COMMISSIONER OF SALES TAX, GUJARAT v. UNION MEDICAL AGENCY

Citation: [1981] 1 S.C.R. 870

Court: Supreme Court of India

Bench: P.N. BHAGWATI, A.P. SEN, E.S. VENKATARAMIAH

Case summary

-This appeal, by special leave, is from a judgment of the Gujarat High Court, upon a question of law referred to it. The Tribunal accordingly held that since Motibhai Gopalbhai Patel, the Baroda dealer, from ·whom the assessee had purchased the goods, was not a registered...

Judgment text

S70 COMMISSIONER OF SALES TAX, GUJARAT v. UNION MEDICAL AGENCY October S, 1980 [P. N. BHAGWATI, A. P. SEN AND E. S. VENKATARAMIAH, JJ. J t Bombay Sales Tax Act, 1959 as appUcable to State of Gujarat-Interpretation of the expression "Registered dealer" in section S(il)-Whether it mean& only a deale1· registered under section 22 of the Act or it also comprises a dealer registered in the Central Sales Tax Act, 1956-Rule in ex visceribus actus explained. Allowing the appeal by special leave and answering against the assessee, the Court. , HELD: Per Bhagwati; J. (Concurring with Sen and Venkataramiah, JJ. ) (1) The expression "Registered dealer" is used in section 8 (ii) in its definitional sense to mean a dealer registered under section 22 of the Bombay Sales Tax Act and it does not include a dealer under the Central Sales Tax Act. [875A] .

E (2) The obje:ct of section 8 is to prevent a multiple point taxation on goods specified in Schedule C and for impos1tion of single point tax on them under the Act. If a dealer is registered only under the Central Act and not und((r the Bombay Act, it would mean. that he is not liable to pay tax under the Bombay Act and in that event, even if he has sold goods specified in Schedule 'C', to a fl! gistered dealer under an intra-State sale, no tax would be payable by him on such sale and if the purchasing dealer is also to be exempt . J . F from tax in 1'espect of re-sale effected by him, the result would be that the goods would escape tax altogether and not suffer even single point tax. That is not the intendment of the legislature in enacting section 8(ii); on the contrary it would frustrate the very object of that section. The situation would be the same even where the sale effected by the dealer registeted under the Central Act is au inter-State sale.

That sale would undoubtedly be taxable under the Central Act but there is no reason why the Gujarat State would give exemption to re-sale of goods in respect of which, at the time of the first sale tax has been levied under the Central Act of which the benefit has gone to another State. Moreover, in such a case, the first sale being an inter-State sale, would be taxable, at a fixed concessional rate under section 8(1Xa) or at the rate of 7% or at a rate equal to or twice the rate applicable to the sale of such goods in the State of the selling dealer, under clause (a) or (b) of sub-section (2) of section :B of the Central Act and if that be so, it is difficult to understand . H why the Legislature should have insisted, for attracting the applicability ofl section 8(ii), that the goods re-sold by the dealer should at the time of their first sale be goods specified in Schedule 'C'. [873F-G, 874C·G] C. S. T. , GUJARAT v. UNION MEDICAL AGENCY (Sen, !.

) 871 (3) Sections 4 and 8(ii) of the Bombay Act are distinct and · independent J>rovisions operating on totally different areas. The legal fiction in sub-section {I) of section (4) is created for a specific purpose and it is limited by the terms of sub-section (2) of section 4 and it cannot be projected in section 80i). If a dealer is not registered under the Bombay Act, it could only be on the basis that he is not liable to pay tax under the Bombay Act, but ·even so, section 4 sub-section (I) provides that if he is registered under the Central Act, he would be liable to pay tax under the Bombay Act in· respect of the transactions of sale set out in that section. This liability arises despite the fact that the dealer, not being liable to pay tax under section 3 of the Bombay Act, is not regis- . I tered under that Act. The dealer not being registered under the Bombay Act, the machinery of the Bombay Act would not of itself apply for the recovery of tax from him.

Section 4 sub-section 2, therefore, enacts that every dealer who is liable to pay tax under sub-section (1) shall, for the purpose of sections 32 to 38 and 46 to 48 be deemed to be a registered dealer. Sections 32 to 38 and 46 to 48 are machinery sections and it is for the purpose of making the machinery of these sections applicable for recovery of the tax imposed on the dealer under sub-section (1) of section 4 that an artificial fiction is created deeming the dealer to be a registered dealer, that is, a dealer registered under section 22 of the Bombay Act. Per Sen, l. (On behalf of himself and Venkataramiah, J. ). (! ) It is a well settled principle that when a word or phrase has been defined in the interpretation clause, prima ~acie that definition governs whenever that word or phrase is used in the body of the statute.

