Over 2 lakh Indian cases. Search powered by Google!

Case Details

M/S PERFECT SYNTHETICS versus THE STATE OF PUNJAB & ORS

High Court of Punjab and Haryana, Chandigarh

Case Law Search

Indian Supreme Court Cases / Judgements / Legislation

Judgement


M/s Perfect Synthetics v. The State of Punjab & Ors - CWP-2272-2006 [2006] RD-P&H 5256 (5 August 2006)

C.W.P.No.2272 of 2006 [1]

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

(1) C.W.P.No.2272 of 2006

M/s Perfect Synthetics v. The State of Punjab and others (2) C.W.P.No.10527 of 2005

M/s Arisudana Spinning Mills Ltd. v. State of Punjab and others (3) C.W.P.No.10528 of 2005

M/s Arisudana Spinning Mills Ltd. v. State of Punjab and others (4) C.W.P.No.10786 of 2005

M/s Arisudana Spinning Mills Ltd. v. State of Punjab and others (5) C.W.P.No.16432 of 2005

M/s Shiwalya Spinning & Weaving Mills (P) Ltd.

v.

State of Punjab and others.

(6) C.W.P.No.301 of 2006

M/s Indlon Chemicals Ltd. v. State of Punjab and others (7) C.W.P.No.2477 of 2006

M/s Tarlok Chand Hans Raj v. State of Punjab and others (8) C.W.P.No.3452 of 2006

M/s Lakshmi Spinners v. State of Punjab and others (9) C.W.P.No.3751 of 2006

M/s Luxmi Spinning Mills Pvt. Ltd. v. State of Punjab and others (10) C.W.P.No.3771 of 2006

M/s Shree Ganesh Acro Yarns (P) Ltd. v. State of Punjab and others (11) C.W.P.No.4456 of 2006

M/s Shiva Fabricators Pvt. Ltd. v. State of Punjab and others.

Present: Mr.K.L.Goyal, Mr.Mohan Jain, Mr.D.S.Brar and Mr.Sandeep Goyal, Advocates for the petitioners.

Ms.Urvashi Dhugga, Assistant Advocate General, Punjab for the State.

C.W.P.No.2272 of 2006 [2]

CORAM:
Hon'ble Mr. Justice Adarsh Kumar Goel

Hon'ble Mr. Justice Rajesh Bindal

1. Whether Reporters of local papers maybe allowed to see the judgment ?

2. To be referred to the Reporters or not ?

3. Whether the judgment should be reported in the Digest? JUDGMENT:

This bunch of eleven writ petitions involve similar questions of law.

Facts in brief, as pleaded in various petitions, are as under: Facts:

C.W.P.No.2272 of 2006

The petitioner in this case is a partnership firm, engaged in the business of purchase, sale and manufacturing of yarn. It is duly registered under the provisions of the Punjab General Sales Tax Act, 1948 (for short, `the Act').

The petitioner claims that after purchasing raw material from within the State of Punjab and after using the same in the manufacturing of finished goods, majority of them are sold in the course of intra-State sales and tax on the finished goods is paid in accordance with law. The petitioner, in the process, had also purchased raw material from certain units (hereinafter described as "exempted units"), enjoying exemption from or deferment of payment of tax granted in terms of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 (for short, `the 1991 Rules'). The petitioner further claims that in calculating his taxable turnover, in terms of Rule 29(xii) of the Punjab General Sales Tax Rules, 1949 (for short, `the 1949 Rules'), deduction thereof is not being allowed by the authorities below on the ground that though the goods purchased by the petitioner are leviable to tax at the first stage of sale and since no tax on the purchase of goods from exempted units has been paid, which is totally contrary to the provisions of law. The petitioner has further stated that assessment for the year 2001-02 was initially framed by the Assessing Authority vide order dated 18.3.2004 and rebate of the goods leviable to tax at the first stage of sale purchased by the petitioner from the exempted unit was granted under Rule 29(xii) of the 1949 Rules. Thereafter, the petitioner was initially issued notice for re-assessment; then a suo-motu notice under Section 21(1) of the Act and finally for re-assessment on statutory form ST- XIX on 14.10.2005 on the ground that turnover on that account has escaped levy of tax. Vide re-assessment order dated 7.11.2005, the deduction already allowed under Rule 29(xii) of the 1949 Rules was disallowed and accordingly additional C.W.P.No.2272 of 2006 [3]

demand of tax was raised against the petitioner, which is impugned in the present case.

