Lachman Singh v. State of M. P. — 1962 DIGILAW 169 (MP)

ORDER Dixit, C. J. l. This order will also govern Misc. Petition No. 67 of 1962. 2. In these two applications under Article 226 of Constitution, the prayer of the petitioners is that a direction be issued to the respondents commanding them to cancel the registration certificates of the applicants under the Central Provinces and Berar Sales-tax Act, 1947, and the Madhya Pradesh General Sales-Tax Act, 1958, and that they be also restrained from imposing purchase tax under section 7 of the M.P. General Sales-tax Act, 1958, which, the petitioners contend is ultra vires, void and inoperative. 3. The relevant facts are these. The petitioner Lachman Singh is a building contractor doing the business of building construction since 1953. The other petitioner, M/s Mahakoshal Construction Co., which is a partnership firm engaged in the business of building construction commenced its business in 1957. On 30th November 1954 the Nagpur High Court held in Pandit Banarasi Das Vs. State of Madhya Pradesh 6 STC 93 that the expression "sale of goods" in Entry 48 of List-II, Schedule-7, of the Government of India Act, 1935, was wide enough to cover all transactions in which property in the movables passed from one person to another for money, and that, accordingly, in a building contract there was a sale with in Entry 48 of the materials used therein and that the provisions of the C.P. and Berar Sales-Tax Act, 1947, imposing tax on materials used in a building contract were valid. After this decision, the petitioner Lachmansingh thought it necessary to get himself registered as a "registered dealer" under the Sales-tax Act of 1947 and accordingly made an application on 22nd March 1955 for the grant of a certificate of registration. In his application for registration, Lachman Singh described his business as consisting of "contracts of buildings and roads etc." A certificate of registration was issued on 23rd March 1955. The other petitioner, M/s Mahakoshal Construction Co., Jabalpur, applied for registration on 24th August 1957 describing it business as "construction work" and obtained a certificate of registration on 6th September 1957. In his application for registration, Lachman Singh described his business as consisting of "contracts of buildings and roads etc." A certificate of registration was issued on 23rd March 1955. The other petitioner, M/s Mahakoshal Construction Co., Jabalpur, applied for registration on 24th August 1957 describing it business as "construction work" and obtained a certificate of registration on 6th September 1957. The case of Banarsi Das (supra) went up in appeal before the Supreme Court and on 3rd April 1958 the Supreme Court, reversing the decision of the Nagpur High Court in that case, held that in a building contract the contractor constructs the building according to the specifications contained in the agreement and in consideration thereof receives payment, and that in such an agreement there is neither a contract to sell the materials used in the construction nor does properly pass therein as movables and accordingly in a building contract, which is one and indivisible, there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale. The petitioners then thought that no sales-tax could be imposed on them for the materials used by them in building contract executed by them and they were under no liability to get themselves registered under the Sales Tax Act of 1947. On this view, the applicant Lachmansingh addressed a letter to the Sales Tax Officer, Jabalpur, on 22nd December 1958 saying that his registration certificates may be treated as cancelled as he was a contractor and not a 'dealer'. The other petitioner also addressed a letter to the Sales Tax Officer. Jabalpur, on 10th October 1958 surrendering its sales tax registration certificate with the statement that "since the Supreme Court has held that contractors are' not dealers and we are doing contract work in Madhya Pradesh and as such are exempt from sales tax, we hereby surrender our sales tax registration certificate". No reply of any kind was sent by the Sales Tax Officer to these letters of the petitioners for nearly a year and half. No reply of any kind was sent by the Sales Tax Officer to these letters of the petitioners for nearly a year and half. On 14th June 1960 Lachmansingh was, however, informed by the Sales Tax Officer, Jabalpur, that he was a dealer under the M.P. General Sales Tax Act, 1958, which had in the meantime come into force, and, therefore, his registration certificate could not be cancelled. The same reply was given to M/s Mahakoshal Construction Co. by the Sales Tax Officer on 10th May 1960. In the meantime the registration certificates of both the petitioners were renewed for the years 1960-61 and 1961-62. The petitioners say that they were obliged to have their certificates renewed. 