But where the context makes the definition clause inapplicable,- a defined word when used in the body of the statute may have to be given a meaning different from that -contained in the interpretation clause; all definitions given in an interpretation clause, are, therefore, normally, enacted subject to the usual qualification -"unless there is anything repugnant in the subject or context", or "unless the . '\ C. S. T. , GUJARAT v. UNION MEDICAL AGENCY (~en, J. ) include a registered dealer under the Central Sales Tax. Act but the . Assistant Commissioner affirmed the disallowance of the deduction. On further appeal, the Gujarat Sales Tax Tribunal agreeing with the ·sales Tax Authorities, held t! iat in order to daim deduction' f~om the turnover of sales of goods under cl. (ii) of s. 8 of the Act, what was required to be shown was that the goods were purchased by the -B dealer on or after the appointed day from a 'registered dealer'.

under the Act, and that in view of the definition of the expression 'registered dealer' in sub-s. (25) of s. 2 of the Act, such dealer had to be a ·dealer registered under s. 22 of the Act. The Tribunal accordingly held that since Motibhai Gopalbhai Patel, the Baroda dealer, from ·whom the assessee had purchased the goods, was not a registered dealer under the Act, therefore the requirements of cl. (ii) of . s:8 of the Act were not fulfilled, and the claim for deduction made·'by the ·assessee had been rightly disallowed. On the application . of the ·assessee, the ·Tribunal referred the following question of law to the High Court under sub-s. (1) of s. 61 of the Act, for its opinion, ·namely: "Whether for the purpose of allowing deduction Jrom the. turnover of sales under cla~se (ii) of section 8 of thef:Bombay Sales Tax Act, 1959; purchases. of goods made by: a dealer .

registered under the Bombay Sales Tax Act, 1959 from a dealer registered under the Central Sales Tax Act, 1956 but not registered under the Bombay Sales Tax Act, 1959 can be said to be purchases of goods made fiom a registered dealer r within the meaning of clause (ii) of. section 8 of the Bombay Sales Tax Act, 1959. " \.. It appears. that the -High Court was not satisfied at this formu- . lation··as it felt that the statement of the case as made by the Tribunal ,-did not bring out the real question of law arising out of its order. At ·the instance of the assessee, it re-framed the question in the following . terms ! " ::~::':~/. ~ "Whether for the purpose of allowing deduction from the · turnover of sales under clause (ii) of section 8 of the Bombay Sales Tax Act, 1959, purchases of goods made by a dealer registered ·under the Bombay Sales Tax Act', 1959 from a dealer who is registered under the Central Sales Tax Act, 19~. 6 and .

who is liable to pay tax under section 4 of the Bombay Sales Tax Act, 1959 though not registered under the Bombay Sale& Tax Act, 1959 can be· said to. be purchases of goods made from" a reiistered dealer ~within the meaning of clause (ii) of section 8 of the Bombay Sales Tax Act, 1959. " : / - [1981] 1 S. C. R. We feel that the High Court was not justified in re-framing the question as referred. It is nobody's case that Motibhai Gopalbhai Patel, the Baroda dealer from whom the assessee had purchased the goods, had ever paid any tax on the sales effocted by him under s. 4 of the Act. Nor is there any material on record to suggest that any proceedings were started against the Baroda dealer for subjecting the transactions to tax.

In answering the reference in the affirmative, in favour of the assessee and against the Commissiioner of Sales Tax, the High Court observes: "The result of the foregoing discussion is that having regard to the context, collocation and th1~ object of the expression 'registered deal(jr' in clause (ii) of section 8 of the Bombay Act, and having regard to the policy of the Act, the said expression would also include a dealer registered under the Central Act on whom special liability to pay sales tax has been imposed under section 4 of the Act. A dealer who purchases goods from a dealer registered under the Ce,ntral Act, who is liable to pay sales tax on the sale of the said goods by virtue of the provisions of section 4. of the Bombay Act, would, therefore, be entitled to deduct from his turnover of sales of goods, resales of goods so purchased by him on or after the appointed day if the goods, at the time of their purchase, were goods specified in Schedule C.

