The Deputy Commissioner Of Agricultural Income Tax And Sales Tax v. N.S. Moos

1. Although the amount of tax involved in this case is negligible, the questions of law raised are of frequent occurrence and importance.

2. The questions of law raised for decision by this court are:

(A) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the assessee is entitled to the exemption for the sale of medicines effected inter-State for the year 1967-68 ?

(B) Is the interpretation placed by the Appellate Tribunal in G. O. Ms. No. 388/65/Kev. dated 22nd April, 1965, read along with Section 8(2A) of the Central Sales Tax Act, 1956, valid in law ? and (C) Is not the exemption granted by G. O. Ms. No. 388/65/Rev. dated 22nd April, 1965, subject to specified circumstances and/or under specific conditions and so 'not exempt from tax generally' within the meaning of Section 8(2A) of the Central Sales Tax Act, 1956, and the explanation thereto ?

3. The assessee is an Ayurvedic Physician. He runs his business called "Vayaskara Medicals" at Kottayam. His accounts disclosed inter-State sales evidenced by the V. P. Register amounting to Rs. 746.85. No declaration in C form was filed for these sales. So the assessing authority taxed this turnover at 10 per cent. On appeal by the assessee, this order was confirmed by the Additional Appellate Assistant Commissioner of Sales Tax, Kottayam. In second appeal, the Appellate Tribunal held that the assessee is entitled to exemption on the sales outside the State. The Tribunal decided the case interpreting Sub-section (2A) of Section 8 of the Central Sales Tax Act, 1956, for short the Act, and the Notification G. 0. MS. No. 388/65/Rev. dated 22nd April, 1965, in favour of the assessee.

4. Before dealing with the question of law raised, it will be useful to read the relevant section and the notification concerned. Sub-section (2A) of Section 8 of the Act reads as follows:

Notwithstanding anything contained in Sub-section (1) or Sub-section (2), if under the sales tax law of the appropriate State, the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than three per cent (whether called a tax or fee or by any other name), the tax payable under this Act on his turnover in so far as the turnover or any part thereof relates to the sale of such goods shall be nil or, as the case may be, shall be calculated at the lower rate.

Explanation.-For the purposes of this sub-section a sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law it is exempt only in specified circumstances or under specified conditions or in relation to which the tax is levied at specified stages or otherwise than with reference to the turnover of the goods.

The notification referred to in the order of the Tribunal reads thus :

S.R.O. No. 173/65.-In exercise of the powers conferred by Sub-section (1) of Section 10 of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963), the Government of Kerala having considered it necessary in the public interest so to do, hereby make an exemption in respect of the tax payable under the said Act on the sale of medicines dispensed by a medical practitioner owning a dispensary and dispensing medicines to his patients from his own dispensary.

5. This sub-section and the explanation were introduced with effect from 1st October, 1958, by Amending Act 28 of 1969 (sic). The sub-section extracted above uses the expression "exempt from tax generally". The explanation provides that "a sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law it is exempt only in specified circumstances or under specified conditions". The decision in this case would largely depend upon a correct understanding of these expressions used in the sub-section and in the explanation thereto. It will be seen from the notification extracted above that it exempts "sale of medicines dispensed by a medical practitioner owning a dispensary and dispensing medicines to his patients from his own dispensary", in public interest. Even here the exemption does not extend to patent medicines sold by medical practitioners to their patients. It is therefore clear that exemption here is not general. It is also clear that the exemption is under special circumstances and under specified conditions. We have therefore no hesitation in holding that the Appellate Tribunal went wrong in extending the benefit of the exemption to the assessee.

6. However, it will be useful to refer to a few decisions rendered by various High Courts on this point in reinforcement of the view we have taken. We shall refer to the decisions in the chronological order.

