Western Coalfields Limited vs Commissioner of Sales Tax

A.K. Patnaik, C.J.—This is a reference u/s 44(1) of the Madhya Pradesh General Sales Tax Act, 1958.

The facts, as stated in the statement of the case, are that the petitioner, M/s. Western Coalfields Limited, is a dealer carrying on the business of mining and sale of coal. During the period April 1,1980 to March 31,1981 the petitioner produced coal and loaded the same in the trucks of purchasers at the pits of mines and the trucks loaded with coal were taken to local areas in which weighbridges were located. In the assessment order under the Madhya Pradesh Entry Tax Act, 1976 (in short, "the Act") made on October 1, 1984 the assessing officer held that since the sales were finalised at the weighbridges in the local areas on weighment of the coal, the sales were made within the local areas in which the weighment was carried out and accordingly levied entry tax of Rs. 2,55,529.02 on coal brought into the local areas by the petitioner for weighment.

The petitioner sold coal worth Rs. 82,27,701.35 to different parties and on the sale bills, the petitioner did not endorse certificate as required by Sub-section (1) of Section 7 of the Act that the goods were local goods and entry tax was not paid. Out of this amount, sales of the value of Rs. 47,47,581.71 were made to registered dealers who had given certificates that entry tax had been paid on the coal purchased by them. Sales of the value of Rs. 4,97,694.03 were made to the Defence Department of the Government of India and sales of the value of Rs. 55,623.62 had been made to new industries and sales of the value of Rs. 3,13,402.49 to manufacturers of tax-free goods and rest of the sales of the amount of Rs. 26,11,419.50 were made to other dealers, some of whom were unregistered dealers. The assessing officer levied a penalty of Rs. 3,08,388.52 u/s 7(5) of the Act for default on the part of the petitioner to endorse a certificate on the bills raised for the sale of Rs. 82,27,701.35 that the goods were local goods and entry tax had not been paid.

Aggrieved, the petitioner filed an appeal before the Appellate Deputy Commissioner of Sales Tax challenging the levy of entry tax as well as the penalty but the Appellate Deputy Commissioner by his order dated February 3, 1986 passed in Appeal Case No. 55/Chhi/Entry Tax/84 remanded the case back to assessing officer for further enquiry and order on some points. Aggrieved, the appellant filed a second appeal before the Board of Revenue but by order dated October 31, 1986, the Board of Revenue dismissed the appeal.

Thereafter, the petitioner filed an application u/s 13 of the Act for reference on questions of law arising out of the appellate order of the Board of Revenue and the Board of Revenue has referred the following seven questions of law to this Court:

Whether, on the facts and in the circumstances of the case, the Board was right in holding that the entry in the local area of weighbridge was caused by the dealer ? And the dealer was liable to entry tax on such coal.

Whether the dealer was liable to entry tax on the coal raised in its mines which was loaded in the trucks brought by purchasers after full payment of price was made and release order issued in favour of the purchasers.

Whether the sale was complete when the delivery was given to the purchasers'' agent at the pit mouth in the truck brought by the latter or at the weighbridge after the coal was weighed?

Whether the levy of penalty u/s 7(5) of the Entry Tax Act is valid in law?

Whether, on the facts and in the circumstances of the case, the Board was right in law in upholding the levy of penalty in respect of sales to registered dealers amounting to Rs. 47,47,000 even though such dealers have certified that entry tax was paid by them?

Whether the Board was right in law in upholding the levy of penalty u/s 7(5) on sales to Defence Establishment amounting to Rs. 4,95,694 when the Department itself is not treating them as registered dealers for purchase of such goods.

Whether the Board was right in law in upholding the levy of penalty u/s 7(5) on sales to new industries and non-manufacturers of tax-free goods who themselves are not liable to entry tax?

