Bombay High Court
The Commissioner Of Sales Tax, ... vs Trends Shoes, Mumbai on 28 April, 2017
Bench: S.C. Dharmadhikari
vikrant 1/61 901-STR-37-2010.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SALES TAX REFERENCE NO. 37 OF 2010
The Commissioner of Sales Tax
Maharashtra State, Mumbai
8th Floor, Vikrikar Bhavan,
Sardar Balwant Singh Dhodi Marg,
Mazgaon, Mumbai-400 010. ... Applicant
Vs.
M/s. Shoe Bazar Queen,
19/28, Commercial Chamber,
Yusuf Meharalia Road Junction,
Mumbai-400 003. ... Respondent
WITH
SALES TAX REFERENCE NO. 17 OF 2009
The Commissioner of Sales Tax,
Maharashtra State,
8th Floor, Vikrikar Bhavan,
Mazgaon, Mumbai-400 010. ... Applicant
Vs.
M/s. Anarkali Footwear,
504, Sai Commercial Centre,
Linking Road, Khar,
Mumbai-400 052. ... Respondent
WITH
SALES TAX REFERENCE NO. 18 OF 2009
The Commissioner of Sales Tax,
Maharashtra State,
8th Floor, Vikrikar Bhavan,
Mazgaon, Mumbai-400 010. ... Applicant
Vs.
M/s. Anarkali Footwear,
504, Sai Commercial Centre,
Linking Road, Khar,
Mumbai-400 052. ... Respondent
::: Uploaded on - 17/05/2017 ::: Downloaded on - 28/08/2017 00:46:11 :::
vikrant 2/61 901-STR-37-2010.doc
WITH
SALES TAX REFERENCE NO. 106 OF 2009
The Commissioner of Sales Tax,
Maharashtra State, Mumbai,
8th Floor, Vikrikar Bhavan,
Sardar Balwantsingh Dhodi Marg,
Mazgaon, Mumbai-400 010. ... Applicant
Vs.
M/s. Trends Shoes,
C/o. Pradhan Embroidery Stores,
125-127, Bazargate street,
Fort, Mumbai-400 001. ... Respondent
WITH
SALES TAX REFERENCE NO. 108 OF 2009
The Commissioner of Sales Tax,
Maharashtra State, Mumbai,
8th Floor, Vikrikar Bhavan,
Sardar Balwantsingh Dhodi Marg,
Mazgaon, Mumbai-400 010. ... Applicant
Vs.
M/s. Trends Shoes,
C/o. Pradhan Embroidery Stores,
125-127, Bazargate street,
Fort, Mumbai-400 001. ... Respondent
......
Mr. V. A. Sonpal, Special Counsel a/w Ms. Jyoti Chavan, A.G.P. for
the Applicant-State in all STRs.
Ms. N. R. Badheka a/w Mr. Parth Badheka and Ms. Lata Nagal for
the Respondent in STR/37/2010.
......
CORAM : S. C. DHARMADHIKARI &
PRAKASH D. NAIK, JJ.
DATE : APRIL 28, 2017.
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ORAL JUDGMENT (PER S. C. DHARMADHIKARI, J.) :
Sales Tax Reference No. 37 OF 2010
1. The Commissioner of Sales Tax filed applications styled as
Reference Application Nos. 4 of 1998 and 99 to 105 of 2001
before the First Bench of the Maharashtra Sales Tax Tribunal at
Mumbai.
2. These Reference Applications arose out of the judgment and
order dated 10th October, 1997, in Second Appeal No. 188 of
1997 and the judgment and order dated 5th May, 2001 in Second
Appeal Nos. 950 to 956 of 1999.
3. In the present Sales Tax Reference, we are concerned with
the dealer M/s. Shoe Bazaar Queen, who shall be referred to,
hereafter, as the original appellant.
4. After hearing both sides at great length, on 17th March,
2006, the Tribunal forwarded the following two questions for the
opinion and answer by this Court:
(i) Whether on the facts and circumstances of the case, and
on the true and correct interpretation of the provisions of
law, the Tribunal was justified in law in holding that the
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Sales of leather goods are admissible for deduction as
resales under Section 8(2) of the Bombay Sales Tax Act,
1959, even though corresponding purchases of these
goods were covered by Entry 39(a) of Schedule A of the
Act and when necessary certification was availed of by
the appellant's vendors?
(ii) Whether on the facts and circumstances of the case and
on the true and correct interpretation of the provisions of
law, the Tribunal was justified in law in holding that no
principle of estoppel is applicable to the conditions
introduced in Entry A-39 w.e.f. 11.6.1988 for the
purpose of allowance of claim of exemption from tax by
the claimant dealer?
5. We have to notice certain facts. At the outset, we clarify that
as far as the Tribunal's judgment and order dated 5th May, 2001,
from which reference application Nos. 99 to 105 of 2001 arose,
the Tribunal has dismissed them. It is clarified that the orders
therein do not suffer from any bias. Hence, no question of law
arises from such an order.
6. We are, therefore, confining our judgment to the above two
questions.
7. The statement of facts forwarded by the Tribunal reveals
that the original appellant, a proprietary concern and duly
registered under the provisions of the Bombay Sales Tax Act, 1959
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(for short "the Bombay Act"), is not a manufacturer. It is a reseller
in foot-wears. It does not hold any trade mark at all. The original
appellant made large purchases for the period under dispute
which, going by the facts from the appeal itself, is 1992-93, from
several Cobblers' Societies. These Cobblers' Societies are duly
registered dealers under the Bombay Act. They also hold a
certificate of exemption under entry 39(a) of Schedule A of the
Bombay Act. The original appellant did not hold any certificate of
exemption.
8. The original appellant was filing returns. No claim under
Section 5 of the Bombay Act was made in such returns. According
to the original appellant, it deals in Schedule C-II goods. The taxes
are leviable on the turnover thereof, but from such turnover, it can
claim reduction insofar as resale of the goods, and which claim is
referable to Section 8 of the Bombay Act. As per the chart, and
which was provided to the Tribunal in the order on the Reference
Application, it is apparent that the assessment order dated 21st
March, 1996 was made and the total dues as per the said
assessment order were Rs.21,47,115/-, whereas, dues as per the
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first appellate order were determined at Rs.16,68,082/-. Thus, the
claim on account of resale was disallowed. Being aggrieved by the
order passed by the assessment officer, so also the first appellate
authority, the subject Second Appeal was filed before the
Maharashtra Sales Tax Tribunal. The Second Appeal No. 188 of
1997 was decided on 10th October, 1997. The Tribunal framed the
points for its consideration, to which, we will make a reference
later on. For completion of the factual narration, suffice it to state
that the Tribunal allowed this appeal. The order of the first
appellate authority was set aside. The resale to the tune of
Rs.60,38,491/- against the purchases of Rs.53,54,630/- of the
very goods has been allowed. Even consequential relief in interest
under Section 36(3)(b) has been given. The penalty imposed
under Section 36(2)(c) of the Bombay Act was deleted.
9. An attempt was made to rectify this judgment by making an
application under Section 62 of the Bombay Act. That attempt was
made by the Revenue in the light of the statutory amendment
brought in subsequently, but with retrospective effect. The
Rectification Application No. 20 of 1999 moved in that behalf was
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disposed of by the Tribunal holding that in the light of the
retrospective amendment to Section 8, a case for rectification is
made out. The Tribunal, accordingly, allowed the Rectification
Application and restored the Second Appeal to its file by an order
dated 11th October, 2002. The original appellant, being not
satisfied with such restoration, filed a Writ Petition bearing No. 41
of 2003 in this Court. By consent, an order was passed on 9 th June,
2003 in that Writ Petition. The result of the consent order was that
the order dated 11th October, 2002 in Rectification Application
No. 20 of 1999 was set aside by consent of the parties.
10. However, the Revenue sought reference to this Court of the
questions of law arising from the Tribunal's main order dated 10th
October, 1997 in Second Appeal No. 188 of 1997. It is that
application which has been allowed on 17th March, 2006. It is
because of that order that the above two questions of law have
been forwarded for our opinion and answer.