7. In M.A. Abbas & Co. v. State of Madras [1962] 13 S.T.C. 433, the Madras High Court was considering the exemption under Section 8(1) and (2) of the Central Sales Tax Act before introduction of Section 8(2A). The assessee there was a dealer in hides and skins. The contention on behalf of the asses-see was that these goods were taxable at a single point and therefore the rate of sales tax on inter-State sales should be at the "nil" rate. In this case the Madras High Court was considering the scope of the section before the introduction of Section 8(2A) of the Central Act and the explanation thereto. The Madras High Court considered the expression "exempt from tax generally" and "not in specified cases or in specified circumstances..." obtaining in Section 8(1) of the Central Act and observed that on a correct interpretation of this expression, the goods should be totally exempt from tax to get exemption from the levy of Central sales tax. Where the exemption from tax is conditioned, such as, that the turnover of a dealer under the local sales tax law is below the minimum prescribed, or that the tax will attach to a transaction only in certain circumstances, there is no exemption from tax "generally".

8. In Mysore Silk House v. State of Mysore [1962] 13 S.T.C. 597, the Mysore High Court was considering the case of a dealer in power-loom cloths. He claimed exemption under the Central Act on the ground that the goods were not subject to any tax, under the State Act, since his were the second sales. The Mysore High Court upheld the plea under Section 8(2) of the Act and held that exemption should be accorded since the local law granted exemption in some respect. Hegde, J., speaking for the Bench repelled the contentions of the department that the exemption should be general. With great respect we cannot agree with the law laid down in this case. The court appears to have overlooked the expression "under specified circumstances and specified conditions" occurring in Section 8(1) even before the introduction of Section 8(2A) and the explanation. A subsequent decision of the Mysore High Court, about which we shall refer hereafter, has dissented from this view.

9. A kindred question came up for decision before a Full Bench of this Court to which one of us was a party. Two questions were considered in that case : (1) Whether "green ginger" would be vegetables, and (2) what is the scope and ambit of Section 8(2) and 8(2A) of the Central Sales Tax Act. We are here concerned with the second question. One of us who spoke for the Bench construed Section 8(2) and 8(2A) and the explanation thereto and held that unless there is a general exemption from taxation under the State Act the exemption under the Central Act is not available. We extract below the relevant passage :

But for the period from 1st October, 1958, in view of the wording of the substituted Sub-section (2) of Section 8 and the wording of Sub-section (2A) and the explanation to that sub-section, we have come to the conclusion that tax can be imposed under the Central Sales Tax Act even when the tax imposed by the State Act is only a purchase tax. There is no general exemption from taxation under the State Act and even if a licence was obtained under the State Act which gives the benefit of exemption to the assessee, the same will not be a general exemption as contemplated in Sub-section (2A) of Section 8 and the explanation to that sub-section. The tax imposed on the turnover of "green ginger" under the Central Sales Tax Act (74 of 1956) for the period 1st October, 1958, to 31st March, 1959, is therefore justified. (see para 18 of 13 S. T. C. 838 Krishna Iyer v. State Of Kerala) Thus the imposition of tax under the Central Sales Tax Act was held to be justified by this court.

10. In Commissioner of Sales Tax, Madhya Pradesh v. Kapoor Dori Niwar and Co. [1968] 22 S.T.C. 152, the Madhya Pradesh High Court considered the same question. There, the sales of niwar by registered dealers were exempt from sales tax for a particular period under the local law. The question considered there was whether this exemption would be available to the dealer under Section 8(2A) of the Central Act. The court held that during the period of exemption, there was a general exemption within the meaning of Section 8(2A) and therefore the assessee was entitled to the benefit of the Central Act. It was contended on behalf of the department that the notification in question in that case was confined only to sales by a registered dealer and was only for a stated period and therefore the exemption was only in specified circumstances or under specified conditions and therefore the commodity in question could not be said to be generally exempt under the local law. The court repelled this contention and held that the exemption for registered dealers was general, universal and without any restriction or condition. It was also held that the expression "exempt" only in specified circumstances or under specified conditions occurring in the explanation to Section 8(2A) meant only such circumstances and/or conditions, the non-existence or non-performance of which precludes the grant of exemption and therefore the court extended the benefit of exemption to the dealer in question. With great respect we are unable to agree with the principle laid down in this decision.

