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Kamal Kumar Agarwal ... v. M/S. Kesarichand Pus...
Judgment Summary — R.N. Misra, J. (Division Bench; concurring: K.B. Panda, J. and P.K. Mohanti, J.)
Factual and Procedural Background
The petitioners in these writ applications were registered dealers under both the Orissa Sales Tax Act, 1947 and the Central Sales Tax Act, 1956. The State Government issued a notification dated 8 December 1966 under section 8(5) of the Central Sales Tax Act, 1956, directing that in respect of declared goods sold in the course of inter-State trade or commerce no tax under the Central Act shall be payable by any dealer having his place of business in the State where tax has been levied and collected under section 5(1) of the Orissa Sales Tax Act, subject to specified conditions (including that the dealer bears the burden of proof and shall not claim refund under clause (b) of section 15 of the Central Act).
A Division Bench of this Court in Orissa Hides Trading Co. v. Sales Tax Officer had earlier held that the notification was unenforceable because it ran counter to section 15(b) of the Central Act. That reasoning was adopted in two other Division Bench decisions (K. Narayana Kumandan Sons & Co. and Subudhi Krishna Murty & Sons). Petitions by dealers (notably involving jute, where purchase tax under section 3-B of the State Act had been paid) challenging assessments under the Central Act relying on the 1966 notification were overruled by the assessing officers relying on those earlier decisions.
The matter was placed before a Division Bench; petitioners contended that the earlier view was incorrect. The applications were referred to a larger Bench to examine the correctness of the prior Division Bench decisions. The present judgment addresses those consolidated applications.
Legal Issues Presented
- Whether the State Government's notification of 8 December 1966, issued under section 8(5) of the Central Sales Tax Act, 1956, which exempts from Central sales tax declared goods already taxed under the Orissa Sales Tax Act (subject to conditions), is intra vires and enforceable.
- Whether the impugned notification is inconsistent or inoperative because it purportedly runs counter to section 15(b) of the Central Sales Tax Act (the statute which provides for refund of State tax where the same goods are taxed under the Central Act).
- Whether the earlier Division Bench decisions (Orissa Hides Trading Co. and the two subsequent cases that followed its ratio) were correctly decided, or should be overruled.
Arguments of the Parties
Petitioners' Arguments
- Mr. Agarwalla (for the petitioners) argued that section 6 of the Central Act is the charging provision but is expressly made subject to other provisions of the Act; therefore a notification under section 8(5) can validly exempt transactions from assessment under the Central Act without violating section 6.
- He submitted that section 8 (and specifically section 8(5) as it stood when the notification was issued) empowers the State Government to direct by notification that no tax under the Central Act shall be payable for specified goods or classes of goods, subject to conditions, thereby avoiding an assessment under the Central Act where the goods have already been taxed under the State Act.
- He further contended that section 15(b) and the notification operate in different fields: section 15(b) provides for refund where the same goods have been assessed both under the State Act and the Central Act, whereas the notification seeks to prevent a second assessment under the Central Act in the first place. Consequently, the notification could not be invalidated by reference to section 15(b).
Respondent / Taxing Authority Position (as reflected in the opinion)
- The assessing officer had relied on the earlier Division Bench decisions (including Orissa Hides Trading Co.) to overrule the petitioners' reliance on the notification and proceeded to assess sales under the Central Act.
- Those prior decisions treated the notification as running counter to section 15(b) of the Central Act and therefore not enforceable — that approach effectively formed the basis for the Taxing Department's contention when assessing the petitioners.
