TaxTMI 
TaxTMI 
2005 (1) TMI 389
X X X X Extracts X X X X
X X X X Extracts X X X X
....mon question of law. The facts are essentially similar. 2.. We shall now take Civil Appeal No. 314 of 2003 filed by one of the selling dealers, namely, Simran Engineering Works. They filed the writ petition in the High Court of Delhi seeking the following reliefs: "(a) issue a writ of certiorari or any other writ, order or direction quashing rule 8(4)(c) which is ultra vires to the provisions of section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975; (b) issue a writ of certiorari or any other writ, order or direction quashing rule 8(4)(c) as the same is beyond the powers of the Administrator conferred under section 71 of the Delhi Sales Tax Act, 1975, to the extent that prescribes a condition that the declaration will only be issued if he deposits the amount of tax; (c) issue a writ of mandamus or any other writ, order or direction quashing rule 8(4)(c) which is ultra vires to the provisions of the Delhi Sales Tax Act; (d) issue a writ of mandamus or any other writ, order or direction directing respondent Nos. 1 to 3 to issue the forms withheld vide deficiency memo dated September 29, 1999 and rejection order dated October 13, 1999 [annexure "C" (colly)], to respondent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s tax in respect of transactions in which they are the selling dealers. The further consequence would be that unless the appellants deposit the sales tax payable on these transactions they would render themselves liable for non-issuance of ST-1 forms in other transactions where they may wear mantle of purchasing dealers. They may also encounter the extreme penalty of facing derecognition under the Act. 8.. Mr. Rajesh Mahna, learned counsel for the appellant, contended that the appellants are being made to suffer the consequence of failure and defaults on the part of purchasing dealers in which they have played no part whatsoever and that under the scheme of the Act they are precluded from charging sales tax from other registered dealers since such a demand would invite prosecution under the Act. 9.. Learned counsel also argued that they are in a helpless position and would be compelled to incur sales tax liability for events which are not within their control. Mr. Mahna submitted that as per rule 8(4)(c) tax assessed must be paid as a condition for issuance of forms. The condition to deposit assessed amount of tax is a substantive provision of law going to the root of the rig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er bunch of appeals made the following submissions: a. Section 71(1) gives the Administrator the power to make rules for carrying out the purposes of the Act. b. Mischief rule is to be applied to appreciate the true scope of the amendment. c. Rule 8(4)(c) provides for ample safeguards. d. Section 72 of the Act is directory in nature since it provides for a negative procedure. e. Equity has no role to play in tax matters. 14.. Mr. Ravi P. Mehrotra while arguing further submitted that the purpose of the Act is not merely to levy but also to collect tax and in pursuance to that objective, to provide for safeguards to protect the interests of the Revenue. Recovery of tax is as much a purpose under any tax law as levy of tax is, since without an effective process for recovery of tax there is no purpose for levy of tax. According to learned counsel for the State a measure which is intended to check the evasion of tax is undoubtedly a valid measure and it is in public interest to see that in the guise of freedom of trade, they do not evade the payment of tax. Explaining the scope of the power of the Administrator, the learned counsel submitted that the power of the Admin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eason of the remedy. * The judgment in the Gee Gee Exports [1997] 105 STC 36 (Delhi) amply demonstrated the possibility of a dealer to avoid payment of tax by merely filing a revision petition along with a stay application and at the same time, demanding from the authorities form ST-1. To avoid this situation and to effectuate the purpose of the Act to collect tax and further, to prevent evasion of tax, the impugned amendment was brought in. 16.. Elaborating his submissions that rule 8(4)(c) provides for ample safeguards, Mr. Ravi P. Mehrotra, submitted: Rule 8(4)(c) provides for ample safeguards: (a) That the requirements of rule 8(4)(c) are not harsh or unreasonable. Rather, on the other hand, they comply with the rules of natural justice. The appropriate assessing authority has to afford the applicant an opportunity of being heard and only after recording his reasons in writing, can withhold the issue of declaration forms to the applicant and, therefore, is required to make a report to the commissions of such withholding within a period of three days from the date of its order. (b) Order passed by the appropriate assessing authority is appealable under section 43 of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule 8 provides as to from whom the declarations have to be obtained and the procedure for obtaining the same. The said rule is set out hereunder: Rule 8. Authority from whom the declaration form may be obtained, and use, custody and maintenance of records of such forms and matters incidental thereto.-(1) The declaration referred to in the second proviso to clause (a) of sub-section (2) of section 4 shall be in form ST-1 which shall be printed under the authority of the Commissioner and shall be obtained from the appropriate assessing authority by the registered dealer intending to purchase goods on the strength of his certificate of registration. Provided......... Provided further......... (3) For obtaining declaration form ST-1, a registered dealer shall apply in writing to the appropriate assessing authority: Provided that the declaration shall be issued to a registered dealer only after he has rendered satisfactory account of the forms, if any, issued to him on previous occasions. (4)(a) If, for reasons to be recorded in writing, the appropriate assessing authority is satisfied that the declaration forms have not been used bona fide by the applicant or t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....clause (c), it shall issue the requisite number of declaration forms to the applicant...... Provided........" 19.. The Delhi Sales Tax Act, 1975, confers power under section 71 of the Act on administrator to make the rules. Section 71 provides for power to make rules and the same reads as follows: "Section 71. Power to make Rules.-(1) The Administrator may make rules for carrying out the purposes of this Act. (2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for- (a) the further period after the date of expiry of three consecutive years referred to in sub-section (3) of section 3 for which liability to pay tax of a dealer shall continue; (b) the particulars to be contained in a declaration under sub- clause (v) of clause (a) of sub-section (2) of section 4, or under section 5, as the case may be, the form of such declaration, the authority from whom such forms shall be obtainable and the manner in which and the time within which such declaration is to be furnished; ................. (g) the intervals at which, and the manner in which, the tax under this Act shall be pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t (p. 361): "It is well-settled that in interpreting items in statutes like the Excise Tax Acts or Sales Tax Acts, whose primary object is to raise revenue......" 