Author: Hansie Singh Nagpal, 4th year student at VIPS, affiliated to Indraprastha University, Delhi.
Citation: Civil Appeal No. 9 of 1961
Date of Decision: 5th December, 1961
Bench: B.P. Sinha, C.J. And J.L. Kapur, M. Hidayatullah, J.C. Shah And J.R. Mudholkar, JJ.
Issue in question:
- Whether the operation of notification of exemption of sales tax issued on 2nd August, 1954 commences from the start of financial year 1954-55 or from 27th September, 1954?
Background of the case:
- The Appellant firm is a registered tobacco dealer as defined in the Punjab Tobacco Vend Fees Act, 1954, which came into force in the State of Punjab from April 1, 1954.
- The Appellant firm is also a registered dealer under Section 7 of the East Punjab General Sales Tax Act, 1948, and till the end of March, 1954.
- A notification of May 7, 1954 by the State Government had given notice, to add the said item in the schedule of exemptions.
- Following the earlier notice, on September 27, 1954, yet another Notification was issued by which the schedule of exemptions under Section 6 of the Sales Tax Act was amended.
- In June 1954, the State Government issued a press note by which it was intended to convey to the dealers that though the Tobacco Vend Fees Act had come into force from April 1, 1954, it was not intended to levy both the sales tax as well as the fee for any period. The press note further said that the consequent vend fees would be reduced proportionately in respect of the period for which the sales tax had been charged.
- On 2nd August, 1954, the government superseded the previous note and modified it. It said that sales tax charged during the current financial year would be refunded and vend fees would be charged as and when the rules are framed.
- They paid sales tax for the first quarter end till June 30, 1954. They were called by the Excise and taxation officer to present their account books. They made representations for relief as provided under press note 2 but, without success.
- Writ petition under Article 226 was filed with three pleas
- A declaration to the effect that levy of sales tax on manufactured tobacco up to September 26, 1954, was illegal;
- Refund of the sales tax paid till the end of June 30, 1954;
- Issuance of a writ of prohibition against the proposed levy of sales tax till September 26, 1954;
- HC dismissed the petition by relying on a June 1955 press note which said that sales tax levied till the end of first quarter shall not be declared illegal and its collection is valid. A second appeal was also dismissed by the division bench. Hence, the appeal.
Judgment of the Court:
- The appeal was allowed by M. Hidyatullah, J. The court clarified that the legislation of the Punjab Tobacco Vend Fees Act, 1954 does not invalidate the application of East Punjab General Sales Tax Act, 1948. It observed that two kinds of taxes can be levied on the same product. The court also negated the argument that an estoppel in the form of press note dated 2nd August, 1954 can override the statutory requirement of levy of sales tax till 26th September, 1954. An assurance of such kind cannot cancel the effect of law or reverse the policy prescribed under it.
- The respondent took aid from section 6 of the East Punjab General Sales Tax Act, 1948 which states: –
“6. (1) No tax shall be payable under this Act on the sale of goods specified in
the first column of the Schedule, subject to the conditions and exceptions, if any,
set out in the corresponding entry in the second column thereof and no dealer shall
charge sales tax on the sale of goods which are declared tax-free from time to
time under this section.”
Section 5(2) of the Act states that: –
“In this Act the expression “taxable turnover” means that part of a dealer’s gross turnover during any period, which remains after detecting therefrom……”
- The respondent argued that the words appearing in both the provisions Section 6 and 5(2) of the act i.e., “appearing from time to time” and “during any period” respectively, indicate that exemptions provided on sales tax can commence from any time as well as be withdrawn at any time during the financial year. The court rejected the argument and held, owing to the interpretation of the words “gross turnover during the year” in Section 4(1) and the words “taxable turnover every year of a dealer” in Section 5(1) that sales tax payable is yearly in nature. Any interpretation otherwise, would lead to ambiguous tax collection. There would be exemptions for some for the whole year and for some for the first two quarters would be an absurd interpretation and against the principles of equity.
- Justice Kapur gave a dissenting opinion on the matter. He observed that if the phrase “tax free from time to time” were to be interpreted as an exemption commencing form the start of the financial year, then that would imply that if an item under the list of excluded items were to excluded just before the end of the financial year, the dealer would not be in a position to pay sales tax at all as did not collect it for the year because the exemption would, as per the interpretation, removed for the entirety of the year. This was not the intended effect of the scheme of the Act, the court observed.
- Moreover, according to section 10 of the Act, the dealer is required to furnish the details of the return ‘during any period’ as may be required by the authorities. Section 11 of the act similarly, allows for assessment of the return submitted. The taxable turnover for the period for which return is filed is the subject of assessment.
- Also, according to section 11(6) of the act, if the assessment were to be made for the returns submitted annually and the exemptions of certain items were made in the middle of the year, then the returns would be subjected to reassessment and refund. That is not the scheme of the Act. Thus, as per the decision of Kapur, J, the appeal is dismissed.
- This case is a classic example of an erroneous legal drafting by the state government. On one hand, the tax levied under section 4 is with respect to every year. On the other hand, exemptions under the schedule granted under section 6 shall apply from ‘time to time’.
This would mean that an assessment on the return submitted (section 10) is subject to the time period with respect to which the return is submitted.
- The dealers had already filed returns till the end of 2nd quarter. The sales tax had already been charged according to the press note 2 dated 2nd August, 1954. Now, if the assessment for returns for the entire year is done at the end of the financial year 1954-55, reassessment and refund had to be made for the sale tax charged by the dealer during the first two quarters. But, if the assessment is done on a quarterly basis as is found in the dissenting verdict, then it comes in conflict with the provision of the Act, namely section 4, 5 and 6. This is the confusion which lies at the heart of the problem. The rules under the new Act were not made for a year which adds more to the problem.