" This conclusion of the High Court can hardly be supported. The short question that falls for determination in the appeal is whether the expression 'registered. dealer' in ,cl. (ii) of s. 8 of the Act must bear the meaning that is assigned to rt in s. 2(25) which is the _definition section, or the said expression is capable of bearing an enlarged meaning, in view of the subject and context in lvhich it is used in cl. (ii) of s. 8 of the Act. The decision of the appeal must :turn on the constructipn of cl. (ii) of s. 8 of the Act, which provides : "8. 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 1 turnover:- (i) * * * * * * * (ii) resales of goods purchased by him on or after the appointed day from a Registered dealer if the goods at the · time of their purchase were goods specified in Schedule C. " C. S. T. ,, GUJARAT v.

UNION MEDICAL AGENCY (Sen, /. ) 879 In the Act, the expressron 'registered dealer' is defined in s. 2(25) in these terms : "2. In this Act, unless the context otherwise requires,- (25) "Registered dealer" means a dealer registered r under section 22. " The error in the decision of the High Court lies in its misunder~ standing of the scope and effect of s. 4 of the Act, which it has tried to project into cl. (ii) of s. 8 and it reads as follows : "4. (1) Notwithstanding anything in section 3, a dealer who is registered' under the Central 'sales Tax Act, 1956, but who is not liable to pay tax under the said . section 3, shall never- · theless be liable to pay tax- (a) on sales of goods in respect of the purchase of t which he has furnished a declaration under sub section (4) of section .

8 of the Central Sales Tax Act, 1956, and (b) on sales of goods in the manufacture of which the goods· so purchased have been used, and accordingly, the provisions of sections 7 to 12 (both inclusive) shall apply to such sales, as they apply to the sales made by a dealer liable to pay tax under section 3. (2) Every dealer who is liable to pay tax under sub-section (1) shall, for the purposes of sections 32, 33, 34, 35, 36, 37, B. 38, 46, 47 and 48 be deemed to be a Registered dealer. " Sub-section (3) of s. 7 reads : I "7.

(3) In order to ensure that after the date of the coming into force of section 15 of the Central Sales Tax Act, 1956, tax shall not be levied on the sales or purchases of Declared goods at more than one stage, it is hereby provided that if under this Act or any earlier law, any tax has been levied or is leviable on the sale or purchase of such goods then no further tax shall be levied under this Act on any subsequent sale or purchase thereof; and accordingly, for the purpose of arriving at the taxable turnover of sales or purchases of· a dealer, there shall be deducted from hi~ total turnover of sales, or as the case may be, of pur- _chases, the sales or purchases of such declared goods as have borne~tax at any earlier stage. " There is no obscurity in the language of c!. (ii) of s. 8 of the Act. It is clear from the terms of cl. (ii) of s. 8 that no deduction is claimable in respect of resales of goods purchased froni.

a dealer registered under the Central Act, who is not a registered dealer within the meaning of s. 2(25) of the Act. It follows that the A. expression 'registered dealer' in cl. (ii) of s. 8 of the Act must bear . the meaning of that express. ion as given in s. 2(25) of the Act. If the meaning of the section is plain, it is• to be applied whatever the result. It is a well settled principle that when a word or phrase has been defined in the interpretation clause, prima facie that definition governs whenever that word or phrase is used in the body of the statute. But where the contex~ makes the definition ciause inapplicable, a defined word when used in the body of the statute may have to be given a meaning different from that con1tained in the interpretation clause; all definitions-given in an interpretation clause are, therefore, normally enacted subject to the usual qualification-··'unless there is .

) / anything repugnant in the subject or context', or 'unless the context otherwise requires'. Even in the absence of an express qualification . to that effect §UCh a qualification is always implied. The expression 'registered dealer' having. been defined in s. 2(25) of the Act as having a particular meaning, i. e. , a dealer registered under s. 22 of the Act, it is that meaning alone which must be given to it in interpreting cl. (ii) of s. 8 of the Act, unless there is anything repugnant to the context. It was not permissible for the High Court to ignore a statutory definition and give to the expression a wider meaning independent of it. There is nothing to 5uggest that the expression 'registered dealer' is used in cl. (ii) of s. 8 of the Act in. any different sense from that in" which it is. defined. It is significant to notice that whenever the legislature wanted that the expression 'registered dealer' should have a, different meaning, it has expressly said so. Thus in sub-s.