11. Mr. Sonpal, learned Special Counsel appearing on behalf of
the Revenue, at whose instance these questions have been
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referred, would submit that the Tribunal's earlier order on the
appeal raises the above questions squarely. He would submit that
there is a basic fault in the understanding of the Tribunal about
the ambit and scope of the entries and the Schedule itself. The
Bombay Act contains the provisions to which he makes an
elaborate reference to submit that interpretation of those
provisions by the Tribunal is not correct and proper. After referring
to the brief facts in a written note, Mr. Sonpal would submit that
on 11th August, 1988, Schedule entry A-39 was amended and the
exemption was restricted to only those dealers who purchased
goods from certified producer. The conditions were that i) the
seller must be a dealer; ii) the seller must be certified by the
Commissioner of Sales Tax; iii) The seller should not hold trade
mark or patent in respect of the goods sold or does not hold
patent in respect of the method or process of manufacturing the
goods sold. Thus, it was clear that the dealers, who purchased
goods from producers exempted in A-39(1), were exempted
without conditions from the payment of tax before 11 August,
1988. After 11th August, 1988, there was a conditional exemption.
12. Mr. Sonpal would submit that the original appellant is
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admittedly not certified by the Commissioner of Sales Tax as
above. It is not entitled to exemption. If it is not entitled to
exemption in terms of A-39(2), then, it cannot, by any alternative
process, avoid the obligation to pay tax. The original appellant is
avoiding it on the ground that what the Revenue is attempting to
do is to tax a resale.
13. Then, Mr. Sonpal invites our attention to Section 8 of the
Bombay Act. He would submit that the Scheme of Section 8, Rule
42H and Rule 46B, both of the Bombay Sales Tax Rules, would
demonstrate that if resales are to be allowed, it is necessary that
the goods sold and claimed as resale must be in the same
Schedule at the time of purchase and at the time of sales. In the
present case, the goods at the time of purchases were covered by
entry A-39 (pages 37 and 38 of the paper book) as exempt from
tax and at the time of sales, the goods were covered by Schedule
entry C-II 42 (pages 31 and 32 of the paper book). Thus, the
requirement of law that the goods must fall in the same entry at
the time of sales and purchases is not satisfied. The claim of re-
sales cannot be allowed.
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14. Then, relying upon this Section further, Mr. Sonpal would
submit that deduction of sales of goods purchased from registered
dealer, and in terms of Section 8, can be claimed, provided a
certificate under Section 12A is furnished or incorporated in
seller's invoice. No doubt, the certificate as provided under Section
12A is incorporated in the seller's invoice. It is inherent in the
Scheme of the Act that the tax is levied at single point and all
subsequent sales are exempt since tax is to be collected in the first
instance of sales. In other words, if on the first sale, there was no
tax or it has not been suffered, then, subsequent sales cannot be
claimed as resale merely because a certificate in terms of Section
12A of the Bombay Act is on record. If it is found that no tax is
paid by the selling dealer despite the certificate being issued, the
resale claim can be disallowed. It is to clarify this position that an
explanation was inserted by amended Section 8 and relying upon
the same, Mr. Sonpal would submit that this retrospective
amendment would have a great bearing on the issue raised before
us. Mr. Sonpal submits that the record will indicate that at the
time of purchase by the original appellant, no tax was leviable.
The goods were exempt under Schedule entry A-39. The
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retrospective amendment has not been struck down and is in
force. The retrospective amendment was made by the
Maharashtra Tax Laws (Levy, Amendment and Validation) Act,
1999 and the decision of the Tribunal in the Second Appeal is
dated 10th December, 1997. While referring to the question of law,
the Tribunal has considered the amendment. The matter covered
by the explanation was always present in the statute. It is now
only amplified. Thus, looked at from any angle, the original
appellant could not have succeeded in the Second Appeal.
15. Mr. Sonpal then sought to clarify the position by relying
upon the wording of Schedule entry A-39. He submits that it is
dealer specific and is not qua any goods. Any one who produces
leather goods in cottage leather industry, which is not
recommended by Khadi and Village Industries Commission (for
short, "KVIC") or State KVIC and also not certified by the
Commissioner, is not entitled to exemption. When a dealer is not
entitled to exemption, then, the benefit of resale, and as set out in
the Scheme of the Act, is not available to him. It is specifically
provided in the Schedule entry itself that exemption is to the
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purchaser on the condition of compliance with the requirements.
Since there is a single point of tax and that can be gathered from
Section 17A of the Bombay Act, then, all the more, the resale
claim cannot be allowed. Mr. Sonpal is relying upon the wording
of Section 17A to submit that where any entry (or part thereof) is
transposed by its deletion from one of the Schedules and for its
insertion or addition to another Schedule, then, if no tax on any
sale or purchase of the goods specified in that entry (or part
thereof) is leviable, the deductions provided in clause (ii) or
clause (iii) of Section 8 and in clause (b) or clause (c) of Sub-
section (1) of Section 9 shall not apply to the re-sale of those
goods. It is in these circumstances that Mr. Sonpal would submit
that the reasoning of the Sales Tax Tribunal is not in tune with the
requirements stipulated by the Bombay Act, particularly for resale.
Mr. Sonpal heavily criticizes these findings of the Tribunal in the
appellate order, and particularly, paragraphs 45 to 50 thereof. Mr.
Sonpal would submit that the Tribunal's reasoning is so faulty that
it did not realize that there was a distinct Scheme prevailing prior
to amendment and post amendment.
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16. Mr. Sonpal then criticizes the approach of the Tribunal in
not rendering any definite reasons but only setting out
illustrations after illustrations. Mr. Sonpal would submit that
multiplying the illustrations would not assist in resolving the
controversy which had to be done by an Appellate Court by
referring to the facts and circumstances of the case before it and
the entire record. By giving hypothetical examples, such complex
issues cannot be resolved. Mr. Sonpal also submits that the
Tribunal was not concerned in the present case with any supposed
intention of the legislature. There was a clear stipulation in the
statute. The language was plain, unambiguous and clear. There
was no scope for any interpretation. In these circumstances, the
case law referred by the Tribunal in its appellate judgment in the
appeal is also not relevant for the purposes of resolving the issue.
17. Mr. Sonpal finally addressed us on the issue of estoppel
[question (ii)]. In that regard, he would submit that the circulars
were issued prior to the amendment of Schedule entry A-39 and
the same would be of no assistance. After amendment on 11 th
August, 1988, those dealers not possessing certificate from the
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Commissioner are not entitled to any exemption on their sale of
goods purchased from certified producers. Strangely, the Tribunal
has used old circulars which are redundant after the amendment.
The Tribunal also lost sight that it was not dealing with a claim for
exemption but on account of resale. Hence, all the observations
and findings are de hors the factual background and controversy.
In such circumstances, he would submit that the questions of law,
and forwarded by the Tribunal, be answered in favour of the
Revenue and against the dealer.
18. Mr. Sonpal has relied upon the order passed by this Court in
the case of M/s. Friends Stores Nagpur vs The State of
Maharashtra, Sales Tax Reference No. 24 of 1970 decided on 28 th
January, 1972.
19. On the other hand, Ms. Badheka, learned counsel appearing
on behalf of the original appellant submits that, firstly, the
Reference by the Tribunal is of a question which does not arise
from the order in the Second Appeal. The Tribunal has forwarded
a question for opinion of this Court which is not based on the
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findings and conclusions in the second appellate order. The
Tribunal has completely misconstrued and misinterpreted the
issue. On a Reference Application, a question even of law, which
never arose from the order passed in appeal, could not have been
referred for this Court's opinion. There was no occasion for the
Tribunal to have forwarded such question and as is reproduced by
us above. She would submit that this Court, therefore, should not
answer any hypothetical or academic question or issue. The
matter must be approached squarely in the light of the factual
position and emerging from the record. She would submit that
even the factual position, as assumed by the Tribunal while
making the reference, is contrary to the record. In that behalf, she
hands over a complete compilation of the documents. She would
submit that this Court must restrict itself to the controversy arising
from the order of the second appellate court, namely, the Tribunal.
In the Second Appeal, the Tribunal was considering a question
somewhat distant from the one referred to this Court's opinion.
Therefore, going by the Schedule entry, the claim for resales and
particularly, bearing in mind Section 8 clause (ii) of the Bombay
Act, the question must be answered. If looking at these provisions,
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the question as proposed and forwarded does not arise at all, and
particularly, in the factual background, then, this Court is not
obliged to answer the same. This Court, then, can return the
Reference unanswered by keeping the question open for decision
in an appropriate case. Ms. Badheka has elaborated her oral
arguments by tendering the written submissions. She devoted
most part of it to the material documents and which, she claims,
were not forwarded together with the statement of facts. It was
the duty of the Tribunal, according to her, to not only forward the
statement of facts, but all allied papers. No selective forwarding of
papers and documents is permissible. The entire record of the
Second Appeal before the Tribunal should have been forwarded.
