Chelmsford Club Ltd. Vs. the Commissioner of Sales Tax, Delhi - Court Judgment

SooperKanoon Citationsooperkanoon.com/697051
SubjectSales Tax
CourtDelhi High Court
Decided OnFeb-13-1992
Case NumberSales Tax Reference No. 80 of 1979
Judge B.N. Kirpal and; Santosh Duggal, JJ.
Reported in47(1992)DLT610; 1992(23)DRJ125; [1992]86STC470(Delhi)
ActsBengal Finance (Sales Tax) Act, 1941 - Sections 5(2)
AppellantChelmsford Club Ltd.
RespondentThe Commissioner of Sales Tax, Delhi
Advocates: J.R. Goel, Adv
Cases ReferredJoint Commercial Tax Officer v. Young Men
Excerpt:
bengal finance (sales tax) act, 1941 - second proviso to section 5(2)(a)(ii)--club got itself registered and making purchases on the strength of the registration certificate--things so purchased were either being sold to members or used as raw-materials in the manufacture of commodities like food items etc--young men's case--no transaction of sale by the club to its members but the goods having been purchased that there will be a sale by the club to its members the second proviso to section 5 (2) (a)(ii) becomes applicable--registration certificate mis-utilised for making purchases--decision of sales tax appellate tribunal upheld.; at the time when the dealer got its self registered it was making purchases on the strength of the registration certificate on the plea that the things so purchased were either being sold to the members or were being used as raw-materials in the manufacture of commodities like food items etc. for sale to the members. what the supreme court has held in young men's case is that mere is no transaction of sale by the club in favor of its members.; there being no sale between the club and the members but the goods having been purchased on the basis that there will be a sale by the club to its members the second proviso to section 5(2) (a)(ii) becomes immediately applicable. this is not a case merely, as termed by the tribunal of the assessed trying to eat its cake and have it too. this is a clear case of, it law, the dealer becoming liable to pay tax under the provisions of second proviso to section 5(2)(a)(ii). the liability to pay tax is not for any equitable reasons but because the law makes it incumbent on the pruchaser of the goods on the basis of the registration certificate not to mis-utilise the goods after purchase. the goods would be regarded as being mis-utilised if they have been purchased for one purpose but they are used for another. goods, which are meant for re-sale have to be sold. goods which are purchased as raw-material and after manufacture are to be resold have to be resold. what is important is the element of sale of the goods as purchased or of the finished goods in which raw-material is used. as there could, in law, be no sale by the club in favor of its members, it could not, in law, make any purchase on the strength of the registration certificate. the registration certificate was, in a fense, misutilised for making purchase. - - ' (11) the said proviso clearly postulates that if a dealer makes purchases on the strength of his registration certificate and the purchases so made are intended for re-sale by him or for use by him as raw material in the manufacture of goods for sale but the same are used for any other purpose then tax on the purchases so made is payable. (12) at the time when the dealer got itself registered it was making purchases on the strength of the registration certificate on the plea that the things so purchased were either being sold to the members or were being used as raw-materials in the manufacture of commodities like food items etc. it is precisely for this reason that the dealer was able to secure an order of refund for a sum of rs.(1) in respect to the assessment year 1969-70 the sales tax appellate tribunal, delhi has referred to this court the following question of law for its opinion: 'whether on the facts and in the circumstances of the case, the tribunal was right in holding that the revenue was entiled to withhold the amount of rs. 27.337.00 under the second proviso to section 5(2)(a)(ii) of the bengal finance (sales tax) act out of the sum of rs. 65,910.50 which was due to the club as refund for the year 1969-70.'(2) briefly stated, the facts as found by the tribunal are that the dealer had voluntarily got itself registered under the sales tax law a number of years ago. it used to file returns and assessments used to be framed. on the basis of the registration certificates the dealer used to make purchases without payment of sales tax. (3) in the year 1970 the supreme court in the case of joint commercial tax officer v. young men's indian association, 26 stc 241 held that there was no transaction of sale involved in the supply of refreshment by the club to its members and no sales tax could be levied. a division bench of this court in the case of commissioner of sales tax v roshanara club. (str 3 of 1970, decided on 12th february, 1971 also came to the same conclusion namely that there was no transaction of sale in the supply of refreshment by the club to its members. (4) in view of the the aforesaid decision of the supreme court the dealer filed an application to the sales tax department on 12th june, 1970 for the cancellation of its registration certificate. the said certificate was also surrendered. the cancellation was effected on 14th february, 1975. (5) the dealer had also filed a writ petition in this court seeking quashing of the assessment made for the year 1958-59 and for the refund of the sales tax paid for that year. a prayer was also made for the cancellation of the registration certificate. following the aforesaid decision of the supreme court in young men's indian association's case (supra) vide judgment dated 22nd january, 1971 this court quashed the assessment for the year 1958-59 and ordered the refund of tax which had been paid in respect of the transactions between the club and its members. the prayer for cancellation of the registration certificate was not accepted as the dealer had got itself registered voluntarily. (6) in respect of the assessment year in question viz., 1969-70 the dealer contended before the assessing authority that it could not be subjected to tax because of the aforesaid decision of the supreme court and this court. while accepting this contention tax of rs.. 66,910.50 was ordered to be refunded. at the same time, however, the dealer was held to be liable to pay sales tax as a purchasing dealer under section 5(2)(a)(ii) of the bengal finance (sales tax) act, 1941 (hereinafter referred to as the said act) on the purchases which it had effected free of tax on the basis of its registration certificate. the quantum of tax under this provision came to rs. 27,337. the balance amount of rs. 38,572.74 