1. The Constitutional validity of Sub-clause (vd) of Clause (a) of Sub-section (2) of Section 5 of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter called "the BFST Act"), has been challenged in these three revision cases arising respectively out of matter Nos. 3481 and 4821 of 1988 of the original side, and C.O. No. 9312(W) of 1986 of the appellate side of the High Court, Calcutta. These cases were received on transfer in accordance with Section 16 of the West Bengal Taxation Tribunal Act, 1987. For the sake of brevity we shall hereinafter mention the Central Sales Tax Act, 1956, as "the CST Act", the Bengal Sales Tax Rules, 1941, as "BST Rules", and the Constitution of India as "the Constitution".
2. These three cases have been analogously heard, since the aforesaid common question falls for our determination in all these matters. In RN-125(T) of 1989 and RN-370(T) of 1989, the applicant No. 1, Tata Iisco Dealers' Association of Eastern India is a registered company which was established with the object of catering to the commercial needs of its members who are dealers in iron and steel. In RN-144(T) of 1989, the applicant No. 1, is the Calcutta Iron Merchants' Association, which is a registered association of iron merchants looking after the commercial interests of its members who are dealers in iron and steel.
In RN-129(T) of 1989, of course, the applicants are themselves dealers in iron and steel.
3. The cases of the applicants in the three matters being almost identical, may be briefly put as follows : Prior to amendment of the BFST Act by Section 4 of the West Bengal Taxation Laws (Amendment) Act, 1985, introducing Sub-clause (vd) of Section 5(2)(a), the tax on the sale of iron and steel was levied on the last point of sale. By the said amendment the point of taxation was changed to the first point of sale inside the State of West Bengal. In view of the provisions of the BFST Act, 1941, only the first point of sale in iron and steel in West Bengal was exigible to tax and subsequent sales thereof would not be subjected to any tax, provided the dealer at the second or subsequent points of sale is able to prove to the satisfaction of the Commissioner of Commercial Taxes that the concerned iron and steel were purchased by him in the same form in West Bengal on or after 1st April, 1985, from a registered dealer and provided that a declaration in form XXIVC obtainable in the prescribed manner and duly signed by the selling registered dealer is furnished. [The text of Section 5(2)(a)(vd) and the relevant portion of Rule 27A(1b) will be reproduced hereafter for the sake of due appreciation of the points of dispute.] The said amendment of the BFST Act, however, provided that the manufacturing dealers purchasing iron and steel for use in manufacturing goods for sale in West Bengal would continue to enjoy the benefit of concessional rate of 2 per cent tax under Section 5(1)(aaa) and Section 5(1)(bb). The impugned Sub-clause (vd) of Section 5(2)(a) of the BFST Act is alleged to be ultra vires the Constitution, as it seeks to impose unreasonable restriction on the free-flow of trade in iron and steel. The said provision runs counter to the object sought to be achieved by enacting the same. The State Legislature has no power to enact the provision. It is their case that sales tax is an indirect tax, intended to be passed on to the buyers. But the said Sub-clause (vd) prohibits such recovery. This is an unreasonable restriction and fetter on the trade and is violative of Articles 14 and 19(1)(g) of the Constitution. The said Sub-clause (vd) is also violative of Article 19(1)(g) of the Constitution, because it casts an additional obligation on the second or subsequent selling dealer to furnish a declaration in form XXIVC. It will be sufficient for the satisfaction of the Revenue to ask such a dealer to prove that the same goods had in fact suffered tax at the first point of sale.
4. The applicants have also stated in their writ petitions that the obligation to furnish declaration under the Sub-clause (vd) of Section 5(2)(a) of the BFST Act is peculiar to the dealers in iron and steel, whereas dealers in other goods have no such obligation to perform.
Hence this is a discriminatory legislation. This provision tends to work differently upon different dealers. Moreover, the discrimination is alleged to be patent vis-a-vis manufacturing dealers in iron and steel, who continue to enjoy the concessional rate of taxation. The result is that the first purchasing dealer of iron and steel will incur loss at the rate of 2 per cent, when he sells such goods to a manufacturing dealer. The point of taxation having been fixed at the first point of sale, it was sufficient if the second selling dealer could show that he had purchased from the first seller who was identifiable. The point of taxation could shift from the first point of sale to the second or any subsequent point of sale for non-production of declaration in form XXIVC. Sub-clause (vd), therefore, compels the first purchasing dealer to be submissive and to remain at the mercy of the first selling registered dealer till he received the declaration from the latter. This is an impediment and restriction on the free-flow of trade in iron and steel. Representations have been made to the Government against the effect of introduction of Sub-clause (vd) of Section 5(2)(a). But no action has been taken thereon. The impugned Sub-clause (vd) is in conflict with Section 15 of the CST Act, 1956. A copy of the representation to the Government has been made an annexure to each of the writ petitions. Sub-clause (vd) is, thus, challenged as violative of Articles 14, 19(1)(g), 245, 254, 265, 276, 286 and 301 of the Constitution.
5. Sub-clause (vd) of Section 5(2)(a) of the BFST Act, 1941, is said to be unreasonable and bad for, inter alia, not following the procedure followed in the West Bengal Sales Tax Act, 1954. The point of taxation under the said Sub-clause (vd) will shift and a second or subsequent selling dealer may have to pay tax if the declaration is not furnished.
This requirement is arbitrary and violative of Article 14 of the Constitution. It has no rational nexus to the objects sought to be achieved by the said sub-clause, which is alleged to be not only harsh and unreasonable but also confiscatory in character.