( 1) of s. 4 it mentions of 'a dealer who is registered under the Central Sales Tax Act, 1956'. The distinction between the two classes of dealers is, therefore, clearly maintained. The High Court was obviously wrong in not interpreting the expression 'registered dealer' in the context of cl. (ii) of s. 8 but with reference to the other provisions of the Act, particularly in the light of s. 4 of the Act, to give effect to the so-called legislative intent for the levy of a single point tax. It was in error in making an exposition ex visceribus actus and in relying upon the leading cases of Bywater v. Brandll'ng( 1), Rein v. Lane(2), Jobbins v. Middlesex County Council(3) Craies oil Statute Law, 6th ed. , 99, and Maxwell on Interpretation of Statutes, 8th ed. , 30. The High Court expresses the view that the legislative intent in enacting cl. (H) of s. 8 of the Act is two-fold (1) to restrict the levy (1) [1828] 7 B. & C. 643. (2) [1867] L. R. 2 Q. B. 144. (3) [1949] I K. B. 142.

'~,"' ·, C. S. T. , . GUJARAT v. UNION MEDICAL AGENCY (Sen, J. ) 881 ·Of sales tax to a single point and to avoid multiple levy of sa. Jes tax on goods, and (2) that sales tax should be levied at the stage of the first sale and should be recovered from the registered dealer who effects the first sale and that all subsequent sales of such goods should no. t be subjected to sales tax over again. In the light of this so-called legislative · intention and the policy of the Act, the High Court observes that ·'having regard t,o the context, collocation and the object of the expression 'registered deafor' in cl. (ii) of s. 8 of the Act', and 'having regard to the legislative intent, namely, to levy a single point ·tax under sub-s. ( 3) of s. 7 of the Act', the expression 'registered dealer' in cl. (ii) of s. 8 would also include a dealer registered under the Central Sales Tax Act, 1956, on whom a special liability to pay sales tax has been imposed under s. 4. Upon .

that view, it held that a dealer who purchased goods from a dealer registered under the Central Act, who was liable ·to pay. sales tax on the sale of such goods by virtue of the provisions of s. 4 of the Act, would be entitled to ·deduct from his turnover of sales of goods, resales of goods so purchased by him on or after the appointed day if the goods at the time n ·of their purchase, ~ere goods specified in Schedule C of the Act. It accordingly held that the meaning of the expression 'registered dealer' in cl. (ii) of s. 8 was not limited only to a dealer registered under the Act but it was wide enough to also include a dealer . tegistered' under the Central Act. :E There is no dispute with the proposition that the. m'eanlng of a word or expression defined may have to be departed from on account of the subject or context in which the word had been 'used and th'at will be giving effect to the opening sentence in definition section, namely 'unles~ the context other~ise requires'.

In view of this qualification, the Court has not only to look at the words but also ·F to . Jook at the context, the collocation and the object of such Words relating to such matter and . interpret the meaning intended to be conveyed by the use of the words in a p,articular section. But where there is no obscurity in the language of the section, there is no scope for the application of the rule ex visceribus act11s. This rule is never ·allowed to alter . the meaning of what is of itself clear and ,explicit. . G The authorities relied upon by the High Court are, therefore, not applicable. While accepting that sub-s. ( 3) of s. 7 of the Act was to give effect to cl. (a) of s. 15 of the Central Act, and therefore cannot control the interpretation of cl. (ii) of s. 8, the High Court commits the mistake "of interpreting the expression 'registered dealer' appearing therein, >H in the context of s. 4 of the Act. The provisions of s. 4, sub-s. (3) · ; of s. 7 and cl. (ii) of s.

8 of the Act operate in three different fields. ,, <-:-,Ji While s. 4 of the Act provides that a registered dealer under the- Central Act who may not be liable to pay tax under s. 3 of the Act may nevertheless in certain contingencies be liable to pay tax, sub-s. (3) of s. 7 provides for the levy of single point tax on sales in the course of inter-state trade and commerce of declared goods, to bring the Act in conformity with cl. (a) of s. 15 of the Central Act. The object and purpose of enacting the provisio~s of s. 8 are entirely different, namely, to lay down the mode of computation of the turnover of" sales or purchases of a registered dealer for the imposition of a tax. Clause (ii) of s. 8 allows for deduction of resales from the turnover· of such registered dealer when the goods are purchased from a re- J gistered dealer, i. e. , a dealer registered under s. 22 of the Act. In. effect, s. 8 deals with transactions of sale or purchase taking place· within the State.