4. In support of these petitions, the argument of Shri Dabir, learned counsel appearing for the petitioners, was that according to the decisions of the Supreme Court in Gannon Dunkerley & Company's case AIR 1958 SC 560 and Banarsi Das Vs. State of M.P. 1962 RN 477 = 1958 MPLJ 467 = AIR 1958 SC 909 , in a building contract there was no sale of materials as such and, therefore, no sales tax could be imposed on the materials used by a building contractor in the execution of his contract works; and that the petitioners, who were both building contractors, could not therefore be regarded as 'dealers' in their activity and were thus under no obligation to get themselves registered under the Sales Tax Act of 1947 or the M.P. General Sales Tax Act, 1958. Learned counsel proceeded to say that the definitions of 'dealer', 'goods', 'sale', 'sale price', and 'turnover' given in the Act of 1958, in so for as they sought to treat goods supplied or used in the execution of a work or construction contract as sold and liable to sales tax under the Act must, on the basis of the decisions of the Supreme Court referred to above, be regarded as beyond the legislative competence of the State Legislature; that as building contractors, the petitioners were not carrying on any business of selling or supplying goods; that though the definition of 'dealer' given in the Act of 1958 covered any person carrying on the business of buying, there could not in fact be any business of 'buying'; that there could be a business of buying and selling but not a business of buying alone; and that, therefore, the petitioners could not be regarded as' dealers' within the definition of that word in section 2 (d) of the Act of 1958. It was further contended that under section 15 of Act of 1958 only a dealer whose turnover exceeded the limits specified in section 4 (5) was under an obligation to get himself registered; that 'turnover', as defined in section 2 (t) of the Act, meant the "aggregate of the amount of sale price received and receivable by a dealer in respect of any sale......" and this had been construed by this Court in Hiranand Vs. Commr. of Sales Tax 1961 RN 436 = 1961 JLJ 1467 = 1962 MPLJ 61 to mean only a turnover in respect of sales of goods specified in Schedule III of the Act of 1958; that the petitioners as building contractors had no such turnover; that, therefore, they could not be compelled to have their registration certificates renewed from time to time; that the registration certificates originally issued to the petitioners were on the view of law expressed by the Nagpur High Court in the case of Banarsi Das (supra); that on that view being rejected by the Supreme Court and it being held that in a building contract there was no sale of materials as such, a vital change in law had occurred and the legal sanction for the validity of the registration certificates had failed; and that, therefore. the certificates must be regarded as granted by mistake and consequently the petitioners were entitled, under clause (c) of sub-section (10) of section 15 of the Act of 1958, to demand that the certificates be cancelled. Learned counsel also assailed the legality of the orders passed by the Sales Tax Officer assessing the petitioners to purchase tax for some years and urged that section 7 of the Sales Tax Act of 1958 was ultra vires as under Entry 54, List-II, Sch. 7 to the Constitution the State Legislature could make a law imposing a tax on the sale or purchase of goods but had no power to make any law with respect to tax both on the purchase and sale of goods; that the petitioners not being dealers within the definition of 'dealer' given in the Act, they were not liable to pay any purchase-tax under section 7 of the Act of 1958; and that even if they were liable to pay purchase-tax they were under no obligation to get themselves registered as dealers. 5. In our judgment, both these applications must be dismissed on the ground that on the letters addressed by the petitioners to the Sales Tax Officer asking him to treat their registration certificates as cancelled no order of any kind with regard to the continuance or cancellation of the certificates could be passed under the relevant provisions of the Sales Tax Acts of 1947 and 1958 and the rules made there under, and the communications sent to them in reply by the Sales Tax Officer that their registration certificates could not be cancelled were not any orders of the authority competent to decide the question of cancellation or continuance of the certificates. The petitioners in asking for the cancellation of certificates in the manner that they did, and the Sales Tax Officer in the way he dealt with the letters, totally ignored the relevant provisions relating to the cancellation of a registration certificate. 