6. It is further stated that the manufacturing and the first selling dealer cannot supply the declaration at the time of sale of goods, because the declaration in the prescribed form is required to be obtained from the appropriate Commercial Tax Officer. The second or subsequent dealers have no control over the first selling dealers and they cannot take any step against them for not supplying the declarations. Among many possible reasons for not supplying declaration forms, one is non-payment of sales tax collected by the first selling dealer. But the default of the first selling dealer will eventually shift the liability of paying tax to the second selling dealer. The State Legislature is incompetent to legislate for collecting tax from the second selling dealer for non-payment of tax by the first selling dealer. In view of Section 15(a) of the CST Act, 1956, iron and steel being declared goods under Section 14 of that Act, there cannot be any tax on sale or purchase thereof imposed by the State Government exceeding 4 per cent and such tax cannot be levied at more than one stage. If tax at the rate of 4 per cent has once been paid or a realised inside the State at one stage, non-production of a declaration, as required by the impugned Sub-clause (vd), cannot make the subsequent seller liable to a second point of tax, if he can produce vouchers or bills showing payment of tax at the previous stage of sale.
7. The specific prayers in the cases before us are, inter alia, for a declaration that Sub-clause (vd) of Section 5(2)(a) of the BFST Act, 1941, as introduced by the West Bengal Taxation Laws (Amendment) Act, 1985, is invalid in so far as the provision requires that a declaration has to be furnished by a registered dealer and also for a direction to the respondents not to insist on production of declaration along with an injunction restraining them from giving effect to or taking steps in accordance with the provisions of the said Sub-clause (vd).
8. There are certain irrelevant denials, statements and references in the affidavit-in-opposition of the respondents in RN-144(T) of 1989, for instance, references to Sections 4A and 4B of the BFST Act, 1941, and rules 89A and 91 of the BST Rules, 1941. [Mr. S.N. Bose, Advocate, appearing for the appellants in this case, rightly commented that the pleading was carelessly prepared. Mr. D. Majumdar, State Representative, candidly conceded the correctness of this criticism.] But the underlying basic theme is that there was no contravention of any provision of the Constitution or the CST Act, 1956. It has been averred in paragraph 11 that the object of introduction of the impugned provision with effect from 1st April, 1985, is to ensure that there is no evasion of tax on sales of iron and steel.
9. In RN-125(T) and 129(T) of 1989, it has been denied that introduction of Sub-clause (vd) in Section 5(2)(a) of the BFST Act, 1941, changed the point of taxation from the last point to the first point. The said provision was designed to properly give effect to Section 15(a) of the CST Act, 1956. It aims at restricting levy of tax on sales of iron and steel in the same form inside the State of West Bengal to a single point, namely, not more than at one stage, since such goods are declared goods within the meaning of Section 14 of the CST Act, 1956. Under the impugned Sub-clause (vd) subsequent sellers (after the stage at which tax has been levied) will enjoy exemption from payment of tax. The declaration required to be furnished under Sub-clause (vd) is a convenient mode of proof and a guarantee for a dealer to secure exemption. Prior to the Amendment Act introducing Sub-clause (vd) there was no provision in the BFST Act, 1941, specifying the last point of sale as the point of taxation and after enactment of the sub-clause there is no provision specifying the first point of sale as the point of taxation. The two objects for inserting Sub-clause (vd) are to ensure that no evasion of tax takes place and that the restriction contained in Section 15(a) of the CST Act, 1956, is not defeated. Iron and steel have been declared as notified goods under Section 4A of the BFST Act in consideration of the fact that there is appreciable evasion of tax on sales thereof. The provision requiring a declaration in form XXIVC in order to claim exemption does not amount to an unreasonable restriction or fetter on the trade. Nor does Sub-clause (vd) prevent a dealer from passing on to the purchaser the tax which was paid at the time of his own purchase. Declaration in form XXIVC is not a proof of payment of tax at the first point of sale.
It is a proof of the fact that a subsequent seller purchased the goods from a registered dealer. Under entry 54 of List II of the Constitution the State Legislature is competent to determine its method of taxation and prescribe convenient mode of proof for allowing exemption.
10. The further case of the respondents is that the first seller of iron and steel enjoys the benefit of lower rate of tax when the purchase is made as input for the purpose of manufacture. A seller who has paid tax on his purchases inside the State cannot be regarded as the first seller and consequently will not be required to pay tax on his sales to manufacturing dealers or reselling dealers, if he satisfies the conditions of Section 5(2)(a)(vd) of the BFST Act read with Rule 27A(1b) and (1C) of the BST Rules. By furnishing a declaration in form XXIVC, the assessee will eliminate the possibility of any difference of opinion between him and the assessing officer. The allegation of discrimination between dealers in iron and steel and dealers in other goods under either the BFST Act, 1941, or the West Bengal Sales Tax Act, 1954, has been denied. Mere production of purchase bills or vouchers by the selling dealers at subsequent points of sales in the State of West Bengal is not sufficient proof of the fact that purchases were made from registered dealers. Payment of due tax can be checked more effectively by production of declaration in form XXIVC.11. For proper appreciation of the rival contentions of the parties the relevant parts of Section 5 of the BFST Act, 1941, and Rule 27A of the BST Rules, 1941, are reproduced below : "Section 5. Rate of tax.--(1) The tax payable by a dealer under this Act shall be levied on his taxable turnover at the rate of-- (aaa) two per centum of such part of his taxable turnover as represents sales to a dealer registered under the West Bengal Sales Tax Act, 1954 (West Bengal Act IV of 1954), of goods, required for use by him directly in manufacturing, making, processing or packing in West Bengal of notified commodities under that Act as specified in his certificate of registration for sale other than that referred to in Section 6D, in West Bengal : Provided that the provisions of this clause shall not apply to any sale referred to therein unless the dealer selling the goods furnishes a declaration duly filled in and signed by the registered dealer under that Act to whom the goods are sold. The declaration referred to shall be in such form, contain such particulars and shall be furnished in such manner as may be prescribed in the West Bengal Sales Tax Rules, 1954 ; (bb)(i) two per centum of such part of his taxable turnover as represents sales to a registered dealer of goods, other than gold, of the class or classes specified in the certificate of registration of such dealer, as being intended for use by him directly in the manufacture in West Bengal of taxable goods, newspapers or motor spirit for sale other than that referred to in Section 6D, in West Bengal, and of containers and other materials for the packing of goods of the class or classes so specified ; (ii) two per centum of such part of his taxable turnover as represents sales to a registered dealer of containers and other materials for the packing of goods which are intended for use by him in the packing in West Bengal of taxable goods, newspapers or motor spirit manufactured by him in West Bengal for sale other than that referred to in Section 6D, in West Bengal.
