TaxTMI 
TaxTMI 
1976 (3) TMI 203
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act as ultra vires and unconstitutional; (4) that the petitioners are not dealers as defined under the Act and, therefore, not liable to pay any purchase tax; and (5) that section 4-B as inserted by Punjab Act No. 3 of 1973 is ultra vires article 246 read with entry 54, List II, Schedule VII, of the Constitution. The questions of fact and law arising out of these writ petitions are the same. For the purpose of proper appreciation of the matter in controversy, the facts of Civil Writ Petition No. 354 of 1975 (M/s. Babu Ram Jagdish Kumar and Company v. State of Punjab) are summarised below: M/s. Babu Ram Jagdish Kumar and Company (hereinafter to be called the petitioner) are licensed rice millers and are running a rice shelter in Kapurthala, and have been issued a licence under the Punjab Rice Dealers Licensing Order, 1964. The petitioner purchases paddy and after manufacturing the same into rice at his factory, that is, the shelter, disposes of the rice under the provisions of the Punjab Rice Procurement (Levy) Order, 1958, according to which, 95 per cent of the total quantity of Bold Group Rice and 90 per cent of the total quantity of Slender Group Rice (as men....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of purchasing paddy and selling rice (in the normal course of business). All these contentions have been refuted by Mr. R.K. Chhiber, the learned counsel for the State. The various pleas raised in the petition have also been controverted in the written statement filed by the Excise and Taxation Officer, Kapurthala. In order to properly appreciate the contentions raised by the learned counsel for the petitioner, it is necessary to peruse the purpose and scheme of the Act and the legislative policy laid down therein. The Act as it stands today has undergone a number of procedural and material changes. According to the scheme of Act No. 46 of 1948 (hereinafter to be called the principal Act), tax was intended to be levied only on sales of various goods except those which were exempt from this tax. In section 2, definition of only "sale" was given. In section 4, it was provided that sale of goods will be liable to tax by the Government according to the rates prescribed from time to time. In section 5, it was provided that tax on sales of goods will be levied on the gross turnover of a dealer if it exceeds the taxable turnover. In section 5(2), exemptions were provid....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., in the charging section 4, it was provided that every dealer shall be liable to pay tax on his gross turnover if it exceeded taxable quantum both on the sales and purchases. Section 5 of the Act, besides other things, provided for some exemptions from tax in sub-section (2) of the said section. By this amending Act, a proviso was added to clause (b) of sub-section (2) of section 5 that deduction will not be admissible in respect of purchases as defined in clause (ff) of section 2. Further amendments were brought about by subsequent amending Acts, namely, Act No. 13 of 1959, Act No. 24 of 1959 and Act No. 18 of 1960. In section 6 of the principal Act, it was provided that no tax shall be charged on the sales of goods, which were entered in Schedule B. By the amending Act No. 13 of 1959, the scope of section 6 was modified and it was provided that no sales tax will be charged on the sales of goods specified in Schedule B and no purchase tax will be charged on the purchase of goods specified in Schedule C. Similarly, section 5(2)(a) was also amended so as to provide in clause (vi) that purchase of goods will be exempt from tax which were used by the dealers in the manufacture of any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 6 of the Act. Thus, by excluding any item from Schedule B by following a prescribed procedure, as embodied in subsection (2) of section 6, the State Government was competent to withdraw the exemption from sales tax pertaining to any particular goods and the result was that the same goods which were taken out of Schedule B became liable to sales tax. The purchase tax was exigible only on those goods, which were entered in Schedule C. By enacting new section 31 in the Act by the amending Act No. 28 of 1965, the State Government was conferred the power of selecting and choosing any goods for the purpose of levy of purchase tax by including any goods in Schedule C and making any goods subject to sales tax by excluding any goods from the said schedule. The scheme of the Act and the policy of the legislature with regard to levy of tax on purchase and sale of goods as has been indicated by the various amendments introduced from the year 1958 to the year 1965, can be briefly stated as under: (1) The legislature could impose tax on sale of goods except those specifically exempted under any provision of the Act by enforcing the East Punjab General Sales Tax Act, 1948, and the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its power of delegation only to implement the policy of law in the subsidiary and ancillary field only. In support of his submissions, the learned counsel has taken us through the various judgments of the Supreme Court in which the scope and ambit of delegated legislation has been propounded. Reliance in this behalf has been placed on In re Article 143, Constitution of India, and Delhi Laws Act, 1912A.I.R. 1951 S.C. 332., Rajnarain Singh