Kumardhubi Engineering Works, Ltd. v. State Of Bihar

Sarjoo Prosad, J.:— This application arises out of a reference made by the Board of Revenue, Bihar, under section 21(3) of the Bihar Sales Tax Act of 1944 read with section 25(3) of the Bihar Sales Tax Act, 1947. The reference has been made in pursuance of an order of this Court dated the 13th of February, 1950, raider which the Board of Revenue was asked to state a case in regard to certain questions formulated in that order.

The facts giving rise to this application are as follows: The petitioner, Messrs Kumardhubi Engineering Works, Ltd. (hereinafter called the Limited Company) has been assessed to sales tax on a total taxable turnover of Rs. 23,88,707 for the year ending the 31st of March, 1947. The Limited Company returned a gross turnover of its business at Rs. 57,40,630-4-0, out of which, after claiming certain deductions, its return showed a taxable turnover of Rs. 4,22,356-4-3 only. One of the deductions claimed was a sum of Rs. 27,51,510-12-9 under section 5(2)(a)(ii) of the Act which included a sum of Rs. 19,61,529-12-0 on account of sales of ropeways and their parts to collieries which were registered under the Bihar Sales Tax Act, 1944. As the assessment period relates to 1946-1947, we are concerned in this case mainly with the provisions of the Bihar Sales Tax Act of 1944. The Sales Tax Officer refused to allow the deduction on the ground that the articles on account of which deduction was claimed were not shown in the certificate of registration of the purchasing dealers. The assessee then appealed to the Commissioner of Sales Tax, Chota Nagpur, who dismissed the appeal, and finally it moved the Board of Revenue with a similar result. It then applied to the Board of Revenue for a reference to this Court on certain questions of law which it alleged arose out of the order of the Board, but the Board refused to make a reference until this Court at the instance of the assessee called upon the Board to state a case. It would appear from the facts narrated above that the, dispute between the assessee and the Sales Tax Department is now confined merely to a claim for deduction in respect of a sum of Rs. 19,61,529-12-0 on account of sales and installations of ropeways and ropeways parts to collieries registered under the Act; and this deduction is claimed out of the gross turnover on the ground that it fell within the provisions of section 5(2)(a)(ii) of the said Act.

This Court in its order dated the 13th of February, 1950, formulated the following points on which the Board of Revenue was directed to state a case:

“(1) Whether in the circumstances of the case the list prepared is July, 1947, by the bales Tax Officer and incorporated in the registration certificates of the purchasing dealers, can govern the assessment in question.

(2) Whether the applicant is not entitled under the terms of the original certificates of registration of the purchasing dealers claim an exemption on the ground that ropeways and their parts are covered by the words ‘colliery stores directly used in the raising of coal’.

(3)(a) Whether the Sales Tax Officer had any power to determine the goods or classes of goods by preparing a list of such goods as could be exempted from taxation within the meaning of sub-clause (ii) of Clause (a) of sub-section (2) of section 5 of the Bihar bales Tax Act VI of 1944.

(b) Whether in any event the list mentioned in the registration certificates of the purchasing dealers was prepared in the proscribed manner as required by section 5(3) of the Bihar bales Act XIX of 1947.

(4) Whether the words ‘ropes and strings, bolts, nuts, rivets, rods, angles, electric fittings and appliances, etc.’, as specified in the list incorporated in the registration certificates do not cover ropeways and their parts.

(5) Whether the Sales Tax Officer was bound to make the usual seduction under rule 4 of the relevant Bihar bales Tax Rules.

(6) Whether the refusal of the Board of Revenue in its powers of revision to go into point (f) as mentioned in its resolution, dated the 16th of November, 1949, rejecting the applicant's application for making a reference to this Court under the provisions of the Bihar Sales Tax Act was warranted in law.”