6. The registration certificates had been issued to the petitioners under the C.P. and Berar Sales Tax Act, 1947, before the M.P. General Sales Tax Act, 1958, came into force on 1st April 1959. The Act of 1947 was repealed by section 52 of the Act of 1958. 6. The registration certificates had been issued to the petitioners under the C.P. and Berar Sales Tax Act, 1947, before the M.P. General Sales Tax Act, 1958, came into force on 1st April 1959. The Act of 1947 was repealed by section 52 of the Act of 1958. Under sub-section (6) of section 15 of the latter Act, the petitioners, who at the commencement of the Act of 1958 were holding certificates of registration, are deemed to be dealers registered under the Act of 1958 and holding certificates of registration under section 15. The question of cancellation of the certificates of registration granted to the petitioners is, therefore, governed by the provisions of the Act of 1958 and the rules made there under. Now, sub-section (10) of section 15 lays down- "(0) When, (a) a registered' dealer discontinues or transfers his business; or (b) the liability of a registered dealer to pay tax ceases in accordance with the provisions of sub-section (3) of section 4; or (c) a registered dealer has been-granted a certificate of registration by mistake, the Commissioner may, either on his own motion or on the application of the dealer in this behalf, cancel the registration but notwithstanding such cancellation the dealer shall be liable to pay tax for the period during which his certificate of registration remained in force." The procedure for cancellation of a registration certificate has been prescribed by rule 13 of the M.P. General Sales Tax Rules, 1959. That rule is as follows- "13. (1) When a registration certificate becomes liable to be cancelled under sub-section (10) of section 15, the Sales Tax Officer shall, as soon as possible thereafter report the name of the dealer to the Commissioner for cancellation of the registration. (2) If on receipt of the report under sub-rule (1), the Commissioner is satisfied that it is correct, he shall cancel the registration of the dealer with effect from the date of discontinuance or transfer of the business. (2) If on receipt of the report under sub-rule (1), the Commissioner is satisfied that it is correct, he shall cancel the registration of the dealer with effect from the date of discontinuance or transfer of the business. (3) When the annual turnover of a registered dealer during 21 period of two consecutive years does not exceed the limits specified in sub-section (5) of section 4, or when a dealer has been granted a certificate of registration by mistake the appropriate Sales Tax Officer may, either on his own motion or on an application in form V by the dealer in that behalf and after such inquiry as be deems necessary, submit a report as soon as possible to the Commissioner for cancellation of the registration of the dealer. If the Commissioner is satisfied about the correctness of the report, he shall cancel the registration. In the cases falling under clause (a) of sub-section (10) of section 15 the cancellation shall have effect from the date of the discontinuance or transfer of the business. In cases falling under clause (b) or (c) of sub-section (10) of section 15, the liability of the dealer to pay tax shall cease with effect from the date of communication to him of the order of cancellation." It will be seen that a registered dealer desiring cancellation of his registration certificate is required to make an application in form V; The form prescribed for an application for cancellation requires the dealer to state the number of his certificate of registration, the place of his business in the State, his gross turnover during the past two consecutive years and for the current year upto the date of the making of the application for all places of business in the State, and the grounds in support of the application for cancellation. The applicant is also required to state whether he does or does not import foods for sale and whether• he does or does not manufacture the goods for sale. The application has to be verified and the applicant is required to declare that what he has stated in the application for cancellation is true to the best of his knowledge and belief. Rule 13 speaks of "an application in form V by the dealer in that behalf". We had occasion to consider in Janata Hardware Stores Vs. The application has to be verified and the applicant is required to declare that what he has stated in the application for cancellation is true to the best of his knowledge and belief. Rule 13 speaks of "an application in form V by the dealer in that behalf". We had occasion to consider in Janata Hardware Stores Vs. B.S. Parihar 1962 JLJ 7491 = 1962 MPLJ 889 = AIR 1962 MP 315 , the difference between the expressions "in form" and "in accordance