Bhawani Cotton Mills Ltd. (In All The Appeals) v. State Of Punjab And Another (In All The Appeals)

Validialingam, J.— In all these three appeals on certificate, the common judgment of the High Court of Punjab, dismissing the three writ petitions filed by the appellant, is under attack, by Mr S.T Desai, learned counsel for the appellant.

2. The appellant, who is the same in all these appeals, is the Bhawani Cotton Mills Ltd., running a cotton ginning factory, and engaged in the business of manufacturing yarn from cotton. It is a dealer, registered under the Punjab General Sales Tax Act, 1948 (Punjab Act 46 of 1948), hereinafter called “the Act”. The appellant filed returns for Assessment Years 1960-61, 1961-62 and 1962-63. It had paid a certain amount of tax which, according to it, was alone due from it. But, according to the appellant, it was not liable to pay central sales tax on the purchase of cotton during the relevant accounting years. The appellant had taken various grounds of attack, before the assessing authority, but the most important contention raised, appears to have been that the material provisions in the Act, particularly the second proviso to Section 5(1) and clause (vi) of Section 5(2)(a), of the Act, enabling the State to collect purchase tax, in respect of cotton, are opposed to the material provisions of the Central Sales Tax Act, 1956 (Act 74 of 1956) (hereinafter called “the Central Act”). The appellant pleaded that it was not liable to pay, in consequence, any purchase tax, for the assessment years in question, in respect of cotton.

3. The Excise and Taxation Officer, Ferozepore, did not accept the plea of the petitioner-appellant regarding its non-liability to pay the purchase tax on cotton. He, accordingly, passed orders of assessment, including the turnover representing the purchases of cotton made by the appellant. The assessment orders for the years 1960-61 and 1961-62, are dated November 15, 1962, and for Assessment Year 1962-63, is dated July 30, 1963.

4. The appellant, thereupon, filed Civil Writ Petitions Nos. 1913 and 1914 of 1962 and 1591 of 1963, challenging the assessment orders for the years 1961-62 and 1960-61, and 1962-63 respectively. The High Court, by its common order, rejected the writ petitions filed by the appellant and confirmed the orders of assessment, passed by the assessing authority.

5. The common question, that arises for consideration in these three appeals, is as to whether the second proviso to Section 5(1) and clause (vi) of Section 5(2)(a) of the Act, are opposed to any of the relevant provisions of the Central Act. A further question arises in Civil Appeals Nos. 2387 and 2388 of 1966, regarding the validity of a notification, issued by the State Government, under Section 5 of the Act, on September 26, 1961. We shall consider this further question, after expressing our opinion, on the more important question, which is common to all the appeals.

6. In order to appreciate the contentions that have been taken before us, by Mr S.T Desai, learned counsel for the appellant, and Mr Bishan Narain, learned counsel for the State, it is necessary to refer to the relevant provisions in both the Acts. It is only necessary to refer to the provisions of the Act, as they stood on April 1, 1960. The Act of 1948, has been amended from time to time, and it may not be necessary to refer to those amendments, excepting on one aspect, when we deal with the validity of the notification, referred to earlier.

7. Coming to the Act, according to its preamble, it is an Act to provide for the levy of a general tax on the sale or purchase of goods in Punjab. The expressions “dealer”, “goods”, “prescribed”, “purchase”, “sale”, “turnover” and “year” are defined in clauses (d), (e), (f), (ff), (h), (i) and (j) of Section 2. Particularly, Section 2(ff), defining “purchase”, is as follows:

“2. (ff) In this Act, unless there is anything repugnant in the subject or context,—

‘purchase' with all its grammatical or cognate expressions, means the acquisition of goods specified in Schedule C for cash or deferred payment or other valuable consideration otherwise than under a mortgage, hypothecation, charge or pledge.”

In Schedule C to the Act, the item with which we are concerned, relates to cotton, and it is as follows:

“Cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste.”