The Board of Revenue in submitting a case has not dealt with the questions formulated specifically. It appears to have followed a procedure which does not ??? the intentions of the law in submitting a case to this Court on the relevant points. What the Member, Board of Revenue, seems to have done is to narrate how the case proceeded at its various stages before the Sales Tax Authorities, and after quoting from the various judgments of those authorities and his own decision, he proceeds to formulate the points already mentioned in the order of this Court. If I may point out with great respect, this is not what he should have done. The whole object of calling for a statement of the case is to enable the Board to place before this Court all the relevant facts bearing on each particular question with its own opinion based on those facts as to the manner in which the question should be answered. The opinion of the Board may, or may not be acceptable to this Court but the statement of the relevant facts bearing on those questions was wholly material, and it is no use merely stating the grounds on which the deduction had been disallowed to the assessee by the various officers of the Sales Tax Department in the different stages of this case. I have, therefore, felt somewhat embarrassed in answering the questions raised as I find that the materials supplied by the Board of Revenue on the relevant points are rather scanty. I do not consider it, however, necessary to remit the case for a fresh statement because, in my opinion, several of the questions raised do not strictly arise in the case.

As the deduction claimed arose under section 5(2)(a)(ii) of the Sales Tax Act, it would be necessary to refer to this important provision. To quote the relevant portion, it runs thus:

“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—

(ii) sales to a registered dealer of goods specified in the purchasing dealer's certificate of registration as being intended for resale by him, or for use by him in the manufacture of any goods for sale or in the execution of any contract…………………”

It is not disputed that all the collieries who were purchasers from the assessee of ropeways and their parts have got certificates of registration, but the Department has held that these articles were not specified in their certificates, and, therefore, the assessee was not entitled to claim any deduction on that account. A copy of the certificate of registration of one of the collieries which has been printed in this paperbook, namely, the Burrakur Coal Company, Ltd., shows that for purposes of manufacture “colliery stores directly used in the raising of coal will be free from tax”. Subsequently after the passing of the Act of 1947 these colliery stores, were specified and a list of such stores was added to the registration certificate of the collieries. The specifications catalogue a large number of articles including ropes and strings, bolts, nuts, rivets, rods, angles, electric fittings and appliances, etc. The Sales Tax Officer in refusing the deduction claimed took the view that ropeways and their parts were neither specifically mentioned in the certificate of registration nor could they be included in the list of colliery stores directly used in the raising of coal. The other officers were similarly of the same opinion. The Board of Revenue as also the other officers of the Department incidentally referred to the list of colliery stores attached to the various registration certificates after the Act of 1947 came into force, and they held that even those articles did not cover rope ways and their parts. On behalf of the assessee it has been vehemently argued that in the first place it was not open to the Sales Tax Department to refer to the list of 1947 in interpreting the certificate of registration as it stood prior to the introduction of the list and, secondly, that in any case they should have taken into consideration the fact that the component parts of the ropeways installed by the assessee in the various collieries came within the articles enumerated in the list of 1947 as colliery stores. It was also contended that in any event the Department should have allowed a deduction for the labour charges which the assessee incurred in installing the ropeways in these collieries. As I have already pointed out, before a detailed list of colliery stores came to be introduced in the registration certificates, the only exemption provided was in respect of colliery stores directly used in the raising of coal. The question is whether the ropeways and their parts answer to that description. The assessee in this connection has relied upon certain letters sent to him by various companies as also on the letter of the Chief Inspector of Mines in India which are to the effect that the sand stowing plant for the gathering and transport of sand is necessary for the purpose of ensuring maximum extraction of coal of good, quality from the various collieries and without such plants the work of extraction in the seams was bound to remain in abeyance and on which account the Chief Inspector of Mines and the companies concerned were satisfied that the installation of ropeways and sand-stowing plant was directly necessary for the production of coal. These materials have been considered by the Sales Tax Authorities who in spite of them have come to the conclusion that ropeways and their parts are not directly used in the raising of coal. This was a question of fact to be decided on the evidence in the case. As to whether a particular article is or is not directly used in the raising of coal is not a question of law but entirely a question of fact. The evidence of an expert like the Chief Inspector of Mines on a point like this may be very relevant and entitled to great weight, but if after consideration of the evidence the Sales Tax Authorities are unable to hold in favour of the assessee and to allow the deduction on that account, this Court on a reference cannot possibly interfere.