11. In Basappa and Bros. v. Deputy Commissioner of Commercial Taxes [1971] 27 S.T.C. 241, the Mysore High Court had to consider the scope of Section 8(2A) of the Central Act. The dealer in that case buys cotton seeds inside the State and sells them in the course of inter-State trade or commerce. The petitioner's turnover on inter-State sales was assessed under the Central Sales Tax Act. The question that came up for consideration was whether the exemption from tax under the local law to the cotton seeds in question was available to the levy under the Central Act also. Under the Mysore Sales Tax Act, cotton seeds are taxed at the sale point or at the earliest of the sales liable to tax under the said Act. The assessee contended that since the purchase is exempt from tax generally, he is entitled to protection under Section 8(2A). The court held as follows :

In our opinion, the object of Sub-section (2A) of Section 8 is to exempt transactions of sale of any goods if they are wholly exempt from tax under the sales tax law of the appropriate State and to make the said sales chargeable at lower rates, where under the sales tax law of the State, the sale transactions are chargeable to tax at lower rates. Where goods are taxable at the point of purchase under the sales tax law of the appropriate State the sale is not exempt from tax generally or where the goods are taxable at the point of sale the transaction of purchase is not exempt from tax generally. The plain meaning of the said sub-section is that if under the sales tax law of the appropriate State no tax is levied either at the point of sale or at the point of purchase at any stage, the tax under the Act shall be nil.

The earlier Mysore case reported in Mysore Silk House v. State of Mysore [1962] 13 S.T.C. 597, was referred to in this case and was dissented from by the same court.

12. In Hanuman Prosad Singhania v. Commercial Tax Officer [1971] 27 S.T.C. 289, this question came up for consideration before the Calcutta High Court. There the petitioner, who was carrying on business as a commission agent, invoked the benefit of Section 8(2A) of the Central Act under these circumstances. The petitioner was a registered dealer under the State Act as well as under the Central Act. By a notification in the official Gazette, it was specified that commodities mentioned in the notification should be exempted from taxation. The contention was that since the sale of the commodity took place within the State of West Bengal, the petitioner will not be liable to tax under the State Act, for the sales within the State were sales of the first degree. He therefore sought protection under Section 8(2A). It was held therein that under the State Act betel-nut is a commodity liable to taxation but was exempt from taxation only for sales of first degree. The Calcutta High Court in that case held :

The position is also made clear by the explanation to Sub-section (2A) under which sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State, if it is exempt only in specified circumstances or in relation to which the tax is levied at specified stages. In the instant case, as the tax is levied at the specified stage, namely, at the stage of first sale, under the State Act of 1954, the commodity cannot be said to be exempt from tax generally under that Act. The goods which are specified in Schedule I under the State Act of 1941 are goods which are exempt from tax generally within the meaning of Sub-section (2A) of Section 8 of the Central Act.

13. In E.M.S. Haji Shaik Abdul Khader & Co. v. Union of India I.L.R. (1972) 1 Ker. 522, a Division Bench of this Court, to which one of us was a party, while considering the constitutional validity of some of the provisions of the Central Sales Tax (Amendment) Act, 1969, had occasion to consider the aspect with which we are now concerned. We quote the following passage from that judgment :

...The words that would fall for interpretation now are those in Section 8(2A), 'the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally'. There can be no ambiguity now in relation to what is meant by 'exempt from tax generally' in view of the explanation that has been introduced to Sub-section (2A) of Section 8 which we have already read. In the cases before us, the exemption granted under the State Act is only under specified conditions or under specified circumstances. Therefore it is not possible to say that these transactions were exempt from tax generally under the sales tax law of the State. So Section 8 (2A) of the Central Sales Tax Act has no application. We also think that at least by necessary implication, this point has been negatived by the Supreme Court in State of Kerala v. P.P. Joseph and Co. and Joseph Elias [1970] 25 S.T.C. 483 (S.C.), the facts of which would clearly show that the turnover of the goods concerned could not have been taxed under the Central Sales Tax Act if the contention of the counsel for the assessee is right.

In that case, exemption under Section 8(2A) of the Central Sales Tax Act was claimed for commodities which were taxable under the State law only at the last purchase point inside the State. The court held that it was not a general exemption coming within Section 8(2A).