with form", in connection with the validity of a notice under rule 33 of the Rules. We pointed out that there was a vital distinction between the two expressions and said that a notice would be substantially in accordance with the prescribed form if it did not depart from the prescribed form in any material respect; but if the relevant rule required that a notice should be "in form..." that meant that the form must be strictly and literally followed. The words "application in form V by the dealer in that behalf" occurring in rule 15 (3) must also be similarly construed, and it must be held that an application for cancellation of a registration certificate must be strictly and literally in the prescribed form V. The two letters addressed by the petitioners asking the Sales Tax Officer to treat their registration certificates as Cancelled were net either in form or even in substance applications for cancellation of registration certificates in form V. The Sales Tax Officer, who dealt with the letters of the petitioners in May and June 1960, should have noticed that on these letters the question of the cancellation of registration certificates could not have been considered at all and should have informed the petitioners accordingly directing them to file proper applications for cancellation. 7. The Sales Tax Officer, however, proceeded to consider the question whether the petitioners' registration certificates could be cancelled, and ultimately informed them that as they were dealers under the Act of 1958 the certificates could not be cancelled. In so disposing of the matter of the cancellation of registration certificates, the Sales Tax Officer overlooked the provisions of rule 13. The Sales Tax Officer, however, proceeded to consider the question whether the petitioners' registration certificates could be cancelled, and ultimately informed them that as they were dealers under the Act of 1958 the certificates could not be cancelled. In so disposing of the matter of the cancellation of registration certificates, the Sales Tax Officer overlooked the provisions of rule 13. Under rule 13(3), when an application in form V for cancellation of a registration certificate is received from a dealer, then the Sales Tax Officer, after such enquiry as he may deem necessary, is required to submit a report to the Commissioner for cancellation of the registration of the dealer. Then if the Commissioner is satisfied about the correctness of the report, he is required to cancel the registration. Thus it is the Commissioner and not the Sales Tax Officer who has under rule 13 (3) the power to caned registration. The provision in rule 13 (3) that the Sales Tax Officer "may.........on an application in form V by the dealer in that behalf and after such inquiry as he deems necessary, submit a report as soon as possible to the Commissioner for cancellation of the registration of the dealer" does not mean that it is only when the Sales Tax Officer thinks that a certificate should be cancelled that he is required to submit a report to the Commissioner and that if he is of opinion that the registration should continue then he can reject the application for cancellation without referring it to the Commissioner. As the power of cancellation of a registration certificate is under section 15 (10) vested in the Commissioner, the true construction of the aforesaid provision would be that on receiving an application for cancellation from a dealer the Sales Tax Officer must make a report to the Commissioner as to whether the registration should continue or it should be cancelled. It is the Commissioner, or the Officer to whom the power of cancellation is validly delegated, who alone can decide whether the registration should continue or whether it should be cancelled. This power of the Commissioner has not been, in the present case, delegated to the Sates Tax Officer. It is the Commissioner, or the Officer to whom the power of cancellation is validly delegated, who alone can decide whether the registration should continue or whether it should be cancelled. This power of the Commissioner has not been, in the present case, delegated to the Sates Tax Officer. Under section 30 of the Act of 1958 read with rule 63 of the Sales Tax Rules, 1959, the Commissioner can no doubt delegate his powers under sections 15 and 16 to register a dealer, to grant or amend a certificate of registration or cancel registration or to recover fee or to impose penalty. But the delegation cannot be to any officer below the rank of Sales Tax Officer. On 1st April 1959 and 24th April 1959, the Commissioner made two orders with regard to delegation of powers in the exercise of his power under section 30 read with rule 68 (orders Nos. 267 dtd. 1st April 1959 and ST-I-344 dtd. 24th April 1959). According to these two orders, the power to cancel registrations has