It is then argued that the Sales Tax Authorities have not considered the case in its correct perspective. It is true that they have held that ropeways are not specified in the certificate of registration, nor do they come under colliery stores directly used in the raising of coal; but they have not considered whether the various components of ropeways would not be included under the heading of colliery stores directly used in the raising of coal. In this connection it is further submitted that the Sales Tax Authorities have made use of the list of 1947 to the detriment of the assessee and not with a view to understand the meaning of the expression “colliery stores directly used in the raising of coal”. The argument is attractive but not substantial. The decision of the Sales Tax Officer shows that some such argument was advanced before him though he did not approve of that contention. Referring to the list of 1947 the officer says that these were the only articles which by Government order had been classified under colliery stores directly required for the raising of coal. He further observes that the Company was requested to state as to which of the articles mentioned covered the sum of Rs. 19,61,529-12-0 for which ropeways and their parts were sold, and the Company in its reply quoted a number of articles out of the above list which were used in the manufacture of ropeways and their parts, and submitted to the officer that since the safe of those articles to the registered collieries was exempted from sales tax, the sale of ropeways also which were manufactured from them should be free of tax. As I said, this argument did not commend itself to the Sales Tax Officer who characterised the argument as an absurd interpretation of section 5(2)(a)(ii) of the Act. It was submitted that a similar argument was advanced before the Commissioner, but the Commissioner having delivered judgment more than eight months after the hearing of the case, really forgot to deal with the question. On behalf of the Department Mr. Lalnarain Sinha points out that the grounds to the Commissioner do not indicate that any such question was presented to him, because the case was argued mainly on the footing that deductions were claimed in respect of ropeways and their parts as such and not in regard, to the component parts used in the manufacture of ropeways, and it is for this, reason that the learned Commissioner refused to exempt from sales tax the sale of these articles and held that ropeways and their parts utilised for sand-stowing purposes could not be held to be directly used for purposes of raising coal. Mr. Lalnarain Sinha is, therefore, justified in submitting that this aspect of the case was not presented to the Commissioner. When the assessee moved the. Board of Revenue, it did not again raise the question as it should have asking the Board to consider whether a even if the ropeways as such could not be directly used in the raising of coal, yet the component parts of the ropeways could come under that heading. The argument again before the Board of Revenue as also the evidence adduced seems to be on the footing that ropeways and their parts taken as a whole were necessary for the purpose of mining operations, and for that reason exemption was claimed. The Board rejected this contention. It is true that all these officers did refer to the list of 1947, but they did so, because reliance was placed upon the enumeration of articles specified in the list to show that some of these items would cover the ropeways and their parts but the point which is now raised before us was not directly raised before the Board of Revenue either. That being so, it is now too late for the assessee to raise this contention before us. It may be also observed that even in the points suggested by the assessee or in the points formulated by this Court, the contention does not appear to arise.

I might as well refer at this stage to the various questions formulated by this Court. The first question has to be answered in the negative obviously for the reason that the list prepared in July, 1947, and incorporated in the registration certificate of the purchasing dealers was after the period of assessment, and such a list could not govern the assessment in the present case. I have already pointed out that the Sales Tax Authorities did not utilise this list as governing the assessment in the present case but only with a view to understand the connotation of the term “colliery stores directly used in the raising of coal” for this was the expression used in the certificate of registration of the purchasing dealers before the introduction of the list. In my opinion, therefore, the answer to the question does not in any manner affect the legality of the assessment.