Explanation.--For the purposes of Sub-clause (i) and Sub-clause (ii) the expression-- (a) 'taxable goods' means and includes goods, other than those which are tax-free under Sub-clause (i) of Clause (a) of Sub-section (2), or which are generally exempt from tax under Sub-clause (vi) of Clause (a) of Subsection (2), and (b) 'motor spirit' shall have the meaning assigned to it in Clause (b)' of Section 2 of the West Bengal Motor Spirit Sales Tax Act, 1974 (West Bengal Act XI of 1974) ; Provided that the provisions of this clause shall not apply to any sale referred to therein unless the dealer selling the goods furnishes in the prescribed manner a declaration containing prescribed particulars in the prescribed form obtainable in such manner and subject to such conditions and restrictions as may be prescribed from the prescribed authority duly filled up and signed by the registered dealer to whom, or by the owner or representative of the undertaking to which, the goods are sold. (2) In this Act the expression 'taxable turnover' means, in the case of a dealer who is liable to pay tax under Section 4 or under Sub-section (3) of Section 8, that part of his gross turnover during any period which remains after deducting therefrom-- (va) sales of goods specified in Section 14 of the Central Sales Tax Act, 1956 (74 of 1956), on a prior sale whereof in West Bengal due tax is shown to the satisfaction of the Commissioner to have been paid ; (vd) sales of iron and steel as specified in Clause (iv) of Section 14 of the Central Sales Tax Act, 1956, where he proves to the satisfaction of the Commissioner that such iron and steel were purchased by him in the same form in West Bengal, on or after the date with effect from which this sub-clause comes into force, from a registered dealer and furnishes in the prescribed manner a declaration containing prescribed particulars in the prescribed form obtainable in the prescribed manner and duly signed by the registered dealer from whom such goods were purchased ;".
(i) to claim the benefit of lower rate of tax in respect of sales referred to in the first proviso, or the benefit that no tax shall be payable in respect of his sales referred to in the second proviso to Clause (cccc) of Sub-section (1) of Section 5, or (ii) to deduct from his gross turnover the amount in respect of a sale on the ground that he is entitled to make such deduction under Sub-clause (vd) or Sub-clause (ve) of Clause (a) of Sub-section (2) of Section 5, shall, on demand, produce in respect of such sales,-- (a) the relevant particulars and evidence of the sales including the copy of the relevant cash memo or bill according as the sale is a cash sale or a sale on credit ; (b) the relevant particulars and evidence of the purchases, including the copy of the relevant cash memos or bills according as the purchase is a cash purchase or a purchase on credit, of the goods of which sales are referred to in Clause (a) ; and (c) a declaration in form XXIVC obtainable on application from the appropriate Commercial Tax Officer, subject to the provisions of Rule 27AA, by the registered dealer from whom the purchases referred to in Clause (b) is made, and duly filled in and signed by such registered dealer or by a person duly authorised in this behalf by such registered dealer." 12. In the affidavit-in-reply filed in RN-125(T) of 1989 the applicants, namely, Tata Iisco Dealers' Association of Eastern India and another, went on to say that Section 5(2)(a)(vd) is violative of Article 401 and the proviso to Article 404 of the Constitution, because no previous sanction or subsequent assent of the President of India was obtained for this enactment, although the provision impedes the flow of trade and commerce and although it imposes restriction on the freedom of trade, commerce and intercourse.
13. Iron and steel are, what is called, declared goods of special importance under Section 14(iv) of the CST Act, 1956. The impugned Sub-clause (vd) of Section 5(2)(a) of the BFST Act came into force with effect from 1st April, 1985, having been inserted by the West Bengal Act 5 of 1985. Sub-rule (1b) of Rule 27A of the BST Rules was consequently substituted with effect from the same date, prescribing form XXIVC for the declaration envisaged in the said Section 5(2)(a)(vd). Prior to the addition of Sub-clause (vd), iron and steel were being covered by Section 5(2)(a)(va). Sub-clause (vd) of Section 5(2)(a) clearly does not cover all sales of iron and steel. Its application is limited to the sales made by only the registered dealers. In other words, while calculating his taxable turnover, a dealer is, on the fulfilment of certain conditions, entitled to deduct from his gross turnover the sales of iron and steel which he purchased from registered dealers. Mr. S.N. Bose, Advocate appearing for the applicants in RN-144(T) of 1989, submitted that Sub-clauses (va) and (vd) cannot co-exist in view of their mutual conflict. The State Representative, however, explained that Sub-clause (va) continues to apply to declared goods of special importance in inter-State trade or commerce under Section 14 of the GST Act other than iron and steel and also to such iron and steel as are purchased by a dealer from an unregistered dealer. He explained that iron and steel having been also declared as notified goods under Section 4A of the BFST Act, could be lawfully sold only by either a registered dealer or an unregistered dealer who is a certified dealer within the meaning of that Act. We accept these contentions for the Revenue and are of opinion that there is no valid reason for holding that Sub-clauses (va) and (vd) of Section 5(2)(a) are inconsistent with each other or are inconsistent to such an extent that one necessarily excludes the other. There is no legal or constitutional infirmity in the co-existence of two sub-clauses serving two distinct purposes.