- The opinion notes that the learned Standing Counsel for the Taxing Department referred the Court to certain decisions, but the text does not elaborate the detailed content of those submissions in this judgment.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Orissa Hides Trading Co. v. Sales Tax Officer, Sambalpur-III Circle (1975, 35 S.T.C. 232) | Held that the 1966 notification was misconceived and unenforceable because it ran counter to section 15(b) of the Central Sales Tax Act; relied on Refeeq Ahmed & Co. | The Court analysed and concluded that the earlier Division Bench in Orissa Hides erred in failing to distinguish the notification's field from section 15(b), and therefore overruled that decision to the extent it held the notification invalid. |
| Refeeq Ahmed & Co. v. State of Andhra Pradesh (1969, 24 S.T.C. 430) | Advanced the view that a statutory notification under section 8(5) cannot be permitted to run counter to section 15(b) of the Central Act. | Orissa Hides accepted this view; the present Court noted that earlier decisions relied on this reasoning but found that none of those decisions directly dealt with the precise situation before the Court, and therefore did not consider the reference necessary to resolve the instant case. |
| Khader & Co. v. State of Madras (1966, 17 S.T.C. 396) | Illustrated the mandate in section 15(b) of the Central Act that the tax under the State Act is to be refunded once the same goods are sold in inter-State trade and assessed under the Central Act. | Cited in the course of earlier reasoning (as recorded in Orissa Hides); the present Court distinguished the refund mechanism under section 15(b) from the field of exemption contemplated by the 1966 notification. |
| K. Narayana Kumandan Sons & Co. v. Sales Tax Officer, Koraput-II Circle (1975, 36 S.T.C. 374) | Adopted the ratio of Orissa Hides and held the notification to be invalid as running counter to section 15(b). | The present Court overruled this decision insofar as it held the notification to be bad. |
| Subudhi Krishna Murty & Sons v. Sales Tax Officer, Koraput-II Circle (1975, 36 S.T.C. 419) | Also followed the Orissa Hides reasoning and rejected reliance on the notification. | The present Court overruled this decision to the extent it held the notification invalid. |
| The State of Mysore v. Yaddalam Lakshminarasimhiah Setty & Sons (1965, 16 S.T.C. 231) | Affirmed that section 6 is the charging section but is subject to other provisions of the Act; section 8 may, in some cases, effectively result in a nil rate of tax despite section 6. | The Court relied on this Supreme Court principle to support the view that a notification under section 8(5) can validly exempt transactions from liability under section 6 without violating the charging provision. |
Court's Reasoning and Analysis
The Court proceeded step-by-step in its analysis, constrained to the submissions and materials recorded in the opinion:
- The Court accepted petitioners' premise that section 6 is a charging provision but that it is expressly made subject to other provisions of the Central Act. Thus, a provision elsewhere in the Act (such as section 8(5)) that takes away liability must be given effect to, rather than treated as inconsistent with section 6.
- The Court examined the text of section 8(5) (both as it stood when the 1966 notification was issued and as later amended) and observed that it permits the State Government, by notification and subject to conditions, to direct that no tax under the Central Act shall be payable in respect of specified goods or classes of goods sold in the course of inter-State trade or commerce.
- The Court analyzed the nature and object of the notification: it seeks to prevent a second taxation under the Central Act where the goods had already been assessed and taxed under the State Act. The notification therefore operates to avoid assessment under the Central Act rather than to provide a post-assessment refund.
- The Court distinguished the role of section 15(b) (which mandates refund of the State tax where the same goods have been taxed under the Central Act) from the effect of the notification. Section 15(b) addresses the situation after double assessment; the notification aims to obviate a second assessment in the first place. Because these are different situations, the Court held there was no necessary conflict between the notification and the statutory refund provision.
- Reliance on Supreme Court authority (State of Mysore) supported the proposition that the charging provision is not absolute and that section 8 may result in a nil rate for specified transactions. Thus, section 8(5) might validly be exercised to exempt assessments without contravening section 6.
- The Court concluded that the earlier line of Division Bench authority erred by failing to maintain the distinction between prevention of an assessment (by notification under section 8(5)) and the refund regime under section 15(b). Consequently, those decisions were not correct on the point at issue.
Holding and Implications
HOLDING: The Court held that the impugned notification dated 8 December 1966, issued under section 8(5) of the Central Sales Tax Act, 1956, is intra vires and enforceable. The Court overruled the earlier Division Bench decisions (Orissa Hides Trading Co.; K. Narayana Kumandan Sons & Co.; Subudhi Krishna Murty & Sons) insofar as they held the notification to be invalid.
Direct Consequences for the Parties:
- The impugned assessments made by the assessing officers under the Central Sales Tax Act were quashed.
- The assessing officer is entitled, if he considers it necessary, to call upon each petitioner to satisfy him that the conditions specified in the 1966 notification are met.
- Each writ application was allowed and the petitioners were directed to bear their own costs.
Broader implications reflected in the judgment: the Court expressly overruled prior Division Bench authority on the point, thereby altering the controlling position of this Court regarding the validity and enforceability of such notifications under section 8(5). The opinion does not purport to catalogue further downstream effects beyond these rulings and the quashing of the impugned assessments.
Disposition: Application allowed.
This summary is strictly confined to and derived from the content of the provided opinion. No additional facts or inferences have been introduced.