Question no. 2, as framed is entirely a question of fact. Mr. Mahabir Prasad, the learned Advocate-General, appearing on behalf of the assessee, contends that the question should be refrained in order to bring out the real point in controversy. He suggests that the question should be in the following form: “whether the omission to consider that parts of ropeways are covered by the words” colliery stores directly used in the raising of coal’ as mentioned in the terms of the original certificate of registration of the purchasing dealers and thereby refusing to grant the exemption claimed by the assessee under section 5(2)(a)(ii) has affected the validity of the assessment.”. This, of course, may raise a question of law but, as I have already discussed, the point in this form was not specifically urged before the Board of Revenue, and, therefore, does not arise on the face of its order. Moreover, it seems to me that even on a question of fact if the case were to be remitted for a fresh consideration, it is far fetched to suggest that the parts of ropeways would come within the meaning of “colliery stores directly used in the raising of coal”. The emphasis is on the words “directly used in the raising of coal”, and any material which does not directly come in for such use but may be remotely utilised in mining operations cannot fall under this category. For these reasons, I do not think that even by refraining the question any useful purpose will be served; and the answer to the question as it stands must be in the negative: in other words, the answer is that the assessee is not entitled to claim exemption.

Question 3(a) does not, in my opinion, arise in the present case as no such list seems to have been prepared by the Sales Tax Officer though it was open to him to hold on facts that ropeways and their parts do not come within the exemption provided in the certificate of registration of the purchasing dealers. Similarly, question 3(b) also becomes irrelevant in view of what I have said in regard to question no. 1. I would be loath to answer any hypothetical questions of this kind, because whether the list of 1947 was or was not validly prepared was hardly germine to the legality of the present assessment. For the same reason question no. 4 also having regard to the answer to question no. 1 becomes irrelevant.

The only other questions of some importance are questions nos. 5 and 6. These questions involve a consideration of the fact as to whether the assessee Company was entitled to a certain percentage of deduction on account of labour charges in fitting up or installing the ropeways in the various collieries. The Member, Board of Revenue, has unfortunately not given the relevant facts bearing on these questions. All that one finds from his resolution dated the 16th of November, 1949, disposing of the application of the assessee for reference to this Court is that the Board thought that point (f) in the assessee's petition of appeal which had a bearing on this deduction was purely a question of fact, viz., whether a deduction under rule 4 of the Sales Tax Rules for labour should have been made. The unfortunate part of it is that this question was for the first time raised in the application in revision presented to the Board of Revenue, and the point was never at any stage canvassed before the Subordinate Sales Tax Authorities. The return filed by the assessee shows that labour charges on account of contracts were claimed in respect of another amount, but there was no claim in the alternative in respect of this item at all. It is contended that the amount claimed for exemption under section 5(2)(a)(ii) covered labour charges as well. It is quite true that in assessing tax, assessment should not be made on account of labour charges at all because that has nothing to do with the sale of materials with which the sale of goods Act is concerned; but deduction on this score should have been specifically claimed and the proper materials placed before the Sales Tax Authorities in order to enable them to judge how much allowance should have been reasonable in the circumstances on account of labour charges in installing the ropeways sold to registered dealers. Rule 4 of the Bihar Sales Tax Rules, 1944, requires that in calculating the sale price in respect of a contract a dealer may deduct from the amounts payable to him as consideration for carrying out such contract any sum up to 30 per cent of the amount so payable representing the cost of labour involved in the execution of any contract. The assessee never attempted or intended to do so and his return itself is silent on he point. The deduction claimed under section 5(2)(a)(ii) was all in one lump and the option allowed to the assessee under the above rule on account of labour charges was never exercised. On the other hand if it was intended to be claimed as something distinct from the price of the goods sold, which, in my opinion, it is, it should not have been inducted in the gross turnover of the assessee. The justice of the case indeed demanded that when the Sales Tax Authorities had refused to grant deductions on account of ropeways and their parts sold by the assessee Company to the registered dealers, they should have made appropriate allowance on account of labour charges incurred by the assessee in installing the ropeways; but unfortunately there are no materials before this Court on which it could come to any conclusion one way or the other. The Board of Revenue of course enjoys comprehensive powers in revision and might well have looked into this aspect of the case and considered whether such an allowance should be made in favour of the assessee. As the materials stand, I am unable to hold that in the circumstances of the present case the Sales Tax Officer was bound to make the usual deduction, or that the Board of Revenue was bound to consider this point in the exercise of its powers of revision in rejecting the assessee's application for making a reference to this Court. Question no. 5, therefore, has also to be answered in the negative and question no. 6 in the affirmative.

