, V. Rangam, A. Subhashini, K. Ven·
kataswami and N. S. Sivam, for the appellant.
Ashok Sm, Y. S. Chitlay, C. Natarajan and S. Gopalakrishnan, for
respondents (In C. As. Nos. 1043, 1046-1048, 1062-1064, 1068-1070,
1049-1050, 1054, 1057-1058, 1061, 1067, 1055, 1065 & 1059175).
40
SUPREME COURT REPORTS
[1976] 1 s.c.R.
T. A. Ramachandran, for the respondents in C.As. 1060-1061 &
1066173.
The Judgment of the Court was delivered by
SARKARIA, J.-These appeals by the State of Tamil Nadu on a
certificate granted by the High Court under Art. 133(1) (c) of the
Constitution raise a question as to the interpretation and scope of
s. 7-A of the Madras General Sales-tax Act, 1959 (hereinafter called,
the Madras Act).
All the respondents are dealers against whom either pre-assessment proceedings have been initiated or assessments have been made
under s. 7-A of the Act on the purchase turnover of certain goods.
The assessee-respondents in Civil Appeals Nos. 1040. 1041, 1042
and 1044 of 1973 are said to have purchased arecanuts from agriculturists, and thereafter transported those goods outside the State for
sale on consignment basis.
A
B
c
The twenty assessees in Civil Appeals Nos. 1046-48, 1054-1057,
D
1059-1060, 1061 to 1066, 1068 to 1072 of 1973 are alleged to have
purchased Gingelly seeds from agriculturists.
Gingelly seeds so purchased were crushed into oil by them.
The four respondents in Civil Appeals Nos. 1045, 1050, 1058
and 1067 of 197 3 are alleged to have purchased butter from householders and then converted it into Ghee.
E
The three assessees in Civil Appeals Nos. 1051, 1052 and 1053
:..
of 1973 purchased turmeric and grams from agriculturists and then
transported those goods outside the State for sale on consignment
basis.
The assessees in Civil Appeal No. 1043 of 1973 are alleged to
F
have purchased castor seeds from (unregistered) dealers on, bought
notes and thereafter crushed them into oil.
It will be convenient to take the last mentioned case as a model.
Therein, the Joint Commercial Tax Officer, Leigh Bazar, and Gugai
Division, Salem issued a notice dated 11-2-1970 to the assessee in
these terms:
G
•
"You are liable to pay purchase tax under s. 7-A of the
TNGST Act 1959, on the purchase price of the Castor Seeds
purchased and which was consumed in the manufacture of
other goods for sales or disposed of otherwise.
. The turnover of such purchases made from 27-11-1969
lo 31-1-1970 amounts to Rs. 3,303,323.67 and the tax·due
works out to Rs. 9 ,099 ,69.
H
)
1
!
TAMIL NADU v. M. K. KANDASWAMI (Sarkaria, J.)
41
A
You are hereby requested to pay the amount as stated
B
c
D
E
F
G
H
above within 10 days of the receipt of this notice."
This was followed by a Memorandum dated 5-3-1970 in which it
was inter a/ia stated :
"Admittedly you have purchased the castor seeds through
your own bought notes from registered dealers whose transactions are not verifiable. As per section 10 the burden of
proof that any dealer or any of his transactions is not liable
to tax under this Act shall lie on such dealer.
Therefore,
the purchases effected by you have suffered tax already,
should be proved by you.''
All the aforesaid dealers (hereafter referred to as the assessees)
tiled writ petitions under Art. 226 of the Constitution in the High
Court of Madras challenlling the validity of the pre-assessment pro·
ceedings/assessments and the
demand notices.
The
High
Court
accepted the contention of the assessees that "the circumstances contemplated by that provision (s. 7-A) did not include the possibility
or impossibility of verifiability of the transactions with the dealers
from whom the petitioner had purchased," ar1d further observed :
" ...... that if the purpose of Section 7-A is as obviously
it is, to check evasion, the phraseology has fallen short of ·
achieving that purpose.
Section 7-A could have detailed
the circumstances in which the tax liability under Section
7-A would arise. But, instead, the circumstances have been
related by the section to sales or purchases which are liable
to tax under the Act, but for some reason no tax is payable
in respect
of them.
It appears to be a contradiction in
terms, and we are unable to visualise the circumstances except what we have noticed above in which Section 7-A could
be applied. In fact, we are unabld to visualise the circumstances in which the two-fold requirement of the sale being
liable to tax but for some reason no tax is payable under
Sections 3, 4 or 5 can arise, except in cases of exemption.