R.N Misra, J.:— In each of these applications under Article 226 of the Constitution, petitioner is a registered dealer both under the Orissa Sales Tax Act of 1947 as also the Central Sales Tax Act of 1956. The State Governuent in purported exercise of powers under section 8(5) of the Central Sales Tax Act made the following notification:—
Finance Department
Notification
The 8th December 1966
No. 43637-C IA-200/66-F. In exercise of the power conferred by sub-section (5) of section 8 of the Central Sales Tax Act, 1956 (74 of 1956), the State Government having been satisfied that it is necessary to do so in the public interest hereby direct that in respect of all declared goods sold in the course of lnter-State trade or commerce, no tax under the said Act shall be payable by any dealer, having his place of business in the State in respect of the sale by him of such goods where tax has been levied and collected in respect of the sale or purchase of such declared goods under section 5(1) of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947) subject to the following conditions, namely:—
(i) the burden of proving that the tax under section 5(1) of the Orissa Sales Tax Act, 1947 (Orissa Act XIV of 1947) has been levied and collected in respect of any such declared goods shall lie on the dealer; and
(ii) the dealer shall not claim refund under clause (b) of section 15 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), read with section 14-B of the Orissa Sales Tax Act, of the tax levied and collected under section 5(1) of the Orissa Sales Tax Act, 1947 from the dealer or such tax has not been refunded to him.”
2. A Bench of this Court in the case of Orissa Hides Trading Go. v. Sales Tax Officer, Sambalpur III Circle . 1975 35 S.T.C 232., decided:—
“The net effect of the notification, however, is that in respect of a dealer's transactions in the course of inter-State trade or commerce there would be no tax under the Central Act provided the two contingencies indicated in the notification are satisfied. The fact which requires proof is that tax has already been imposed and collected under section 5(1) of the State Act and the same has not been refunded to him or claim in that behalf is not to be made under the provisions of section 15(b) of the Central Act. This fact has to be established by the assessee. The mandate in section 15(b) of the Central Act is that the tax under the State Act is to be refunded once, the same goods are sold in the course of inter-State trade or commerce and are assessed to tax under the Central Act: Khader & Go. v. State, of Madras. — (1966) 17 S.T.C 396. Judged from that angle, the notification embodies a converse scheme, i.e, where the State tax is collected and the dealer shall not claim refund of that tax under section 15(b) of (he Central Act, the Central Sales tax shall not be payable.
A statutory notification (in exercise of power under section 8(5) of the Central Act) cannot be permitted to run counter to section 15(b) of the Central Act. That view has been taken in Refeeq Ahmed & Go. v. State of Andhra Pradesh, (1969) 24 S.T.C 430, and we respectfully agree with the same. The tax to be refunded under section 15(b) of the Central Act is the tax levied under the State Act. The notification, in our view, is a misconceived one, though it was intended to avoid the hardship of the claim of refund. We hold that it is not enforceable.”
3. The ratio in the Orissa Hides Trading Co.'s case, was adopted in two other cases of this Court being K. Narayana Kwmandan Sons & Go. v. Sales Tax Officer, Korapur II Gircle . 1975 36 S.T.C 374. and Subudhi Krishna Murty & Sons v. Sales Tax Officer, Koraput II Circle . 1975 36 S.T.C 419.. The petitioners in these three cases are dealers in jute which is admittedly a declared goods under the provisions of the Central Act. Under the State Act, jute is liable to purchase tax under section 3-B. Purchase tax had been paid in respect of the transactions in jute under the State Act. Petitioner in each of these cases, therefore, claimed exemption from central sales-tax in terms of the notification of 1966, referred to above. The Taxing Officer overruled the stand of the petitioner relying on the decisions of this Court and assessed the sale under the Central Act. Petitioner in each of the cases assails the assessment relying upon the notification in question.
4. When these applications were placed for heating before a Division Bench, counsel for the petitioners contended that the view taken by this Court in Orissa Hides Trading Co.'s case, is incorrect and the notification of 1966 is not open to attack on the ground indicated by this Court. These applications were, therefore, directed to be placed before a larger Bench for examining the correctness of the earlier Division Bench decisions.
5. Mr. Agarwalla for the petitioners has contended that section 6 of the Central Act is the charging provision and it has been made subject to other provisions of the Act. Section 8 makes provision for rates of tax on sales in course of inter-State trade or commerce. As already pointed out, the notification was made in 1966. By then, section 8(5) contained the following provision:—
“Notwithstanding anything contained in this section the State Government may, if it is satisfied that it is necessary so to do in the public interest, by notification, in the Official Gazettee, direct that in respect of such goods or classes of goods as may be mentioned in the notification and subject to such condition as it may think fit to impose, no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sale by him from any such place of business of any such goods in the course of inter State trade or commerce or that the tax on such sale shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification.”
6. Sub-section (5) has been amended by Central Act 61 of 1972 and as far as relevant now provides:—
“Notwithstanding anything contained in this section, the State Government may, if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazettee, and subject to such conditions as may be specified therein, direct—
(a)…………
(b) that in respect of all sales of goods or sales of such classes of goods as may be specified in the notification, which are made, in the course of inter-State trade or commerce, by any dealer having his place of business in the State or by any class of such dealers as may be specified in the notification, to any person or to such class of persons as may be specified in the notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification.”