That contains several documents and very vital for the issue. Ms.
Badheka would submit that the basic claim of the original
appellant rests on the certificate issued by the Commissioner to
the vendor cobblers' societies as being the KVIC unit and entitled
to claim its sales as tax free in terms of Schedule entry A-39(a) of
the Bombay Act. It was therefore, specifically requested that the
Tribunal should forward, alongwith Reference, certificates issued
to the so-called cobblers' societies for the relevant years. She
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would submit that such certificates issued by the commissioner
were not produced despite demand at all earlier stages. The
Tribunal, in disposing of the Second Appeal, has taken on record
and relied on the xerox copies of these certificates issued to the
vendors. The State and the Commissioner, despite a specific
demand, have not forwarded these relevant certificates as
enclosures to the Reference Application. The questions framed are
based on these certificates issued to the vendor cobblers' societies.
The very contents of these certificates, if produced, would falsify
all the claims made by this application. That is why the original
appellant has forwarded the certificates issued to all the suppliers
for the period 1992-1993. These certificates are issued to the
registered dealer by the Sales Tax Officer and were renewed every
year. Then, the present application is filed in undue haste without
attaching the papers normally required to be attached. The
Reference Application also is not attached to the present record.
Even the grounds of appeal before the first appellate authority and
the second appellate authority are not attached. The assessment
order, as attached, is incomplete. Ms. Badheka would, therefore,
submit that this Court is really handicapped and should not
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answer the questions in the absence of these material documents.
The Tribunal has also not forwarded the relevant trade circulars
and which have an important bearing on the issue. She would
therefore submit that once the Tribunal has not followed the
practice of drawing up a statement of admitted facts and
forwarding of the relevant records, then, this Court should return
the Reference. Then, she would submit that the present Reference
is peculiar. The Reference Application before the Tribunal is
disposed of not only by passing an order on the same, but on
seven other Applications. The seven other Applications were for
different assessment years. The subject matter and the issue is the
same. The findings on the issue of bias are identical. The Tribunal
has rejected the Applications to forward the questions of law and
at the instance of the Revenue in these seven cases. The rejection
is on the ground that the Tribunal has quashed the orders of
assessment on a finding of bias. The Tribunal held that the orders
are vitiated by bias. This being a finding of fact, the State has not
challenged the order of the Tribunal rejecting these Reference
Applications. However, even when the assessment order in the
present matter is vitiated by a bias, then, the same decision and
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conclusion, as reached in the seven other cases, should have been
reached by the Tribunal in the present matter.
20. Without prejudice to the above contentions, Ms. Badheka
would submit that the respondent's claim for deduction is based
on Section 8(ii) of the Bombay Act. The returns are filed claiming
exemption from sales tax by way of deduction from taxable
turnover under Section 8(ii). Ms. Badheka would submit that
Section 8(ii) deals with resales by the dealer on or after the
appointed day from the registered dealer, otherwise than on a
declaration furnished under Section 11 or 12, if the requirements
of Section 12A are satisfied. She would submit that there are clear
findings of fact. These findings are based on undisputed facts. The
undisputed facts are, the vendors held registration certificate and
issued their sale bills incorporating the requisite details in terms of
Section 12A. She would submit that despite such clear stipulation,
the State was desirous of taxing the transaction. The assessment
order confirms Rs.61,65,760/- as Registered Dealer Purchase. The
Tribunal has correctly allowed the deduction of resale as claimed.
The Revenue, however, has based its question by relying on
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certain certificates claimed to have been issued by the
Commissioner to the vendors of the original appellant. The
Revenue feels that the sales of vendors are tax free. The
assessment and the first appellate orders state that deduction
under Section 8(ii) cannot be allowed on the ground of certain
amendment to Schedule entry A-39(a) in 1988. It is alleged that
the vendors claim exemption under entry 39(a) of Schedule A of
the Act, but since the original appellant, as purchaser, did not hold
some certificates in terms of that entry, and issued by the
Commissioner, it was not entitled to the claim as laid under
Section 8(ii) or exemption from tax in terms of Schedule entry A-
39(a). Hence, the claim of second sale being tax free cannot be
allowed. This was a erroneous approach and the Tribunal in its
judgment in Second Appeal of the original appellant, held that it
had claimed deduction under Section 8(ii) and not exemption
under Section (5) of the BST Act.
21. In any case, according to Ms. Badheka, the entry A-39, as it
existed, must be read together with the change effected after 11 th
August, 1988. The amendment to the definition of the term
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"resale" as appearing in Section 2(26) denotes that it is to
disallow a claim of resale to trade mark holders. Such dealers
cannot be allowed resale under Schedule entry A-39. The purpose
in making such amendment ought to be noticed and only then it
would be evident that dealers, who are not trade mark holders
and not importers, but only producers, remain untouched. The
recommendation to be made by KVIC is restricted to those and
spelt out by the language of the entry itself. There is no question
of any recommendation for the original appellant and to be made
by KVIC. The Tribunal was convinced that even if the first sale is
exempted, the statute is framed for a single time tax, the sales
subsequent to the first sale which is exempted, will also be
exempted. In that regard, the Tribunal rightly relied upon the
judgment in the case of Anand Distillery vs. The Assistant
Commissioner of Sales Tax, Panaji reported in Volume 52 STC
262 (Bom.) and Shanmuga Traders, Etc. vs. State of Tamil
Nadu and Others reported in Volume 114 SCT 1 (SC). It is in
tune with this law that the circular has been issued by the
Commissioner. Once the very certificate issued to the respective
vendor societies, in terms, states that the resale of goods
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purchased from the respective vendors shall be free, then all the
more, there was no occasion for the Tribunal to make any
Reference. The question of law proposed and forwarded for this
Court's opinion and answer is, therefore, not arising from the
finding in the second appellate order.
22. The wording of the question itself is criticized by Ms.
Badheka. She would submit that the crucial facts have been
overlooked. In that regard, paragraph 36 of the Tribunal's
judgment and order in the second appeal would clinch the issue.
She would submit that there was no challenge to the order passed
by the Tribunal in the Second Appeal. Whether the certificates
were availed of by the vendors or not is not an issue or question
determined by the Tribunal. There is an assumption in the
question that is framed that the certificates were not issued or that
requirement in that regard was not complied with. There is no
pleading that the vendors availed of the certificate in dealing with
the present dealer (original appellant). In any case, what a third
party has done has nothing to do with the case of the original
appellant, and particularly, when it relies on the certificate issued
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under Section 12A by the vendors.
23. It is in these circumstances she would submit that question
No. (i) was not required to be referred at all. In any event, if that
question is referred, then, without prejudice to the objection of the
respondent, it be answered against the Revenue.
24. As far as question no.(ii) is concerned, once again our
attention is invited to the entries by Ms. Badheka. She would
submit that if the articles sold by the KVIC units were to be
taxable in the hands of the producers or dealers in the chain of
marketing, then, anomalous situation would arise. Such
subsequent dealers do not hold such certificate as required under
entry A39(a). No trader would buy from such cobbler society if
the trader's purchases from such cobbler society are tax free, but
re-sales are taxable. This would defeat the very purpose of grant
of exemption to promote KVIC units. In any case, the KVIC Board
would never recommend traders and direct the Commissioner to
issue certificate to traders as it is concerned only with it's own
units. That is how Ms. Badheka invites our attention to the Khadi
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and Village Industries Commission Act, 1956 (for short, "the KVIC
Act") itself. She would submit that the KVIC Act and Rules, as
compiled by her, would indicate that the said Act enacted by the
Parliament is to provide for the establishment of a Commission for
the development of khadi and village industries and for matters
connected therewith. She invites our attention to the definition of
the term "village industry" as appearing in Section 2(h). She
would submit that all the provisions of the KVIC Act, read together
and harmoniously, would indicate that, it is to promote such
articles of artisans and village industries, that the Commission is
established and set up. Therefore, it would like the products of
such artisans and village industries to reach all corners of the
country. It would never put any fetter or restriction on their free
marketing and trading. In the circumstances, she would submit
that though before the Tribunal it was argued that under the KVIC
Act, no dealer buying from such society and reselling the goods is
eligible to be given such a certificate so as to enable him to claim
exemption under the Bombay Act. Still, the Tribunal was aware
that in law, there is nothing which would restrain or restrict the
successive dealers. There is no requirement that they should hold
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certificate from the Commissioner. The certificate to be issued by
the seller is as stipulated in terms of Section 12A. That certificate
is to be issued in the prescribed form. That form nowhere
prescribes that the dealer purchasing from certified KVIC units will
be liable to pay tax on its resales. No such certificates are issued
by the vendor society. Once exempted, the subsequent sales will
remain exempted, as also is the case of sales of any other articles
listed in Schedule A. There is no exemption claimed by this
original appellant. It had filed returns claiming deduction on
turnover in terms of Section 8(ii) of the Bombay Act. Hence, we
should note the amendment, and upon perusal of the same, arrive
at a conclusion and consistent with the factual finding rendered by
the Tribunal in the second appellate order. The admitted facts are
that the resale of goods purchased from the co-operative societies,
which were all registered dealers, were eligible to deduction
under Section 8(ii) of the Bombay Act. All such sales of the
vendors were endorsed with certificates under the provisions of
Section 12A. It was duly certified that the sales are made by the
vendors as registered dealers liable to pay sales tax. Once such
declaration is given and with the specification as above, then,
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there is no other question to be considered. Therefore, the
requirements of Section 8(ii) are complied with. In that regard,
she has relied upon the finding in paragraph 48 of the Tribunal's
order (running page 128 of the paper book). In such
circumstances, if a registered dealer, purchasing from unit exempt
under entry 136 as package scheme of incentives, is allowed resale
by the State, there is no reason why the original appellant in this
case should be denied the benefit. In such circumstances, she
would submit that the arguments of Mr. Sonpal do not deserve to
be accepted. She would submit that the questions in this
Reference be answered against the Revenue and in favour of the
dealer.