Therefore, the definition of the expression “purchase”, has reference to the goods specified in Schedule C. The expression “turnover”, in Section 2(i), will include the aggregate of the amounts of sales and purchases and parts of sales and purchases actually made by any dealer, during the given period. No doubt, certain deductions are also mentioned in the definition of that expression. In these appeals since we are concerned only with tax on purchases, it is not necessary for us to advert to the definition of “sale”, in Section 2(h) except to note that it excludes goods specified in Schedule C.

8. Section 4 deals with the incidence of taxation, and it makes a dealer, whose gross turnover, during the year, in question, exceeded the taxable quantum, being liable to pay tax on all sales and purchases, subject to the provisions of Sections 5 and 6. In fact, the purchases, for being made liable, should have been effected after the commencement of the Amendment Act of 1958, amending the original Act. Section 4(2-A) provides that no tax on the sale of any goods shall be levied, if a tax on their purchase is payable under the Act, and this is notwithstanding anything contained in sub-sections (1) and (2) of Section 4. The effect of this provision is that if a tax on purchase is payable, then, in respect of the same goods, no tax shall be levied on their sale. Sub-section (5) of Section 4 defines the expression “taxable quantum”. Section 5 deals with the rate of tax and it provides for levying a tax, on the taxable turnover of a dealer, at rates not exceeding six naye paise in a rupee, as the State Government may, by notification, direct, and the levy must be subject to the provisions of the Act. The second proviso to Section 5(1) is, as follows:

“Provided further that the rate of tax shall not exceed two naye paise in a rupee in respect of any declared goods as defined in clause (c) of Section 2 of the Central Sales Tax Act, 1956, and such tax shall not be levied on the purchase or sale of such goods at more than one stage.”

The expression “taxable turnover” is defined in Section 5(2), but, in arriving at the taxable turnover, the various deductions, mentioned in the sub-clauses of Section 5(2)(a) and Section 5(2)(b), ire exempt. Sub-clause (vi), of Section 5(2)(a), which mentions one of the items which is deductible in arriving at the taxable turnover is as follows:

“… turnover during that period on the purchase of goods which are sold not later than six months after the close of the year, to a registered dealer, or in the course of inter-State trade or commerce, or in the course of export out of the territory of India:

Provided that in the case of such a sale to a registered dealer, a declaration, in the prescribed form and duly filled and signed by the registered dealer to whom the goods are sold, is furnished by the dealer claiming deduction.”

Section 7 deals with the registration of dealers. Section 10 relates to payment of tax and the filing of returns. Its sub-section (1) provides that the tax payable, under the Act, shall be payed in the manner provided, at such intervals as may be prescribed. It may be mentioned here that there is no dispute that the appellant is one of those types of dealers who has to send quarterly returns, within the time specified. Sub-section (5) of Section 10 makes it obligatory on the registered dealer to pay the full amount of tax due from him, under the Act, according to his returns, before the returns are furnished, and it provides for the returns being accompanied by the Treasury or Bank receipts evidencing such payment. It is only necessary to note that the appellant, when sending its quarterly returns, during the middle of a year, has to pay the amount of tax, in accordance with that return, and that return should also show the gross turnover, in accordance with the Act. Sub-section (6) of Section 10 makes a dealer liable for penalty, in the circumstances mentioned therein.

9. Section 11 of the Act deals with assessment of tax. Section 12 deals with refunds and, in the circumstances mentioned therein, a registered dealer can claim refunds from and out of the amounts which he has already paid. Section 23 provides for offences and penalties; and, particularly, clause (b) of Section 23(1) makes failure, without sufficient cause, to submit a return, as required by Section 10(3), an offence. Section 27 enables the State Government to make rules under the Act.