been delegated by the Commissioner to the Assistant Sales fax Commissioner and not to any Sales Tax Officer. The Sales Tax Officer had thus no power to take any decision in the matter of cancellation of the petitioners' registration certificates. It follows, therefore, that the two communications rent to the petitioners by the Sales Tax Officer informing them that their certificates could not be cancelled as they were dealers are in law no orders at all of the authority competent to decide the question whether the petitioners' certificates should or should not be cancelled. On the letters addressed by the petitioners and the replies sent by the Sales Tax Officer, there can be no question of the issue of any direction to the opponents to cancel their registration certificates or to treat the petitioners' letters as applications for cancellation and dispose them of according to law, or of the issue of a writ of certiorari for quashing any order of the competent authority refusing cancellation on the ground that the order is erroneous on the face of the record. 8. 8. It is evident from some statements contained in the petitions and in the returns thereto that both the petitioners and the Department are under some misconception as regards the meaning and effect of the provisions of the Act of 1958 and the rules made there under bearing on the subject of cancellation of registration certificates. The petitioners are wrong in thinking that the effect of the decisions of the Supreme Court in The State of Madras Vs. M/s Gannon Dunkerley & Co. AIR 1958 SC 560 , and Banarsi Das Vs. State of M.P. 1962 RN 472 = 1958 MPLJ 467 = AIR 1958 SC 909 , is that they can never be regarded as registered dealers. Those decisions only hold that where there is a building contract and the contract is single and indivisible, then in the execution of that contract their is no contract of sale of the materials used in the work, and that, accordingly sales tax on the supply of materials cannot be levied. In paragraph 12 of the judgment in the case of Banarsi Das (supra), the Supreme Court distinctly pointed out that the judgment in that case did not bar the sales tax authorities from deciding whether a particular contract fell within the category of single and indivisible contracts or the category of contracts which were a combination of distinct contracts of sale of materials, and work, and imposing a tax on the agreements of sale of materials, where the contract belonged to the latter category. Therefore, merely because the petitioners are building contractors it cannot be said that whatever transactions they enter into with others in the course of their business they are all free from any liability to pay tax under the Sales Tax Act. Whenever the question in regard to the petitioners' liability to pay any tax under the Sales Tax Act arises, it has to be determined with reference to the true nature of the transactions or contracts entered into by the petitioners after taking into account all the relevant material. The petitioners may be building contractors; but it does not necessarily follow from this that they never sell any building material. 9. The petitioners may be building contractors; but it does not necessarily follow from this that they never sell any building material. 9. The decisions of the Supreme Court no doubt furnish to the applicants a solid foundation for urging that the registration certificates granted to them on the basis of law expressed by the Nagpur High in the case of Pandit Banarsi Das 6 STC 93, namely, that there was a sale of materials in the execution of a building contract, could not be continued without an investigation into the question of the petitioners' liability to pay any sales tax under the Act of 1958 on the transactions entered into by them with others and in the light of the Supreme Court's decisions. Those certificates had been granted on the footing that in a building contract there was necessarily a sale of materials. That being no longer the true legal position, the petitioners cannot be compelled to continue the registration unless it is first found that they are dealers whose turnover for the past two consecutive years has exceeded the limits specified in sub-section (5) of section 4. This is clear from rule 13 (3) which says that when the annual turnover of a registered dealer during a period of two consecutive years does not exceed the limits specified in section 4 (5), then the Sales Tax Officer suo motu or on an application by a dealer can submit a report to the Commissioner for the cancellation of a registration certificate. The question of registration of a dealer or the continuation of a registration certificate has to be determined with reference to the turnover of sale transactions of the dealer and net of the purchase transactions. This has been made very clear by this Court in Hiranand Vs. Commr. of Sales Tax 1961 JLJ 1467 = 1961 RN 436 1962 MPLJ 61 . The petitioners have exhibited certain orders of the Sales Tax Officer assessing them to purchase tax. The Department is perhaps inclined to think that the petitioners are registered dealers because of this liability to pay purchase-tax and consequently their registration certificates cannot be cancelled. 