Pathak, J.:— The assessee, Allied Chemicals, Kanpur, is a dealer in Chemicals.
2. During assessment proceedings under the U.P Sales Tax Act, 1948 for the assessment year 1956-1957 it disclosed that the sales effected by it within Uttar Pradesh during the year amounted to Rs. 7,642/12/3 and the sales made outside Uttar Pradesh during the same period amounted to Rs. 15,591/11/-. The assessee contended that the sales made outside Uttar Pradesh fell outside the purview of the U.P Sales Tax Act and could not be taken into consideration for any purpose whatsoever under the Act. According to the assessee, if the turnover of the sales made outside Uttar Pradesh was excluded, the turnover of the remaining sales being Rs. 7,642/12/3 would fall below the prescribed minimum turnover liable to tax and, therefore, the assessee would not be liable to tax at all. The Sales Tax Officer did not accept the contention of the assessee. He held that by virtue of Explanation II to clause (h) of Sec. 2 of the Act the sales made outside Uttar Pradesh would be deemed to have taken place in Uttar Pradesh. The Sales Tax Officer, therefore, determined the gross turnover at Rs. 23,234/7/3 and rejected the contention of the assessee that he was not liable to tax. For the purpose of determining the tax liability he exempted the sales made outside Uttar Pradesh of Rs. 15,591/11/- under Sec. 27 of the Act and computed the tax on the remaining turnover of Rs. 7,642/12/3.
3. The assessee preferred an appeal against the assessment, but the appeal was dismissed.
4. Thereafter, he applied in revision and the judge (Revisions) Sales Tax, accepted the plea of the assessee that the turnover of sales made outside Uttar Pradesh could not be included in his gross turnover and held that the remaining turnover of the assessee being below the minimum taxable limit he was not liable to tax at all.
5. At the instance of the commissioner of Sales Tax, U.P the Judge (revisions) has referred the case and invited the opinion of tips Court on the following question:—
“Whether ex-U.P Sales are to be excluded from computing the prescribed minimum of the gross turnover or not under the circumstances of the case?”
6. The reference came on for hearing before a Division Bench of this Court. In the view that there was a conflict between the decision if this Court in Commissioner of Sales Tax, U.P v. Balbir Singh and Co. 1963 14 Sales Tax Cases 546. and some observations of the Supreme Court in A.V Fernandez v. State of Kerala 1957 8 Sales Tax Cases 561., and considering the point to be one of importance it has referred the case to a larger Bench. The reference has now been laid before us.
7. The question referred relates to the assessment year 1956-1957 and we must, therefore, examine the provisions of the Act as it stood on April 1, 1956. Sec. 3 of the Act provides:—
(1) Subject to the provisions of this Act every dealer shall, for each assessment year, pay tax at the rate of three pies per rupee on his turnover of such year, which shall be determined in such manner as may be prescribed:
Provided that a dealer shall not……….be liable to pay the tax if his turnover of the assessment year ………. is less than Rs. 12,000/- …………”
8. Sec. 2(h) declared that a ‘sale’ means
“within its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration……….
Explanation I………………..
Explanation II—Notwithstanding anything in the Indian Sale of Goods Act, 1930, or any other law for the time being in force, the sale of any goods—
(i) which are actually in Uttar Pradesh at the time when in respect thereof the contract of sale as defined in Sec. 4 of that Act is made,
(ii) or which are produced or manufactured in Uttar Pradesh by the producer or manufacturer thereof, shall, wherever the delivery or contract of sale is made, be deemed for the purposes of this act to have taken place in Uttar Pradesh.”
9. Sec. 2(i) defined ‘turnover’ as
“the aggregate of the proceeds of sale by a dealer:—
Provided ………………..
Provided, secondly, that the proceeds of any sale made outside Uttar Pradesh by a dealer who carries on business both inside and outside Uttar Pradesh shall not be included in the turnover.”