25. For properly appreciating the above controversy, we would
first make a reference to the Bombay Sales Tax Act, 1959. We
would have to make a reference to the provisions as they stood at
the relevant time, namely, 1992-93. At the same time, we would
notice some amendments and which have a material bearing on
the controversy.
vikrant 27/61 901-STR-37-2010.doc
26. At the relevant time, the Bombay Sales Tax Act, 1959 had 79
Sections divided into nine (9) Chapters. It had the Schedules A, B
and C.
27. We have before us, a copy of this Act as amended up to 1st
May, 1998. It is an Act to consolidate and amend the law relating
to the levy of tax on the sale or purchase of certain goods in the
State of Bombay. Chapter I contains Section 2 titled as
"Definitions". We are concerned with this Section, and particularly
with certain definitions. The term "Commissioner" as defined
under Section 2 Clause (7) means the person appointed to be the
Commissioner of Sales Tax for the purposes of this Act. Section
2(11) defines "dealer" to mean any person who whether for
commission, remuneration or otherwise carries on business of
buying or selling goods in the State, and includes the Central
Government, or any State Government which carries on such
business, and also any society, club or other association of persons
which buys goods from or sells goods to its members. There are
Exceptions carved out, namely 3 in number, and then there is an
Explanation. We need not refer to the same in great details. For
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our purpose, the other definition, and which is relevant, is of the
term "Registered dealer" which appears under Section 2(25) to
mean, a dealer registered under Section 22. The term "re-sale" is
defined in Section 2(26) and that provision reads as under :
"2(26) "re-sale", for the purposes of sections 7, 8, 8A, 12, 13, 13AA
and 13B means sale of purchased goods-
(i) in the same form in which they were purchased, or
(ii) without doing anything to them which amounts to, or
results, in a manufacture, and the word "re-sale" shall
be construed accordingly;"
28. We are concerned in the present case with all the Sections
referred in this definition, namely, Sections 8, 8A and 12. It is
enough if we summarize this definition by holding that for the
purposes of the above Sections and enumerated in the definition,
re-sale means a sale of purchased goods in the same form in which
they were purchased or without doing anything to them which
amounts, or results in a manufacture and the word "re-sale" shall
be construed accordingly. The term "sale" is defined in Section
2(28). The term "tax" is defined in Section 2(32) to mean a sales
tax or purchase tax as the case may be, payable under the Bombay
Sales Tax Act. The term "taxable goods" is defined under Section
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2(33) to mean goods other than those on the sale or purchase of
which no tax is payable under Section 5. The term "turnover of
purchases" and "turnover of sales" are defined in Sections 2(35)
and 2(36) respectively. After scanning the above definitions, we go
to Chapter II which is styled as "Incidence and Levy of Tax"
Section 5 therein deals with 'Sales and purchases of certain goods
free from all tax'.
29. Section 5 was referred by Mr. Sonpal, and therefore, we
reproduce it and as it stood at the relevant time.
"5. Sales and purchases of certain goods free from all tax.
(1) Notwithstanding anything in this Act, but subject to the
conditions or exceptions (if any) set out against each of
the goods specified in column 3 of Schedule A, no tax
shall be payable on the sales or purchases of any goods
specified in that Schedule.
(2) The State Government may by notification in the
Official Gazette, add to, or enlarge, any entry in
Schedule A, or relax or omit any condition or exception
specified therein; and thereupon, the said Schedule
shall be deemed to be amended accordingly; and the
amendment so made shall take effect from the date of
the publication of the notification in the Official
Gazette or from such other date as may be mentioned
therein."
A perusal of this Section would reveal as to how 'sales and
purchases of certain goods free from all tax' is the heading of this
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Section. In Sub-section (1), it is stated that notwithstanding
anything in the Bombay Act, but subject to the conditions or
exceptions, if any, set out against each of the goods specified in
column 3 of Schedule A, no tax would be payable on the sales or
purchases of any goods specified in that Schedule. Sub-section (2)
of Section 5 reserves the power in the State Government to add
to, or enlarge, any entry in Schedule A, or relax or omit any
condition or exception specified therein. Then, Section 6 provides
for taxes payable by a dealer. The tax has to be paid subject to the
provisions of the Act and to any rules made thereunder, by a
dealer who is liable to pay tax. That tax or taxes are leviable in
accordance with the provisions of this Chapter II of the Bombay
Act.
30. Section 7 provides for single point levy of sales tax on
declared goods specified in Schedule B. Then comes Section 8 and
that provides for (levy of value added) sales tax on goods
specified in Schedule C. Section 8 reads as under:
"8. (Levy of value added) sales tax on goods specified in
Schedule C.
vikrant 31/61 901-STR-37-2010.doc
(1) There shall be levied a sales tax on the turnover of sales
of goods specified in Schedule C at the rate set out
against each of them in column 3 thereof, but after
deducting from such turnover,-
(i) resales of goods on the purchase of which the dealer is
liable to pay purchase tax under section 14;
(ii) resales of goods purchased by the dealer on or after the
appointed day from a Registered dealer, otherwise than
on a declaration furnished under section 11 or 12, if
the requirements of section 12A are satisfied;
[Provided that, resales of goods purchased by the dealer
from a registered dealer during the period commencing
on the 1st July 1981 and ending on the day
immediately preceding the date of commencement of
the Maharashtra Tax Laws (Levy and Amendment) Act,
1988, on a declaration furnished under section 8A shall
not be deducted from such turnover.]
(iii) resales of goods purchased by the dealer on or after the
appointed day from a dealer liable to pay tax under
section 4, if a certificate as provided in sub-section (2)
12A is furnished; and
(iv) sales of goods to a Commission agent furnishing a
declaration as provided in section 12.
(v) sales of goods to a dealer holding the Certificate of
Entitlement, who purchases such goods by furnishing a
declaration as provided in clause (g) of section 12".
A perusal of this Section would reveal as to how there shall
be levy on the turnover of sales of goods specified in Schedule C.
A sales tax at the rate set out against each of them in column 3
thereof, but after deducting from such turnover (i) resales of
goods on the purchase of which the dealer is liable to pay
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purchase tax under section 14, and (ii) resales of goods purchased
by the dealer on or after the appointed day from a Registered
dealer, otherwise than on a declaration furnished under section 11
or 12, if the requirements of section 12A are satisfied.
31. Then there are further sections which follow and confer
power to specify points of sale at which goods may be taxed,
provisions of Section 8A not to apply to declared goods, deduction
of resales during pendency of application by dealer for grant of
patent or registration of trade mark (Sections 8A to 8C) and
exclusion of certain purchases for purposes of deductions under
Section 7 and 8, which is set out in Section 10A. By Section 11,
tax is payable at reduced rate on certain sales, and by Section 12,
no deduction from turnover except on declarations.
32. Section 12 and 12A read as under:
"12. No deduction from turnover except on declarations.