The first three questions raise actually one question : whether the petitioner was liable to entry tax for causing entry of coal to the local areas only for weighment of the goods. Mr. Prakash Shrivastava, learned Counsel for the petitioner, submitted that in Western Coalfields Ltd. and Others Vs. State of M.P. and Another, a Division Bench of this Court has already examined the matter at length and held that liability to pay the entry tax under the Act arises only if entry of goods into the local area is for consumption or use or sale in the local area and, therefore, if any entry of goods into a local area is only for the purpose of weighment and not for consumption, use or sale of goods within the local area, no entry tax is payable. He submitted that the Board of Revenue has accepted the view taken by the assessing officer that determination of price takes place only after weighment and, therefore, the petitioner, having caused the entry of goods into the local areas in which the weighbridges were situated, was not liable to entry tax. He submitted that the Supreme Court in the case of Entry Tax Officer, Bangalore Vs. Chandanmal Champalal and Co. Etc. Etc., , relying on its earlier decisions in Burmah Shell Oil Storage and Distributing Co. India Ltd. Vs. The Belgaum Borough Municipality, , Hiralal Thakorlal Dalal Vs. Broach Municipality and Others, and Municipal Council, Jodhpur Vs. Parekh Automobiles Ltd. and Others, has held that the words "sale therein" will mean sale within the local area for the purpose of use and consumption therein and where the goods are sold and taken out from the local area, the goods are not liable either for octroi or for entry tax.

Mr. Vivekanand Awasthy, learned Government Advocate appearing for the respondent, submitted that this Court has already settled the position of law in Western Coalfields Ltd. and Others Vs. State of M.P. and Another, that if entry of goods in a local area is only for the purpose of weighment and not for consumption, use or sale within the local area, no entry tax is payable.

In Western Coalfields Ltd. and Others Vs. State of M.P. and Another, , after considering the decisions of the Supreme Court in Entry Tax Officer, Bangalore Vs. Chandanmal Champalal and Co. Etc. Etc., , Burmah-Shell Oil Storage and Distributing Co. of India Ltd., Belgaum [1963] Supp. 2 SCR 216 and Hiralal Thakorlal Dalal Vs. Broach Municipality and Others, , a Division Bench of this Court has held that although entry tax is levied by the State Legislature under the Entry Tax Act and is different from octroi which was levied by a municipality or a municipal corporation authorised by an Act of the State Legislature, both entry tax and octroi are covered by one and the same legislative entry 52 of List II and are "taxes on entry of goods into a local area for consumption, use or sale therein". The Division Bench has further noticed that the very preamble of the Entry Tax Act states that this is an Act to levy a tax on entry of goods into a local area in Madhya Pradesh for consumption, use or sale therein and Section 2(1) (b) of the Entry Tax Act defines "entry tax" to mean a tax on entry of goods into a local area for consumption, use or sale therein levied and payable in accordance with the Act and Section 3(1)(a), which is the charging section, states that there shall be levied an entry tax on the entry in the course of business of a dealer of goods specified in Schedule II of the Act into "each local area for consumption, use or sale therein". The Division Bench has, thus, held that liability to entry tax under the Entry Tax Act would arise only if entry of goods into the local area is for consumption or use or sale in the local area and if entry of goods into a local area is only for the purpose of weighment and not for consumption, use or sale of goods within the local area, no entry tax is payable.

In view of the aforesaid decision of the Division Bench in Western Coalfields Ltd. and Others Vs. State of M.P. and Another, , we answer the first question referred to us as follows : (1) on the facts and circumstances of the case, the Board was not right in holding that the entry in the local area of weighbridge caused by the dealer made him liable to entry tax on the coal, (2) the dealer was not liable to entry tax raised on the coal in its mines which was loaded in the trucks brought by purchasers after full payment of price only and release orders issued in favour of the purchasers and (3) on sale of coal, when the delivery was given to the purchaser/agent at the pit mouth in the truck brought by the purchaser or at the weighbridge after the coal was weighed, the dealer would not be liable to entry tax because the coal was not sold for use or consumption in the local area and instead was taken out of the local area soon after weighment.