10. The only remaining provision which needs to be considered is Sec. 27 of the Act. That section provided:—
“27(1). Notwithstanding anything contained in this Act—
(a) a tax on the sale or purchase of goods shall not be imposed under this Act—
(i) where such sale or purchase takes place outside the State of Uttar Pradesh; or
(ii) where such sale or purchase takes place in the course of import of the goods into, or export of goods out of, the territories of India;
(b) a tax on the sale or purchase of any goods shall not after the 31st day of March, 1951, be imposed where such sale or purchase takes place in the course of inter-State trade or commerce except in so far as Parliament may by law otherwise provide.
(2) The Explanation to clause (1) of Article 286 of the Constitution shall apply for the interpretation of sub-clause (i) of clause (a) of sub-sec. (1).”
11. This section was added by the Adaptation of Laws Order, 1950, as amended by the Adaptation of Laws (Third Amendment) Order, 1951. It was added for the purpose of bringing the U.P Sales Tax Act into line with Article 286 of the Constitution. At the relevant time, Article 286 read:—
“286(1) No law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place—
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of the territory of India.
Explanation:—For the purposes of sub-clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce:
12. Provided that ………………”
13. These are all the provisions which, in my opinion, govern the decision of this case.
14. The question before us is whether the sales made out side Uttar Pradesh should be included in the turnover for the purpose of determining whether the dealer is liable to tax under the Act.
15. According to Shri K.N Singh, the learned Chief Standing Counsel appearing for the Commissioner of Sales Tax, the first proviso to Sec. 3(1) does not specifically provide against the exclusion of sales made outside Uttar Pradesh nor can such exclusion be spelt out from the definition of “turnover” in Sec. 2(i). He contends that the first proviso to Sec. 3(1) requires that the turnover of all the sales made by the dealer must be taken into consideration for determining whether the turnover is not less than the prescribed minimum which makes the dealer liable to tax. He urges that all the sales effected by the dealer must be taken into account when considering that proviso, and it is immaterial that some of the sales cannot be taxed.
16. It seems to me that no question arises here of applying the first proviso to Sec. 3(1). That is so because regard must be had to what is declared by Sec. 27. It is important to note that Sec. 27 is only a statutory expression of the corresponding provisions of Article 286 of the Constitution. It voices the prohibition on which Article 286 lays down. The constitutional prohibition is paramount and no legislation contravening or modifying that provision is competent. It is an important principle of statutory construction that the statute should be so construed, where that is possible, that it does not run counter to the provisions of the Constitution, because the presumption always is that the Legislature did not intend to disobey the Constitution. Where upon a fair reading of the statute that is not possible, the statute must fail as being outside the powers of the Legislature. We are relieved of the necessity of embarking upon this enquiry because the Legislature enacted Sec. 27. The non-obstante provision in Sec. 27 lifts the transactions mentioned in that section outside he scope of the Act. Those transactions lie beyond the reach of the envelope of power created by the Act. According to the plain language of Sec. 27, no matter what any provisions of the Act may say, no liability to tax can be visited on sales made outside Uttar Pradesh. Because of the non-obstante provision, Sec. 27 overrides all other provisions of the Act. Sec. 3, the charging section, is subject to Sec. 27. And, therefore, neither the first proviso to Sec. 3 nor the definition of “Sale” in Sec. 2(h) nor of “turnover” in Sec. 2(i) can be applied to include sales made outside Uttar Pradesh.
17. In this connection, it will be useful to refer to the observations of the Supreme Court in A.V Fernandez. In that case the Supreme Court was required to consider the impact of Sec. 26 of the Travancore-Cochin General Sales Tax Act on the other provisions of the Act and the rules made thereunder. Sec. 26 of that Act is substantially in the same terms as Sec. 27 of the U.P Sales Tax Act. The Supreme Court said:—
“In our opinion, Sec. 26 of the Act, in cases falling within the categories specified under Article 286 of the Constitution has the effect of setting at nought and of obliterating in regard thereto the provisions contained in the Act relating to the imposition of tax on the sale or purchase of such goods and in particular the provisions contained in the Charging section and the provisions contained in Rule 20(2) and other provisions which are incidental to the process of levying such tax. So far as sales falling within the categories specified in Article 286 of the Constitution and the corresponding Sec. 26 of the Act are concerned, they are, as it were, taken out of the purview of the Act and no effect is to be given to those provisions, which would otherwise have been applicable if Sec. 26 had not been added to the Act.”