There shall not be deducted from the turnover of sales, sales
of goods to a Commission agent holding a Permit purchasing
on behalf of his principal or to a Registered dealer, or to a
dealer holding a Certificate of Entitlement as provided in
sections 7, 8 and 8A unless-
(a) to (d) deleted.
vikrant 33/61 901-STR-37-2010.doc
(e) the Commission agent certifies in the prescribed
declaration form-
(i) that he is registered under the Central Sales Tax
Act,1956;
(ii) that his principal is registered under the Central
Sales Tax Act, 1956 for his place of business outside
the State;
(iii) that the goods are purchased by him for his
principal for the purpose of complying with the pre-
existing agreement or order for sale entered into by
such principal for or in relation to an export out of
the territory on India by such principal himself or
for packing of the goods for such export and that
such goods will be so exported by such principal or
will be so used in the packing of such goods; and
(iv) that he would obtain a declaration in the
prescribed form from such principal to the
aforesaid effect.
(f) the Registered dealer certifies in the prescribed
declaration form that the goods purchased by him are
intended for sale by him.
(g) the dealer holding the Certificate of Entitlement
certifies in the prescribed declaration form,-
(i) that the goods purchases by him are raw material
within the meaning of Explanation II to rule 31B of
the rules,
(ii) that the goods are purchased by him for use in the
manufacture of goods, for sale which are specified
in the Eligibility Certificate, which will in fact be so
used and sold by him or used in packing of goods
so manufactured."
"12A. No deduction from turnover of certain sales except
on a certificate.
(1) There shall not be deducted from the turnover of sales,
the resales of goods purchased by a dealer after the
commencement of the Bombay Sales Tax (Amendment)
Act, 1965, from a Registered dealer, as provided in
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sections 7, and 8 unless the dealer claiming deduction
produces a bill or cash memorandum containing a
certificate that the registration certificate of the selling
dealer was in force on the date of sale of the goods to
him. Such certificates shall be signed by the selling
dealer or a person duly authorised by him in this
behalf:
Provided that, where the certificate of registration of
the selling dealer has been cancelled with effect from a
date anterior to the date of the cancellation order, and
such sale was made on or after such anterior date of
cancellation, then subject to the provisions of sub-
section (7) of section 22, the certificate signed as
aforesaid shall be deemed to be invalid and to have
been invalid on the date of such sale; and accordingly
no deduction from the turnover of sales shall be
allowed to the claimant dealer in respect of such
resales.
(2) There shall not be deducted from the turnover of sales,
the resales of goods purchased by a dealer from a dealer
registered under the Central Sales Tax Act, 1956 and
who is liable to pay tax under section 4, as provided in
section 7, and 8 unless the dealer claiming deduction
produces, a bill or cash memorandum containing a
certificate that the selling dealer is liable to pay tax
under section 4 on the sale of goods to him and that the
said sale is in the course of business of the selling
dealer. Such certificate shall be signed either by the
selling dealer himself or by a person duly authorised by
him in this behalf.
(3) Notwithstanding anything contained in section 8, on or
after the date of commencement of the Maharashtra
Tax Laws (Levy, Amendment and Validation) Act, 1997
(a) no deduction from turnover of sales as provided in
that section shall be allowed to any dealer, if, the
turnover of all sales or of all purchases of the said
dealer has, in the preceding year, exceeded rupees
forty lakhs;
(b) Subject to the provisions of clause (a), deduction
from turnover of sales, as provided in that section
vikrant 35/61 901-STR-37-2010.doc
shall be allowed up to the time the turnover of
sales or purchases of a dealer, in a year, does not
exceed rupees forty lakhs and shall not be allowed
thereafter.
(3A) Without prejudice to the provision of sub-section (3),
no deduction from turnover of sale as provided in
Section 8 shall be allowed to such class or classes of
dealers as the State government may, by notification in
the official gazette, specify.
(4) Notwithstanding anything contained in sub-section (3)
of section 42, a selling dealer who has not been allowed
the deduction from the turnover of sales, as provided in
sub-section (3), may be granted a set off of tax,
calculated in the prescribed manner with reference to
the purchase price of goods purchased by him from a
Registered dealer or from a dealer liable to pay tax
under section 4, in such circumstances and subject to
such conditions, as the State Government may
prescribe."
A perusal of these provisions would indicate that either
there has to be a sales of goods to a Commission agent holding a
Permit purchasing on behalf of its principal or to a registered
dealer or a dealer holding a Certificate of Entitlement as provided
under Sections 7, 8 and 8A. By Section 12A, there is no deduction
permissible from turnover of certain sales except on a certificate.
The difference in the language of the two provisions is clear
inasmuch as both may be providing deductions from turnover, but
one provides for deduction on declarations and other provides on
certificate.
vikrant 36/61 901-STR-37-2010.doc
33. Since heavy emphasis has been laid on Section 17 and 17A,
we reproduce them as well:
"17.Power to reduce rate of tax and to amend Schedules.
The State Government may, by notification in the Official
Gazette, reduce any rate of tax specified in Schedule B or C
in respect of any entry (or part thereof) in the said Schedule;
and may, by like notification-
(a) omit or amend any entry (or part thereof), but not so
as to enhance the rate of tax in any case;
(b) transpose any entry by deleting it from one of the
Schedules and inserting it in or adding it to another;
and thereupon, the Schedule shall be deemed to have been
amended accordingly:
Provided that, no notification which transposes any entry
from one Schedule to another as aforesaid, shall be issued by
the State Government unless it has been laid in draft before
the Maharashtra Legislative Assembly and has been approved
by resolution of that Assembly; and upon such approval, the
notification may be issued and shall take effect in the form in
which it is so approved.
Any notification issued under this section shall take effect
from the date of the publication thereof in the Official
Gazette or from such other date as may be mentioned
therein."
"17A. No deductions under Section 8 in certain cases.
Where any entry (or part thereof) is transposed whether
under section 17 or otherwise, by its deletion from one of the
Schedules and its insertion in or addition to another
Schedule, then if no tax on any sale or purchase of the goods
specified in that entry (or part thereof) is leviable, the
deductions provided in clause (ii) or clause (iii) of section 8
shall not apply to the resale of those goods."
vikrant 37/61 901-STR-37-2010.doc
By Section 17, there is a power conferred in the State
Government which shall be exercised by issuance of a Notification
in the Official Gazette to reduce rate of tax and to amend
Schedules. By Section 17A, there will be no deductions under
Section 8 in certain cases. Thus, Section 17A deals with the
situation where any entry, or part thereof, is transposed whether
under Section 17 or otherwise, by its deletion from one of the
Schedules and its insertion in or addition to another Schedule,
then, if no tax on any sale or purchase of the goods specified in
that entry, or part thereof, is leviable, the deductions provided in
clause (ii) or clause (iii) of section 8 shall not apply to the resale
of those goods. Therefore, there has to be a fulfillment of the pre-
condition, namely, transposition, whether under Section 17 or
otherwise. Secondly, there ought to be no tax on any sale or
purchase of the goods specified in that entry or part thereof. It is
only upon such situation that there will be no deduction provided
in clause (ii) or clause (iii) of Section 8 and which provision deals
with resale of the goods. In other words, the deductions under
these clauses shall not apply to the resale of those goods. The
reason for that is obvious, for the Government has exercised a
vikrant 38/61 901-STR-37-2010.doc
power, either in terms of Section 17 and clause (a) and (b)
thereof, or otherwise.
34. It is not necessary to refer to all other provisions contained
in this Chapters of the Bombay Act, for the simple reason that the
Revenue may have referred to the same, but not each one of them
can be said to be applicable.
35. Thus, Chapter II is dealing with incidence and levy of tax,
Chapter III deals with sales tax authorities and Tribunal, Chapter
IV deals with registrations, licences, authorizations, recognitions
and permits and by Chapter V, returns, assessment, payment,
penalty, recovery and refund of tax are the matters dealt with.