C.W.P.No.10527 of 2005

The petitioner is a limited company engaged in the business of manufacturing of yarn, which itself is also an exempted unit. It is duly registered under the provisions of the Act. The petitioner claims that it purchased raw material from another exempted unit. During the course of original assessment proceedings, for the year 2002-03, the claim of deduction of the petitioner on account of raw material purchased from the exempted unit was disallowed vide assessment order dated 29.9.2004, which is impugned in the present writ petition.

C.W.P.No.10528 of 2005

The petitioner is a limited company engaged in the business of manufacturing of yarn, which itself is also an exempted unit. It is duly registered under the provisions of the Act. The petitioner claims that it purchased raw material from another exempted unit. During the course of original assessment proceedings, for the year 2001-02, the claim of deduction of the petitioner on account of raw material purchased from the exempted unit was disallowed vide assessment order dated 29.9.2004, which is impugned in the present writ petition.

C.W.P.No.10786 of 2005

The petitioner is a limited company engaged in the business of manufacturing of yarn, which itself is also an exempted unit. It is duly registered under the provisions of the Act. The petitioner claims that it purchased raw material from another exempted unit. During the course of original assessment proceedings, for the year 2001-02, the claim of deduction of the petitioner on account of raw material purchased from the exempted unit was disallowed vide assessment order dated 29.9.2004, which is impugned in the present writ petition.

C.W.P.No.16432 of 2005

The petitioner is a private limited company engaged in the business of acrylic yarn. During the course of business, it purchased acrylic fibre from an exempted unit. The allegation of the petitioner is that though the assessment for the year 2001-02 has been completed, but the order is still awaited, whereas the assessments for the years 2002-03 and 2003-04 are in progress, wherein the claim on account of deductions for the purchases made from the exempted units is sought to be disallowed. The petitioner has impugned notice dated 16.5.2005, whereby while issuing entitlement certificate under the Punjab Value Added Tax Act, 2005, the respondents, without even framing the assessment, had in fact disallowed the claim of deduction on account of purchases made from the C.W.P.No.2272 of 2006 [4]

exempted units. A further prayer has been made seeking refund of the amount deposited by the petitioner for the quarter ending June 30, 2005 and for the months of July and August, 2005 paid under the Punjab Value Added Tax Act, 2005.

C.W.P.No.301 of 2006

The petitioner is a limited company engaged in the business of acrylic yarn. It is duly registered under the provisions of the Act. The petitioner, in the process, had also purchased raw material from exempted units. The petitioner claims that in calculating his taxable turnover, in terms of Rule 29(xii) of the Rules, deduction of purchase value thereof is not being allowed by the authorities.

The petitioner has further stated that assessment for the year 2000-01 was initially framed by the Assessing Authority, vide order dated 4.3.2005, and rebate of the goods leviable to tax at the first stage of sale purchased by the petitioner from the exempted unit was granted under Rule 29(xii) of the 1949 Rules. Thereafter, the petitioner was issued a suo-motu notice for re-assessment under Section 21(1) of the Act. Vide re-assessment order 1.10.2004, the deduction already allowed under Rule 29(xii) of the 1949 Rules was disallowed and accordingly additional demand of tax was raised against the petitioner, which is impugned in the present petition.

C.W.P.No.2477 of 2006

The petitioner is a partnership firm, engaged in the business of manufacture and sale of washing soaps etc. For the purpose of manufacturing, the firm is purchasing raw material from the exempted units. During the course of original assessment year 2001-01, deduction under Rule 29(xii) of the 1949 was allowed. Thereafter, the petitioner was issued a notice under Section 21(1) of the Act for appearance on 5.9.2002 and in pursuance thereof, an order was passed on 30.9.2002, disallowing the deduction on account of purchases made from the exempted unit, which in the original assessment proceedings were allowed under Rule 29(xii) of the 1949 Rules. Against the order of the Revisional Authority, the petitioner preferred an appeal before the Tribunal. The same was rejected vide order dated 1.10.2004. The petitioner has approached this Court, in the present petition, challenging these orders.

C.W.P.No.3452 of 2006

The petitioner is a partnership firm engaged in the manufacture of acrylic yarn, for which the basic raw material acrylic fibre is purchased by the petitioner from the exempted unit. The assessment of the petitioner for the assessment years 2000-01, 2001-02 and 2002-03 was finalised by the department vide orders dated 30.12.2002, 30.6.2004 and 30.6.2004 respectively. In the assessment, turnover on account of purchase of raw material from the exempted C.W.P.No.2272 of 2006 [5]

unit was allowed as deduction under Rule 29(xii) of the 1949 Rules. Thereafter, the petitioner was issued a show cause notice for all the three years, referred to above, under Section 21(1) of the Act on the ground that deduction under Rule 29 (xii) of the 1949 Rules has been wrongly allowed. In the petition, the petitioner has impugned the show cause notice dated 14.7.2005 for the assessment year 2000-01 and notices dated 18.7.2005 for the assessment years 2001-02 and 2002- 03.