7. Counsel contends that when a notification in exercise of section 8(5) of the Central Act is made, it could avoid an assessment under the Central Act. There is no dispute that sale of declared goods would be exigible to one set of tax whether it be under the State Act or under the Central Act. According to Mr. Agarwalla, section 15(b) of the Central Act envisages the statutory mandate that where two sets of tax have been levied in respect of the same goods once under the State Act and over again under the Central Act, the tax under the State Act becomes refundable. The notification operates in a different field, namely where there has been an assessment under the State Act, a second set of tax under the Central Act is not to be levied. The notification, therefore, could not be challenged by referring to or relying upon section 15(b) of the Central Act.
8. The Supreme Court pointed out in the case of The State of Mysore v. Yaddalam Lakshminarasimhiah Setty and Sons . 1965 16 S.T.C 231..
“section 6 of the Central Act is the charging section. Subject to the other provisions contained in the Act, every dealer is liable to pay tax under the Act on all sales effected by him. It will be noticed that the liability is not absolute but subject to the other provisions of the Act. If the effect of another provision is to take away the liability, effect will have to be given to it. Section 8 prescribes the rates of tax to be levied. It is common ground that section 8(1) does not apply to the facts of the case, but the proviso is important as it indicates that in some cases falling within the proviso the rate may be nil. In other words, notwithstanding section 6, the dealer may not be liable to pay any tax if he comes within the proviso to section 8(1) It follows that the scheme of the Act is not that every transaction in inter-State trade must bear some tax.”
9. What has been said above by the Supreme Court clearly supports the submission now made. If section 8(5) would authorise the State Government to notify exempting an assessment under the Central Act, the provision of section 6 would not be violated, because section 6 has been made subject to section 8(5) of the Act. Sub-section (5) clearly provides that it would be open to Government to notify upon satisfaction that it was necessary in the public interest that in respect of all sales of goods or sales of such classes of goods as may be specified in the notification, no tax would be payable. Under the Government notification, once identity of the goods is established and tax under the State Act has been levied, assessment under the Central Act is not to be made notwithstanding the fact that under section 6, the transaction incurred liability under the Central Act to be taxed. In view of the conceded position, and in our opinion rightly, that under the scheme only one set of tax is exigible in respect of declared goods, where the goods had already been taxed under the State Act, no useful purpose would indeed be served in making an assessment under the Central Act in respect of such goods when it enters the stream of inter-State trade or commerce. Completing assessment, collecting tax and allowing the refund thereof would be futile exercise on the part of the Administration and would indeed involve undue hardship for the dealer. That is why on being satisfied that it was in the public interest to exempt the same goods being taxed over again under the Central Act, the impugned notification of 1966 had been made.
10. As we have already pointed out, the impugned notification intends to cover a field different from the one intended to be coveted by section 15(b) of the Central Act. The notification intends to avoid assessment under the Central Act while section 15(b) deals with a situation where the same goods has been assessed twice-once under the State Act and over again under the Central Act. It is true that section 15(b) stipulates refund of the tax under the State Act while the notification exempts assessment under the Central Act subject to satisfaction of the prescribed conditions. Since different situations are intended to be dealt with by the notification and the statutory provision, there could be no scope for holding that the scheme in the notification runs counter to the statutory provision. This Court certainly fell into an error in not maintaining this distinction when relying upon the statutory provision in section 15(b) of the Central Act, it came to hold that the notification envisaged a process counter to the statutory mandate and was, therefore, not enforceable.
11. Mr. Agarwalla for the petitioners and learned Standing Counsel for the Taxing Department referred us to certain decisions. On the analysis indicated above, we are inclined to take the view that reference to the aforesaid decisions is not necessary la fact, none of them has directly dealt with a situation as here.
12. Accordingly we would bold that the impugned notification in intra vires and enforceable and the three Bench decisions of this Court being Orissa Sides Trading Go. v. Sales Officer, Sambalpur-III Circle, K. Narayana Kumandan Sons & Co. v. Sales Tax Officer, Koraput-II Circle and Subudhi Krishna Murty & Sons v. Sales Tax Officer, Koraput-II Circle,, so far as they hold the notification to be bad are not correct decisions. They are, therefore, overruled.
13. The impugned assessments are quashed, the assessing officer would be entitled to call upon the petitioner in each of the cases, in case he considers necessary, to satisfy him that the conditions indicated in the impugned notification are satisfied. Each of the writ applications is allowed and the impugned assessment is quashed. Patties are directed to beat their own costs.
K.B Panda, J.:— I agree.
P.K Mohanti, J.:— I agree.
14. Application allowed.
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