10. Rules have been framed, by the State Government, and it is only necessary to refer to some of the rules. Rule 20 makes it obligatory on the dealers concerned, other than those referred to in Rules 17, 18 and 19, to furnish returns, quarterly, within thirty days from the expiry of each quarter. We have already referred to the fact that the appellant is liable to send quarterly returns. Rule 27-A is as follows:

“A dealer who wishes to deduct from his gross turnover the amount in respect of a purchase on the ground that he is entitled to make such deduction under sub-clause (vi) of clause (a) of sub-section (2) of Section 5 of the Act shall append to his return in form ST VIII A, a list in Form ST XXVI IB or Form ST XXVII C as the case may be, and produce on demand by the assessing authority a declaration in writing in form ... by the dealer to whom such goods are sold or by his agent.”

Rules 48 to 55 deal with the procedure to be adopted for obtaining a refund of tax paid, under Section 12 of the Act.

11. Coming to the Central Act, one of the purposes sought to be achieved by that Act is to specify the restrictions and conditions to which State laws, imposing taxes on the sale or purchase of certain goods, which are declared to be of special importance, shall be subject. The expressions “dealer” and “declared goods” are defined in Sections 2(b) and 2(c) respectively. “Declared goods” means goods declared, under Section 14, to be of special importance in inter-State trade or commerce. Section 14 enumerates the various goods which are declared to be of special importance in inter-State trade or commerce. One of the items, so declared, is “cotton”, under Item (ii), which is described as follows:

“cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste”.

Section 15, imposing restrictions and conditions in regard to tax on sale or purchase of declared goods, within a State is as follows:

“15. Every sales tax law of a State shall, insofar as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely:

(a) the tax payable under that law in respect of any, sale or purchase of such goods inside the State shall not exceed three per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage;

(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be provided in any law in force in that State.”

12. Pausing here for a minute, it may be stated that the attack, regarding the validity of some of the provisions of the Act, by the appellant, is rested on Section 15(a) of the Central Act, on the ground that such a levy of purchase tax, regarding cotton, is neither definite nor ascertainable in the Act and that, as the provisions now stand, there is a possibility of the tax being levied at more than one stage. According to the appellant, the state legislation, which deals with the imposition of tax in respect of a sale or purchase of declared goods, must conform to the provisions of Section 15(a) of the Central Act. The ingredients of those provisions are: (i) In respect of “declared goods”, a tax, either on sale or purchase, alone, can be levied; and it cannot be on both sale and purchase. (ii) The rate of tax should not exceed the maximum limit fixed by the Central Act, and (iii) The tax can be levied only at one stage. The essence of a one stage taxation consists of fixation of a single point or stage, either by the State Act or the rules framed thereunder. In this case, according to the appellant, it has to send quarterly returns, even during the accounting year and, as per Section 10(4) of the Act, it has to pay also tax, in accordance with the returns submitted by it for every quarter. In the returns that are being sent, the dealer will have to include all purchases of cotton, effected by him during the quarter for which the return is sent. There is no indication, either in the Act or in the rules or the forms prescribed, as to whether the persons, from whom the appellant purchased cotton, have paid tax or not. Section 15 of the Central Act is not restricted only to registered dealers. There will also be nothing to guide the appellant to know as to whether the goods, purchased by it, have been sold to it by its vendor within the period mentioned in clause (vi) of Section 5(2)(a) of the Act. Under those circumstances, there is always a possibility, or even a certainty, of more persons than one having paid tax or being made liable to pay tax in respect of the same goods at different stages. That is quite opposed to the provisions of Section 15(a) of the Central Act. Even otherwise, it is pointed out that if a person has purchased cotton and sells it after the period provided for in Section 5(2)(a)(vi), that party is liable to pay sales tax and would have also paid the same. Another purchaser from the said party will also be liable to pay tax, on the same commodity, if he sells the goods, after the period mentioned in clause (vi). That is, two persons are made liable for payment of tax, in respect of the same commodity. In other words, the purchases of the same item of declared goods, by the persons indicated above, are made liable for tax, whereas, under the Central Act, there can be only one levy and collection of tax at one stage, either on sale or on purchase.