There is a fallacy in the reasoning of the High Court. It seems: that the High Court was obsessed with two factors, namely (1) the: concept of a single point tax under sub-s. (3) of s. 7 of the Act, and (2) the fact that a registered dealer under the Central Act who may not be liable to pay tax under s. 3 of the Act may nevertheless in certain contingencies be liable to pay tax. It f_ailed to appreciate that cl. (ii) of s. 8 which allows for deduction of sales by one registered' dealer to another, deals purely with inside sales. The expression• 'registered dealer' in cl. (ii) of s. 8 is sought to be given an enlarged' meaning by stretching, in effect, the legal fiction contained in sub-s. (2) of s. 4. After observing that the legal fiction in sub-s. (2) of s. 4 is.

created for a limited purpose, it goes on to observe : "It would, therefore, have been inappropriate or at any· rate wholly inartistic for the legislature to provide in sub-section (2') of section 4 that every dealer who is . Jiable to pay tax under· sub-section ( 1) shall be deemed to bt a registered dealer for the purpose of clause (ii) of section 8 since the latter section provides for the levy of sales tax on sales of goods of an altogether different dealer after making certain deduction from the· turnover of sales of goods of such dealer. The legislature could' have made a specific provision, if any, in this behalf only in clause (ii) of section 8 and not in sub-section (2) of section 4. " The High Court proceeds on the hypothesis that the transactions in question must have been 'brought to tax in the hands of the Baroda dealer and, therefore, it became necessary to avoid multiple levy of sales tax.

On that assumption, it felt that it was necessary to· give to the assessee the benefit of s. 8 (ii) of the Act although the· Baroda dealer was not a registered dealer within the meaning of• C. S. T. , GUJARAT. v. UNION MEDICAL AGENCY (Sen, J. ) 883. s. 2(25) i. e. , registered as a dealer under s. 22 of the Act. We regret to say that in reaching that conclusion, the High Court has proceeded on mere conjectures and surmises. For aught we know, the Baroda ' dealer at the relevant time, might not be engaged in the business of selling goods in the State of Gujarat and was, therefore, not a dealer liable to pay tax at all. Perhaps he was primarily engaged in effecting ·sales in the course of inter-State trade and commerce, or it may be that the inside sales effected by him did not exceed the taxable limits. Both the parties proceeded upon the basis that the purchases effected by the assessee were not subjected to tax.

It was, therefore, not right for the High Court to hold that the disallowance of deduction claimed by the assessee under cl. (ii) of s. 8 of the Act would result in double taxation of the same goods. It is evident that the High Court has completely misdirected itself. The transactions of sales effected by the Baroda dealer to the assessee who was a dealer at Ahmedabad, were clearly inside sales. While it is true that the' Baroda dealer being adealer registered under s. 7 of the Central Sales Tax Act was, in certain conting. encies, liable to pay tax under s. 4 of the Act, but that circumstance by itself would not make him a 'registered dealer' within the meaning of s. 2(25) . of the Act; If the legislature really intended that the expression 'registered dealer' in cl. (ii) of s. 8 should take within its . ambit a dealer registered under the Central Sale& Tax Act, upon whom liability to pay sales tax is imposed by s. 4 of the Bombay Act, it would have said so in clear words.

It would have made necessary provision in that behalf in sub-s. (2) of s. 4 which provides that every d~aler Hable to pay tax under sub-s. ( 1) shall be deemed to be a registered dealer for purposes of certain sections of the Bombay Act viz. , ss. 32, 33, 34, 35, 36, 37, 38, 46, 47 and 48. It is thus apparent that the legal fiction in sub-s. (2) of s. 4 is created for a limited purpose, namely, to make sectron 4 a selfcontained code which not only imposes a charge of tax and lays down . the rate· structure, but also provides the machinery for assessment and recovery of tax and penalty. The legal fiction contained in sub-s. (2) of s. 4 of the Act cannot be stretched any further. For these reasons, the judgment of the High Court answering the referenc~ in favour of the assessee is set aside. The question referred by the Tribunal is answered in the negative and in favour of the Revenue. There shall be no order as to costs. S. R. Appeal allowed.