On the fourth, fifth, sixth and seventh questions, Mr. Shrivastava submitted that Sub-section (5) of Section 7 of the Act, as it stood during the period April 1,1980 to March 31,1981, provided that where the registered dealer sold local goods to other registered dealers and has failed to state in the bill, invoice or cash memo that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such goods, it shall be presumed that he has facilitated the evasion of entry tax on the local goods so sold and he shall be liable to penalty mentioned therein. He submitted that the expression "shall be presumed" in Sub-section (5) of Section 7 of the Act would show that where a registered dealer does not make a statement in the bill, invoice or cash memo that the goods sold are local goods in relation to such local area and that entry tax has been paid on such local goods, a rebuttable presumption is drawn that he has not made the statement to facilitate evasion of entry tax on local goods. He submitted that if the dealer is able to produce materials before the assessing authority to rebut this presumption, then he cannot be liable to penalty mentioned in Sub-section (5) of Section 7 of the Act. In support of this proposition, he cited the judgment of the Supreme Court in State of Madhya Pradesh v. Bharat Heavy Electricals [1997] 106 STC 604 : [1998] 31 VKN 249 in which the Supreme Court has taken a view that Sub-section (5) of Section 7 of the Act contains a rebuttable presumption.

Mr. Shrivastava submitted that before the assessing officer the petitioner had also filed certificates of the purchasing registered dealers to show that they had paid the entry tax on purchases made from the petitioner and in such cases, therefore, the presumption that the petitioner has facilitated the evasion of entry tax on local goods sold under bills which did not contain the statement that the goods were local goods and no entry tax was paid on such local goods, stood rebutted by the petitioner. He submitted that the petitioner had also furnished all details of coal sold to new industries which were exempted from entry tax and to manufacturers of tax-free goods but these materials were not taken into consideration by the assessing authority or the Board of Revenue, and instead it has been held by the assessing officer and the Board of Revenue that the petitioner has not been able to rebut the presumption that he had facilitated the evasion of entry tax on local goods sold to these industries by not making a statement on the bills that the goods were local goods and no entry tax had been paid on such local goods. He submitted that Sub-sections (1) and (5) of Section 7 of the Act applies to sales to registered dealers and since the Defence Department does not carry on any licence and is not a dealer, no penalty can be levied under Sub-section (5) of Section 7 for contravention of Sub-section (1) of Section 7 in case of sales to the Defence Department.

Mr. Awasthy, learned Government Advocate, on the other hand, submitted that the language of Sub-sections (1) to (5) of Section 7 of the Act is clear that every registered dealer who, in course of his business, manufactures, produces or grows any goods specified in Schedule II in a local area in such manner that the goods become local goods in relation to that local area, has to issue to the registered dealer, who purchases local goods from him, a bill, invoice or cash memo specifically stating that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such goods and if no such statement is made by the selling registered dealer, it shall be presumed that he has facilitated the evasion of entry tax on local goods and he shall be liable to penalty. He submitted that admittedly the petitioner has not furnished any such statement in the bills and, therefore, the assessing officer had no option but to presume that the petitioner has facilitated the evasion of entry tax on local goods so sold and levied penalty accordingly.

Sub-sections (1) and (5) of Section 7 of the Act, without the amendments after the financial year 1980-81, are quoted hereinbelow:

Registered dealers to issue bill, etc., stating that goods sold are local goods. - (1) Every registered dealer who, in the course of his business, manufactures, produces or grows any goods specified in Schedule II in a local area in such manner that the goods become local goods in relation to that local area, shall, on the sale of such local goods to any other registered dealer, issue to him a bill, invoice or cash memo specifically stating in such manner as may be prescribed, that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such goods.

(5) Where a registered dealer referred to in Sub-section (1) or Sub-section (2) has, in the course of his business, sold local goods to other registered dealers and has failed to make the statement referred to in Sub-section (1), it shall be presumed that he has facilitated the evasion of entry tax on the local goods so sold and accordingly he shall be liable to pay penalty equal to one and a half times the amount of entry tax payable on such goods as if they were not goods of local origin.

