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Supreme Court of India
State Of Orissa vs M.A. Tulloch And Co on 21 April, 1964
Equivalent citations: 1966 AIR 365, 1964 SCR (7) 816
Author: S Sikri
Bench: Sikri, S.M.
           PETITIONER:
STATE OF ORISSA

	Vs.

RESPONDENT:
M.A. TULLOCH AND CO.

DATE OF JUDGMENT:
21/04/1964

BENCH:
SIKRI, S.M.
BENCH:
SIKRI, S.M.
SUBBARAO, K.
SHAH, J.C.

CITATION:
 1966 AIR  365		  1964 SCR  (7) 816


ACT:
Sales  Tax-Sale	 to Registered dealer-Claim  for  deduction-
Production  of	declaration under r.  27(2)  if	 obligatory-
Orissa	Sales Tax Act, 1947 (Orissa 14 of 1947), s.  5(2)(a)
(ii), Orissa Sales Tax Rules, 1947 r. 27(2)-Orissa Sales Tax
(Amendment) Act (Orissa 10 of 1957).



HEADNOTE:
Assessment  orders  were  passed by the	 Sales	Tax  Officer
allowing  the  deductions  of two  amounts  claimed  by	 the
respondent-dealer  under s. 5(2)(a)(ii) of the Orissa  Sales
Tax  Act  in respect of goods sold to a	 registered  dealer.
The   respondent-dealer	 filed	appeals	 to  the   Assistant
Collector  Sales Tax, challenging the assessment on  grounds
which	were  not  relevant  and  against  those   decisions
revisions  were	 filed by the dealer.  While  the  revisions
were pending the Orissa Sales Tax Act was amended by  Orissa
Sales Tax (Amendment) Act (Orissa Act, 10 of 1957) with	 the
result	that revisions were treated as appeals to the  Sales
Tax  Tribunal, and it enabled the Government to file  cross-
objections.  In pursuance, the State filed  cross-objections
challenging the deductions on the ground that the dealer had
not  produced any declaration as required under r. 27(2)  of
the Orissa Sales Tax Rules, 1947.  The Tribunal upheld	this
objection  and directed that fresh assessments be made.	  On
statement  of  the case, the High Court	 answered  that	 the
assessing officer was not wrong in allowing the	 deductions.
On appeal by special leave).
Held:(i)  There is nothing in s. 5 (2) (a) (ii)	 itself
that disentitles a selling dealer to a deduction, but if the
contingency  provided in the proviso occurs, then the  price
of  goods is included in the taxable turnover of the  buying
dealer.
(ii)The	 production of a declaration under r. 7(2)  is	not
always	obligatory  on	the part of a  selling	dealer	when
claiming  the  exemption.   It	is  open  to  him  to  claim
exemption  by  adducing other evidence so as  to  bring	 the
transaction within the scope of s. 5(2)(a)(ii).	 Rule  27(2)
must  be  reconciled with the section and the  rule  can  be
reconciled  by treating it as directory.  But the rule	must
be substantially complied with in every case.  It is for the
Sales-tax  Officer  to	be  satisfied  that,  in  fact.	 the
certificate  of registration of the buying  dealer  contains
the requisite statement, and if he has any doubts about	 it,
the  selling dealer must satisfy his doubts.  But if  he  is
satisfied  from	 other	facts  on  the	record,	 it  is	 not
necessary   that  the  selling	dealer	should	 produce   a
declaration  in the form required in r. 27(2). before  being
entitled to a deduction.
Member	Sales-tax  Tribunal, Orissa v. Mls.  S.	 Lai  &	 Co.
(1961) 12 S.T.C. 25, referred to.



JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 507-508 of 1963. Appeal by special leave from the judgment and order dated November 4, 1950, of the Orissa High Court in Special Jurisdiction Cases Nos. 38 and 39 of 1958.

R.Ganapathy Iyer and R. N. Sachthey, for the appellant (in both the appeals).

817

B.Sen and S. N. Mukherjee, for the respondents (in both the appeals).

April 21, 1964. The Judgment of the Court was delivered by SIKRI, J.-The respondent, hereinafter referred to as the the dealer, filed a return for the quarter ending June 30, 1951, under the Orirsa Sales Tax Act (Orissa Act XIV of 1947) (hereinafter referred to as the Act). He claimed a deduction of Rs. 2,40,000/- under s. 5(2)(a)(ii) in respect of the goods sold to a registered dealer, named M/s. Lal & Co. Ltd., BA 1335. Similarly, for the quarter ending September 30. 1951, he claimed a deduction of Rs. 15,677/1/3. By two assessment orders passed under s. 12(2) of the Act, the Sales Tax Officer, Cuttack III circle, Jaipur, Orissa, determined the tax payable allowing the deduction of Rs. 2,40,000/- and Rs. 15,677/l/3, under s. 5(2)(a)(ii). The dealer filed appeals to the Assistant Collector, Sales Tax, challenging the assesment on grounds which are not relevant. The dealer later filed revisions against the decision of the Assistant Collector. While the revisions were pending, the legislature amended the Orissa Sales Tax Act, in 1957, by Orissa Sales Tax (Amendment) Act (Orissa Act XX of 1957). The effect of this amendment was that revisions were treated as appeals to Sales Tax Tribunal, and it enabled the Government to file cross-objec- tions. The State of Orissa, in pursuance of this amendment, filed memorandum of cross-objections challenging the deduc- tion of Rs. 2,40,000/- and Rs. 15,677/l/3, on the ground that the dealer had not produced any declaration, as required under r. 27(2) of the Orissa Sales Tax Rules, 1947, as evidenced from the Check Sheet kept on record. The Tribunal upheld this objection and directed that fresh assessments be made. Certain other questions were raised before the Tribunal by the dealer, but as nothing turns on them as far as these appeals are concerned, they are not being mentioned. The Tribunal stated a case to the High Court and one of the questions referred to was "whether the assessing officer was not wrong in allowing deduction of Rs. 2,40,000/- for the quarter ending on 30-6-51 and Rs. 15,677/1/3 for the quarter ending on 30-9-51 from the respective gross turnover of the applicant." The High Court, following its earlier decision in Member, Sales-tax Tribunal, Orissa v. Messrs S. Lal & Co. Limited (1) answered the question in the affirmative. The State of Orissa having obtained special leave from this Court, these appeals are now before us for disposal.