14. The impugned Sub-clause (vd) was enacted by the State Legislature obviously under entry 54 of List II of the Seventh Schedule to the Constitution read with Articles 245 and 246 thereof. The learned State Representative did not controvert the contention of Mr, Somen Bose to the effect that the 1985 amendment of the BFST Act incorporating Sub-clause (vd) in Section 5(2)(a) was enacted neither with previous sanction of the President of India as contemplated in the proviso to Article 404 of the Constitution, nor with subsequent assent given by the President under Article 255 of the Constitution. Absence of previous sanction or subsequent assent by the President will assume importance, only when it is found that the provision in question comes within the mischief of Articles 301 and 304(b) of the Constitution.
Before we proceed to examine that point, we may devote our attention to certain other issues concerning some other provisions of the Constitution raised during the hearing of the arguments. One such issue is whether Sub-clause (vd) is hit by Article 14 for being unfair and unreasonable by itself, For the sake of convenient discussion, we reserve that point for examination at a later stage along with the point already mentioned.
15. Arguments have been advanced on behalf of the applicants to the effect that Sub-clause (vd) is hit by Article 14 on some other grounds also. It was contended that Sub-clause (va) continues to govern declared goods of special importance under Section 14 of the CST Act, but iron and steel were picked up and treated differently for no reason under new Sub-clause (vd). It was also contended that even after Sub-clause (vd) came into operation, Sub-clause (va) continues to apply to certain transactions of sale of iron and steel. These are said to be unreasonable discrimination. The learned State Representative repelled these arguments by saying that iron and steel had to be declared as notified goods under Section 4A of the BFST Act because the State Government was of the opinion that there is appreciable evasion of tax in respect of such goods. That being so, he argued, the necessity arose for making a distinct provision in Section 5(2)(a) for iron and steel purchased from registered dealers, because such transactions represent the bulk of trade in iron and steel. Moreover, he argued, the object of Sub-clause (vd) was to change the point of taxation regarding iron and steel from the last point of sale to the first point. We shall presently advert to the position taken by the Revenue in the affidavits-in-opposition. But, for our present purpose, we will confine ourselves to the submissions made by the learned State Representative at the hearing. As regards the test of nexus to the object sought to be achieved by Sub-clause (vd), the answer of the Revenue is as indicated above. We find ourselves in agreement with the contentions of the learned State Representative that there are reasonable grounds for making a special provision by way of Sub-clause (vd) for purchases of iron and steel from registered dealers and there is a nexus to the object sought to be achieved by adding such a provision in the BFST Act. It is not tainted by unreasonable discrimination between dealers of iron and steel or between dealers of iron and steel on the one hand and dealers of other goods on the other. We take this view, holding that registered dealers in iron and steel constitute a different class altogether.
16. The aid of Article 14 was also invoked on behalf of the applicants in the context that although a dealer has to purchase iron and steel on payment of sales tax at the rate of 4 per cent (i.e., the maximum under Section 15 of the CST Act), manufacturing dealers who purchase iron and steel for use as input for manufacture would pay a concessional rate of sales tax, namely, 2 per cent. Another grievance made by the applicants is that after purchasing on payment of tax at the rate of 4 per cent, a dealer, if he sells to a manufacturing dealer, cannot recover more than 2 per cent tax from the latter. As regards the benefit enjoyed by a manufacturing dealer, Article 14 has no manner of application, because manufacturing dealers constitute a class different from that of the other dealers and the advantage extended to them has a positive nexus to the object, namely, encouraging manufacturing dealers to engage themselves in manufacture of goods of iron and steel. As regards the supposed loss of tax at the rate of 2 per cent, in case iron and steel are sold by a second selling dealer to a manufacturing dealer, nothing has been shown to us on behalf of the applicants to establish that actually any such loss was suffered by any dealer at the time of sale to manufacturing dealers. It is true that tax concession of 2 per cent is available to a manufacturing dealer, but there seems to be no prohibition anywhere in the law preventing the second selling dealer from including the sales tax paid by him in the sale price of iron and steel to be sold to dealers including manufacturing dealers. Once sales tax paid by him enters into the sale price as a component thereof, it becomes invisible and inseparable and thus a manufacturing dealer intending to purchase will have to exercise his option whether to purchase from such a dealer or from a first selling dealer on paying sales tax at the rate of 2 per cent. This sort of elimination or exercise of option will take place in the natural course of market forces. The question of loss of 2 per cent tax does not appear to be real. Accordingly, Sub-clause (vd) is not hit by Article 14 of the Constitution on the grounds discussed above. We are unable to uphold all these contentions on behalf of the applicants. [See [1989] 74 STC 102 (SC) (Federation of Hotel & Restaurant Association of India v.Union of India) for extent of latitude with which Article 14 operates on taxing laws.] 17. At this stage, we may keep on record that although in the affidavits-in-opposition the respondents had maintained that Sub-clause (vd) did not fix the first point of sale as the point of taxation or did not alter the point of taxation from the last point of sale to the first point, it was argued by the learned State Representative that it