24.. Needless to stress that the object of every taxing statute is to raise revenue. 25.. In State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191, this Court held that where the object of a provision is to plug leakage and prevent evasion of tax, in 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. 26.. Further a division Bench of the Karnataka High Court in N.V. Bagi v. Commissioner of Commercial Taxes [1991] 83 STC 449 has held "in matters which deal with provisions to prevent evasion of tax which is due to the State the construction of the provision must be strict and in favour of the enforcement of the provision". 27.. Thus, in our view, the entitlement to deduction under the Act, for purposes of the present controversy, postulates two requ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to in sub-clause (v) shall be allowed unless a true declaration in the prescribed form duly filled and signed by a dealer is furnished to the selling dealer. The last proviso is also of immense import as it specifies that where goods are not utilised by the purchasing dealer for the purposes mentioned in sub-clause (v), the price of such goods shall nonetheless be deductible from the turnover of the selling dealer and instead, shall be included in the taxable turnover of the purchasing dealer. 32.. Benefits of registration.-Registration confers certain benefits, privileges and concessions. (1) it gives the registered dealer a right to collect tax. (Section 22). An unregistered dealer cannot collect or charge tax. But: (a) liability to pay is not dependent upon whether you have collected or not; (2) a registered dealer can purchase goods specified in his registration certificate on the strength of such registration without payment of tax by furnishing the prescribed declaration. It is not a vested right but in the nature of concession or privilege or at best a statutory right. Being a statutory right, it is not an absolute right but conditional one. 33.. Consider....
X X X X Extracts X X X X
X X X X Extracts X X X X
........ Please deliver........forms to Shri.....an employee of my firm. His signatures are as attested below: Signature of dealer Signature of Shri.............. Signature attested Signature." 34.. As already noticed in this batch of writ petitions filed by the selling dealers, the challenge is directed to the vires of rule 8(4)(c) of the Rules, on the ground that they traverse beyond the ambit of section 4(2)(a)(v) of the Act. The grievance of the appellant is not that they have requested the Sales Tax Department for issuance of the forms in advance and this has been turned down, but that their purchasing dealers should be supplied with ST-1 forms regardless of whether such dealers have relinquished their registered status, or have committed other infractions of the Act and the Rules. Even if a purchasing dealer has applied for ST-1 forms but has not received them for any reason, the selling dealer is not automatically exonerated from liability. It is their statutory duty to collect tax, since the ST-1 form is not forthcoming. Likewise, no reason for the State to lose its revenue merely because the purchasing dealer is unabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pply any assumed deficiency". 38.. It was urged by learned counsel for the appellant that dues are recoverable as arrears of land revenue; the department should proceed against the purchasing dealers and not penalise the selling dealers. We find no substance in this argument as the said sub-section does not obliterate the selling dealers duties under the Act, namely, to collect tax where the purchasing dealer fails to furnish the requisite form. It should also be noted that the right to file an appeal bestowed by section 43 stipulates in sub-clause (v) that it shall be entertained only if it is accompanied by satisfactory proof of the payment of tax with or without penalty. These provisions appear not to have been highlighted before the Bench of the High Court which decided Shri Krishna Engineering Co.'s case† in C.W.P. No. 3304 of 1997 dated November 30, 1998. Learned counsel for the appellant heavily relied upon the judgment of the division Bench in Shri Krishna Engineering Co's. case Reported in [2003] 131 STC 321 (Delhi).. In that case, sub-clause (ii) inserted in clause (c) of sub-rule (4) of rule 8 of the Delhi Sales Tax Rules, 1975 by Notification dated Feb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s tax authorities to issue the requisite declaration form takes away the substantive right conferred by the Act on the dealer for which Act itself does not provide. In the instant batch of Civil Appeals Nos. 308, 313, 314 and 315 of 2003 both the selling and purchasing dealers had challenged the 2001 amendments in the second proviso to section 4(2)(a)(v) of the Act and the rules to insert sub-clause (ii) in rule 8(4)(c). We have already extracted the prayer in the writ petition in paragraphs supra. We shall now reproduce the existing second proviso to section 4(2)(a)(v) and the amended second proviso to the said section. Existing second proviso to section 4(2)(a)(v): Provided further that no deduction in respect of any sale referred to in sub-clause (v) shall be allowed unless a true declaration duly filled and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars in the prescribed form obtainable from the prescribed authority is furnished in the prescribed manner and within the prescribed time, by the dealer who sells the goods. Amended second proviso to section 4(2)(a)(v): Provided further that no deduction in respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of the Act. The impugned rule also gives effect to section 43(5) of the Act which deals with appeals and contains the requirement of pre-deposit of tax and penalty. Other situations where the Commissioner has the discretion to cancel the dealers registration for failure to pay tax including penalty, furnishing a false declaration, etc., which must be borne in mind while considering the sweep of section 71(1) of the Act. Thus, the primary intendment of the Act is to levy and collect tax and every devise, including of stipulations pertaining to the dealer- friendly declaration forms are incorporated to implement the objective of the Act itself as pointed out by the High Court they cannot be conceived as ultra vires the statute (pages 63-64 of the judgment). 45.. In Shri Krishna Engg. Co.'s case [2003] 131 STC 372 (Delhi) the court had to investigate firstly whether there was any provision in the Act which authorise the withholding of forms on the grounds of the applicant being in arrears of tax. The court perused sub-section (2) of section 71 of the Act but could not locate any power contained therein. It was in those circumstances that it arrived at the conclusion that t....