v. Chairman, Patna Administration CommitteeA.I.R. 1954 S.C. 569., Harishankar Bagla v. State of Madhya Pradesh A.I.R. 1954 S.C. 465., Edward Mills Company Limited, Beawar v. State of Ajmer A.I.R. 1955 S.C. 25. and Bhatnagars and Company Limited v. Union of IndiaA.I.R. 1957 S.C. 478. In In re Article 143, Constitution of India, and Delhi Laws Act, 1912(1), reference had been made by the President of India under article 143 of the Constitution of India for the opinion of the Supreme Court on three questions, which related to the matter regarding the limits and scope of the executive to extend the laws passed by the legislature. The various views expressed by their Lordships of the Supreme Court in their separate judgments came up for consideratio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er employment in respect of which the authority concerned was of the opinion that minimum wages should be fixed under the Act. This provision was held to be intra vires and the powers conferred on the executive under this provision were held to be valid. In the said case, it was held as under: "The legislative policy is apparent on the face of the Minimum Wages Act, 1948. What it aims at, is the statutory fixation of minimum wages with a view to obviate the chance of exploitation of labour. The legislature undoubtedly intended to apply this Act not to all industries but to those industries only where by reason of unorganised labour or want of proper arrangements for effective regulation of wages or for other causes the wages of labourers in a particular industry were very low. It is with an eye to these facts that the list of trades has been drawn up in the schedule attached to the Act, but the list is not an exhaustive one and it is the policy of the legislature not to lay down at once and for all time, to which industries the Act should be applied. Conditions of labour vary under different circumstances and from State to State and the expediency of including a particular tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... exemption for the purpose of imposition of sales tax was unconstitutional and void. Under the Madhya Pradesh Sales Tax Act, section 6 provided for the exemption of tax on the sale of goods specified in Schedule II. The said provision is in pari materia with section 6 of the Act. The schedule had been amended by the said notification. It was in these circumstances that the notification conferring power on the Government to amend the schedule was held valid and it was held as under: "It is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods and the like. The power conferred on the State Government by section 6(2) to amend the schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic, and is not unconstitutional." It is significant to note that the above principle of law was laid down after considering the decisions in In re Article 143, Constitution of India, and Delhi Laws Act, 1912A I R 1951 S.C. 332. and R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duced below: "2. (ff) 'purchase' with all its grammatical or cognate expressions, means the acquisition of goods specified in Schedule C or of goods on the purchase whereof tax is payable under any provision of this Act for cash or deferred payment or other valuable consideration otherwise than under a mortgage, hypothecation, charge or pledge." "4. (1) Subject to the provisions of sections 5 and 6, every dealer except one dealing exclusively in goods declared tax-free under section 6 whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the coming into force of this Act and purchases made after the commencement of the East Punjab General Sales Tax (Amendment) Act, 1958." "4. (2-A) Notwithstanding anything contained in sub-sections (1) and (2), no tax on the sale of any goods shall be levied if a tax on their purchase is payable under this Act." According to the learned counsel for the petitioner, the decision of their Lordships of the Supreme Court in Pandit Banarsi Das Bhanot's case[1958] 9 S.T.C. 388 (S.C.); A.I.R. 1958 S.C. 909. lays d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... more goods in the schedule, nothing stands in its way of taking this decision at any time. This contention cannot bear scrutiny. It is true that inclusion of any goods in Schedule B exempts the same from taxation, but the State Government has the power to not only add to the list, but also to delete any goods, which are already included in Schedule B and such inclusion results in making those goods liable to sales tax. In substance, Schedules B and C are intended to achieve the same purpose whether for exempting any goods from tax or subjecting some other goods to tax. The only difference is: in one case, levy will be of purchase tax and in another that of the sales tax. The decision in Pandit Banarsi Das Bhanot's case[1958] 9 S.T.C. 388 (S.C.); A.I.R. 1958 S.C. 909. was again considered in Corporation of Calcutta v. Liberty CinemaA.I.R. 1965 S.C. 1107. and was affirmed. In the latter case, it was held: "Between the two we are unable to distinguish in principle, as to which is of the essence of legislation; if the power to decide who is to pay the tax is not an essential part of legislation, neither would the power to decide the rate of tax be so." It was then cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce, control or safeguard, it is too widely stated and does not appear to be supported by the authority on which it is based, though those authorities do indicate that in certain cases it is open to the legislature to give power to another authority to fix rates under proper guidance, control and safeguard." In Sita Ram Bishambhar Dayal v. State of U.P.