was so. A written note of arguments was taken from the learned State Representative. We quote below a few lines therefrom which will indicate that the Revenue accepts the position that Sub-clause (vd) makes the point of taxation for iron and steel as the first point of sale : "In our case the stage at which taxes can be imposed on sales of declared goods is clearly and definitely ascertainable. In the case of rice and wheat and iron and steel, the latter being notified under Section 4A of the BFST Act, 1941, the stage is the first point, viz., sale by the first registered dealer. Any subsequent sale of the goods in West Bengal is not exigible to tax if the goods are sold in the same form in which they were purchased." Discussion on this point will not be complete till we refer to some other materials relied on by learned Advocates for the applicants in order to show that, in point of fact, Section 5(2)(a)(vd) has fixed the first point of sale as the point of taxation. Mr. S.N. Bose, appearing for the applicants in RN-144(T) of 1989, produced a xerox copy of the statement of objects and reasons appended to the West Bengal Taxation Laws (Amendment) Bill, 1985, according to which the object of introducing Sub-clause (vd) was, "to include provisions to change the point of taxation from the last sale to the first sale within the State in respect of iron and steel". Mr. S.N. Bose also produced for our perusal a xerox copy of Trade Circular No. 1 of 85 dated 2nd April, 1985, issued by the Directorate of Commercial Taxes, West Bengal. Item F thereof reads as follows : "The point of taxation in respect of sales of iron and steel.........has been changed from the last sale to the first sale inside the State. Section 5(2)(a)(ii) has been suitably amended and a new Sub-clause (vd) has been added to Section 5(2)(a) to give effect to the change. The total effect is that iron and steel as specified in Section 14(iv) of the CST Act, 1956, will be taxable at the first point of sale in West Bengal and subsequent sale thereof shall not be subjected to tax if the purchasing Mr. Somen Bose, learned Advocate for the applicants in RN-125(T) of 1989, submitted that by necessary implication Sub-clause (vd) of Section 5(2)(a) of the BFST Act has fixed the first point of sale by a registered dealer inside West Bengal as the point of taxation. Since the learned State Representative also accepted that position, there is no further controversy in this respect. We, therefore, hold that under Section 5(2)(a)(vd) the point of taxation is the first point of sale by a registered dealer within the State of West Bengal.
18. That being the position, we are naturally drawn to the next contention on behalf of the applicants that by demanding mandatory production of declaration in form XXIVC for claiming exemption under Section 5(2)(a)(vd) from paying tax for the second time, an unreasonable restriction has been imposed on the trade and commerce in iron and steel and there is a possibility of imposition of tax on more than one stage and also there is an attempt to shift the point of taxation from the first point of sale to any subsequent point of sale.
Mr. Somen Bose [RN-125(T) of 1989], Mr. R.N. Bajoria [RN-129(T) of 1989] and Mr. S.N. Bose [RN-144(T) of 1989], contended with great force that the mandatory requirement of furnishing a declaration for claiming exemption from payment of tax (for the second time) makes all the difference in Sub-clause (vd). Their principal attack is on this mandatory requirement. They argued in one voice that if a second or subsequent selling dealer is not required to furnish a declaration, as contemplated in Sub-clause (vd), the grounds of attack on that sub-clause will disappear. But while Mr. Soraen Bose and Mr. R.N.Bajoria contended that constitutionality of Sub-clause (vd) may be maintained by reading down the provision to the effect that production of declaration will be directory and not mandatory and a dealer claiming exemption will be entitled to prove from other documents that either tax had already been paid at the first point of sale or the first sale was taxable, Mr. S.N. Bose, appearing in RN-144(T) of 1989, submitted that such reading down will not serve any purpose and Sub-clause (vd) should be entirely struck down because of the vice of mandatory requirment of the declaration. Both Mr. Somen Bose and Mr.
R.N. Bajoria suggested that the words "and furnishes in the prescribed manner a declaration......" in Sub-clause (vd) may be read down as "or furnishes......", etc.
19. The learned State Representative contended that shifting of the point of taxation from the first to a subsequent point does not make the stage either indefinite or unascertainable, He also contended that there was no need to read down the aforesaid words in Sub-clause (vd), because the demand of production of a declaration does not in any way vitiate the validity of the provision.
20. The learned Advocates for the applicants referred to Article 286(3) and Sections 14 and 15 of the CST Act, 1956. Section 14 of the CST Act performs the function envisaged in Article 286(3)(a) and Section 15 of that Act discharges the duty imposed in Article 286(3) by specifying restrictions and conditions in regard to the system of levy, rates and other incidence of tax. Therefore, apart from other provisions of the Constitution, Sub-clause (vd) shall have to be consistent with Article 286(3) and Section 15 of the CST Act. On behalf of the applicants reliance was placed on a good number of decisions of the Supreme Court, the latest being the case of Builders Association of India v. Union of India reported in [1989] 73 STC 370. This is the celebrated case of works contracts in the light of the Forty-sixth amendment of the Constitution. It was held in that case that the provisions of Article 286 will be applicable to a tax imposed by virtue of Sub-clause (b) of Clause (29A) of Article 466 of the Constitution. On behalf of the respondents it was never contended that either Article 286 or Section 15 of the CST Act does not apply to Sub-clause (vd) which is under scrutiny. It was, however, contended by the learned State Representative that Sub-clause (vd) actually conforms to Section 16 of the CST Act.
