V. Prakash & Co. vs Commissioner Of Sales Tax, New ...
1992 Latest Caselaw 124 Del

JUDGMENT

B.N. Kirpal, J.

1. The Sales Tax Appellate Tribunal, New Delhi, has referred the following question of law to this Court for our opinion :

"Whether, on the facts and circumstances of the case, the Tribunal was right in holding that medicines, being taxable to sales tax at the first point of sales in terms of notification of the Chief Commissioner dated January 1, 1965, were liable to tax as such irrespective of the sales being to registered dealers and the assessed having obtained requisite declaration from them ?"

2. In our opinion the question as framed does not bring out the controversy in the correct perspective. We would, therefore, reframe the question as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that medicines sold to the registered dealers which were manufactured, were liable to tax in terms of the notification of the Chief Commissioner dated 30th December, 1964 ?"

3. Briefly, stated the facts as found by the Tribunal, are that the dealer is engaged in the business of resale of drugs and medicines and is registered under the provisions of the local Sales Tax Act. In respect of the assessment year 1973-74 the dealer had made sales of drugs and medicines and Chemicals to other registered dealers. The dealer claimed deduction in respect of the sales so made. The claim was raised under section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941 (as extended to the Union Territory of Delhi). The necessary declarations were produced before the assessing authority.

4. On 30th December, 1964, the then Chief Commissioner of Delhi, in exercise of the powers conferred on him by section 5A of the Bengal Finance (Sales Tax) Act had issued a notification whereby all the medicines, drugs and pharmaceutical preparations were made liable to tax at the first point of sale. In view of the non obstante provision of section 5A of the said Act the assessing authority came to the conclusion that the sales made by the dealer were not entitled to any deduction in view of the said notification. Deduction was, however, allowed on 25 per cent of the total turnover to registered dealers by regarding the turnover as pertaining to sale of Chemicals.

5. The appeal filed by the dealer to the Assistant Commissioner of Sales Tax was unsuccessful.

6. Further appeal was then filed to the Sales Tax Tribunal. The Tribunal took note of the contention of the dealer "that the sales were effected by the assessed to manufacturers who in turn carried out some manufacturing processes on the medicines and drugs and then sold them". The Tribunal then came to the conclusion that by virtue of the notification which had been issued tax was leviable at the first point when drugs and medicines were sold by the importer. Therefore, the sales made by the dealer even to the manufacturers were held to be liable to tax. It is thereupon that the aforesaid question of law has been referred to this Court.

7. The contention on behalf of the dealer is that on a correct interpretation of section 5A the benefit which is available with regard to the sale of medicines and drugs to a manufacturer against the purchaser's registration certificate cannot be denied to the dealer. Learned counsel for the dealer drew our attention to section 5A which is as follow :

"Notwithstanding anything to the contrary in this Act, the Chief Commissioner may, by notification in the Official Gazette, specify the point in the series of sales by successive dealers at which any goods or class of goods may be taxed."

8. It was submitted by Shri Wazir Singh that section 5A applies only if there are series of sales by successive dealers. According to the learned counsel the sales, in the present case, could not be regarded as series of sales by successive dealers and, therefore, notwithstanding the wording of any notification issued under section 5A, the benefit of deduction under section 5(2)(a)(ii) could not be taken away.

9. Shri Goel on the other hand has referred to the Notification of 30th December, 1964, which is as follows :

"In exercise of the powers conferred by section 5A of the Bengal Finance (Sales Tax) Act, 1941, as in force, in the Union Territory of Delhi, the Chief Commissioner, Delhi, is pleased to specify that with effect from the 1st January, 1965, the turnover in respect of medicines, drugs and pharmaceutical preparations shall be liable to tax only at the point of :

(a) sale by importer if imported from outside the Union Territory of Delhi, or

(b) sale by manufacturer if manufactured in the said territory.

Provided that the turnover in respect of sales within the Union Territory of Delhi by any registered dealer of any quantity of medicines, drugs and pharmaceutical preparations which has not suffered any tax under the said Act, shall be liable to tax as if the dealer was a manufacturer or importer in terms of this notification."

10. It has been submitted by the learned counsel that this notification makes a sale by a dealer like the present taxable irrespective of the provision of section 5(2) of the Act. In view of the use of the words "notwithstanding anything to the contrary in this Act ...." the benefit of deductions under section 5(2)(a)(ii), it is submitted, will not be available to the dealer even in case of sales made to a registered dealer because the notification issued under section 5A makes the first sale in Delhi taxable.