[1972] 29 S.T.C. 206 (S.C.); A.I.R. 1972 S.C. 1168., the theory of delegation of legislative functions in the matter of taxation laws was affirmed and it was emphasised that in a cabinet form of government, the executive is expected to reflect the views of the legislature. In fact, in most matters, it gives the lead to the legislature and that it was necessary for the legislature to entrust more and more powers to the executive. It was also held that the legislatures have neither the time nor the required detailed information nor even the mobility to deal in detail with the innumerable problems arising time and again. The law laid down in Pandit Banarsi Das Bhanot's case[1958] 9 S.T.C. 388 (S.C.); A.I.R. 1958 S.C. 909. regarding the power of the executive to amend the schedules in the taxation Acts was also considered and affirmed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer to amend essential features of the law cannot be delegated to any authority outside the law; (2) While the law lays down the basic policy, the implementation of the same and working of the details by means of rules or notifications can be validly and constitutionally left to the executive. Rather, it is a necessity of the modern democratic age when laws have increased in number and the socioeconomic planning and development of the society make it imperative on the executive to be vigilant and prompt in taking steps from time to time in carrying out the basic objective of the law by meeting situations as they arise; (3) So far as the tax laws are concerned, the details are to be left to the executive and it is constitutionally valid to delegate power to the executive to determine the incidence of taxation, the goods which may be taxed and to select the persons on whom the tax may be imposed; and (4) Power can be validly conferred on the executive to add to or to delete from the schedule for the purpose of determining the goods to be taxed whether for the purpose of sales tax or purchase tax and to select the persons who will be liable to pay the tax. In the light of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e or commerce or sale in the course of export of goods out of the territory of India, or of goods specified in his certificate of registration for use by him in the manufacture in Punjab of any goods, other than goods declared tax-free under section 6, for sale in Punjab, and on sales to a registered dealer of containers or other materials for the packing of such goods." According to the learned counsel, the expression "the sale of goods" in section 6 or sub-clause (i) of section 5(2)(a) or the expression "sales to a registered dealer of goods" in sub-clause (ii) of section 5(2)(a) has a reference both to the sales and purchases of goods because sale and purchase are only two facets of the same transaction. In any transaction of goods, there must be a sale of goods and a purchase of the same in order to complete the transaction. In fact, the argument is that the reference in this provision is to the transaction of goods regarding sale or purchase. In this connection, reliance has been placed on V.M. Syed Mohamed and Company v. State of Madras[1952] 3 S.T.C. 367., wherein it was held that the power to tax sale of goods is, in reality, a power to tax the transaction. In the said c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amending Acts have been passed by the Punjab Legislature under the powers conferred by the Constitution on the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution, which reads as under: "Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I." From this, it is clear that even under the Constitution, for the purpose of taxation and the selection of persons as to who should pay the tax, sale and purchase of goods have been treated as two different transactions. The legislative history of the Act also shows that the legislature, to begin with, imposed tax on the sale of goods and only seller of goods was made liable to pay the tax. It was only in the year 1958 that, for the first time, in some circumstances, and in connection with some transactions, the incidence of taxation was imposed on purchaser also and purchaser of goods was made liable. A combined reading of the definitions of "purchase", "sale", "dealer" and "turnover" shows clearly that the sale of goods has been treated by the legislature as quite distinct and independent of the purchase of goods for the purpose of fastening the....