13. Further, it is argued that the second proviso to Section 5(1) of the Act, is contrary to Section 15(a) of the Central Act, inasmuch as the main section, which levies the rate of tax viz. Section 5(1), as well as the notification issued under it, clearly show that the Act levies tax at a far higher rate than the maximum provided under Section 15(a) of the Central Act. Under these circumstances, it is pointed out that both the second proviso to Section 5(1), and clause (vi) of Section 5(2)(a) of the Act, will have to be struck down.

14. Counsel has also drawn our attention, to the relevant provisions in the Sales Tax Acts in force in the States of Madras, Mysore Andhra Pradesh and Uttar Pradesh, where the stage, at which the tax is to be levied either on purchase or on sale, has been definitely and clearly indicated. Such a provision, it is pointed out, has not been made in the Act.

15. On behalf of the State, it is urged that the provisions of the Act are quite consistent with Section 15(a) of the Central Act. Counsel points out that the second proviso to Section 5(1) of the Act, makes it very clear that the rate of tax, in respect of declared goods, shall not exceed the rate mentioned in Section 15(a) of the Central Act, either on purchase or on sale. Counsel also points out that the said proviso further reiterates that the levy of tax, either on purchase or on sale, shall not be at more than one stage.

16. Counsel further developed his argument by stating that the normal rule, under the Act, in respect of declared goods, is to levy the tax, on sale or purchase, at the very first stage, that is, when the first sale or first purchase takes place. Therefore, the stage is definitely fixed, but the Act itself gives, as will be seen by sub-section (2) of Section 5, various types of transactions which are to be excluded, in arriving at the dealer's taxable turnover. It is open to a dealer to claim exemption, in respect of any particular transaction, under one or other of the various clauses in Section 5(2). When that is so, the stage at which the tax is levied, gets changed, and the liability passes to the next dealer, unless he himself is able to claim any exemption. But, ultimately, it is only one transaction, of sale or purchase, that is made liable to tax. Counsel also points out that the first proviso to Section 5(1) of the Act, which is quite in conformity with Section 15(a) of the Central Act, is perfectly valid. It is also pointed out that in respect of persons claiming exemption, under clause (vi) of Section 5(2)(a), the procedure to be adopted is indicated in Rule 27-A, of such a purchaser getting a declaration, in the form mentioned therein, from the dealer, to whom such goods are sold, or by his agent. Therefore, under those circumstances, if once a dealer gives a declaration to his vendor, the former will clearly know that the latter is exempt from taxation, and the liability to pay tax is his, unless he is able to pass it on to others. There is no uncertainty, in the matter of fixing the stage, regarding the levy of sale or purchase tax. Therefore, that provision also is not violative of the Central Act. Counsel also urges that in case a party is eligible for refund, on the ground that he is not liable to pay, in respect of any particular purchase, ample provision is made for obtaining refund, under Section 12 of the Act. Therefore, under those circumstances, the State presses for the decision of the Punjab High Court, being upheld.

17. We are not impressed with the contentions of the counsel for the State. A perusal of the judgment, under attack, shows that the learned Judges themselves were very much impressed by the various aspects presented before them, on behalf of the appellant. In fact, the learned Judges observe that the various difficulties, pointed out by the petitioner, before them did exist in the actual working of the Act, but the view of the High Court was that Section 12 of the Act provided for obtaining a refund and, therefore, though the petitioner might have to deposit. initially, the tax in respect of the purchases, when the quarterly returns were being submitted, it was open to it to obtain refunds at the appropriate stage.

18. The provisions of the statutes, in question, have been referred to by us earlier. Section 15(a) of the Central Act, makes it mandatory that the tax shall not be levied at more than one stage. In this case, the State does not levy any tax, both on the sale and purchase, of the same declared goods. The second proviso to Section 5(1) is, no doubt, substantially in accordance with the provisions of Section 15(a), of the Central Act. That proviso was absolutely necessary, because without it, it would have been prima facie open to the State to levy tax under Section 5, at higher rate than that indicated in the Central Act, in which case it would certainly have been illegal. The mere existence of the second proviso, to Section 5(1) of the Act, does not materially advance the case of the State.