21. On behalf of the respondents reliance was placed on [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid & Co. v. State of Madras), [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd.. v. Commercial Tax Officer,(SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) and(SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner). In(SC) (Firm A.T.B. Mehtab Majid & Co. v. State of Madras), Rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, as substituted with effect from 1st April, 1955, came up for consideration. In that case the decisions in Atiabari Tea Co. Lid. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 were followed and Rule 16(2) was held invalid because it contravened Article 404(a) of the Constitution for discriminating against imported hides and skins which had been purchased or tanned outside the State, The principle laid down in those three cases [1963] 14 STC 355 (SC) (Firm A.T.B. Mehtab Majid & Co. v. State of Madras, AIR 1961 SC 232 (Atiabari Tea Co. Ltd. v. State of Assam) and AIR 1962 SC 1406 [Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan] is that restrictions on freedom which is guaranteed by Article 401 are such restrictions as directly and immediately restrict or impede the free-flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 401. The above principle held in the case of Atiabari Tea Co. AIR 1961 SC 232 was clarified in the case of Automobile Transport AIR 1962 SC 1406 to the effect that regulatory measures or measures imposing compensatory taxes for the use of trade facilities do not come within the purview of the restrictions contemplated by Article 401. Summarising the principle, it was held in [1963] 14 STC 355 (SC) at page 360 (Firm A.T.B. Mehtab Majid & Co. v.State of Madras) as follows : "It is therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures." We have to examine whether Section 5(2)(a)(vd) in any manner impedes directly and immediately the freedom of trade, commerce and intercourse. If the provision does so, then it is possible to impose reasonable restrictions under Article 404(b), but in that case there must be compliance either of the proviso to Article 404 or of Article 255.
22. Regarding the point of taxation and the requirements of Section 15 of the CST Act, the applicants as well as the respondents have placed reliance on the decisions reported in [1985] 60 STC 1 (SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) and [1986] 63 STC 314 (SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner). In both these cases Section 5(2)(a)(ii) of the BFST Act, as extended to the Union Territory of Delhi, came up for examination in the light of Sections 14 and 15 of the CST Act. [1986] 63 STC 314 (SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner) followed the principle laid down in [1986] 60 STC 1 (SC) (Govind Saran Ganga Saran's case). The directions given in the facts of the case in [1986] 63 STC 314 (SC) (Rajasthan Commercial Corporation v. Sales Tax Commissioner) are hardly applicable to the cases of the type canvassed before us. The ratio of those two decisions is that impost by the State on turnover of goods declared under Section 14 of the CST Act to be of special importance in inter-State trade or commerce must conform to the conditions laid down in Section 15 of the CST Act, namely, that the tax shall not exceed the maximum laid down in Section 16 of the CST Act and such tax shall not be levied at more than one stage. It was also held that the single point at which the tax may be imposed must be a definite and ascertainable point so that both the dealer and the sales tax authorities may know clearly the point at which the tax is to be levied. It was further held in [1985] 60 STC 1 (SC) (Govind Saran Ganga Saran v. Commissioner of Sales Tax) that one of the components which enters into the concept of a tax is a clear indication of the person on whom the levy is imposed. We have already found that under Section 5(2)(a)(vd) of the BFST Act, the point of taxation is the first point of sale by a registered dealer within West Bengal. That being so, the stage is definite and ascertainable. The Revenue has pleaded that the stage although fixed at the first point, may shift in appropriate cases. Learned Advocates for the applicants have unanimously opposed this contention. According to them, the stage cannot be shifted and the relevant question is not whether in fact tax has been collected from the first point of sale, but whether, the first point of sale was taxable. They argue that it is sufficient if the second selling dealer succeeds in showing that his purchase from a registered dealer was taxable. It is for the Revenue to proceed against the first selling dealer for recovery of taxes, if not paid.
23. It is common ground that once tax has been realised on sale of iron and steel within the State of West Bengal, tax cannot and is not realisable from a second or subsequent sale of the same goods in the same form within the State. But the Revenue contends that they have a right to insist upon production of a declaration form for getting it verified as to whether the goods had earlier suffered tax. The applicants argue that it is not necessary to prove for claiming the exemption by the second or subsequent selling dealer that the goods had already suffered tax earlier. According to them, it is sufficient to show that the goods were taxable at an earlier stage. In support of this contention the decisions in [1984] 57 STC 137 (Mad.) (State of Tamil Nadu v. Gajapathy and Co.), [1975] 35 STC 50 (Mad.) (Govindan & Co. v. State of Tamil Nadu) and [1986] 61 STC 360 (Mad.) (State of Tamil Nadu v. Duraisamy Chettiar & Brothers) have been relied on. It was held in those cases that since tax can be imposed only at one stage on declared goods of special importance under Section 14 of the CST Act, it is sufficient for the selling dealer (claiming exemption) to show that the same goods were taxable at some previous stage (which is the first point of sale in the cases before us). The applicants have also relied on State of Orissa v. M.A. Tulloch & Co. [1964] 15 STC 641 (SC). In that case it was held by the Supreme Court that although Rule 27(2) of the Orissa Sales Tax Rules, 1947, required in mandatory terms that a declaration was to be produced for claiming exemption, the production of declaration was not always obligatory on the part of a selling dealer and it was open to him to claim exemption by adducing other evidence so as to bring the transaction within the scope of Section 5(2)(a)(ii) of the Orissa Sales Tax Act, 1947. In that case the provision though couched in mandatory language was held to be directory. The Revenue relied on [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd, v. Commercial Tax Officer), where the Supreme Court held that the dealer was to strictly comply with the provisions of Rule 27A of the BST Rules, 1941, read with Section 5(2)(a)(ii) of the BFST Act, 1941. In that case, the decision in [1964] 15 STC 641 (SC) (State of Orissa v. Tulloch & Co.), was considered and distinguished. But it is difficult to apply the decision in [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd. v. Commercial Tax Officer) to the class of cases before us because of the fact that in the instant cases the goods are iron and steel which are declared goods under Section 14(iv) of the CST Act and therefore cannot be taxed at more than one stage and also because the single stage must be definite and ascertainable and not flexible depending on collection of tax. We quote below an extract from the decision in Kedarnath Jute Manufacturing case [1965] 16 STC 607 (SC) in order to appreciate the reason for upholding (in that case) the mandatory character of the provision for production of declaration for getting exemption from tax : "There is an understandable reason for the stringency of the provisions. The object of Section 5(2)(a)(ii) of the Act and the Rules made thereunder is self-evident. While they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax. In the nature of things, in view of the innumerable transactions that may be entered into between dealers, it will well-nigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purpose mentioned in the section. Therefore, presumably to achieve the twofold object, namely, prevention of fraud and facilitating administrative efficiency, the exemption given is made subject to a condition that the person claiming the exemption shall furnish a declaration form in the manner prescribed under the section..............." Thus, it will be seen that the question of single point taxation was not under consideration in that case. In the present case we have to view and examine Section 5(2)(a)(vd) against the background of single point taxation which is compulsory under Section 15(a) of the CST Act.