10. In this connection, Shri Khaskalam, learned Additional Government Advocate drew our attention to the amendment effected in section 7 of the Act of 1958 by the M.P. General Sales Tax (Amendment) Act, 1960. 10. In this connection, Shri Khaskalam, learned Additional Government Advocate drew our attention to the amendment effected in section 7 of the Act of 1958 by the M.P. General Sales Tax (Amendment) Act, 1960. By that, amendment a new sub-section has been inserted in section 7, which it as follows. "(2) Every dealer liable to pay purchase tax under sub-section (1) shall, for the purposes of this Act, be deemed to be a registered dealer." It was said that as the petitioners are liable to pay purchase tax they must be deemed to be registered dealers and cannot, therefore, claim to have their registration certificates cancelled. We are unable to accept this argument, Sub-section (2) of section 7 only creates a new category of registered dealers. It does not say that a person liable to pay purchase-tax shall get himself registered in any prescribed manner, or make the provisions of section 15 with regard to registration of dealers and cancellation of certificates applicable to persons deemed to be registered dealers under that provision. If a person is already deemed to be a registered dealer, then there is no question of his applying for becoming a registered dealer. The fact, therefore, that the petitioners were assessed to purchase tax and that they are under section 7 (2) deemed, to be registered dealers has no bearing whatsoever on the question of the cancellation of registration certificates issued under the repealed Act of 1947 and continued under section 15 of the new Act. It was also suggested that as the certificates of registration granted under the repealed Act are by virtue of section 15 (6) deemed to be the certificates granted under the Act of 1958, therefore, they cannot be cancelled. We are unable to see the validity of this argument. There is nothing in section 15 of the Act excluding the applicability of sub-section (10) to certificates of registration which are deemed under sub-section (6) as issued under section 15. 11. We were also informed by the learned Additional Government Advocate that proceedings for the assessment of petitioners to sales tax are pending for the last two years and until they are finally disposed of it cannot be determined whether the petitioners have any turnover of sale transactions and whether the turnover exceeds the limit specified in section 4 (5). 11. We were also informed by the learned Additional Government Advocate that proceedings for the assessment of petitioners to sales tax are pending for the last two years and until they are finally disposed of it cannot be determined whether the petitioners have any turnover of sale transactions and whether the turnover exceeds the limit specified in section 4 (5). It was suggested that until this is done, the sales tax authorities cannot take any decision whether the certificates of registration should or should not be cancelled. We are unable to appreciate this difficulty of the Department. If the sales tax assessment proceedings are pending for the last two years, it is time that the authorities come to some decision in those proceedings. They cannot be kept pending just for the purpose of forcing the petitioners to continue their registration and for avoiding any decision on the question of cancellation of registration certificates. It may be added that the object of registration is to facilitate the authorities in collection of tax. The liability of a dealer to sales tax does not depend on the fact whether he is a registered or unregistered dealer. If the dealer his no turnover of the specified limit as explained in Hiranand Vs. Commr. of Sales Tax (supra), then the necessity of registration goes and with it also the burden of paying the annual fee for it and the submission of returns. 12. In the end we hope that if and when the petitioners make proper applications for the cancellation of their registration certificates, they will be disposed of promptly by the Department in accordance with law and in the light of this decision and by bringing to bear on their work a better appreciation of statutory duty than what has been disclosed in these proceedings. 13. For these reasons, both these petitions are dismissed. We make no order as to costs. The outstanding amount of security deposit shall be refunded to, the petitioners.