18. The Court rejected the contention that it was permissible to include the prohibited transactions for the purpose of determining the assessable turnover. It observed:—
“If there is no liability to tax there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute can not at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatsoever to the same……….the sales or purchases are exempted from taxation altogether. The Legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax. If they are thus not liable to tax, no tax can be levied or imposed on them and they do not come within the purview of the Act at all. The very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sales tax can be levied or imposed.
If this distinction is borne in mind, it is clear that Sec. 26 of the Act enacts a provision with regard to non-liability of these transactions to tax and these transactions were therefore taken out of the purview of the Act.
We are, therefore, of opinion that the non-obstante provision contained in Sec. 26 of the Act has the effect of taking these transactions out of the purview of the Act with the result that the dealer is not required nor is he entitled to include them in the calculations of his turnover liable to tax thereunder.”
(Emphasis mine)
19. These observations, to my mind, completely support the conclusion that the sales made outside Uttar Pradesh by the assessee cannot be taken into account at all in the assessment proceedings against it. Those sales cannot be taken into consideration when applying the first proviso to Sec. 3(1) and that is so whether what is contemplated by that proviso is the gross turnover or net turnover.
20. At this stage, I may point out with respect, that having regard to the facts of this case the decision in Balbir Singh and Co. is not attracted at all. The controversy in Balbir Singh and Co. arose upon very different facts. There, the question was whether the sales made by a dealer as a commission agent could be included in its gross turnover in order to determine its liability to tax. It was not the contention in that case that a tax on the sales made by a dealer as a commission agent fell outside the competence of the State Legislature or that there was any provision in the Act itself which excluded such sales from the purview of the Act. Article 286(1) of the Constitution does not exclude such sales nor does Sec. 27 of the Act nor, so far as we know, does any other provision of the Act. I confess that so far as the point raised before us is concerned I see no conflict between anything said in A.V Fernandez and what was said by this Court in Balbir Singh and Co.
21. Shri K.N Singh also contended that the sales in question are not sales made outside Uttar Pradesh and he refers to clause (ii) of Explanation II of Sec. 2(h) of the Act. When there is no dispute that the goods were actually sold outside Uttar Pradesh within the meaning of Sec. 27 of the Act, this contention cannot survive in the view that I am taking that Sec. 27 completely excludes the operation of the other provisions of the Act in relation to such sales. Upon the aforesaid considerations, I am of opinion that the turnover of sales made outside Uttar Pradesh by the assessee cannot be included in the turnover of the dealer for the purposes of the first proviso to Sec. 3(1).
22. I answer the question accordingly.
23. The assessee is entitled to his costs which I assess at Rs. 200/-. Counsel's fee is assessed in the same figure.
24. M.H Beg, J.:— I agree entirely with the views expressed by my learned brother R.S Pathak, J. who was a party to the decision of a Division Bench of this Court in Commissioner of Sales Tax U.P v. Balbir Singh and Co. where, having regard to the facts of that case, it was held on a reference under Sec. 11(1) of the U.P Sales ‘Tax Act:—
“It would be clear from the above resume of the law that liability to pay tax, or in short, taxability is one matter and the quantum of tax to be assessed or how it is to be assessed, or, if it is to be assessed by applying a certain rate to a certain amount, or how that amount is to be determined is quite a different matter. It is possible under the law to hold that a dealer is liable to tax, because a certain figure exceeds a certain amount and to assess the amount of tax by applying a certain rate to a smaller figure. Whether a dealer is taxable or not depends only upon the turnover of the previous year; if it exceeds Rs. 12,000 he becomes liable. But when he is found to be liable different figures may enter into the determination of the amount of the tax to be assessed………………..We are not concerned with matters of policy; if the legislature made a distinction between the basis for determining whether a dealer is liable to pay tax or not and the basis on which the amount of the tax to be paid by him, if found liable, is to be determined, we are not only not to enquire whether the Legislature had the power to make this distinction but also not to enquire whether it acted wisely or even reasonably in doing so. The sole question before us is whether it has done so and I have no doubt that it must be answered in the affirmative. When it did not intend to include a certain matter in a turnover, even though according to the definition it would be included in it, it has made an express provision.”