C.W.P.No.3751 of 2006

The petitioner herein is a private limited company engaged in the manufacture of synthetic yarn from acrylic yarn, which is purchased from the exempted unit. The assessment of the petitioner for the assessment years 2001-01, 2001-02 and 2002-03 was finalised by the department vide orders dated 22.8.2002, 28.3.2005 and 28.3.2005 respectively. In the assessment, the turnover on account of purchase of raw material from the exempted unit was allowed as deduction under Rule 29(xii) of the 1949 Rules. Thereafter, the petitioner was issued a show cause notice for all the three years, referred to above, under Section 21(1) of the Act on the ground that deduction under Rule 29(xii) of the 1949 Rules has been wrongly allowed. In the petition, the petitioner has impugned the show cause notice for the assessment year 2001-02.

C.W.P.No.3771 of 2006

The petitioner herein is a private limited company engaged in the manufacture of synthetic yarn from acrylic fibre, which is purchased from the exempted unit. The assessment of the petitioner for the assessment years 2001-02 and 2002-03 was finalised by the department. In the assessment, the turnover on account of purchase of raw material from the exempted unit was allowed as deduction under Rule 29(xii) of the 1949 Rules. Thereafter, the petitioner was issued a show cause notice for the two assessment years, referred to above, under Section 21(1) of the Act on the ground that deduction under Rule 29(xii) of the 1949 Rules has been wrongly allowed. In the petition, the petitioner has impugned the show cause notice for the assessment year 2001-02 and 2002-03.

C.W.P.No.4456 of 2006

The petitioner herein is a private limited company engaged in the manufacture of synthetic yarn from acrylic yarn, which is purchased from the exempted unit. The assessment of the petitioner for the assessment years 1997-98, 1998-99, 1999-2000, 2000-01 and 2001-02 was finalised by the department vide orders dated 27.12.2000, 23.7.2002, 20.12.2002 and 2.6.2004 respectively. In the assessment, the turnover on account of purchase of raw material from the C.W.P.No.2272 of 2006 [6]

exempted unit was allowed as deduction under Rule 29(xii) of the 1949 Rules.

Thereafter, the petitioner was issued a show cause notice for all the years, referred to above, under Section 21(1) of the Act on the ground that deduction under Rule 29(xii) of the Rules has been wrongly allowed. For the sake of convenience, an extract of reasoning for the assessment year 1997-98, is as under: "Deduction U/R 29(xii) of PGST Rules, 1949 has wrongly been allowed for the purchase value worth Rs. 2,47,29,512/- of `Acrylic Fibre' purchased from M/s Indian Acrylics Ltd., Sangrur (an exempted unit) as such purchases of goods have not actually suffered any tax."

In the petition, the petitioner has impugned the show cause notices for the assessment years 1997-98, 1998-99, 1999-2000, 2000-01 and 2001-02.

Relevant Provisions:

Section 5(1-A) and 5(2)(a) (vii) of the Act, Rule 29(xi) and (xii) and Rule 55-A (viii) of the 1949 Rules and Rule 9 of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 (hereinafter referred to as `the 1991 Rules') and notification dated 25.7.1990, relevant for consideration of the point in issue, are as under:

"5(1-A). The State Government may by notification direct that in respect of such goods other than declared goods and with effect from such date as may be specified in the notification, the tax under sub-section (1) shall be levied at the first stage of sale thereof, and on the issue of such notification the tax on such goods shall be levied accordingly.

Provided that no sale of such goods at a subsequent stage shall be exempt from tax under this act unless the dealer effecting the sale at such subsequent stage furnishes to the assessing authority in the prescribed form and manner a certificate duly filled in and signed by the registered dealer, from whom the goods were purchased.

Provided further that in the case of a dealer whose gross turnover does not exceed ten lac rupees in a year or a sum as may be notified by the State Government from time to time in this behalf, and whose amount of tax is assessed under sub-section (1) of Section 11 of this Act, the C.W.P.No.2272 of 2006 [7]

certificate referred to in the preceding proviso shall not be required.

Explanation: For the purpose of this sub-section, the first stage of sale in respect of any goods in relation to any class of dealers shall be such as may be specified by the State Government in the notification."

5(2) In this Act, the expression "taxable turnover" means that part of a dealer's gross turnover during any period which remains after deducting therefrom:

(a) his turnover during that period on

(i)to (vi) xx xx xx

(vii) such other sales or purchases as may be prescribed.