was ordered to be refunded. (7) an appeal filed by the dealer was dismissed by the assistant commissioner, sales tax who observed that under the second proviso the section 5(2)(a)(ii) where any goods specified in the certificate of registration were purchased by a registered dealer as being intended for re-sale by him but were utilised by him for any other purpose then the price of goods purchased was liable to be included in the taxable turnover of the purchasing dealer. (8) further appeal was filed to the tribunal who while dismissing the appeal observed as follows: after giving my careful and prolong consideration to the whole matter, i am of the opinion that no interference in the impugned orders is called for. it is apparent from the narration of facts above that the club had of its own claimed the status of a dealer and obtained registration certificate as such in its favor. by virtue of that status, it was able to reap large benefits while effecting purchases free of tax. those purchases had been extending to lakhs of rupees each year. but for the status as a registered dealer, it would have been obliged to pay large amounts of sales tax on those purchases. now that it has succeeded in showing that under the law, it could not be treated as a dealer by virtue of the decision of the supreme court in the case of young men's indian association, it cannot seek to approbate and reprobate. in other words, it cannot be heard to demand on the one hand, the tax which as a mistaken dealer it had deposited and on the other hand, decline adjustment of tax which it had evaded by the same mistaken claim of the status of dealer. both the consequences simultaneously flow on the deprivation of its status on a dealer. they are infact correlated and interlinked. the revenue is, thereforee, right in pleading that the club cannot assume two postures or facets, one of the non-dealer for claiming refund of the amounts paid, and the other of dealer, justifying retention of benefit of the purchases which it had effected free of tax as a dealer. it cannot cat the cake and have it too. infact, the right of the revenue to adjust the amount which the club would have paid as tax on the purchases can veritably be treated as a legitimate set off against the claim of the club for refund.(9) there appears force in the contention of the revenues that once the club, totally disowned the status of a dealer, it could not have filed an appeal before the assistant commissioner under section 20 of the bengal finance (sales tax) act. it could also not have sought recourse for refund under section 12 of the act. the remedy for realisation of that amount might lie anywhere, but in case recourse under the bengal finance (sales tax) act was taken, the club must face its technical provisions. in that case, its zeal to retain smaller amounts may jeopardise its claim of refund of such larger amounts. i am thereforee constrained to reject this appeal.' (10) it is thereafter that the aforesaid question of law has been referred to this court. from the facts narrated herein above it is clear that in the year 1969-70 the dealer was still a registered dealer. the registration certificate was surrendered only on 12th june. 1970. the question which arises for consideration is whether the second proviso to secion 5 (2)(a)(ii) applies or not. the said proviso is as follows: 'provided further that where any goods specified in the certificates of registration are purchased by registered dealer as being intended for re-sale by him or for use by him as raw materials in the manufacture of goods for sale, but are utilised by him for any other purpose, the price of the goods so purchased shall be allowed to be deducted from the gross turnover of the selling dealer but shall be included in the taxable turn over of the purchasing dealer.'(11) the said proviso clearly postulates that if a dealer makes purchases on the strength of his registration certificate and the purchases so made are intended for re-sale by him or for use by him as raw material in the manufacture of goods for sale but the same are used for any other purpose then tax on the purchases so made is payable. (12) at the time when the dealer got itself registered it was making purchases on the strength of the registration certificate on the plea that the things so purchased were either being sold to the members or were being used as raw-materials in the manufacture of commodities like food items etc. for sale to the members. what the supreme court has held in young men's case (supra) is that there is no transaction of sale by the club in favor of its members. it is precisely for this reason that the dealer was able to secure an order of refund for a sum of rs. 66.910.50 in respect of the year in question namely 1969-70. once the plea of the dealer viz. that there is no sale' made by it to its members is accepted by the department, it must follow that the second proviso to section 5(2)(a)(ii) becomes attracted. when there is no sale by the club to its members the purchases which have been made by the club, on the strength of the registration certificates, have either not been sold to the members or have not been used in the manufacture of those goods which have been purchased on the basis that there will be a sale by the club to its members the second proviso to section 5(2)(a)(ii) becomes immediately applicable. this is not a case merely, as termed by the tribunal, of the assessed trying to eat its cake and have it too. this is a clear case of, in law, the dealer becoming liable to pay tax under the provisions of second proviso to section 5(2)(a)(ii). the liability to pay tax is not for any equitable reasons but because the law makes it incumbent on the purchaser of the goods on the basis of the registration certificate not to mis-utilise the goods after purchase. the goods would be regarded as being mis-utilised if they have been purchased for one purpose but they are used for another. goods which are meant for re-sale have to be sold. goods which are purchased as raw- material and after manufacture are to be re-sold have to be re-sold. what is important is the element of sale of the goods as purchased or of the finished goods in which raw- material is used. as there could, in law, be no sale by the club in favor of its members, it could not, in law, make any purchases on the strength of the registration certificate. the registration certificate was, in a sense, mis-utilised for making purchases. (13) for the aforesaid reasons we are of the opinion that the conclusion of the sales tax appellate tribunal was correct. the question of law is, thereforee, answered in the affirmative and in favor of the respondents. the respondents will also be entitled to costs.
Judgment:

(1) In respect to the assessment year 1969-70 the Sales Tax Appellate Tribunal, Delhi has referred to this Court the following question of law for its opinion:

'WHETHER on the facts and in the circumstances of the case, the Tribunal was right in holding that the revenue was entiled to withhold the amount of Rs. 27.337.00 under the second proviso to section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act out of the sum of Rs. 65,910.50 which was due to the Club as refund for the year 1969-70.'

(2) Briefly stated, the facts as found by the Tribunal are that the dealer had voluntarily got itself registered under the Sales Tax law a number of years ago. It used to file returns and assessments used to be framed. On the basis of the registration certificates the dealer used to make purchases without payment of Sales Tax.

(3) In the year 1970 the Supreme Court in the case of Joint Commercial Tax Officer v. Young Men's Indian Association, 26 Stc 241 held that there was no transaction of sale involved in the supply of refreshment by the Club to its members and no Sales Tax could be levied. A Division Bench of this Court in the case of Commissioner of Sales Tax v Roshanara Club. (STR 3 of 1970, decided on 12th February, 1971 also came to the same conclusion namely that there was no transaction of sale in the supply of refreshment by the Club to its members.

(4) In view of the the aforesaid decision of the Supreme Court the dealer filed an application to the Sales Tax Department on 12th June, 1970 for the cancellation of its registration certificate. The said certificate was also surrendered. The cancellation was effected on 14th February, 1975.

(5) The dealer had also filed a writ petition in this Court seeking quashing of the assessment made for the year 1958-59 and for the refund of the sales tax paid for that year. A prayer was also made for the cancellation of the registration certificate. Following the aforesaid decision of the Supreme Court in Young Men's Indian Association's case (supra) vide judgment dated 22nd January, 1971 this Court quashed the assessment for the year 1958-59 and ordered the refund of tax which had been paid in respect of the transactions between the Club and its members. The prayer for cancellation of the registration certificate was not accepted as the dealer had got itself registered voluntarily.

(6) In respect of the assessment year in question viz., 1969-70 the dealer contended before the Assessing Authority that it could not be subjected to tax because of the aforesaid decision of the Supreme Court and this Court. While accepting this contention tax of Rs.. 66,910.50 was ordered to be refunded. At the same time, however, the dealer was held to be liable to pay sales tax as a purchasing dealer under Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as the said Act) on the purchases which it had effected free of tax on the basis of its registration certificate. The quantum of tax under this provision came to Rs. 27,337. The balance amount of Rs. 38,572.74 was ordered to be refunded.

(7) An appeal filed by the dealer was dismissed by the Assistant Commissioner, Sales Tax who observed that under the second proviso the Section 5(2)(a)(ii) where any goods specified in the certificate of registration were purchased by a registered dealer as being intended for re-sale by him but were utilised by him for any other purpose then the price of goods purchased was liable to be included in the taxable turnover of the purchasing dealer.