A plain reading of Sub-section (1) of Section 7 of the Act makes it clear that every registered dealer who, during the course of his business, produces any goods specified in Schedule II of the local area in such manner that the goods become local in that area shall, on the sale of such local goods to any other registered dealer, issue to him a bill, invoice or cash memo specifically stating that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such goods. This provision has been made by the Legislature to ensure that the registered dealer, to whom local goods are sold, is put to notice that the goods sold to him are local goods in relation to a local area and that no entry tax has been paid on such goods so that if a registered dealer causes the entry of such local goods into another local area, he has to pay tax on entry of such goods into another local area as provided in Section 3 of the Act. It follows, therefore, that where the selling registered dealer does not make a statement in the bill, invoice or cash memo that the goods being sold are local goods in relation to a local area and that no entry tax has been paid on such local goods, the purchasing registered dealer is not put to notice that he would be liable to entry tax on such goods if he causes entry of such goods into another local area and in the process he is likely to evade entry tax on the entry of such local goods sold to him into another local area. For this reason, Sub-section (5) of Section 7 of the Act provides that where a registered dealer sells local goods in course of his business to other registered dealers and fails to make a statement in the bill, invoice or cash memo that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such local goods, it shall be presumed that he has facilitated the evasion of entry tax on the local goods so sold.

The expression "shall be presumed" in Sub-section (5) of Section 7 of the Act has been interpreted by the Supreme Court in State of Madhya Pradesh v. Bharat Heavy Electricals [1997] 106 STC 604 : [1998] 31 VKN 249 cited by Mr. Shrivastava to mean a rebuttal presumption. In the said case, the Supreme Court has held that it will be open to the registered dealer to satisfy the authorities concerned that by not making the statement in the bill, invoice or cash memo that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such local goods he did not actually facilitate the evasion of entry tax on such goods. In Section 4 of the Indian Evidence Act, 1872, it is provided that whenever it is directed by the Evidence Act that the court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved. The same principle will apply to the presumption in Sub-section (5) of Section 7 of the Act. Accordingly, unless and until a registered dealer, who has not made a statement in the bill, invoice or cash memo that the goods being sold are local goods in relation to a local area and that no entry tax has been paid on such local goods, proves that failure on his part to make such statement was not for facilitating the evasion of entry tax, the authorities under the Act have to presume that failure on his part to make such statement on the bill, invoice or cash memo was for facilitating the evasion of entry tax on the local goods sold by him.

Applying the aforesaid constructions of Sub-sections (1) and (5) of Section 7 of the Act, we are of the considered opinion that the penalty in respect of sales to registered dealers of the amount of Rs. 47,47,581.71 was not leviable when such registered dealers have certified that entry tax was paid by them on the goods purchased by them. Once there was satisfactory evidence before the authorities that the purchasing registered dealers had, in fact, paid the entry tax on the coal purchased by them from the petitioner, there was, in fact, no evasion of entry tax and, thus, the presumption raised in Sub-section (5) of Section 7 of the Act stood rebutted and accordingly, no penalty could be levied on the petitioner for not mentioning in the bills under which the coal was sold to the registered dealers that the goods were local goods in relation to a particular local area where they were produced by the petitioner and that no entry tax had been paid on such goods. The Board of Revenue appears to have taken a view that the petitioner has not been able to rebut the presumption because the registered dealers, who have purchased the coal, could well obtain refunds in the light of the decision of the Supreme Court in Ranomal Ramesh Kumar''s case and since there was no proof that such refunds have not been claimed, it could not be said that entry tax had not been evaded by the purchasing registered dealers. In our considered opinion, this reasoning given by the Board of Revenue is far-fetched. So far as the petitioner was concerned, it was required to establish only that the purchasing registered dealers had, in fact, paid the entry tax on the coal purchased by them and therefore the petitioner did not facilitate the evasion of entry tax by not making the statement in the bills under which the coal was sold by the petitioner to the registered dealers that the goods were local goods and entry tax was not paid on such local goods. We accordingly answer question Nos. 4 and 5 in the negative and in favour of the petitioner.