Rule 29(xi) and (xii) and Rule 55 of the 1949 Rules RULE 29

In calculating his taxable turnover a registered dealer may deduct from his gross turnover:-

(i) to (x) xx xx xx

(xi)The sale or purchase of goods which have already been subjected to tax under Section 5(1-A) or Section 5(3) as the case may be.

Provided that the dealer produces copies of cash memos or bills prescribed under Rule 55A at the time of assessment or when called upon to do so, by notice, by the competent authority under the Act.

(xii)the purchase value of goods which have already been subjected to tax under Section 5(1-A) or Section 5(3), as the case may be used or consumed by him in manufacture in Punjab of goods other than goods declared tax free under Section 6 for sale:

i) in Punjab

ii) In the course of inter-State trade or commerce iii)In the course of export out of territory of India.

Provided that the dealer produces copies of cash memos or bills prescribed under Rule 55-A at the time of assessment or when called upon to do so,by notice, by the competent authority under the Act.

C.W.P.No.2272 of 2006 [8]

Rule 55-A .

xx xx xx

(viii) in case the goods are taxable at the first stage of sale or purchase thereof and are sold to a registered dealer, it shall contain the following certificate namely:- Certificate

Certified that I/we, am/are liable to pay tax under the Act, being the dealer at the first stage of sale or purchase of the above mentioned goods in the State of Punjab; OR Certified that the goods being sold by me, as mentioned above, have been purchased from a Registered Dealer in the State of Punjab.

*Note: Please tick ( ) which is applicable." Notification dated 25.7.1990

Punjab Government

Notification No.SO 38/P.A.46/48/S.5/90

dated 25.7.1990

(Published in Punjab Government Gazette

Extraordinary, dated 25.7.1990

In exercise of the powers conferred by sub-section (1- A) of Section 5 of the Punjab General Sales Tax Act, 1948 (Punjab Act No.46 of 1948), the President of India is pleased to direct that with effect from the date of publication of this Notification in the Official Gazette, the tax under sub- section (1) of the said Section shall be levied at the first stage of the sale of goods other than declared goods manufactured and sold by a dealer who has been allowed the benefit of deferment of or exemption from the liability to pay tax under Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 and which stage in his case shall be the stage of sale when such dealer sells the goods from the premises of his manufacturing industrial unit for the first time in the State of Punjab."

Rule 9 of the 1991 Rules

"Rule 9.(1) The unit holding deferment or exemption certificate shall continue to file the return in the manner specified under the Act and the rules made thereunder.

C.W.P.No.2272 of 2006 [9]

(2) Notwithstanding anything contained in these rules, the unit holding deferment or exemption certificate issued under these rules, shall attach an attested copy of deferment or exemption certificate, as the case may be, in lieu of proof of payment of tax along with the return till the deferred to exemption amount of tax is fully availed of or the period of deferment or exemption expires under these rules, whichever is earlier.

(3) The assessment of an eligible unit in respect of which deferment or exemption certificate has been granted shall be made in accordance with the provisions of the act and the rules made thereunder as early as possible and shall be completed by the 31st

day of December in respect of the

assessment year immediately preceding thereto and the additional demand so determined, if any, shall be paid as per the provisions of the Act and the rules made thereunder.

(4) Notwithstanding the provisions relating to payment of tax due according to returns, the unit in respect of which the benefit of deferment of payment of tax under the Act hs been availed of shall make payment of the deferred amount of tax after the expiry of tax deferred every quarter or month, as the case may be, within the period specified in these rules.

(4-A) The amount of tax deferred and retained by a unit which commences production after the 1st

day of April 1996,

shall be payable in three equal installments after ten or seven years, as the case may be, from the commencement of benefit as per their applicability."

Scheme of the Act and the Rules

In order to appreciate the controversy in the present case, we may briefly narrate broad scheme of the Act, the 1949 Rules and the 1991 Rules.

Section 4 of the Act provides for incidence of taxation, i.e., the charging section which provides for levy of tax.

Section 5(1) of the Act enables the State Government to specify certain goods, tax on which shall be levied at the first stage of sale thereof. It further provides that subsequent sale of those goods shall not be exempted unless C.W.P.No.2272 of 2006 [10]

the dealer effecting the sale furnishes to the Assessing Authority a form prescribed in this behalf, received from the dealer from whom the goods were purchased.

Section 5(2) of the Act prescribes that "taxable turnover" of a dealer would be that part of dealer's gross turnover which during the period remains after deducting therefrom certain specified turnover. In the present case, we are concerned with clause (vii) of Section 5(2) of the Act, which is a residuary provision, providing for deduction of turnover on account of `such other sales or purchases, as may be prescribed'. Rule 29 of the 1949 Rules provides for such details.

Section 10 of the Act provides for payment of tax, whereas Section 11 of the Act contemplates assessment of tax.