19. That same proviso, came up for consideration, before this Court, in Modi Mills v. CIT (1965) 1 SCR 592. In dealing with the proviso, Hidayatullah, J., speaking for the Court, observed, at p. 600:

“The meaning or the intention of clause(3) of Article 286 is not to destroy all charging sections in the Sales Tax Acts of the States which are discrepant with Section 15 (a) of the Central Sales Tax Act, but to modify them in accordance therewith. The law of the State is declared to be subject to the restrictions and conditions contained in the law made by Parliament and the rate in the State Act would protanto stand modified. The effect of Article 286(3) is now brought out by the second proviso to Section 5(1). But this proviso is enacted out of abundant caution and even without it the result was the same.”

From the observations, noted above, it will be clearly seen that the proviso, in question, does not serve any material purpose, because, even if that proviso did not exist, in the State Act, the authorities cannot levy tax, on declared goods, at a rate higher than that laid down in the Central Act. Therefore, the mere injunction, by the legislature, as contained in the second proviso to Section 5(1), that the rate should not be higher than the one fixed in the Central Act, and that the levy must be, at one stage, as again mentioned in the Central Act, will be of no avail, unless the Act, or the rules framed under it, make it very clear that there will be no levy or collection of tax, except from the persons who are bound to pay, as per the Central Act. It is here that there is considerable difficulty caused by the absence of any provision, either in the Act or in the rules or the forms, indicating the stage at which the tax is to be levied. In the case of commodities, like cotton, which come under the category of “declared goods”, tax can be levied only at a single point, as is made clear by Section 15(a) of the Central Act, and, in our opinion, there can be no legal liability for payment of tax accruing, until and unless the Act, or the rules framed thereunder, prescribe a single point for taxation. For the matter of that, even in the final return to be sent by a dealer, under the Act, the dealer will have to show, in the taxable turnover, all purchases of cotton effected by him during the accounting year. We have already referred to the fact that, along with the returns, the tax payable on the basis of those returns, will have to be paid. At that stage, the question naturally arises, as to whether there is anywhere in the Act or the rules any provision, by which the person, sending the return, will be able to know that the tax, in respect of the declared goods purchased by him, have already been paid by another dealer and that the value of the purchases, effected by him, need not be shown in his return. He cannot take, an off-hand chance, in this matter, because there are very heavy penalties imposed on a dealer, for failure to include, in the returns sent by him any transactions in respect of which he is liable to pay tax. If that is the position at the end of a year, when the final return is sent, the position becomes still worse when the quarterly returns accompanied by payment of taxes, are to be sent during the course of the accounting year itself.

20. Counsel, for the respondent, has pointed out that, if a dealer wants to claim exemption, under sub-clause (vi) of Section 5(2)(a), Rule 27-A provides for his getting a declaration from the dealer, to whom the goods are resold, in which case, the dealer is absolved from the liability to pay tax. We have gone through the various statements contained in the said Rule, as well as the Forms, to which it refers, but they are not decisive, either way. There will also be cases where a non-registered dealer may have intervened and, even if such dealers intervene, it is clear that under Section 15(a) of the Central Act, the tax cannot be levied at more than one stage. There is no machinery by which a dealer can ascertain whether his vendor, of sells the declared goods has paid the tax already. Even otherwise, it will be seen, that if a dealer, A, the declared goods, to B, six months after the close of the year (B being a registered dealer), A becomes liable to purchase tax. But, if B sells the identical declared goods, again, after the period mentioned in sub-clause (vi), he will also be liable to pay purchase tax. That means, inspect of the, same item of declared goods, more than one person is made liable to pay tax and the tax is also levied at more than one stage. That is not permissible, under Section 15(a) of the Central Act. If goods are resold to a nonregistered dealer, within the period, sub-clause (vi), will not help the original purchaser. We may also point out, at this stage, that sub-clause (vi), of Section 5(2)(a), negatives the assumption that the normal rule, under the Act, in respect of declared goods, is to levy the tax on the first purchaser.