11. Before dealing with the notification dated 30th December, 1964, it is necessary to examine the full import and effect of section 5A of the Act.

12. Section 5A appears to have been enacted to specify a point when sales can be taxed. If a number of sales had taken place in Delhi of a particular item then it may have been possible to subject each sale of that item to tax. In order that there may be no multiplicity of the sales tax on the same item and in order to ensure a single imposition of the tax ax it became necessary to specify which of the sales should be liable to tax. In the sales tax law it is either the first or the last sale which is subjected to tax. Section 5A is an enabling provision. It is meant to enable the Chief Commissioner to specify the point in the series of sales by successive dealers at which the tax can be levied. Section 5A contemplates, in respect of the same thing, a number of taxable events occurring in Delhi, viz., successive sales taking place, but the levy of tax being restricted to only one taxable event. To put it differently, section 5A will have no application if there are no series of sales in Delhi by successive dealers.

13. The provisions of section 5A are analogous to the provisions contained in section 3A of the U.P. Sales Tax Act which has been the subject-matter of judicial decisions. In Dr. Sukh Deo v. Commissioner of Sales Tax [1963] 14 STC 581 (All.), Ram Kumar Rajendra Swaroop v. Commissioner of Sales Tax [1967] 19 STC 241 (All.), Gurna Mal v. State of U.P. [1970] 26 STC 270 (All.), and Krishna Brick Field v. State of U.P. [1972] 29 STC 15 (All.) [FB] it has been held that the said provision applies only where commodities pass through series of sales by successive dealers and where there is only one sale the said section 3A of the U.P. Sales Tax Act would not be applicable. There has to be plurality of sales of a commodity in order to attract the provisions of section 3A of the U.P. Sales Tax Act, it was held.

14. We are in respectful agreement with the said decisions. In our opinion the same principle will apply in Delhi also. Unless and until there is plurality of sales of a commodity the provisions of section 5A will not apply.

15. Narrowly construing the impugned Notification dated 30th December, 1964, may give the impression that even if there is no plurality of sales in Delhi then whenever a sale takes place by an importer or by a manufacturer, the same is subject to tax. Section 5A contemplates the issuance of a notification only when there is plurality of sales. We cannot assume or interpret the impugned notification to mean that it can apply in cases where there is no plurality of sales. The said notification has to be read in the light of the provisions of section 5A of the Act. Reading the two together it would mean that wherever there is plurality of sales of a commodity in Delhi, then, as provided by the notification, the sale by an importer in Delhi or the sale by a manufacturer in Delhi will be subjected to tax.

16. The matter may be viewed from another angle. Section 5A presupposes that the sale of a commodity will be taxable in Delhi at any one point of time. Section 5A merely enables the authority concerned to issue a notification specifying at which point of time is the tax to be levied. Section 5A cannot be so construed or applied so as to impose tax which is otherwise not leviable under the Act. For example, under the Act and the rules framed there under sales made by a manufacturer or an importer to foreign embassies are exempt from tax. The impugned notification, if strictly construed, would have the effect of even subjecting such sales to tax because of the non obstante wording of section 5A. Surely this was not the intention of the Legislature. It is only to prevent multiplicity of tax, and to provide for the tax being levied only at the stage, that section 5A was enacted. Section 5A comes into play only if the sale of goods otherwise becomes liable to tax. For example if sales are made to a registered dealer for resale then that would be a case of series of sales by successive dealers in Delhi and by virtue of the notification tax would be levied on the first sale.

17. The Tribunal has proceeded on the basis that the dealer has made sales to manufacturers on the strength of their registration certificates. The goods which were sold by the dealer have been used in manufacture by the purchasers. These goods have, therefore, not been subjected to resale as such. There has been no series of sales of these goods in the Union Territory of Delhi, in view of the fact that the goods sold by the dealer had lost their character when they were used as raw material, in the manufacture of medicines by the purchasers. It is that manufactured item which is ultimately sold by the purchaser and not the item, as such, which was purchased from the dealer.

18. For the reasons stated hereinabove the answer to the reframed question is in the negative and in favor of the dealer.

19. There will, however, be no order as to costs.

20. Question reframed and answered in the negative.