Section 10A of the Act enables the State Government to defer the payment of tax due from such class of industries, for such period, subject to such conditions as may be prescribed, keeping in view industrial development of the State.

Section 30A of the Act enables the State Government to exempt any class of industries from payment of tax, subject to such conditions as may be prescribed.

In exercise of powers conferred under Sections 10A and 30A of the Act, the State Government framed the 1991 Rules, providing for various benefits of exemption from or deferment of payment of tax and the conditions therefor.

Rule 29 of the 1949 Rules prescribes as to how the taxable turnover of a dealer is to be calculated and turnover on what accounts are to be reduced therefrom.

Clause (xi) of Rule 29 provides for deduction from gross turnover, inter alia, on account of sale or purchase of goods, which have already been subjected to tax at first stage of sale under Section 5(1-A) of the Act, subject to the condition of production of copies of cash memos or bills, as prescribed under Rule 55A of the Rules. Clause (xii) thereof provides for deduction of purchase value of the goods which have already been subjected to tax at the stage of first sale under Section 5(1-A) of the Act, in case those goods are used or consumed by the dealer in the manufacture by him in the State, of goods other than those declared to be tax free under Section 6 of the Act. It is subject to the condition that the goods so manufactured are either sold within the State of Punjab or in the course of inter- State trade or commerce or in the course of export out of territory of India. In this situation as well, this deduction is subject to production of cash memos or bills, prescribed under Rule 55-A of the 1949 Rules.

C.W.P.No.2272 of 2006 [11]

Rule 29(xii) of the 1949 Rules, which provides for deduction of turnover on account of goods leviable to tax at the first stage out of the taxable turnover, does not make any distinction as regards the goods manufactured by a dealer, who is availing deferment of payment of tax in which case payment of amount due is only deferred to be paid later or in the case of a unit availing exemption from payment of tax where the amount of tax is not actually paid but is only deemed to be paid as per Rule 9(2) of the 1991 Rules.

Rule 55A of the 1949 Rules provides that in case of goods taxable at the first stage of sale, which are sold to a registered dealer, a certificate is required to be appended to the effect that the first dealer selling the goods is liable to pay tax under the Act, being the dealer at the first stage of Section.

In exercise of powers conferred under Section 5(1) of the Act, the State Government, vide notification dated 25.7.1990 (as amended upto date), prescribed that the goods other than declared goods, manufactured and sold by a dealer, who has been allowed the benefit of deferment of or exemption from liability to pay tax under the 1991 Rules shall be the stage when such dealer sells the goods from the premises of his manufacturing unit for the first time in the State of Punjab. That means that the goods other than declared goods manufactured and sold by a unit availing benefit of deferment or exemption shall be taxable at the stage of first sale.

Salient features of the 1991 Rules are that benefit of deferment of or exemption from the liability to pay tax is available to an eligible industrial unit.

Rule 5 of the 1991 Rules provides for mode of availing benefit of deferment of or exemption from the liability to pay tax. Rule 6 provides for security for availing the above benefit. Rule 8 enables the authority to cancel the deferment or exemption for certain specified grounds. Rule 9, which is important and relevant for consideration of the point in issue in present case, provides that the unit holding deferment or exemption certificate shall continue to file the return in the manner specified under the Act. It further provides that the unit holder is to attach an attested copy of the deferment or exemption certificate along with the return in lieu of proof of payment of tax along with the return till the deferred or exempted amount of tax is fully availed of or the period of deferment or exemption expires under the 1991 Rules, whichever is earlier. It also provides that assessment of the eligible unit availing benefits under the 1991 Rules is to be framed in accordance with the provisions of the Act and the Rules.

Common question which arises for consideration in all the writ petitions is as to whether a dealer is entitled to deduct from his gross turnover, C.W.P.No.2272 of 2006 [12]

purchase value of goods, purchased from an exempted dealer, under Rule 29(xii) on the plea that the said goods had "been subjected to tax" under Section 5(1-A), even though, on account of exemption, tax has not been actually paid but deemed to have been paid.

Submissions

Learned counsel for the petitioner dealers submit that goods purchased by them from the dealer liable to tax at first stage are assessed as per Rule 9 of the 1991 Rules. Though actual tax is not payable but the same is treated at par with the tax paid. Such exempted dealer is also entitled to issue certificate under Rule 55A. If exemption is cancelled, such a dealer is liable to pay tax. It is submitted that since levy of the tax is at the first stage, liability would only be of the dealer liable to pay tax at the first stage and Rule 29(xii) was only to give effect to the mandate of Section 5(1-A). It is pointed out that in M/s Suraj Glass Works, Bathinda v. State of Punjab, (2000) 16 PHT 173 (STT Pb.) decided on 11.7.2000, the Tribunal had taken the view that under proviso to Section 5(1-A), payment of tax in the hands of subsequent dealers was exempted. It is not disputed before us that no further proceedings were taken by the State against the order of the Tribunal in M/s Suraj Glass Works' case (supra). Accordingly, assessments in most of the cases were made after allowing deduction of turnover liable to tax at first stage. Subsequently, notice for re-assessment have been given or claims have been disallowed or revisional proceedings have been initiated, which are pending.