Even there the difficulty arises whether one can say that the
sale which is exempted is liable to tax, and then assume that
because of exemption. the tax is not payable. To our minds
the language of Sec. 7-A is far from clear as to its intention,
and we think that the Joint Commercial Tax Officer was not
justified in invoking Section 7-A."
With regard to the purchases of butter, the learned Judges said
"We fail to see how this could be done under Section
7-A. Butter is taxable to multi-noint tax and is levied on the
sales.
That being the case, we 'do not understand how purchase tax can also be levied at the purchase point of the
sales which were also the subject matter of charge. If the
purchases were made from householders or other persons who
42
SUPREME COURT REPORTS
[197 6] 1 s.c.R.
are not dealers, even so, inasmuch as the transactions were
not liable to tax at all under the Act, on that gronnd, Section
7-A could not be invoked."
A
On the above reasoning, the High Court by a common judgm7nt.
dated 28-5-1971, allowed all the writ petitions and quashed the impugned proceedings and assessments.
Hence these appeals by the
State.
B
Section 7-A was inserted by the Tamil Nadu Amendment Act 2
of 1970 with ofl'ect from 27-11-1969. At tho relevant time the material
part of s. 7-A read as under :
"(l) Every dealer who in the course of his business purchases from a registered dealer or from any other person,
any goods (the sale or purchase o! which is liable to tax
C
under this Act) in circumstances in which no tax is payable
under "section 3, 4 or 5, as the case may be, and either,-
( a) consumes such good' in the
manufacture of other
goods for sale or otherwise; or
(b) disposes of such goods in any manner other than by
way of sale in the State; or
D
( c) despatches them to a place outside tho State except
as a direct result of 'ale or purchase in the course of
inter-State, trade or commerce
shall pay tax on the turnover relating to the purchase aforesaid at the
rate mentioned in section 3, 4 or 5 as the case may be whatever be the
E
quantum of such turnover in a year :
Provided that a dealer (other than a casual trader or
agent of a non-resident dealer) purchasing !,iOods [the sale
of which is liable to tax under sub-section (1) of section 3]
shall not be liable to pay tax under this sub-section, if his
F
total turnover for a year is less than twentyfive thousand
rupees.
(2)
(3)
,,
On analysis, Sub-section ( 1) breaks up into these ingredients
( 1) The person who purchases the goods is a dealer;
G
(2) The purchase is made by him in the course of his business;
( 3) Such purchase is either from "a registered dealer or from
any other person".
H
( 4) The goods purchased are "goods the sale or purchase of
which is liable to tax under this Act."
f
\
>
1
A
•
B
/
c
D
E
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' )
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TAMIL NADU v. M. K. ICANDASWAMI (Sarkaria, J.)
43
(5)
(6)
Such purchase is "in circumstances in which no tax is
payable under section 3, 4 or 5 as th~ case may be", and
The dealer either
(a) consumes such i:;oods in the manufacture of other
goods for sale or otherwise or
(b) despatches all such goods in any manner other than
by way of sale in the Stato or
( c) despatches them to a place outside tho State excep'
as a direct result of sale or purchase in the course of
inter-State trade or commerce.
Section 7-A(I) can be invoked if the above inl,lredients are cumulatively satisfied.
The Proviso to the sub-section exempts a dealer
(other than a casual trader or ai:ent of a non-resident dealer), if his
turnover for a year is less than Rs. 25,000/- (which by a 11u,bsequent
amendment was raised to Rs. 50,000 I-).
The assessees prima faci~ fall 'll'ithin the definition o! 'dealer' in
Section 2(g) which includes not only a person who carries on the business of "sellini:;, supplyini: or distributini:;" i:;oods but al_so the one who
c<:rries on the busine..s of "buyini:;" only. Difficulty in interpretation
has been experienced only '!l'ith rei:ard to that part of the sub-section
which relates to ingredients ( -4) and (5). The Hii:Ji Court has taken
the view that the expression "IJ:oods the 11ale or purchase of which is
liable to tax under this Act" and the phrase "purchases .. in circumstances in which no tax is payable under section 3, -4 or 5, "are" a
contradiction in terms".
We are unable to accept this interpretation which would render
Section 7-A(l) wholly nui:atory.
With duo respect, it seems to us
that in arriving at this errouneous interpretation, the learned Judges
mixed up concept of goods liable to tax with tho transactions liable
to tax under the Act.
The scheme of the Act involves three interrelated but distinct concepts which may conveniently be described as
'taxable person', 'taxable goods' and 'taxable event'.
All the three
must be satisfied before a person can be saddled with liability under
th.e Act.
Nevertheless, the distinction between them, if overlooked.
may lead to serious error in the construction and application of the
Act.