21. Mr Bishan Narain, counsel for the State, faced with these difficulties, no doubt referred us to the provisions contained in Section 12 of the Act, relating to refunds. Counsel pointed out that the manner in which a purchaser can claim refunds, is also elaborately indicated in Rules 48 to 55 of the Rules. If persons, like the appellants, satisfied the authorities concerned that they had paid amounts, by way of tax, which they were not legally bound to pay, it was open for them to ask for refunds of such excess amounts paid. Therefore, even assuming that, in the first instance, the appellant has paid the purchase tax and, later on, it is found that it is not liable for the same, Section 12 of the Act would afford adequate relief. We are not impressed with this argument. The position is not so simple. Even in the matter of obtaining refunds, there can be no controversy, that the appellant will have to place, before the officer concerned, particulars of transactions connected with the commodity, in question, and also the basis on which it claims the relief. It will be absolutely difficult, if not impossible, for persons like the appellant, to collect materials in this behalf, because, there is no provision, contained either in the Act or the rules, on the basis of which it will be entitled to be supplied with all the material information, relevant, for sustaining a request for refund. If the Central Act makes it mandatory that the tax can be collected only at one stage, in our opinion, it is not enough for the State to say that a person, who is not liable to pay tax, must, nevertheless, pay it in the first instance, and then claim refund, at a later stage. We may state that the question as to how far a party can ask for refund, without the order of assessment being set aside, by appropriate proceedings, is highly doubtful; because, at the time when the actual order of assessment is passed, in certain cases, it may not be possible for a party to say whether he is entitled to exemption, or not, under sub-clause (vi) of Section 5(2)(a) of the Act. If a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax.

22. In this connection, we may refer to the observations of this Court, in A.V Fernandez v. State of Kerala (1957) SCR 837. This Court, after referring to the observations-made earlier in Chatturam Horilram Ltd. v. CIT (1955) 2 SCR 290 regarding the three stages in the imposition of tax, being the declaration of liability, assessment, and recovery, said, at p. 852:

“If there is a liability to tax, imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. 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 cannot 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 whatever to the same.

There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The legislature cannot enact a law imposing or authorising the imposition of a tax thereupon as 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.”

The above observations clearly lay down that the provisions contained in a statute, with respect to exemptions of tax or refund or rebate, on the one hand, must be distinguished from the total non-liability or non-imposition of tax, on the other. These observations, also, in our opinion, effectively provide an answer to the stand taken by the State, in this case, that Section 12 of the Act provides an adequate relief, by way of refund, even if tax is collected at an earlier stage.

23. Having due regard to the various matters mentioned above, we are satisfied that the decision of the High Court, upholding the orders of assessment passed by the Officer, in question, cannot be sustained.

24. We have already indicated that there is one other point, arising for decision, in Civil Appeals Nos. 2387 and 2388 of 1966. That relates to the validity of the notification, issued by the State Government, under Section 5 of the Act, on September 26, 1961. The assessment periods, covered by these two appeals, relate to 1960-61 and 1961-62. At the material time, the definition of the expression “purchase,” as contained in Section 2(ff), has been already referred to by us. The definition of the word “purchase” was first introduced in the Act, by Punjab Act 7 of 1958. According to that definition, it was as follows:

“ ‘Purchase', with all its grammatical or cognate expressions, means the acquisition of goods other than sugarcane, foodgrains, and pulses for use in the manufacture of goods for sale, for cash or deferred payment or other valuable consideration, otherwise than under a mortgage, hypothecation, charge or pledge.”

By Punjab Act 13 of 1959, the words “other than sugarcane, foodgrains and pulses”, were omitted. Then there was a further amendment, by Punjab Act 24 of 1959 and, after the said amendment, clause (ff) stood as follows:

“ ‘Purchase', with all its grammatical or cognate expressions, means the acquisition of goods specified in Schedule C for use in the manufacture of goods for sale, for cash or deferred payment or other valuable consideration, otherwise than under a mortgage, hypothecation, charge or pledge.”