Production of declaration form, as required in Sub-clause (vd), might not be harmful or objectionable, had the provision been out of the purview of Section 15 of the CST Act. The effect of mandatory requirement of a declaration for claiming exemption is that if the declaration is not produced, the second or subsequent selling dealer will be disentitled to the exemption, which means that he will be liable to pay tax on the same goods which is taxable at the first point of sale within the State. This aspect was not decided in [1965] 16 STC 607 (SC) (Kedarnath Jute Manufacturing Co. Ltd, v. Commercial Tax Officer).
24. It cannot be gainsaid that non-production of a declaration as required under Section 5(2)(a)(vd) of the BFST Act will result in rejection of the claim of exemption and consequently liability to pay tax on the same goods which had either actually suffered tax at an earlier stage (first point of sale) or were taxable at that stage. Such result, therefore, will amount to contravention of Section 15(a) of the CST Act and Article 286(3) of the Constitution.
25. Mr. R.N. Bajoria, learned Advocate for the applicants in RN-129(T) of 1989, referred to the case of Bhawani Cotton Mills Ltd. [1967] 20 STC 290 (SC) at page 320. In that case the Supreme Court held that the provisions of the Punjab General Sales Tax Act, 1948, as they stood on 1st April, 1960, levying purchase tax on declared goods specified in Schedule C contravened Section 15(a) of the CST Act, 1956, as the stage at which purchase tax is levied is neither definite nor ascertainable and there is a possibility of the tax being levied at more than one stage. In our view, the principle laid down in that case is significant. In order to conform to the requirements of Section 15(a) of the CST Act, a provision of law must lay down a definite and ascertainable point of taxation and there must not be any possibility of the tax being levied at more than one stage. In the cases before us the applicants have been successful in showing that there is a possibility of the tax being levied at more than one stage, if the second or subsequent selling dealer fails to produce the required declaration. We have noted that such a dealer is obliged to secure a declaration from his seller who, in his turn, is obliged to obtain the same from the Commercial Tax Officer concerned. That contingency also depends on fulfilment of a number of preconditions laid down in Rule 27AA of the BST Rules. Moreover, the law does not contain any provision casting a duty on the first selling dealer to issue a declaration to his purchaser. That being the position, there is, in fact, a possibility of levy of the tax at more than one stage on the same goods in the same form. We feel that production of such a declaration may in some cases be an impossibility and no law should ask anyone to perform an impossible task.
26. Mr. Somen Bose, learned Advocate for the applicants [RN-125(T) of 1989], referred to the amendment effected to Section 6(2)(a)(vd) by the West Bengal Taxation Laws (Amendment) Act, 1989, and the following portion of the budget statement by the Minister-in-charge, Finance Department, Government of West Bengal, while presenting the budget estimate for the financial year 1989-90 in the State Legislative Assembly : "5.11. Honourable Members are aware that iron and steel industry occupies a very important position in the industrial map of West Bengal. As a result of measures announced in the Union Budget for 1989-90, prices of raw materials for iron and steel industries have registered a substantial increase creating a serious problem for iron and steel industry. In order to give the industry some relief, I propose to abolish the multi-point turnover tax on iron and steel as declared goods and make the incidence singlepoint. Requirement for use of form XXIVC will also be dispensed with." By Section 2 of the aforesaid Amendment Act, 1989, Sub-clause (vd) of Section 5(2)(a) has been substituted and a proviso has been added as follows : "(vd) sales of iron and steel as specified in Clause (iv) of Section 14 of the Central Sales Tax Act, 1956, where such iron and steel were purchased by him in the same form in West Bengal from a registered dealer who, in respect of sale of such goods to him, has not claimed deduction under Sub-clause (vi)"; "Provided further that deduction on account of sales referred to in Sub-clause (vd) shall be allowed to the dealer who sells such goods only when he can furnish in the prescribed manner a declaration containing prescribed particulars in the prescribed form after being duly countersigned by the registered dealer from whom such goods were purchased." The statement of objects and reasons to the West Bengal Taxation Laws (Amendment) Bill, 1989, is as follows : "The object of the Bill is to amend the Bengal Finance (Sales Tax) Act, 1941, the West Bengal Sales Tax Act, 1954 and the West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979, to-- Mr. Somen Bose argued that the difficulties represented by the trade was considered by the State Government, as a result of which the amendment has been made. The requirement of declaration in form XXIVC has now been dispensed with. The amended provisions are not the subject-matter for our present consideration and we do not express any views thereon. But there is substance in the contention of Mr. Bose that the budget speech of the Minister-in-charge and the amendments effected to Sub-clause (vd) lend support to the contention of the applicants that the mandatory requirement of declaration was unreasonable and might result in multi-point taxation.