Coming now to question No. 6, it is a settled principle of statutory interpretation that a penal provision has to be strictly construed. Thus, only Sub-sections (1) and (5) of Section 7 of the Act made it obligatory on the selling registered dealer to make a statement in the bill, invoice or cash memo that the goods sold are local goods in relation to such local area and that entry tax has not been paid on such local goods and further provided that on such failure, penalty can be imposed on the selling registered dealer, then penalty is leviable otherwise not. Sub-section (1) of Section 7 of the Act provides that on the sale of local goods to other "registered dealers" the selling registered dealer will issue to him a bill, invoice or cash memo stating that the goods being sold are local goods in relation to the local area and that no entry tax has been paid on such, local goods. Thus, it is only in case of sale of local goods to another registered dealer that a statement has to be made in the bill, invoice or cash memo that the goods being sold are local goods in relation to such local area and that no entry tax has been paid on such local goods. Similarly, Sub-section (5) of Section 7 provides that where a registered dealer has, in course of his business, sold local goods to other "registered dealers" and has failed to make a statement referred to in Sub-section (1) it shall be presumed that he has facilitated the evasion of entry tax on the local goods so sold and accordingly he will be liable to pay penalty. Therefore, the presumption, as provided in Sub-section (5) of Section 7 of the Act, can only be raised where the registered dealer sells local goods to other "registered dealers".

The word "dealer" has not been defined in the Act. Sub-section (2) of Section 2 of the Act, however, states that expressions which are used but are not defined in the Act and are defined in the Madhya Pradesh Commercial Tax Act, 1994 shall have the meaning assigned to them in the Madhya Pradesh Commercial Tax Act, 1994. The word "dealer" has been defined in Section 2(h) of the Madhya Pradesh Commercial Tax Act, 1994 which is quoted hereinbelow:

Dealer means any person who carries on the business of buying, selling, supplying or distributing goods directly or otherwise, whether for cash, or for deferred payment or for commission, remuneration or other valuable consideration and includes-

(i) a local authority, a company, an undivided Hindu family or any society (including a co-operative society), club, firm or association which carries on such business ;

(ii) a society (including a co-operative society), club, firm or association which buys goods from, or sells, supplies or distributes goods to, its members;

(iii) a commission agent, a broker, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of the principal;

(iv) any person who transfers the right to use any goods for any purpose, (whether or not for a specified period) in the course of business to any other person.

It will be clear from the definition of "dealer" that it means a person who carries on the business of buying, selling, supplying or distributing the goods. The Defence Department of the Government of India does not carry on the business of buying, selling, supplying or distributing the goods. Hence the Defence Department of the Government of India is not a dealer and is accordingly not a registered dealer. The sales made by the petitioner to the Defence Department, Government of India are, therefore, not covered by Sub-sections (1) and (5) of Section 7 of the Act and penalty cannot be levied by the authorities under Sub-section (5) of Section 7 of the Act. We accordingly hold that the Board of Revenue was not right in law in upholding the levy of penalty u/s 7(5) on sales of the value of Rs. 4,95,694 to the Defence Department where the Defence Department was not a registered dealer.

Question No. 7 relates to levy of penalty under Sub-section (5) of Section 7 of the Act on sales to new industries exempted from entry tax and manufacturers of tax-free goods. On a reading of the second appellate order dated October 31,1986 passed by the Board of Revenue, we find that the petitioner did not produce eligibility certificates or their certified copies in proof of the fact that the new industries, to whom they have sold the goods, were not liable to pay entry tax. We find from a reading of some of the notifications of exemption issued under the Act that certificates of eligibility for entry tax and declarations are issued for the purpose of establishing that the goods are exempt from payment of entry tax. Unless, therefore, such eligibility certificates or declarations or copies thereof were produced before the assessing authority, the presumption in Sub-section (5) of Section 7 of the Act that the petitioner has facilitated the evasion of entry tax on the local goods sold to such registered dealers claiming exemption from entry tax cannot be said to have been rebutted. Accordingly, we hold that the Board of Revenue was right in law in upholding the levy of penalty u/s 7(5) of the Act on sales to new industries and manufacturers of tax-free goods.

The reference application stands disposed of.