The revenue has contested the claim under proviso to Section 5(1-A) of the Act and Rule 29(xii) of the 1949 Rules. Reliance has been placed on a judgment of Madhya Pradesh High Court in Panam Packers (P) Ltd. v. State of M.P. And others, (2002) 35 VKN 9, wherein it was held that for claiming set off, "payment of tax" was a sine qua non. It is submitted that since tax had not been actually paid, qualification for claiming deduction from gross turnover was not attracted.

Discussions

From a bare perusal of the Scheme of Sections 10A and 30A of the Act and also the 1991 Rules, it is evident that it is only the payment of the tax, which is either deferred or exempted. It is not that the goods are made generally tax free and for that reason, the tax was not being levied and charged from the dealer availing benefits under the 1991 Rules. It cannot be denied that levy, assessment and recovery are three different concepts. In every taxing statute, separate provisions are there which enable the authority to charge tax on a C.W.P.No.2272 of 2006 [13]

transaction, i.e., which provide for an event to be a taxable event for the purpose of charging tax under the Act. Second is the provision in the form of execution, which authorises an authority to calculate the tax due under the Act, that means assessment of tax on a particular transaction. Third being in the category of provisions, which provide for payment or collection of the tax, so levied by the authority or calculated as payable by the assessee-dealer on self assessment.

In the present case, it is not disputed between the parties that the goods, being manufactured by the exempted units, from whom the present petitioners have purchased, belong to the category, which otherwise are taxable under the provisions of the Act and do not fall in the category of goods specified in Schedule `B', i.e., tax free goods and further that in terms of notification dated 25.7.1990, these goods are taxable at first stage of sale by the exempted unit.

A plain reading of sub-rules (xi) or (xii) of Rule 29 of the 1949 Rules shows that deductions from gross turnover for the purpose of arriving at taxable turnover is available on account of sale or purchase of goods which have already been `subjected to tax', inter-alia under Section 5(1-A) of the Act. The words `subjected to tax' is synonymous with `assessed to tax'. The following observations of Hon'ble the Supreme Court of India in Gujarat Ambuja Cements Ltd. v. Union of India and another, (2005) 4 SCC 214; Delhi Farming & Construction (P) Ltd. v. Commissioner of Income-tax, Delhi, (2003) 5 SCC 36 and Commissioner of Income-tax, Mumbai v. D.P.Sandu Bros. Chembur (P) Ltd., (2005) 2 SCC 584 are helpful in this regard: "Gujarat Ambuja Cements Ltd.'s case (supra) (page 229 para 27) We need not go into this question except to emphasise that, broadly speaking the subject-matter of taxation under Entry 56 of List II are goods and passengers. The phrase "carried by roads or natural waterways" carves out the kind of goods or passengers which or who can be subjected to tax under the entry.

Delhi Farming & Construction (P) Ltd.'s case (supra) (page 42 para 15)

Dealing with the first contention urged by learned Senior Advocate for the appellant, it appears to us that both the Revenue Authorities and the High Court have missed the thrust of the argument. The capital gains arose prior to the Ist day of March, 1970 and, they arose not because of any transfer voluntarily made by the appellant Company, but by C.W.P.No.2272 of 2006 [14]

reason of the compulsory acquisition of agricultural land belonging to the assessee. Even assuming that compulsory acquisition of land is a transfer of a capital asset within the meaning of Section 45 of the Act, Section 47(viii) specifically exempts any transfer of agricultural land in India effected before the Ist day of March, 1970 from the scope of Section 45 of the Act. Thus, the compensation which became payable to the appellant as a result of the acquisition of its agricultural land in 1962, was totally exempt from Section 45.

Consequently, it did not amount to "income" within the scope of Section 2(24)(vi) as there was no "capital gain" within the meaning of Section 45. It was also not to be included while computing the total income of the appellant defined in Section 2(45) of the Act. Thus, the amount of compensation received by the appellant could not have formed part of the "gross total income" within the meaning of clause (iv) of Section 109 of the Act. Consequently, there was no question of its becoming part of "distributable income" as defined in Section 109(i).