For the above reasons, the reference is answered accordingly. As the assessee has failed on all the substantial questions raised, it is liable to pay the costs of this hearing to the Sales Tax Authorities which is assessed at five gold mohurs.

Das, J.:— I agree with my learned brother that the questions should be answered in the manner indicated by him. I wish to add a few observations only with regard to questions (2), (5) and (6).

It is rather unfortunate that in this case the questions have been mooted in such a way that some of them do not arise out of the order passed by the Board of Revenue; and some, if they arise out of such, order, are not really questions of law. The position has been made more difficult by the way in which the Board of Revenue has stated the case, and this has been pointed out by my learned brother. The result of all this has been that instead of attention being given to the points in dispute, unnecessary or irrelevant points have been introduced in the discussion—a result for which the assessee is to a great extent, responsible.

Question (2) as framed is a question of fact. If I were satisfied that the taxing authorities had completely failed to consider the case from the point of view of the tax-free clause as it stood in the original certificates of registration, I might be persuaded to reframe the question and ask for a fresh statement of the case; because, failure to consider the real question at issue will be a question of law. But having examined the orders of the Sales Tax Officer, Commissioner and Board of Revenue, I am satisfied that they did consider whether a ropeway or its parts came within the tax-free clause of “colliery stores directly used in the raising of coal”, as it occurred in the original certificates of registration, and answered it in the negative.

The argument that the component parts of a ropeway should have been considered separately as coming within the expression “colliery stores directly used in the raising of coal” also appears to have been dealt with by the taxing officer and the Commissioner, both of whom stressed the word ‘directly’ occurring in the clause, and gave it a meaning different from ‘essentially’. They may have been right or wrong I am not prepared to say that they were wrong; but there was no omission or failure to consider the real question at issue, though the list of 1947 was unnecessarily taken as illustrative of what was meant to be tax-free.

Therefore, refraining the question in the way desired by the learned Advocate General will not in any way, improve matters: the taxing authorities have answered the question of fact that ropeway or its component parts—taken collectively or separately—do not come within the tax-free clause of “colliery stores directly used in the raising of coal”. That, I think, is the end of the matter, so far as this question is concerned.

Question (5).—Apart from what my learned brother has pointed out, there is, I think, a further difficulty. Rule 4 of the Bihar Sales Tax Rules, 1944, is referable to section 2(h) of the Act of 1944 which defines “sale-price” as meaning (inter alia) the amount payable to a dealer as valuable consideration for the carrying out of any contract, less such portion as may be prescribed, of such amount representing the usual proportion of the cost of labour etc. in carrying out the contract. The word ‘contract’ has a special meaning in the Act, unless the context indicates otherwise; see clause (b) of section 2. The assessee did not claim exemption on this ground in his return. He did so at a late stage, without getting any finding whether a ropeway, used collectively, comes within the special meaning of the word ‘contract’.

Question (6).—Though the claim of a deduction under rule 4 was mentioned in the grounds of revision, it is not clear to me if this ground was pressed before the Board. The Resolution of the Board dated the 21st July 1949, by which the revision petition was dismissed, does not mention this point. The point is mentioned as point (f) in the application for a reference to this Court; the Board then said that it was a question of fact, Though I do not understand what the Board meant by saying that it was a question of fact, I presume that it was open to the Board to refuse to consider in revision a claim which was not made earlier and for which full materials were not available.

Reference answered.

K.D