Though there is a reference made to some of the provisions in this
Chapter V, dealing with 'drawback, set-off, refund etc.', we do not
think that the same are relevant. By Chapter VI, there is a liability
to produce accounts and supply information and by Chapter VII,
titled as 'proceedings', there are several provisions so as to enable
determination of disputed questions and entertain appeals,
reference applications etc. The offences and penalties are set out
vikrant 39/61 901-STR-37-2010.doc
in Chapter VIII, whereas, miscellaneous provisions are contained
in Chapter IX. We have made a survey of the entire provisions so
as to appreciate the contentions of Mr. Sonpal. At the relevant
time, Schedule A-39 read thus:
39 (a) Products of Village Industries (1) When sold by a 1-7-1981
defined in the Khadi and Village producer or a dealer to
Industries Commission Act, 1956 certified for this 10-8-1988
and the Bombay Khadi and purpose by the
Village Industries Act, 1960; Commissioner after
taking into account the
(b) Khadi and readymade recommendations of
garments and other articles, the Khadi & Village
prepared from Khadi. Industries Commission
constituted under the
Explanation: For the purposes of Khadi and Village
this entry Khadi means any cloth Industries Commission
woven on handloom in India Act, 1956, or, as the
from cotton, silk or woollen yarn case may be, of the
handspun in India or from the Maharashtra State
mixture of any two or more of Khadi and Village
such yarns. Industries Board
constituted under the
Bombay Khadi and
Village Industries Act,
1960, or
(2) When sold by another
dealer who has
purchased the goods
from a producer or
dealer certified under
condition (1)
(Sales of man-made fibre and
polyester and cotton blended
silvers are exempted against BX
from under Entry (215) by STA-
1085/CR-97-RES-8 dt. 29-7-85.
w.e.f. 25-6-85 to 30-9-1995)
39 (a) Such products of Village (1) When manufactured 11-8-1988
Industries as are defined in the and sold by a Producer, to
Khadi and Village Industries or when imported and 30-4-1994
Commission Act, 1956 and sold by an importer,
Bombay Khadi and Village certified for this
vikrant 40/61 901-STR-37-2010.doc
Industries Act, 1960, as may be purpose by the
notified by the State Government Commissioner after
from time to time for the taking into account the
purpose of this entry. recommendations of
the Khadi & Village
Industries Commission
constituted under the
Khadi and Village
Industries Commission
Act, 1956, or, as the
case may be, of the
Maharashtra State
Khadi & Village
Industries Board
constituted under the
Bombay Khadi and
village Industries Act,
1960, or
(2) When sold by a dealer
who is certified for this
purpose by the
Commissioner after
taking into account the
recommendations of
the Khadi and Village
Industries Commission
constituted under the
Khadi and Village
Industries Commission
Act, 1956, or, as the
case may be, of the
Maharashtra State
Khadi and Village
Industries Board
constituted under the
Bombay Khadi and
Village Industries Act,
1960 and who does not
hold a trade mark or a
patent in respect of the
goods sold or who does
not hold a patent in
respect of the method
or process of
manufacturing the
goods sold.
39 (a) Such products of Village (1) When manufactured 1-5-1994
Industries as defined in Khadi and sold by a producer, to
and Village Industries or when imported and 30-9-1995
Commission Act, 1956 and sold by an importer,
vikrant 41/61 901-STR-37-2010.doc
Bombay Khadi and Village certified for this
Industries Act, 1960, as the purpose by the
State Government may, subject Commissioner after
to such conditions as it may taking into account the
deem fit, notify from time to recommendations of
time. the Khadi & Village
Industries Commission
constituted under the
Khadi and Village
Industries Commission
Act, 1956, or, as the
case may be, of the
Maharashtra State
Khadi & Village
Industries Board
constituted under the
Bombay Khadi and
Village Industries Act,
1960, or
(2) When sold by another
dealer who has
purchased the goods
from a producer or
dealer certified under
condition (1)
(b) Khadi and readymade (1) When manufactured 11-8-1988
garments and other articles, and sold by a producer, to
prepared from Khadi. or when imported and 30-9-1995
sold by an importer,
Explanation: For the purposes of certified for this
this entry Khadi means any cloth purpose by the
woven on handloom in India, Commissioner after
from cotton, silk or woollen yarn taking into account the
handspun in India or from the recommendations of
mixture of any two or more of the Khadi & Village
such yarns. Industries Commission
constituted under the
Khadi and Village
Industries Commission
Act, 1956, or, as the
case may be, of the
Maharashtra State
Khadi & Village
Industries Board
constituted under the
Bombay Khadi and
Village Industries Act,
1960, or
(2) When sold by another
dealer who has
purchased the goods
vikrant 42/61 901-STR-37-2010.doc
from a producer or
dealer certified under
condition (1)
We are concerned with the Schedule A-39(a) as prevailing
from 11th August, 1988 to 30th April, 1994.
36. A bare perusal of this would indicate that this entry was
substituted w.e.f. 11th August, 1988 by Maharashtra Act No. 22 of
1988. It deals with products of village industries as are defined in
the KVIC Act and the Bombay Khadi and Village Industries Act,
1960. Such products of these industries as may be notified by the
State Government from time to time for the purpose of this entry
are covered by this Schedule entry. However, in column 3 thereof,
in item (1), a situation where these goods are manufactured and
sold by producer, or when imported and sold by an importer,
certified for this purpose by the Commissioner after taking into
account the recommendations of the KVIC or, as the case may be,
of the Maharashtra State Khadi & Village Industries Board, or
when sold by a dealer, who is certified for this purpose by the
Commissioner after taking into account the recommendations as
above, and who does not hold a trade mark or a patent in respect
vikrant 43/61 901-STR-37-2010.doc
of the goods sold or who does not hold a patent in respect of the
method or process of manufacturing the goods sold. Thus, two
types of persons are dealt with by item (1) and item (2) appearing
in column 3. One is a case of manufacturer and producer selling
the goods, or when they are imported, the sale by an importer
certified for this purpose by the Commissioner and after taking
into account the recommendations of the two entities referred to
herein above. The second is dealing with a sale by a dealer who is
certified for this purpose by the Commissioner after taking into
account the recommendations of the above entities and who does
not hold a trade mark or a patent.
37. Therefore, for the purpose of this Schedule entry, there are
specific conditions and which are to be found in Column 3. There
are variations in this Schedule, but after 1 st May, 1994, and we
ought not be concerned therewith.
38. The Tribunal, in the order on the appeal, may have
reproduced several provisions and Sections of the Act and the
Schedule but what we are really concerned with is a factual
vikrant 44/61 901-STR-37-2010.doc
position. What has emerged from the record is that 23 items were
notified by the State Government at the relevant time and for the
purpose of this entry.
39. Since reference is also made to Schedule entry C-II-42,
dealing with footwear other than those specified in entry 3 in
Schedule A, we reproduce the said entry as well;
42 Footwear other than those specified in entry 36
in Schedule A.
(a) When sold at a price not exceeding Rs.30/- 8% 8% 1-7-1981 to
per pair. 30-4-1994
(b) When sold at a price exceeding Rs. 30/- per 12% 12% 1-7-1981 to
pair 30-11-1982
(b) When sold at a price exceeding Rs. 30 but 12% 12% 1-12-1982 to
not exceeding Rs. 50/- per pair. 30-4-1994
(c) When sold at a price exceeding Rs. 50 per 15% 15% 1-12-1982 to
pair. 30-4-1994
[Rate of tax is reduced to 8%, if the pair is sold
upto Rs. 50/- and to 10% if sold above Rs. 50/-
under entry (97B) by STA-1085/CR-97/RES-8
dt. 29-7-85 w.e.f. 25-6-1985].
[Whole of the tax is exempted on the sales or
purchases of plastic or rubber footwear sold or
purchased at a price not exceeding Rs.25/- per
pair under entry(97B(ii-a)) by STA-1088-62-
Tax-2 dt.25-3-1988 w.e.f. 1-4-1988]
[Sales or purchases of footwear other than
those made by hand without power, and plastic
or rubber footwear exceeding Rs.25/- but not
exceeding Rs.50/-; rate of tax is reduced to 8%
and if sold or purchased at a price exceeding
Rs.50/- per pair, rate is reduced to 10% under
entry (97-B (iii)(a) (b) by STA-1085/CR-
97/RES-8 dt.29-7-1985 w.e.f. 25-6-1995.]
[Entry 97B deleted w.e.f. 1-5-94 by STA-
1094/12/T-2 dt. 2-6-94].
vikrant 45/61 901-STR-37-2010.doc
42 Footwear 8% 8% 1-5-1994
to
30-9-1995
[By Entry (377(i)) Sales of plastic and rubber
footwear when sold at a price not exceeding Rs.
50/- per pair whole of tax is exempted w.e.f. 1-
5-94].
[By Entry (377(ii)) Sales of orthopaedic
footwear by a dealer recognised by the
commissioner; whole of tax exempted w.e.f.
1-5-94].