We are, hence of the view that the appellant must succeed on its first contention that the entire amount of capital gains which accrued as a result of acquisition (and hence compulsory transfer) of the agricultural land could not have been subjected to tax under Section 104 of the Act as it was wholly exempted from capital gains and not part of the "gross income" or the distributable income for the purpose of Section 104 of the Act.

D.P.Sandu Bros. Chembur (P) Ltd.'s case (supra) (paras 7 and 16)

7. That the tenancy right is a capital asset, the surrender of the tenancy right is a "transfer" and the consideration received therefor a capital receipt within the meaning of Section 45 has not been questioned before us and must in any event be taken to be concluded by the decision of this Court in A.Gasper v.

CIT, 1993 Supp (1) SCC 52.

16. There is no dispute that a tenancy right is a capital asset the surrender of which would attract Section 45 so that the value received would be a capital receipt and assessable if at C.W.P.No.2272 of 2006 [15]

all only under Item (E) of Section 14. That being so, it cannot be treated as a casual or non-recurring receipt under Section 10(3) and be subjected to tax under Section 56. The argument of the appellant that even if the income cannot be chargeable under Section 45, because of the inapplicability of the computation provided under Section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under Section 45, it cannot be taxed at all. [See S.G.Mercantile Corpn. (P) Ltd. v. CIT, (1972) 1 SCC 465).

In the present case, it is not disputed by the learned counsel for the State that turnover on account of sale of goods by the exempted dealer is shown in the return and the same is even assessed to tax. It is, however, only at the stage of payment that demand created is set-off against the quantum of benefit available to the exempted unit in terms of the certificate issued to the dealer.

The effort of the State counsel to read words "actual payment of tax" either for the words "subjected to tax" or in addition to the language of the Rules already existing is totally misconceived and deserves rejection as such. The provisions of a statute/rules are to be given their plain and natural meaning. A bare perusal of Rule 29(xi) or Rule 29(xii) of the 1949 Rules does not, in any manner, shows that the words "actual payment of tax" is a pre-condition for deduction of the turnover on account of transaction covered under Section 5(1-A) of the Act.

There being no such words in the Rules, we do not see any reason to read these words there. If there is one principle of interpretation more well-settled than any other, it is that a statutory enactment must ordinarily be construed according to the plain natural meaning of its language and that no words should be added, altered or modified unless it is necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute and the guidance for the same is available in the statute itself.

This rule of literal construction is firmly established and it has received judicial recognition in numerous cases. Crawford in his book on "Construction of Statutes" (1940 Edn.) at p. 269 explains the rule in the following terms: "Where the statute's meaning is clear and explicit, words cannot be interpolated. In the first place, in such a case they are not needed. If they should be interpolated, the statute would more than likely fail to express the legislative intent, as the thought intended to be conveyed might be altered by the C.W.P.No.2272 of 2006 [16]

addition of new words. They should not be interpolated even though the remedy of the statute would thereby be advanced, or a more desirable or just result would occur. Even where the meaning of the statute is clear and sensible, either with or without the omitted word, interpolation is improper, since the primary source of the legislative intent is in the language of the statute."

Lord Parker applied the rule in R.v. Oakes to construe "and", as "or" in Section 7 of the Official Secrets Act, 1920 and stated: "It seems to this Court that where the literal reading of a statute, and a penal statute, produces an intelligible result, clearly there is no ground for reading in words or changing words according to what may be the supposed intention of Parliament. But here we venture to think that the result is unintelligible."

In J.P. Bansal vs. State of Rajasthan and another, 2003(5) Supreme Court Cases 134, it was held as under:

"14. Where, however, the words were clear, there is no obscurity, there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the court to innovate or take upon itself the task of amending or altering the statutory provisions. In that situation the Judges should not proclaim that they are playing the role of a law-maker merely for an exhibition of judicial valour. They have to remember that there is a line, though thin, which separates adjudication from legislation. That line should not be crossed or erased. This can be vouchsafed by "an alert recognition of the necessity not to cross it and instinctive, as well as trained reluctance to do so". (See: Frankfurter: Some Reflections on the Reading of Statutes in "Essays on Jurisprudence ", Columbia Law Review, p.51)"

Reference to the following passages from the recent Constitution Bench judgment of Hon'ble the Supreme Court of India in State of West Bengal and another vs. Kesoram Industries Ltd. and others, AIR 2005 Supreme Court 1646 would also be helpful for interpretation of the provisions in the present case: "109. There is nothing like an implied power to tax. The source of power which does not specifically speak of C.W.P.No.2272 of 2006 [17]

taxation cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference. States Cooley in Taxation (Vol.

4, Fourth Edition) - "There is no such thing as taxation by implication. The burden is always upon the taxing authority to point to the act of assembly which authorizes the imposition of the tax claimed. (para 122 at p.278).

