1985 (4) TMI 65 - SC - VAT / Sales Tax

Sales-tax on cotton yarn quashed: s.14 requires single-point taxation and s.15 caps rate; s.5A notification missing

Govind Saran Ganga Saran Versus Commissioner Of Sales Tax And Others

SC allowed the appeal and quashed the sales-tax assessment on cotton yarn for 1968-69. The court held that goods declared important in inter-State trade ... Liability of sales tax on cotton yarn - Whether cotton yarn could not be subjected to sales tax because one of the conditions prescribed by S. 15 of that Act had not been complied with? Held that:- In the instant case, we are concerned with the taxation of goods which under S. 14 of the Central Sales Tax Act have been declared to be of special importance in inter-State trade or commerce. Where the turn. over of such goods is subjected to tax under the sales tax law of a State, s. 15 prescribes the maximum rate at which such tax may be imposed and requires that such tax shall not be levied at more than one point. The two conditions have been imposed in order to ensure that inter-State trade or commerce in such goods is not hampered by heavy taxation within the State occasioned by an excessive rate of tax or by multi-point taxation. To our mind, provision has been made in that behalf in the statute by the insertion of s. 5A. The High Court has referred to the Statement of Objects and Reasons attached to the Bengal Finance (Sales Tax) (Delhi Amendment) Act, 1959, in support of its conclusion that s. 5A was inserted only to provide for the levy of tax at any point other than the point of last sale so that sales tax may be levied at the first point on certain items which were manufactured in factories. It is well-settled that when the language of the statute is clear and admits of no ambiguity, recourse to the Statement of Objects and Reasons for the purpose of construing a statutory provision is not permissible. We are of the opinion that there is ample power under s. 5A of the State Act enabling the Chief Commissioner to specify the single point at which tax may be levied in a series of sales. This can, however, be done by him only by a notification in the Official Gazette. No such notification has been placed before us which could relate to the assessment year under consideration. We hold, therefore, that a vital prerequisite of S. 15 of the Central Sales Tax Act, namely, that the tax shall not be levied at more than one stage, has not been satisfied in respect of the turnover of cotton yarn, and accordingly the assessment complained of is liable to be quashed. Thus the assessment of the turnover of cotton yarn for the assessment year 1968-69 under the Bengal Finance (Sales Tax) Act, 1941, as applied to the Union Territory of Delhi cannot be sustained. Appeal allowed. Issues Involved:1. Liability of sales tax on cotton yarn under the Bengal Finance (Sales Tax) Act, 1941.2. Interpretation of Sections 14 and 15 of the Central Sales Tax Act, 1956.3. Validity of multi-point vs. single-point taxation under the State Act.4. Authority of the Chief Commissioner under Section 5A of the State Act.Detailed Analysis:1. Liability of Sales Tax on Cotton Yarn:The appellant, a dealer in the resale of cotton yarn, challenged the sales tax assessment imposed on him for the assessment year 1968-69. Initially, the Sales Tax Officer taxed the sales at one percent, considering the transactions to be in respect of cotton yarn. The Assistant Commissioner of Sales Tax reversed this decision, treating the transactions as sales of cotton thread, which was exempt. However, the Deputy Commissioner of Sales Tax, exercising revisional jurisdiction, reinstated the original assessment, holding that the sales were indeed of cotton yarn.2. Interpretation of Sections 14 and 15 of the Central Sales Tax Act, 1956:Section 14 of the Central Sales Tax Act, 1956, declares cotton yarn as a commodity of special importance in inter-State trade or commerce. Section 15 restricts the imposition of sales tax on such declared goods to a maximum of three percent and mandates that the tax should not be levied at more than one stage. The Financial Commissioner, Delhi Administration, quashed the assessment on the ground that the sales tax law did not specify the single point at which the tax could be imposed, thus failing to comply with Section 15.3. Validity of Multi-Point vs. Single-Point Taxation:The High Court of Delhi upheld the multi-point taxation under the State Act, interpreting sub-clause (ii) of clause (a) of sub-section (2) of Section 5 as implying that the single point of taxation was the resale by the last registered dealer to an unregistered dealer or consumer. However, the Supreme Court, referencing its decision in Polestar Electronic (P.) Ltd. v. Additional Commissioner, Sales Tax, clarified that the expression 'resale' was not confined to within the Union Territory of Delhi, and the legislative intent was not to ensure taxation at least at one point within Delhi.4. Authority of the Chief Commissioner under Section 5A of the State Act:Section 5A of the State Act empowers the Chief Commissioner to specify the single point in a series of sales at which tax may be levied. The Supreme Court noted that this provision granted the Chief Commissioner the authority to determine the single point of taxation through a notification in the Official Gazette. Since no such notification was presented for the assessment year in question, the court concluded that the requirement of Section 15 of the Central Sales Tax Act was not met, rendering the assessment invalid.Conclusion:The Supreme Court held that the assessment of the turnover of cotton yarn for the assessment year 1968-69 under the Bengal Finance (Sales Tax) Act, 1941, as applied to the Union Territory of Delhi, could not be sustained. The judgment and order of the High Court of Delhi were set aside, and the assessment was quashed. The appellant was entitled to costs. The appeal was allowed.