[By Entry (377(iii)) Sales or purchases other
than 377(i) or 377(ii); rate of tax is 4% w.e.f.
1-5-94 by STA-1094/12/T-2 dt. 2-6-94].
[In Entry 97(iv) in col. 2 and resales thereof
deleted w.e.f. 1-5-94 by STA-1094/35/T-2 dt.
10-8-94].
40. From the factual narration and the submissions of parties,
which were fairly extensive, the Tribunal found that the
Notification which was issued, referred to entry 39 of Schedule A
appended to the Bombay Act w.e.f. 11th August, 1988. The
Government of Maharashtra notified the products of the village
industries to be the notified products for the purpose of entry 39.
This Notification itself is reproduced at page 119 of the paper
book. There are as many as 23 kinds of products of the industries
which are found in the Notification. The Tribunal concluded from
the same that these products are taxable in nature. To our mind,
the Tribunal rightly understood the controversy before it. To our
mind, and further, the Tribunal rightly noted that there are
vikrant 46/61 901-STR-37-2010.doc
conditions specified in Schedule A-39 and which, upon fulfillment,
would make the sale and purchase of these products free from tax.
The Tribunal also rightly referred to the object, namely, to
promote the products of village industries as are defined by KVIC
Act. These are products emerging from village industries. These
industries are operating at village level are encouraging such
artisans and skilled workers in rural areas who manufacture and
produce products of day to day use, but do not find a market or
do not have an access thereto on account of poverty and varied
reasons. It is to promote their products and bring them in the
main stream economy that the two Acts have been promulgated.
The KVIC Act has a definite object and purpose and that to
provide for the establishment of a Commission for the
development of khadi and village industries and for matters
connected therewith. Both are distinct terms and understood by
the preamble itself. "Khadi" as defined in Section 2(d) means any
cloth woven on handlooms in India from cotton, silk or woollen
yarn handspun in India or from a mixture of any two or all of such
yarns. Then, 'village industry' is defined in Section 2(h) to mean
any industry located in rural area which produces any goods or
vikrant 47/61 901-STR-37-2010.doc
renders any service with or without the use of power and in which
the fixed capital investment per head of an artisan or a worker
does not exceed fifteen thousand rupees or such other sum as may
be specified by a Notification by the Central Government. The
proviso to this definition indicates that any industry specified in
the Schedule and located in an area other than a rural area and
recognised as a village industry at any time before the
commencement of the KVIC (Amendment) Act, 1987 shall,
notwithstanding anything contained in the sub-clause, continue to
be village industry under this Act.
41. We need not refer to the KVIC Act and the provisions in
further details. The Tribunal has rightly noted that it is this object
and purpose which is sought to be achieved by encouraging the
manufacturers and producers, importers and the dealers who deal
in the products. However, though that fact has to be verified, it is
upon a recommendation of the KVIC or the Bombay Board that
the Commissioner of Sales Tax will issue the necessary
documents/certificates. The Tribunal, therefore, in paragraph 36
of its order on the appeal, concludes that if the dealer dealing in
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such items is an unregistered dealer, then, sales at the hands of
such dealer and the purchase thereof would be taxable
notwithstanding the entry A-39 which is meant for tax free goods.
That is because the products which are described in entry A-39 are
not tax free otherwise, but exigible to tax. It is only when the
products are dealt with by the dealer specified, or rather certified,
that all the benefits would follow. Therefore, the Tribunal
understood this controversy in the first instance in a correct and
proper perspective.
42. We are not in agreement with Mr. Sonpal that the Tribunal's
order on the appeal was vitiated in any manner. Mr. Sonpal's
argument centers around the fact criticism the Tribunal has, in the
order on appeal, merely gave illustrations and did not assign any
reasons for its conclusions. That is incorrect. We must read the
order on the appeal in its entirety. So read, it is apparent that the
illustrations are to support the reasons which have been assigned.
After reproduction of relevant Sections, Schedule items and
Notifications, the Tribunal, from paragraph 35 onwards,
commences its reasoning and gives certain illustrations. The
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Tribunal first clears the ground by referring to Section 5. Once
Section 5 has been correctly understood by the Tribunal as its Sub-
section opens with a non obstante clause, and refers to certain
conditions based on which the goods can be termed as 'tax free',
then the further finding by the Tribunal is logical. It follows from
its earlier references.
43. In paragraph 42 of the order of the appeal, the Tribunal
concludes that from the nature of the entries found in Schedule A,
it will be seen that, subject to certain conditions, both the
transactions of sale or purchase are not held to be exigible to tax.
The Tribunal was making these observations in the light of the
interpretation that it placed eventually on Schedule entry A-39. It
rightly proceeds on the footing that this entry grants exemption to
specified dealers and not to purchases or sales of the goods unlike
the rest of the entries of Schedule A. It also mentioned that as
many as 23 products/industries are notified by the Competent
Authority. The goods are not tax free, but since they are referable
to Khadi and Village Industries Act which is a Central Statute, that
the exemption from the ambit of taxation falls.
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44. In paragraph 43 and 44 of the Tribunal's order, the findings
read thus:
"43. A dealer, like Khadi Bhandar, who is dealing in eight or nine
figure turnover and is probably covering most of the 23
products notified by the government does not have to pay tax on
its sales. The only condition is that it should be a registered
dealer. Thus, in respect of all other goods found in Schedule A,
the incidence of taxation does not occur at all. The dealer
dealing in tax free goods need not be registered. Also, there is no
bar to the source of such purchases. They may be imported from
out of Maharashtra or out of India. They remain tax free. The
entire sales or purchases of such goods do not invite any tax if
no conditions are attached and these conditions are only in
respect of the 'price' or 'packing', as mentioned above. It is only
in respect of Schedule entry A-39 that it is the dealer who is
exempted from the ambit of taxation. The purpose, as
mentioned above, is to promote the Khadi and Village
industries' products.
44. There is another angle of looking at this controversy. Unless the
producer of the goods notified by the K.V.I.C. is also certified
dealer under class (2), the goods sold by him will be taxable in
his hands. What will happen to the goods purchased from such
second dealer and resold? The answer is that unless second
dealer is a registered dealer, the sale should be taxable
notwithstanding the fact that the goods are of the category of
Village Industries' produce or otherwise. All the resales,
thereafter, will be tax free. Once a registered dealer intervenes,
the goods remain free from tax throughout the chain of
marketing."
Then, the Tribunal refers to the definition of the term
"resale".
45. After reproducing, in paragraph 45, the definition of the
term "resale" as appearing then in Section 2(26), the Tribunal
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summarizes the pre-requisites or requirements on the fulfillment
of which, resale takes place. They are rightly summarized in
paragraph 45.
46. The Tribunal has also referred to the provisions as appearing
after 11th August, 1988. The Tribunal observes that the structure
of taxation has undergone a change. The Tribunal has noted those
changes.
47. Ms. Badheka is right in contending that the whole
controversy is approached by the Tribunal with reference to
Section 8 Clause (ii) and when the Tribunal found that Rule 42-H
of the Bombay Rules would also be relevant for that purpose it
refers to the same.
48. It may be that the Tribunal then referred to several
provisions. However, when it summarizes the whole issue and the
conclusions broadly, it rightly makes a reference to the conditions
specified in column 3 of Schedule entry A-39(a). In the first
instance, it is the products manufactured and sold by producers or
when imported and sold by an importer certified for the purpose
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by the Commissioner and after taking into account the
recommendations of the statutory entities, secondly, when such
products of village industries as are defined in the KVIC Act and
the Bombay Act, as may be notified from the State Government
from time to time for the purpose of this entry, when sold by a
dealer who is certified for this purpose by the Commissioner after
taking into account the recommendations of the KVIC and the
Bombay Board and who does not hold a trade mark or patent in
the respective goods sold or who does not hold a patent in respect
of the method or process of manufacturing the goods sold.
Therefore, there are specific conditions when such products, as
referred above, are sold by a dealer who is certified by the
Commissioner. Such dealer should not be holding a trade mark or
a patent. Now, a trade mark is referable to the goods sold and
patent is referable to the method or process of manufacturing of
the goods sold. Thus understood, we have no hesitation in
concluding that the products, if sold by such dealers, would be tax
free. It is in these circumstances that we have no hesitation in
rejecting the submissions of Mr. Sonpal.