110. Justice G.P. Singh in Principles of Statutory Interpretation (Eighth Edition, 2001) while dealing with general principles of strict construction of taxation statutes states "A taxing statute is to be strictly construed". The well-established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, means: " the subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words". In a classic passage Lord Cairns stated the principle thus: "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there is admissible in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute. Viscount Simon quoted with approval a passage from Rowlatt, J.

expressing the principle in the following words: "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax.

Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." (at p. 635) C.W.P.No.2272 of 2006 [18]

111. The judicial opinion of binding authority flowing from several pronouncements of this Court has settled these principles: (i) in interpreting a taxing statute, equitable considerations are entirely out of place. Taxing statutes cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) before taxing any person it must be shown that he falls within the ambit of the charging section by clear words used in the Section; and (iii) if the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject. There is nothing unjust in the tax-payer escaping if the letter of the law fails to catch him on account of Legislature's failure to express itself clearly. (See, Justice G.P. Singh, ibid, pp 638-639)"

Even if the issue is examined from another angle, in our view, answer to the issue raised in the present set of cases is available on a plain reading of Rule 9(2) of the 1991 Rules as well. The real intent and import of Rule 9(2) of the 1991 Rules is that the units availing benefits under the provisions of the 1991 Rules are exempted only from payment of tax or the payment is deferred to a subsequent date. An exemption certificate or deferment certificate is issued in favour of such a unit, specifying the quantum of benefit available to it and the period during which it can be availed of. At the time of filing of the returns, the exempted unit is required to attach along with that an attested copy of the deferment or exemption certificate in lieu of proof of payment of tax. This would mean that when attached with the return filed by the exempted dealer in terms of the provisions of the Act and the 1991 Rules, the amount of tax so payable in the return is deemed to be paid.

Further Rule 9 of the 1991 Rules provides that a unit, having deferment or exemption certificate issued to it, is bound to file return as per the provisions of the Act and the Rules. The goods manufactured by such exempted units, which admittedly are taxable, will have to be shown by it in its turnover taxable at first stage of sale and after calculating the tax thereon, instead of paying the tax actually, a copy of the exemption or deferment certificate will be attached C.W.P.No.2272 of 2006 [19]

in lieu of the payment. Even at the time of assessment, which is to be framed in terms of the provisions of the Act and the Rules, on the turnover of the unit, having exemption or entitlement certificate, turnover on account of sale of goods which is taxable at first stage of sale is subjected to tax. However, the payment thereof is set off against the quantum of benefit available to the unit against actual payment of tax as per the scheme of the 1991 Rules.

We have perused the judgment, referred to by the State counsel, in the case of Panam Packers (P) Ltd.'s case (supra). It will be suffice to add here that firstly the provisions under consideration in the above-referred judgment were different as in that case, deduction was available on account of tax paid goods, whereas in the present case, the only requirement is that the goods are subjected to tax. Therefore, this judgment does not, in any way, support the case of the revenue.

In view of our above discussion, we are of the view that the petitioners herein are entitled to deduction under Rule 29(xi) or 29(xii) of the 1949 Rules on account of purchase of goods manufactured by a dealer, who has been allowed the benefit of deferment of or exemption from liability to pay tax under the 1991 Rules. The actual payment of tax by the dealer effecting first sale in the State of such goods will not be a condition for deduction of such turnover from the gross turnover for the purpose of arriving at the taxable turnover.

The impugned orders, passed by the authorities below, are set aside to the extent mentioned above and they are directed to pass necessary orders giving effect to the observations made above. The impugned show cause notices issued for revision/re-assessment for the assessment already framed in conformity with the finding recorded above, are quashed.

Since no other point was raised at the time of arguments, we have not expressed any opinion on any of ancillary issue raised by the petitioners in the writ petitions, for which they may have their remedy, as available to them in accordance with law.

The writ petitions are disposed of in the manner indicated above with no order as to costs.

( Rajesh Bindal )

Judge

(Adarsh Kumar Goel)

Judge

July 04 , 2006

mk

C.W.P.No.2272 of 2006 [20]

C.W.P.No.2272 of 2006 [21]


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

Advertisement

dwi Attorney | dui attorney | dwi | dui | austin attorney | san diego attorney | houston attorney | california attorney | washington attorney | minnesota attorney | dallas attorney | alaska attorney | los angeles attorney | dwi | dui | colorado attorney | new york attorney | new jersey attorney | san francisco attorney | seattle attorney | florida attorney | attorney | london lawyer | lawyer michigan | law firm |

Tip:
Double Click on any word for its dictionary meaning or to get reference material on it.