25. This definition was again amended by Punjab Act 18 of 1960. The rate of tax, provided by the Act, was 4% and, we have already indicated that the Central Act was enacted in 1956; and we have also adverted to the material provisions therein.

26. We have adverted to the fact that, under Section 5 of the Act, the rate of tax that is to be levied, is to be contained in the notification that is to be issued under Section 5(1). Accordingly, on April 19, 1958, the State Government issued, under Section 5(1), as amended by the Punjab Act 7 of 1958, a notification regarding the rate of tax. In that notification, the rate of tax on the purchase of goods, by a dealer, for use in the manufacture of goods for sale, was fixed at 2 naye paise in the rupee. Section 2(ff) was, later on amended in 1960, by Punjab Act 18 of 1960, and the definition of “purchase”, as contained in this provision, has already been referred to, by us. The State Government issued a Notification, under Section 5(1) of the Act, on September 26, 1961. Under this notification, it was provided that the rate of tax on the purchase of goods specified in Schedule C, appended to the Act, would be 2 naye paise in the rupee.

27. The contention that was taken by the appellant was that, notwithstanding the fact that the definition of the expression “purchase”, was changed with effect from April 1, 1960, the notification fixing the rate of tax, under that amended definition, was not issued until September 21, 1961, and it was further urged that, in consequence, no assessment could be made of any tax on declared goods, mentioned in Schedule C, prior to September 26, 1961.

28. It was not disputed by the State that no fresh notification was issued, after the expression “purchase” was amended in 1960, till September 26, 1961. But the State attempted to sustain the levy on the ground that the original notification, of April 19, 1958, would be valid even after the amended definition, in Section 2(ff), as it now stands. It is open to the State to tax all purchases which come within the definition of Section 2(ff) as it now stands, but the State, it is pointed out, must be considered to have chosen to levy tax only if the purchases have been made for use in the manufacture of goods for sale. Alternatively, it was also pointed out that the notification, issued in 1958, must be considered to have validity, even after the amendment, by virtue of Section 22 of the Punjab General Clauses Act. We are not impressed by these contentions, advanced on behalf of the State.

29. Section 22 of the Punjab General Clauses Act has no application, whatsoever, to these cases. Apart from the fact that there is no question of the 1958 Act being repealed or re-enacted, it is also clear that the definition of the expression, under Section 2(ff), as it stood in 1958, on the basis of which the notification of 1958 was issued, is quite inconsistent with the amended definition of the expression “purchase”, in Section 2(ff), in 1960. The High Court has sustained the levy of tax under the original notification of 1958, on the basis of Section 22 of the Punjab General Clauses Act, which, in our opinion, does not assist the State. It is not open to the State to urge that it is entitled, in the matter of levying tax, on transactions by way of purchase, to tax only the category of purchases for use in the manufacture of goods for sale. Further, the State has not been able to satisfy us that there is any reasonable classification made, which will enable this Court to sustain the notification. Inasmuch as no fresh notification had been issued, under Section 5(1), till September 26, 1961, the assessment for the years 1960-61 and 1961-62, on the basis of the notification issued in 1958, cannot be sustained, on this additional ground also.

30. We therefore allow the appeals, in the manner indicated above. The State will pay costs to the appellant in Civil Appeal No. 2386 of 1966.