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49. The illustration set out in para 52 read by Mr. Sonpal cannot
be read in isolation. All the paragraphs of the judgment would
have to be read together. If so read, after referring to the
submissions, the points for consideration and providing the factual
backdrop, the Tribunal, while rendering its findings and
conclusions, traces the legislative scheme, and by elaborately
explaining it, does not invoke any principles of statutory
interpretation unknown to law. It is referring to the settled
principles to be applied while interpreting a taxing statute. Those
alone have been invoked and applied.
50. The Tribunal records a firm opinion that the appellant
before it is entitled to resales in respect of its purchases effected
from the KVIC dealers for the goods which are leather goods
falling in entries C-II-42 and C-II-81, both at the time of purchase
and sale. They are Schedule C goods when purchased and sold,
and therefore, entitled to resale. We do not see how such
conclusion can raise a question of law. When the Tribunal decided
this matter and as elaborately as it did, how does any question of
an interpretation of the provisions of law has not been clarified to
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us. The question as framed for our consideration and opinion is
that, whether the sales of leather goods are admissible for
deduction as resales under Section 8(ii) of the Bombay Sales Tax
Act, 1959 even though corresponding purchases of these goods
were covered by entry 39(a) of Schedule A of the Act and when
necessary certification was availed of by the appellant's vendors.
The issue before the Tribunal's Bench in the Reference Application
was whether the above conclusions of the Tribunal raise any
question of law. The Tribunal has, in a very elaborate order on the
Reference Application, running into about 115 paragraphs,
possibly thought that the Schedule entry was not properly and
correctly interpreted. Once we have referred to the Schedule entry
ourselves, and independent of the Tribunal's conclusions analyzed
it, we do not think that it was incorrectly interpreted or
misconstrued or misinterpreted at all. Therefore, there was no
occasion for the Tribunal to refer these questions.
51. Possibly, it was for the second time engaged by the Revenue
in the very controversy and which had already consumed lot of its
time. We find that lot of unnecessary discussion is made. Though
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the Tribunal's order on the appeal was before the Bench when it
decided the Reference Applications, and it has extensively
revisited the very same provisions, we have not noticed any
disagreement, much less recording of any different opinion.
Therefore, the Tribunal need not have made elaborate re-exercise.
If the Revenue was aggrieved and dissatisfied with the order in the
appeal, it could have brought a further appeal to this Court.
However, the Tribunal, while passing the referring order, was of
the view that there is specific exemption to particular class of
dealers and the tax was not payable by the particular class of
dealers. Thus, making distinction between leviability and non-
leviability, the Tribunal had come to the conclusion that even after
addition of explanation to Section 8, that has not made any
difference. We think that the insertion of the Explanation has led
to the reference to this court. On facts, we find that all conditions
of deduction for resale have been fulfilled. However, the
Explanation added later is the focal point. The Explanation that
was introduced to Section 8 came to be inserted by Maharashtra
Act No. XVII of 1999 and the argument before the Tribunal on the
Reference Application was that it shall be deemed to have always
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been inserted.
52. However, that explanation reads thus:
"Explanation.- For the purpose of this section the
expression 'resale of goods' means the resale of those goods
on the sale of which tax was leviable under this section at
the time of their purchase"
A perusal of this explanation would indicate that it defines,
for the purpose of Section 8, the expression 'resale of goods' to
mean resale of those goods on the sale of which, tax was leviable
under this Section at the time of their purchase.
53. While making a reference of the above question to this
Court, the Tribunal lost sight of the fact that in its order on the
main appeal, it had already held that the tax was leviable. Once it
was leviable, then, insertion of the explanation made no difference
to the issue and controversy at hand. From the factual position
emerging from the record of the appeal, even if the Tribunal had
later on decided this matter, but with reference to the same
provision or insertion of the explanation, the conclusion could not
have been otherwise. If mere insertion of the explanation has led
to a reference of the above question no. 1, then we are very sorry
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to say that it is mere duplication. A lot of judicial time has been
consumed and unnecessarily in this exercise.
54. We are, therefore, of the opinion that the Reference
Application was decided unmindful of the fact that mere insertion
of the Explanation does not render the conclusions recorded
earlier perverse or vitiated in law. The second round on the same
material was, therefore, unnecessary.
55. Mr. Sonpal has heavily relied upon a Division Bench
judgment of this Court in the case of M/s. Friends Stores Nagpur
(supra). In that case, the issue was for the assessment period 1 st
April, 1962 to 31st March, 1963. There was a claim that M/s.
Freinds purchased garments from registered dealers, the value of
which was less than Rs.5 per piece, but when sold, it was much
more than Rs.5 per piece. Therefore, it was entitled to deduct
from its turn over the value of such goods. This turnover was
estimated by the Sales Tax Officer but the Sales Tax Officer held
that the goods which were purchased form the registered dealers
and which were covered at the time of such purchase by entry 42
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of Schedule A to the Act, were liable to be taxed in accordance
with the provision of the Bombay Act. The appellate authority,
namely, the Assistant Commissioner of Sales Tax, also negatived
the contention of the assessee that he was entitled to a deduction
under Section 9(i)(ii) of the Act as it then stood. Section 9 of the
Act, and as was referred to us, was deleted from 1 st October, 1995
by Maharashtra Act XVI of 1995. Sections 9 (i) and (ii) of the Act
have been reproduced in the judgment of M/s. Friends Stores
Nagpur. Though the order of the first appellate authority was
confirmed by the Tribunal, since it took a view that the question
whether on a proper construction of Section 9(ii) the assessee was
entitled to a deduction from his total turnover in respect of the
resales of the goods which were covered by entry 42 of Schedule
A to the Act at the time of the purchase but at the time of the sale
they were covered by entry 4 of Schedule D. That was a question
of law. After noting the arguments of both sides, the Division
Bench of this Court concluded that the reference to Section 9(i)
and 9(ii) in the question referred by the Tribunal is a mistake.
Clause (ii) of Section 9 was the applicable clause. Section 9
provides for a general sales tax on the turnover of sales of goods
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specified in Schedule D at the rate set out against each of them in
column 3 thereof. Under clause (ii), deduction is permitted in
respect of resales of goods purchased from a registered dealer on
or after the appointed day by a dealer who is not a licensed dealer
at the time of purchases. Therefore, the Division Bench concluded
that it is a self contained provision laying down the liability to
general sales tax on the turnover of sales of goods specified in
Schedule D. After analyzing the Section, the Division Bench
concluded that before an assessee claims a deduction from his
turnover, one of the conditions which he must satisfy is that the
goods which are resold must be the goods which are specified in
Schedule D and which he must have purchased from a registered
dealer. Admittedly, in that case the goods in respect of which
deduction was claimed, were not goods which were specified in
Schedule D at the time when the assessee purchased them but
they were covered by entry 42 of Schedule A. It is in that context
that the principle of transposition was applied and to our mind,
such is not the controversy before us at all. In such circumstances,
the judgment in the case of M/s. Friends Stores Nagpur is of no
assistance and was rightly distinguished by the Tribunal. Section
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17A of the BST Act, 1959, as reproduced above has no application
to the facts before us.
56. We are of the opinion that once the above view is taken,
then, the question of law, though strictly does not arise in the
present case, would have to be answered against the Revenue and
in favour of the dealer.
57. There is no question of any estoppel in the sense we are
construing and interpreting a statutory provision and Schedule
entry as forming part of the statute itself. In such circumstances,
we do not see how a question about applicability of the principle
of estoppel, as invoked by the Revenue in the peculiar facts and
circumstances, would arise at all.
58. Once we take the above view, it is not necessary to make a
detailed reference to the judgments brought to our notice by Ms.
Badheka. She has referred to several judgments and which
essentially cull out the principle that circulars issued by the
Commissioner of Sales Tax would not bind the assessee or the
Courts, but they bind the Tax Department. Once we have
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approached the matter from the above angle, we do not think that
any reference to the judgments, and particularly on the binding
nature of the circulars of the Revenue, should detain us. We do
not think each of these judgments, therefore, need to be referred
by us.
59. As a result of the above discussion, we dispose of the Sales
Tax Reference No. 37 of 2010 in the above terms. There will be no
order as to costs.
Sales Tax Reference Nos. 17 of 2009, 18 of 2009,
106 of 2009 and 108 of 2009
60. It is conceded that in all matters and which are tagged
alongwith Sales Tax Reference No. 37 of 2010, the questions of
law forwarded for our opinion and answer are identical.
Therefore, each of these References would stand disposed of in
terms of this judgment.
(PRAKASH D. NAIK, J.) (S. C. DHARMADHIKARI, J.)