Mr. Ganapathy lyer, on behalf of the State of Orissa, has contended before us that it is clear that r. 27(2) was not complied with, and, therefore, the Sales Tax Officer was wrong (1) (1961) 12 S.T.C. 25.

818

in allowing the said deduction. The answer to the question referred depends on the correct interpretation of s. 5(2)(a)(ii), Co. and r. 27(2). They read thus: -

"s. 5(2)(a)(ii)-sales to a registered dealer of goods specified in the purchasing dealer's certificate of registration as being intended for resale by him in Orissa and on sales to a registered dealer of containers or other materials for the packing of such goods. Provided that when such goods are used by the registered dealer for purposes other than those specified in his certificate of registration, the price of goods so utilised shall be included in his taxable turnover." "Rule 27(2). Claims for deduction of turnover under sub-clause (ii) of clause (a) of sub- section (2) of section 5-
A dealer who wishes to deduct from his gross turnover on sales which have taken place in Orissa the amount of a sale on the ground that he is entitled to make such deduction under sub-clause (ii) of clause (a) of sub-section (2) of section 5 of the Act, shall produce a copy of the relevant cash receipt ,or bill according as the sale is a cash sale or a sale .on credit in respect of such sale and a true declaration in writing by the purchasing dealer or by such responsible person as may be authorised in writing in this behalf by such dealer that the goods in question are specified in the purchasing dealer's certificate of registration as being required for resale by him or in the execution of any contract:
Provided that no dealer whose certificate of registration has not been renewed for the year during which the purchase is made shall make such a declaration and that the selling dealer shall not be entitled to claim any deduction of sales to such a dealer."

It is, plain from the terms of s. 5(2)(a)(ii) that a selling ,dealer is entitled to a deduction in respect of sales to a registered dealer of goods, if the goods are specified in the purchasing dealer's certificate of registration as being intended for re-sale by him in Orissa. No other condition is imposed by the above section. The proviso deals with consequences that follow if the purchasing dealer uses them for purposes other than those specified in his certificate of registration, and ,directs that, in that event, the price of goods so utilised shall 819 be included in his turnover. Therefore, there is nothing in the section itself that disentitles a selling dealer to a deduction, but if the contingency provided in the proviso occurs, them the price of goods is included in the taxable turnover of the buying dealer. But Mr. Ganapathy lyer says, be it so, but the rule making authority is entitled to make ruler, for carrying out the purposes of the Act, and r. 27(2) is designed to ensure that a buying dealer's certificate of registration does, in fact, mention that the goods are intended for resale by him, and for that purpose it has chosen one exclusive method of proving the fact before a Sales Tax Officer. He further urges that no other method of proving that fact is permissible. Rule 27(2) is mandatory and if there is breach of it the selling dealer is not entitled to deduction. The learned counsel for the res- pondent, on the other hand, contends that r. 27(2) is directory. He points out that the word 'shall' should be read as 'may', in the context. He further says that supposing the selling dealer brought the original certificate of registration of a buying dealer and produced it before the Sales Tax Officer, according to the appellant, this would not be enough, but this could never have been intended. In our opinion, r. 27(2) must be reconciled with the section and the rule can be reconciled by treating it as directory. But the rule must be substantially complied with in every case. It is for the Sales Tax Officer to be satisfied that, in fact, the certificate of registration of the buying dealer contains the requisite Statement, and if he has any doubts about it, the selling dealer must satisfy his doubts. But if he is satisfied from other facts on the record, it is not necessary that the selling dealer should produce a declaration in the form required in r. 27(2), before being entitled to a deduction.

We are, therefore, of the opinion that the High Court came to a correct conclusion. The High Court is correct in holding that the production of a declaration under r. 27(2) is not always obligatory on the part of a selling dealer when claiming the exemption. It is open to him to claim exemption by adducing other evidence so as to bring the transaction within the scope of s. 5(2)(a)(ii) of the Act. In this case, the Sales Tax Officer was satisfied by a mere statement of the dealer and it has not been shown that in fact the registration certificate of the buying dealer, M / s S. Lal & Co., did not contain the statement that the goods were intended for resale by him in Orissa.

The appeals accordingly fail and are dismissed with costs. One set of hearing fee.

Appeals dismissed.

820