'Goods' is defined in s. 2(j) as :
. "all kinds. of movable property (other than newspapers,
actionable claims, stocks and shares and securities) and includes all materials, c?mmodities, and articles (includini: those
to be used m the fitttng out, improvement or repair of movable property) ; and all growing crops, grass or things attached to, or forming part of the land which are agreed to be
severed before sale or under the contract of sale".
"!~xable person" is a 'dealer' as defined in s. 2(g).
"Taxable
event is the sale or purchase of 'goods' effected during the accounting
44
SUPREME COURT REPORTS
[1976] 1 S.C.R.
period although the tax liability is enforced only after quantification
A
is effected by assessment proceedings. 'Sale' is defined in s. 2(n) as
"every transfer of the property in goods by one person to
another in the course of business for cash or for deferred
payment or other valuable coru;ideration, but does not include
a mortgage, hypothecation, charge or pledge.''
Section 3(2) which is the main charging prov!Slon, eniorns that
in the case of iioods mentioned in the First Schedule, the tax under
this Act shall be payable by a dealer, at the rate and only at the point
specified therein on the turnover in each year relating to such goods
whatever be the quantum of turnover in that year.
The focal point in the expression, "goods the sale or purchase of
which is liable to tax under the Act," is the character and class ·)f
goods in relation to their exigibility. In a way this expression contains
a definition .of 'taxable goods', that is, goods mentioned in the First
Schedule of the Act, the sale or purchase of which is liable to tax at
B
c
the rate and at the point specified in the Schedule. The words, "the
D
sale or purchase of which is liable to tax under the Act" qualify the
term "goods", and exclude by necessary implication goods the sale
or purchase of which is totally exempted from tax at all points, un~er
s. 8 or s. 17 (1) of the Act.
The goods so exempted-not berng
"taxable goods"-cannot be brought to charge under s. 7-A.
The words "under the Act" will evidently include a charge created
by s. 7-A, also.
It is to be noted that s. 7-A is not subject to s. 3;
it is by itself a charging provision. Section 7-A brings to tax goods
the sale of which would normally have been taxed at some point in
the State, subsequent to their purchase by the dealer if those goods
are not available for taxation, owing to the act of. the dealer in (a j
consuming them in the manufacture of other goods for sale or otherwise, or (b) despatching them in any manner other than by way of
sale in the State, or ( c) despatching them to a place outside !he State
except as a direct result of sale or purchase in the course of interState trade or commerce.
Ingredients ( 4) and ( 5) are ont mutually exclusive and the existence of one does not necessarily negate the other. Both can co-exist
and in harmony. !Il,gredient ( 4) would be satisfied if it is shown that
the particular goods were 'taxable goods; i.e., the goods the sale or
purchase of which is generally taxable under the Act. Notwithstanding
the goods being 'taxable goods', there may be circumstances in a given
case. by reason of which the particular sale or purchase does not attract
tax under s. 3, 4 or 5. Section 7-A provides for such a situation and
makes the purchase of such goods taxable in the hands of the purchasing dealer on his purchase turnover if any of the conditions (a), (b)
and (c) of sub-section (1) of s. 7-A is satisfied.
E
F
G
H
•
' I
..
,
I
A
/
c
D
E
F
'
G
H
TAMIL NADU v. M. K. K.ANDASWAMI (Sarkaria, J.)
45
The meaning and scope of the phrase "purchases .. in circumstances
in which no tax is payable under Section; 3, 4 or 5" and its co-existence with ingredient (4) can be best understood by applying it to the
cases in hand.
In all the forty appeals under consideration, the goods in question.
naro.cly, arccanuts, Gingelly Seeds, turmeric, grams, castor-seeds and
bmter arc "goocb, the sale or purchase of which is generally taxable
under the Act."
That is to say, they are 'taxable goods'. The sales
ot arecanuls. Gingelly seeds, turmeric and gram were not liable to tax
in the hands of the sellers as they were agriculturists an;d the goods
were the produce of the crops raised by them. Similarly, butter was
purchased by the assessees concerned directly from the house-holders
whose sales are not liable to tax under he Act. Caster-seeds are said
to have IJ.cen purchased by the assessee concerned from u!lfegistercd
dealers under bought-notes. If this is a fact, then such sales may not
be liable to tax under the Act.
Thus in all these cases, the
purchases have been
made by the
dealers, of "goods, the sale or purchase of which is generally liable to
tax under the Act", but because of the circumstances aforesaid no tax
was suffered in respect of the sak of these goods by the sellers. If it
is a fact that the Gingelly seeds (vide, Civil
Appeals
Nos.