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1956, was claimed. This deduction was not permitted by the Assessing Authority. That order was challenged by the assessee in a writ petition under articles 226 and 227 of the Constitution, but the same was dismissed by the High Court. Then the assessee went in appeal before the Supreme Court. It was, in these circumstances, held by their Lordships of the Supreme Court as under: "There are three conditions involved: the first is that they must be for the use of the dealer; the second is they must be for manufacture in the State of Punjab and the third is that the manufacture must result in goods for sale. It is not necessary to decide whether the sale should also be in the Punjab for the reason that no sale as required took place. The exemption could only be claimed if the company satisfied all the three conditions. The last condition does not appear to be fulfilled in this case. The words 'for sale' show the quality of goods and it is clear that the goods that are manufactured in the Punjab must be for sale. According to the section, the goods which are the result of manufacture must be for sale and not for use by the manufacturer in some manufacture outside the State resultin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribed under rule 25 of the Rules is duly given by the purchasing dealer, the selling dealer is entitled to the deduction on the sale amount of such goods from his turnover. The policy underlying this deduction is quite clear inasmuch as the seller does not consume the goods which are sold for the purpose of manufacture and the clear policy of the Act is not to make such a dealer liable to sales tax in such transactions. Rule 27-A of the Rules specifically deals with the deductions by the purchasing dealer in the circumstances provided under sub-clause (vi). Thus, the petitioner is not entitled to any deduction under section 5(2)(a)(ii) of the Act on the paddy purchased by him. Lastly, Mr. Bhandare contended that the petitioner cannot be subjected to purchase tax as he is not a dealer as defined under section 2(d) of the Act. "Dealer" has been defined under section 2(d) of the Act and the relevant part thereof, necessary for the determination of this case, is reproduced below: "'Dealer' means any person including a department of Government who, in the normal course of trade, sells or purchases any goods in the State of Punjab irrespective of the fact that the main place of bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Corporation of India was held not to be a dealer is of no help to the case of the petitioner. In the said case, the Food Corporation of India was procuring rice from the surplus States through the agency of the State Governments for distribution in the deficit States to overcome the acute shortage of rice in those States. It was in these circumstances that this court held: "The corporation has no voice in the matter at all and is only a recipient of the foodgrains from the surplus States. The entire policy is determined at the highest level between the Central Government and the State Governments..........The corporation after receiving the foodgrains, passes it on to the deficit States at the same price at which it was procured plus some other sundry charges.........If a dealer has no say of any kind in the matter, I fail to understand how such a transaction can have any profitmotive. It will be a travesty of facts to call it a business so far as the distribution of foodgrains to deficit States by the corporation is concerned." The learned counsel for the petitioner has relied upon a number of other decisions of various High Courts, which, however, do not lend any support to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as held to be liable to tax. The delivery of calendars, wallets and key-chains by the dealers to its consumers for purposes of maintaining and increasing the sales of the products of the assessee was held to be connected with the business and the supply of such material was held liable to be included in the turnover of the assessee. In Indian Iron and Steel Company Limited v. Member, Board of Revenue, West Bengal[1971] 27 S.T.C. 373., the petitioner, who was an employer, sold certain commodities of daily use to his employees, to provide them with essential amenities without any profit-motive. In these circumstances, it was held that the employer cannot be held to be carrying on the business with a commercial motive. It was further held that a person cannot be a dealer under the Bengal Finance (Sales Tax) Act, 1941, unless he carries on the business of selling goods in a commercial sense. In the present case, the petitioner cannot be held by any stretch of imagination that by purchasing paddy and converting them into rice by manufacturing and then by selling the same to the Government, though at a fixed price, was not carrying on any business in a commercial sense. In Motor Industri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....carrying on the business of purchasing paddy and dehusking them into rice for the last many years and has even voluntarily obtained dealers' registration certificate from the sales tax authorities. If the price fixed by the Government for the purchase or acquisition of rice from the petitioner was not reasonable or profitable, normally, the presumption will be that he would have either challenged the levy price of rice or discontinued his business. In any case, for the purpose of the present proposition, the accrual of profit to the petitioner, so far as the sale of rice is concerned, is not relevant. For the purpose of levy of tax on purchase of paddy, the petitioner has no justification to dispute his status as a dealer under the Act. Mr. Bhal Singh Malik, the learned counsel for the writ petitioner, submitted that the petitioners are exempt from the liability to pay purchase tax on paddy because agricultural produce is included in entry 39 of Schedule B to the Act. Paddy, being admittedly an agricultural produce, will be thus exempt from levy of tax of any kind. This contention has no substance. As I have already held, section 6 of the Act under which Schedule B to the Act has b....