(8) Further appeal was filed to the Tribunal who while dismissing the appeal observed as follows:

AFTER giving my careful and prolong consideration to the whole matter, I am of the opinion that no interference in the impugned orders is called for. It is apparent from the narration of facts above that the Club had of its own claimed the status of a dealer and obtained registration certificate as such in its favor. By virtue of that status, it was able to reap large benefits while effecting purchases free of tax. Those purchases had been extending to lakhs of rupees each year. But for the status as a registered dealer, it would have been obliged to pay large amounts of sales tax on those purchases. Now that it has succeeded in showing that under the law, it could not be treated as a dealer by virtue of the decision of the Supreme Court in the case of Young Men's Indian Association, it cannot seek to approbate and reprobate. In other words, it cannot be heard to demand on the one hand, the tax which as a mistaken dealer it had deposited and on the other hand, decline adjustment of tax which it had evaded by the same mistaken claim of the status of dealer. Both the consequences simultaneously flow on the deprivation of its status on a dealer. They are infact correlated and interlinked. The revenue is, thereforee, right in pleading that the Club cannot assume two postures or facets, one of the non-dealer for claiming refund of the amounts paid, and the other of dealer, justifying retention of benefit of the purchases which it had effected free of tax as a dealer. It cannot cat the cake and have it too. Infact, the right of the revenue to adjust the amount which the Club would have paid as tax on the purchases can veritably be treated as a legitimate set off against the claim of the Club for refund.

(9) There appears force in the contention of the revenues that once the Club, totally disowned the status of a dealer, it could not have filed an appeal before the Assistant Commissioner under Section 20 of the Bengal Finance (sales Tax) Act. It could also not have sought recourse for refund under Section 12 of the Act. The remedy for realisation of that amount might lie anywhere, but in case recourse under the Bengal Finance (Sales Tax) Act was taken, the Club must face its technical provisions. In that case, its zeal to retain smaller amounts may jeopardise its claim of refund of such larger amounts. I am thereforee constrained to reject this appeal.'

(10) It is thereafter that the aforesaid question of law has been referred to this Court. From the facts narrated herein above it is clear that in the year 1969-70 the dealer was still a registered dealer. The registration certificate was surrendered only on 12th June. 1970. The question which arises for consideration is whether the second proviso to Secion 5 (2)(a)(ii) applies or not. The said proviso is as follows:

'PROVIDED further that where any goods specified in the Certificates of registration are purchased by registered dealer as being intended for re-sale by him or for use by him as raw materials in the manufacture of goods for sale, but are utilised by him for any other purpose, the price of the goods so purchased shall be allowed to be deducted from the gross turnover of the selling dealer but shall be included in the taxable turn over of the purchasing dealer.'

(11) The said proviso clearly postulates that if a dealer makes purchases on the strength of his registration certificate and the purchases so made are intended for re-sale by him or for use by him as raw material in the manufacture of goods for sale but the same are used for any other purpose then tax on the purchases so made is payable.

(12) At the time when the dealer got itself registered it was making purchases on the strength of the registration certificate on the plea that the things so purchased were either being sold to the members or were being used as raw-materials in the manufacture of commodities like food items etc. for sale to the members. What the Supreme Court has held in Young Men's case (supra) is that there is no transaction of sale by the Club in favor of its members. It is precisely for this reason that the dealer was able to secure an order of refund for a sum of Rs. 66.910.50 in respect of the year in question namely 1969-70. Once the plea of the dealer viz. that there is no sale' made by it to its members is accepted by the Department, it must follow that the second proviso to Section 5(2)(a)(ii) becomes attracted. When there is no sale by the Club to its members the purchases which have been made by the Club, on the strength of the registration certificates, have either not been sold to the members or have not been used in the manufacture of those goods which have been purchased on the basis that there will be a sale by the Club to its members the second proviso to Section 5(2)(a)(ii) becomes immediately applicable. This is not a case merely, as termed by the Tribunal, of the assessed trying to eat its cake and have it too. This is a clear case of, in law, the dealer becoming liable to pay tax under the provisions of second proviso to Section 5(2)(a)(ii). The liability to pay tax is not for any equitable reasons but because the law makes it incumbent on the purchaser of the goods on the basis of the registration certificate not to mis-utilise the goods after purchase. The goods would be regarded as being mis-utilised if they have been purchased for one purpose but they are used for another. Goods which are meant for re-sale have to be sold. Goods which are purchased as raw- material and after manufacture are to be re-sold have to be re-sold. What is important is the element of sale of the goods as purchased or of the Finished goods in which raw- material is used. As there could, in law, be no sale by the Club in favor of its members, it could not, in law, make any purchases on the strength of the registration certificate. The registration certificate was, in a sense, mis-utilised for making purchases.

(13) For the aforesaid reasons we are of the opinion that the conclusion of the Sales Tax Appellate Tribunal was correct. The question of law is, thereforee, answered in the affirmative and in favor of the respondents. The respondents will also be entitled to costs.