1046
to 1048, 1054 to 1057, 1059 to 106911973) and Caster-seeds (vide
Civil Appeal 1043/73) were crushed into oil and the butter (vide
Civil Appeals Nos. 1049, 1050, 1059, 1067 /73) was converted into
Ghee by the purchasers-dealers c<Jncerned, the condition in clause (a)
of sub-section ( 1) of s. 7-A would be satisfied and s. 7-A would be
attract·od. If in the ceec of arecanuts (vide Civil Appeals Nos. 1040
to 1044/73), turmeric and gram (vide Civil Appeals Nos. 1051 to
1053i73), the purchasing dealers transported these goods outside the
State for sale on consignment basis, their case would also be cover·od
by clause (b) or (c) of s. 7-A (I) and such dealers would be liable
to tax on the purchase-turnover of those goods.
It may be. remembered that s. 7-A is at once a charging as well
as a remedial provision. Its main object is to plug leakage and prevent
evasion of tax.
Jn interpreting such a provision, a construction which
would defeat its purpose and, in effect, obliterate it from the statute
book, should be eschewed. If more than one construction is possible,
that which preserves its workability and efficacy is to be preferred to
the one which would render it otiose or sterile.
The view taken by
the High Court is repugnant to this cardinal canon of interpretation.
Tn Ganesh Prasad Dixit v. Commissionu of Sales-tax(!) s. 7 of
the Madhya Pradesh General Sales Tax Act, J 959 (for short Madhva
Pradesh Act) was under challenge. That section was as foll~ws : ·
"Every dealer who in the course of his business purchases
any taxable goods, in circnmstances in which no tax under
section 6 is payable on the sale price of ~uch &Cods and
------------
(!) [1959] 3 S. C.R. ~90.
46
SUPREME COURT REPORTS
[ 197 6} 1 S.C.R.
either consumes such ioods in the manufacture of other goods
for sale or otherwise or disposes of such goods in any
manner other than by way of sale in the State or despatches
them to a place outside the State except as a direct result of
sale or purchase in the c9urse of inter-State trade or.. commerce, shall be liable to pay tax on the purchase price of
such goods at the same rate at which it would have been
leviable on the sale price of such gooJs under section 6 :
Provided .................. "
The assessee therein was a firm of building contractors and was
registered as a dealer under the Madhya Pradesh Act. The firm were
purchasing building materials which were taxable under the Act and
were using them in the course of their business. The Sales-tax Officer
served a notice upon them to snow cause why 'best-judgment assessment' should not be made against them. The assessees did not offer
any explanation. The Sales-tax Ofticer assessed the turnover in respect
of the sales as 'nil' and assessed the firm to purchase tax under s. 7
on the purchase turnover. One ol the questions that fell for decisiun
was, whether in the facts and circumstances of the case the applicant
was a dealer during the assessment period under the Act and th, imposition of purchase tax on him under s. 7 of the Act was in order.
Answering the question in the affirmative, this Court observed :
"The phraseology used in that section is somewhat involved, but the meaning of the section is fairly plain. Where
no sales tax is payable under s. 6 on the sale price of the
goods, purchase tax is payable by the dealer who buys taxable
goods in the course of his business, and (1) either consumes
such goods in the manufacture of other goods for sale, or
(2) consumes such goods otherwise; or (3) disposes of such
goods in any mann~r other than by way of sa:e-in the State;
or ( 4) despatches them to a place outside the State except
as a direct result of sale or purchase in the course of interSta 'e trade or commerce.
The assessees are registered
as
dealers and thev have purchased building materials in the
course of their business; the building materials are taxable
under the Act, and the appellants have consumed the materials otherwise than in the manufacture of goods for sale and
fo'. a J?roflt motive. On the plain words of s. 7 the purchase
pnce 1s taxable."
·
The impugned s. 7-A is based on s. 7 of the Madhya Pradesh Act.
Although the .language of these two provisions is not completely iden-
\lcal. yet their substance and object are the same.
Instead of toe
longish phrase, "the goods, the sale or purchase of which is liab'c to
tax under this Act'' employed in s. 7-A of the Madras Act. s. 7 of the
Madhya Pradesh Act .conveys the very connotation by using the convenient, terse expression, "taxable goods".
The raiio decidendi of
Ganesh Pro.sad (supra) is ihere.f~re, ~n apposite guide for construing
s. 7_-A.
Unfortunately, that dec1s1on, 1t seems. was not brought to the
notice of the learned Judges of the High Court.
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TAMIL NADU V. M. K. KANDASWAMI (Sarkaria, J.)