Sikri, J.— I have read the judgment prepared by my Brother, Vaidialingam, J. I agree with him that assessments for the years 1960-61 and 1961-62 on the basis of notification issued cannot be sustained and Civil Appeals Nos. 2387 and 2388 of 1966 have to be allowed. But, with respect, I regret I cannot agree with him that the assessments in question have to be quashed on the ground that they violate Section 15 of the Central Sales Tax Act. My Brother has set out the relevant statutory provisions and it is not necessary to extract them here. In my opinion the Punjab Act does in effect comply with the requirements of Section 15 of the Central Sales Tax Act because it is possible to find out the stage at which purchase tax becomes leviable on goods mentioned in Schedule C. This stage is the first purchase by a dealer, which is not exempted from taxation or which is not deductible from the taxable turnover of a dealer under Section 5(2) of the Punjab Act. In my view, this follows from Sections 4 and 5 of the Punjab Act. Subject to the provisions of Sections 5 and 6, Section 4 makes a dealer liable in respect of all purchases, first purchases, second purchases and last purchases, but the second proviso to Section 5 provides, in effect, that the purchase tax shall not be levied at more than one stage. Which stage does the proviso cut out? It seems to me that every purchase except the first purchase has been eliminated. Take the following illustration: Dealer A buys cotton, A sells it to dealer B, and B sells it to dealer C. If dealer A is liable to pay purchase tax under Section 4, by virtue of the proviso no other dealer is liable, because otherwise this would amount to imposing tax at more than one stage. Could not dealer B or C say to the assessing authority that it is A who is liable, and if he is liable, the proviso exempts them from paying purchase tax? But it is said that B and C may not know that A is liable. While buying goods, B has only to enquire from A whether his is the first taxable purchase. Indeed A, in order to claim exemption under Section 5(2)(a)(vi) will ask B to give him a declaration form. Therefore, both A and B will know the true position, and A will claim the exemption and B will pay purchase tax unless he sells to another dealer. If B sells to another dealer D after the expiry of six months after the close of the year, the period mentioned in Section 5(2)(a)(vi), B will be liable to purchase tax. B may not ask D for the prescribed declaration form for it may be useless for him, but D will find out whether he is buying goods liable to purchase tax or not. B will tell D that he has not to pay purchase tax and will perhaps include purchase tax in the price. It seems to me that if dealers behave like businessmen, which they will ordinarily do, there will be no difficulty in working the provisions of the Punjab Act. But if by mischance there is double taxation the State can only make a suitable provision for refunds.

31. In my view, the Punjab Act is in consonance with Section 15 of the Central Act, and if there is a possibility of taxation at more than one stage, the Punjab Act cannot for this reason be treated as void. My brother does not say that the Punjab Act is void but in effect he implies it.

32. Let me now deal with the case when an unregistered dealer intervenes. In the illustration I have given above let us deem C to be an unregistered dealer. A sells to B, and B sells to C. B will be liable to pay purchase tax because he cannot claim exemption under Section 5(2)(a)(vi). Suppose B in the above illustration is an unregistered dealer. Here B is liable to purchase tax unless he sells to C, a registered dealer and obtains the prescribed declaration. If C is an unregistered dealer, then B would be liable and not C.

33. If an unregistered dealer wants to escape taxation and his transactions are not known to the Sales Tax Authorities till he is assessed under Section 11(6) of the Punjab Act, the only way of complying with the second proviso to Section 5 and Section 15 of the Central Act is to give refund to a dealer who has been taxed in the meantime. The same thing would happen as far as I can see, under the State Acts which fix in terms a specific stage.

34. I may here mention that according to me the second proviso to Section 5 serves one useful purpose. It makes the Punjab Act immune from challenge on the ground that its provisions infringe Section 15 of the Central Act. The Punjab Act being good, it is only the assessments that can be challenged on the ground that they violate the second proviso to Section 5 of the Punjab Act. This aspect was not apparently brought to the notice of this Court in Modi Mills v. CIT (1965) 1 SCR 592.

35. Accordingly I would dismiss Civil Appeal No. 2386 of 1966 with costs, and allow Civil Appeals Nos. 2387 of 1966 and 2388 of 1966, with costs.

Order

36. In accordance with the opinion of the majority the appeals are allowed in the manner indicated in the judgment. The State will pay costs to the appellant in Civil Appeal No. 2386 of 1966.