14. In Commissioner of Sales Tax, M. P. v. Bhagwandas Rikhiram, Rajnandgaon [1972] 29 S.T.C. 541, the Madhya Pradesh High Court considered the same question. There, the sales of bardana, which were exempt from the local sales tax law, being second sales, were held to be liable to sales tax under the Central Act since the exemption under the State Act was not general. The court observed as follows :

The explanation makes it clear that unless there is exemption from tax generally under the State law the turnover in the course of inter-State trade and commerce will be liable to tax and that would be so notwithstanding the fact that under the State law, such turnover may be exempt from tax subject to certain specified conditions or in specified circumstances.

15. In State v. Indian Aluminium Cable Ltd. [1974] 33 S.T.C. 152, the Punjab and Haryana High Court considered the identical question. There the assessee sold electricity poles and cables to State electricity undertakings, when tax under the Central Act was levied. The assessee objected to it. The court referred to various decisions, including the Full Bench decision of this Court in Krishna Iyer v. State Of Kerala [1962] 13 S.T.C. 838, and held that the expression "exempt only in specified circumstances or under specified conditions" occurring in the explanation to Sub-section (2A) should be strictly construed. Unless there is a general exemption, the protection under Section 8(2A) is not applicable. The court held that the ambit and scope of Section 8(2A) of the Central Act has to be properly appreciated and the explanation to it whittles down the main provision exempting goods from inter-State sales. The explanation puts in a rider on this and takes away the exemption where it is not general and has been granted in specified circumstances or under specified conditions.

16. In Govinda Raja Rice Mill v. Union of India [1974] 34 S.T.C. 172, the Andhra Pradesh High Court also had to consider a similar contention. The interpretation to the relevant section of the Central Act as has been given by the Full Bench of this Court has been referred to with approval in that case.

17. In Hindustan Safety Glass Works (P.) Ltd. v. State of Uttar Pradesh [1974] 34 S.T.C. 209, the Allahabad High Court appears to have taken a different view. In that case, the petitioner-company manufactured toughened glasses and mirrors in its factories at Allahabad and Calcutta. Under a notification issued by the State Government in exercise of the powers under Section 3-A of the Uttar Pradesh Sales Tax Act, 1948, sales of mirrors and safety glasses were liable to sales tax either at the point of sale by the importer of such goods or at the point of sale by the manufacturer thereof. Subsequently by another notification the State Government under Section 4-A of the" Act exempted toughened glasses and mirrors manufactured by the petitioners at Allahabad from payment of sales tax for a period of three years. On this basis the assessee claimed exemption from Central sales tax under Section 8(2A) of the Central Act. The Allahabad High Court upheld the plea of the assessee and held that he was entitled to the exemption under Section 8(2A) of the Central Act. The contention of the department that in respect of mirrors and toughened glasses manufactured by the assessee in Allahabad, the exemption granted was only conditional was not accepted and the court held that, in its opinion, there was no force in the submission made by the State. The court further observed:

So far as this class of goods is concerned, it has not been laid down anywhere that the sale of goods would be liable to be taxed on the fulfilment or non-fulfilment of any condition.

The exemption granted for a period of three years, according to the learned Judge, was not an exemption under specified conditions or under specified circumstances. We are constrained to observe with respect that we find it difficult to agree with the principle of law enunciated in this decision, since it does not take note of the phraseology used in the relevant section and the explanation in the Central Act.

18. From the discussion of the various authorities above, it is clear that the assessee will be entitled to exemption under Section 8(2A) of the Central Act only when the goods are exempted generally and not under specified circumstances or under specified conditions. In the case on hand, it cannot be disputed that the exemption is not general, but is only for a limited purpose and under specified circumstances. The case comes, consequently, within the explanation to Section 8 (2A) of the Central Act. Therefore, the assessee is not entitled to exemption under the Central Act.

19. We therefore hold that the Tribunal was not correct in extending the exemption under Section 8(2A) of the Central Act to the assessee in question. The T. R. C. is accordingly allowed.

20. The opposite party was not before us. Sri T.L. Viswanatha Iyer assisted as amicus curiae at our request and we are thankful to him. No costs.