4 7
Section 5-A of the Kerala General Sales Tax Act, 1963 (for short,
the Kera la Act) which is identical with the impugned provision, runs
thus :
"SA. "Levy of purchase tax-
( I) Every dealer who in the course of his business purchases from a reilistered dealer or from any other person any 1ioods, the sale or purchase of which is liab:e
In tax under this Act, in circumstances in which no
tax is payable under section 5, and either-
(a) consumes such ~oods in the manufacture of other
goods for sale or otherwise; or
( b) disposes of such goods in any manner other than
by way oi sale in the State; or
( c) despatches them to any place outside the State
except as a direct result of sale or purchase in
the course of inter-State trade or commerce."
The validity of s. 5-A was challenged by a writ petition before a
learn~d Judge (Subramaniam Poti J.) of the Kerala High Court in
Malabar Fruit Products Company, Bharananganam Kottayam and ors.
v. The Sales Tax 0/jicet, Palai and ors.(') It was contended, inter
alia :
(!) The object sought to be achieved by the introduction of
s. 5-A of the Act had not been accomplished because the
section is vague;
(2) Assuming that the
section is clear enough
and can be
treated as a charging section, the section imposes tax not
on the sale or purchase of i:oods but on its use or consumption;
(3) That the State Legislature had no competency to impose
tax. on the use and consumption of goods and so section
is ineffective:
Holding that s. 5-A was valid and intra vir~s the State Legislature,
the learned Judge explained the scheme of the section, thus :
"Though normally a sale by a registered dealer or by a
dealer attract• tax, there may be circumstances under which
the seller may not be liable as. for example, when his turnG
over is below the specified minimum.
In such cases the
"goods" are liable to be taxed, but the sales take place in
circumstances in which no tax is payable at the point at which
tax is levied under the Act. If the goods are not available in
the State for subsequent taxation by reason of one or other
of the circumstanc<" mentioned in clauses (a), (b) and (c)
of section 5A (1) of the Act then the purchaser is sought to
H
be made liable under section SA" .
..
(I) 30 S. T. C. 537.
48
SUPREME COURT REPORTS
[1976) 1 S.C.R.
A
'Another instance I can conceive of is a case of a dealer
selling agricultural or horticultural produce grown by him or
grown in any land in which he has interest, whether as owner,
usufructuary mortgagee, tenant or otherwise. From the definition of ·'turnover' in section 2(xxvii) of the Act it is evident
that the proceeds of such sale would be excluded from the
turnover of a person who sells goods produced by him by
B
1nanufacture, agriculture, horticulture or
otherwise, thougt1
merely by such sales he satisfies the definition of a "dealer''
in the Act.
Thus, such a person selling such
produce is
treated as a dealer within the meaning of the Act and the
sales are of goods which are taxable under the Act but when
he sells these goods, it is not part of his turnover. Therefore,
it is a case o[ a dealer selling goods liable to tax under the
C
Act in circumstances in which no tax is payable under the
Act.
In such a case, the purchaser is sought to be taxed
under section SA provided the conditions are satisfied. The
case of growers selling goods to persons to whom section SA
thus applies is covered by this example."
The judgment of the learned Judge was affirmed in appeal by a
D
Division Bench of the same High Court (vide, Yusuf Shabeer and ors.
v. State of Kerala and Ors.( 1) The Bench expressly dissented from the
view taken by the Madras High Court in the jud~ment now ander
appeal.
In our opinion, the Kerala High Court has correctly construed
s. SA of the Kerala Act which is in pari materia with the impugned
E
s. 7 A of the Madras Act.
"Goods the sale or pttrchase of which is
liab'e to tax under this Act in s. 7A(1)" means 'taxable goods'. tltc.t
is, the kind of goods, the sale of which by a particular person or dealer
may not be taxable in the hands of seller but the purchase of the same
by a dealer in the course of his business may subsequently become
taxable.
We have pointed out and it needs to be emphasised again
that Section 7 A itself is a charging section. It creates a liability against
F
a dealer on his purchase turnover with regard to goods, the sale or
purchase of which though generally liable to tax under the Act, have
not due to the circumstances of particular sales, suffered tax under
Section 3, 4 or 5. and which after the purchase, have been dealt bv
him in any of the modes indicated in clauses (a), (h) and (c) cif
Section 7-A(l).
.
For the forcgoi'!g reasons, we allow these appeals, set aside the
Judgment of the Htgh Court and dismiss to writ petitions.
In the
ctrcumstances, we would leave the parties to bear their own cos'.s.
All the cases will now go back to the taxing authority concerned for
.such furth~r investigat~on, proceedings or action as may be necessary
m the particular case, m accordance with law as clarified above.
V.M.K.
Apptals allowed.
(I) 32 S. T. C. 359.
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