27. For the aforesaid reasons, Section 5(2)(a)(vd) which came into force with effect from 1st April, 1985, when interpreted to mean that furnishing declaration contemplated therein is a mandatory requirement, contravenes Section 15(a) of the CST Act, 1956, and Article 286(3) of the Constitution and is therefore invalid. It is neither a mere regulatory measure nor a prescription of standard of proof. Secondly, as observed by the Supreme Court in the case of Express Hotels Pvt.
Ltd. [1989] 74 STC 157 at page 175 : "Taxes can and do sometimes, having regard to their effect and impact on the free-flow of trade, constitute restrictions on the freedom under Article 401. But the restriction must stem from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free-flow of 'trade, commerce and intercourse'. It is not all taxes that have this effect.
Freedom under Article 401 is, by all reckoning, a great freedom, one of the utmost significance to economic unity of the nation." Breach of Section 15(a) of the CST Act in the class or classes being represented before us will naturally result in contravention of Article 401, because an illegal imposition of tax on the sale of iron and steel at the second or subsequent point of sale, as already discussed, will have a direct and immediate effect of restricting the freedom of trade and commerce, envisaged in Article 401. Any such restriction must be reasonable, in the public interest and even such a reasonable restriction in the public interest will be lawful if done through an enactment which has complied with either the proviso to Article 404(b) or Article 255, as the case may be. The respondents have failed to show that the restriction is reasonable, or that it is required in the public interest and admittedly neither previous sanction nor subsequent assent of the President was obtained for the enactment. Therefore, Section 5(2)(a)(vd) is also invalid on this ground.
28. One aspect of Article 14 was reserved for examination at this stage. It was argued on behalf of the applicants that the provision for production of such a declaration was unfair, unduly harsh and unreasonable, because the purchasing dealer had little control on almost monopoly houses like IISCO, Steel Authority of India and IISCO, who may not take care to obtain declarations for supplying them to their purchasing dealers. Thus, the applicants, if they want to continue in the trade, have to purchase iron and steel from those companies, but they have little control over them for securing declarations with a view to getting exemption available under Section 5(2)(a)(vd). In that context it was argued that the provision is hit by Article 14 for its unfairness and unreasonableness and also is hit by Article 19(1)(g) for its telling effect on the trade or profession of the applicants. As regards Article 19(1)(g) we do not consider that the provision, as it is, puts unreasonable restriction on the right of the applicants to carry on their trade or business. They can carry on the trade, may be with a little hardship, if they are to comply with Sub-clause (vd). But we hold that the provision is unfair and unreasonable to such an extent that it infringes Article 14.
29. But all these vices of Sub-clause (vd) arise from the mandatory requirement of production of a declaration. In our view it is necessary and also reasonable to read the words "and furnishes" as "or furnishes" in Sub-clause (vd) so that the mandatory character of the requirement becomes directory. We do not say that a dealer claiming exemption under Section 5(2)(a)(vd) will in no case furnish the declaration, but if he fails to do so, he will be at liberty to prove by other satisfactory evidence before the concerned officer performing the functions of the Commissioner that he had purchased the goods in the same form in West Bengal from a registered dealer. We have noted that in Sub-clause (vd) there is no requirement of proof of the fact that tax had actually been paid or levied on the same goods at an earlier stage. But during arguments the Revenue took the stand that it is necessary for them to be satisfied that tax had been collected on the same goods when purchased by the dealer claiming exemption. Therefore, it is essential that validity and constitutionality of Sub-clause (vd) is maintained by interpreting that production of declaration is directory and the declaration will be a mode of evidence or one of the pieces of evidence by which the dealer claiming exemption can show that he had purchased the goods from a registered dealer. Non-production of declaration will not automatically result in rejection of his claim of exemption. Mr.
Somen Bose, appearing for some of the applicants, relied on the case reported in AIR 1968 SC 1450 (Ishwar Singh Bindra v. State of U.P.). In that case the word "and" was read disjunctively to mean "or" for carrying out the intention of the legislature. Reference was made to Stroud's Judicial Dictionary and Maxwell on Interpretation of Statutes in that case. On the authority of AIR 1968 SC 1450 (Ishwar Singh Bindra v. State of U.P.) and(SC) (State of Orissa v.Tulloch & Co. Ltd.), we hold that Sub-clause (vd) of Section 5(2)(a) of the BFST Act, 1941, should be read as directory in the matter of furnishing declaration and the words "and furnishes" shall be read as "or furnishes" thereby lending a directory sense instead of a mandatory one. Read in that way, Section 5(2)(a)(vd) does not infringe either Article 14 or 301 or 304(b) or 286(3) or any other provisions of the Constitution or Section 15(a) of the CST Act. Then the provision becomes fair and reasonable and does not tend to impede or restrict the freedom of trade and commerce.
30. We read Section 5(2)(a)(vd) in the manner indicated above and hold that it is valid and constitutional. But we make it clear that Sub-clause (vd) must be substantially complied with in every case. We direct that it is for the Commercial Tax Officer to be satisfied that the dealer claiming exemption had, in fact, purchased the same goods in the same form from a registered dealer in West Bengal and if he has any doubt about it the selling dealer claiming exemption must satisfy his doubts by production of sufficient evidence. We also direct that if the Commercial Tax Officer is satisfied from other facts and other evidence on the record, it will not be necessary that the selling dealer should produce a declaration in the form required under Rule 27A(1b) for being entitled to a deduction. However, we do not exclude the production of declaration which may be produced as an evidence of purchase as contemplated in Section 5(2)(a)(vd).
31. Accordingly, the applications, i.e., the writ petitions, are only partly allowed, being disposed of in the terms and with the directions indicated above. There will be no order for costs. All interim orders shall stand vacated.