25. It was also pointed out there that “turnover” may be determined differently for different purposes. But, the last sentence, in the passage quoted above, shows that any observations made there were inapplicable where the legislature had made an express provision excluding certain sales from the purview of “turnover” even though, if express provision was not there, those sale could be covered by the definition of “turnover”. The definition of “Sale” in Sec. 2(h) read with Explanation II was unhappy. But, the legislature had made express provision by the second proviso to Sec. 2(i) of the Act, which was there until deleted by the U.P Act XIX of 1958, excluding sales made outside U.P from the purview of “turnover” altogether. Sec. 27 was also introduced in 1951 to make it dear that the provisions of the Act did not contravene Article 286 of the Constitution. The Legislature, after that, clarified the position further by deleting Explanation II to Sec. 2(h) itself, and, as a consequence, the second proviso to Sec. 2(i) and Sec. 27 of the Act which became unnecessary, were also deleted. But, these provisions were there to be applied to the assessment year 1956-1957 to which the case before us relates.
26. Even as the provisions stood at the relevant time the intention of the legislature clearly was to exempt turnover below Rs. 12,000/- from Sales Tax altogether. As sales tax could only be levied on “turnover” under Sec. 3(1) of the Act, it is obvious that the exemption conferred by the proviso to Sec. 3(1) could not be circumvented by taking into account sales expressly excluded from the definition of “turnover”. The position, therefore, seems very cigar from a bare perusal of the relevant provisions. The result is that sales made outside Uttar Pradesh had to be ignored altogether in assessment proceedings under the Act.
27. Gulati, J.:— I agree with the answer proposed by my learned brother Pathak, J.
28. However, I wish to add that Rule 8 of the U.P Sales Tax Rules is another provision which is relevant for the decision of this case and upon which reliance had been placed by the learned Chief Standing Counsel at the time of arguments. Rule 8 runs as follows:—
“Rule 8. LIABILITY TO PAY TAX.
A dealer's liability to pay tax under the Act shall be determined on the basis of his gross turnover;
Provided that the turnover in respect of the transactions of forward contracts, in which goods are not actually delivered, shall not be included in the gross turnover.”
29. It was contended that Rule 8 should be read along with the proviso to Sec. 3 which provides that a dealer shall not be liable to pay tax if his turnover of the assessment year would be less than Rs. 12,000/- or such larger amount as may be notified by the State Government. The minimum turnover mentioned in the proviso meant the gross turnover and gross turnover of a dealer, according to the learned counsel, meant the aggregate amount of all sales effected by a dealer regardless of the fact that a part of such turnover comprised of ex-U.P sales. Ex-U.P sales or inter-state-sales could not be subjected to tax because of the provisions of Article 286, but such sales could certainly be taken into account in order to determine a dealer's liability to pay tax in respect of his other sales which were liable to tax under the Act. The argument proceeded that so long as such sales were not subjected to tax, the mandate contained in Article 286 could not be said to have been violated merely because such sales were included in the gross turnover of a dealer in order to determine as to whether or not he was liable to pay tax in respect of his other sales. The State was not bound to provide that a dealer shall not be liable to tax if his turnover did not exceed a particular limit, but if it did provide a minimum limit, it was open to the legislature to further provide that the minimum turnover so provided would include such sales as were not liable to tax.
30. The argument is attractive indeed, but cannot be accepted in view of the clear pronouncement of the Supreme Court in the case of A.V Fernandez v. State of Kerala. It was ruled in that case:—
“The very fact of their non-liability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sale tax can be levied or imposed.”
31. If Sec. 27 of the Act operates upon the charging Sec. 3, it would operate on Rule 8 as well. We must, therefore, interpret “gross” turnover for purposes of Rule 8 to mean the aggregate turnover of such sale as are taxable or would be taxable but for an exemption provided in the Act.
32. By The Court—The turnover of sales outside Uttar Pradesh by the assessee cannot be included in the turnover of the dealer for the purposes of the first proviso to Sec. 3(1) of the U.P Sales Tax Act. The question referred to this Court is answered accordingly. The assessee is entitled to his costs which we assess at Rs. 200/-. Counsel's fee is assessed at the same figure.
Question answered.