Holding

Rule 8(4)(c) is a valid exercise of the Administrator’s rule‑making power under Section 71 of the Delhi Sales Tax Act, making selling dealers liable for tax when ST‑1 forms are not issued, and the earlier decision striking down the rule is overruled.

Summary

The Supreme Court examined whether Rule 8(4)(c) of the Delhi Sales Tax Rules, which withholds issuance of ST‑1 declaration forms to dealers who have defaulted in tax or penalty payments, exceeds the Delhi Sales Tax Act, 1975. The selling dealers argued that they should not be liable for tax when their purchasing dealers fail to obtain ST‑1 forms due to arrears, contending the rule was ultra vires. The Court held that the rule is a valid exercise of the Administrator’s rule‑making power under Section 71 of the Act and that selling dealers remain liable to pay tax if the required forms are unavailable. Consequently, the earlier Delhi High Court decision striking down the rule was overruled, the 2003 batch of appeals was dismissed, and the 1999 batch of appeals was allowed. The decision reinforces the objective of the Act to levy and collect tax and confirms the authority to impose safeguards against tax evasion.

Issues considered

Whether Rule 8(4)(c) of the Delhi Sales Tax Rules is ultra vires the Delhi Sales Tax Act, 1975, particularly Section 4(2)(a)(v).
Whether selling dealers are liable to pay sales tax when the purchasing dealer does not obtain ST‑1 forms due to tax arrears.
Whether the Administrator (Lt. Governor) has the power under Section 71 to make the impugned rule.
Whether the Delhi High Court judgment in Shri Krishna Engineering Co. (CWP 3304 of 1997) remains good law.

Legislation cited

Delhi Sales Tax Act, 1975s. 3, s. 4(2)(a)(v), s. 43(5), s. 71(1), s. 71(2)(b), s. 71(2)(s)

Subjects

sales taxST‑1 formrule‑making powertax liabilityDelhi Sales Tax Acttax evasionadministrative lawdeduction

Judgment

COMMISSIONER OF SALES TAX DELHI AND ORS. A
v.
M/S. SHRI KRISHNA ENGG. CO. AND ORS.

JANUARY 25, 2005

[S.N. VARIAVA, DR. AR. LAKSHMANAN AND S.t-!. KAPADIA, JJ.] B

Sales Tax:

Delhi Sales Tax Act, 1975, Section 4(2)(a)(v)-Delhi Sales Tax Rules,
1975-Rule 8(4)(c)-Sale transaction-Purchasing dealer failing to submit C
ST-/ form-liability of selling dealer to pay sales tax-Held, selling dealer
is liable to pay sales tax-Object of the Act being to check evasion and
collection of tax, State cannot lose its tax entitlement.

The question which arose in present appeals is whether selling dealer
who is not issued ST-1 forms by their purchasing dealer is disentitled to D
claim benefit of Section 4(2)(a)(v) of Delhi Sales Tax Act, 1975 and liable
to pay tax on such transaction.

Appellant-assessees contended that they were suffering due to failure
and defaults on the part of purchasing dealers, in which they have played E
no part whatsoever and that under the scheme of the Act they are
precluded from charging sales tax from other registered dealers since such
a demand would invite prosecution under the Act; that as per Rule 8(4)(c)
tax assessed must be paid as a condition for issuance of forms. The
condition to deposit assessed amount of tax is a substantive provision of
law going to the root of the right of the dealer to receive forms; that the F
impugned rule has been passed beyond the powers conferred under Section
71(2)(b) of the Act and therefore the rule is in excess of the jurisdiction
and authority of law and as such is liable to be quashed; that the
Administrator cannot take upon himself the power of the Parliament in
making any substantive amendments in the Act or the Rules. G
Revenue contended that a measure which is intended to check the
evasion of tax is a valid measure and it is in public interest to see that in
the guise of freedom of trade, they do not evade the payment of tax; that.
the power of Administrator to provide for further safeguards to prevent
825 EI
826 SUPREME COURT REPORTS [2005] J S.C.R.

A evasion of tax and to enable the Revenue to check such evasion and collect
tax is liable to be upheld so long as it does not contravene any specific/
express provision of the Act.

Disposing of the appeals, the Court

B HELD: 1.1. The objective of Delhi Sales Tax Act, 1975 is to levy and
collect tax on the sale of goods in the National Capital Territory of Delhi.
Levy of tax is meaningless if the tax is not collected. It can never be the
intention of lawmakers to keep on levying tax without any effort to collect
the tax so levied. [838-Ff

C lndo International Industries v. Commissioner of Sales Tax, Uttar
Pradesh, (1981) 47 STC 359; State of Tamil Nadu v. MK. Kandaswami and
Ors. (1975) 36 STC 191 and N. V. Bagi v. commissioner of Commercial Taxes
in Karnataka, (1991) 83 STC 449, referred to.

1.2. The entitlement to deduction under the Act, postulates two
D requirements, sale to a registered dealer and submission of a true
declaration filled and signed by the registered dealer in the prescribed
forms (ST-1). Selling/Purchasing dealers, are liable to pay sales tax on
every sale, and would be entitled to deduct the value of only those
transactions in respect of which they provide ST-1 Forms. In the event of
E the said forms being unavailable to them for whatever reason, they are
responsible for payment of the tax. The State cannot lose its tax
entitlement, in the light of the purpose and object of the Sales Tax Act.
The intent behind the devising of ST-1 forms/C Forms is to avoid
multipoint taxation and enable a dealer passing on the burden of sales tax
in such a way that it ultimately reaches the buyer-consumer.
F [839-D-E, Gf

A.. V Fernandez v. The State of Kera/a, AIR (1957) SC 657, referred
to.

Commissioner of Sales Tax, U.P. v. Modi Sugar Mills Ltd., AIR (1961)
G SC 1047, cited.

1.3. The scheme of the Act is that either ST-1 Form should be
available or tax should be collected. If a dealer shows such indulgence as
to delivery of ST-I Forms for a particular period, he takes the risk. The
H Sales Tax Department is neither privy to nor is it concerned with any
COMMR. OF SALES TAX v.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 827
~ assurances that might have been exchanged inter se between the selling A
and purchasing dealers in the matter of furnishing ST-I Forms. There is
no reason for the consequences of the dealers' acts of omission or
commission to visit the Department. Even if a purchasing dealer has
applied for ST-I Forms but has not received them for any reason, the
selling dealer is not automatically exonerated from liability. It is their
statutory duty to collect tax, since the ST-I Form is not forthcoming. B
(843-8; 846-C; 842-FJ

2. A general power has been conferred upon the administrator to
make appropriate rules to carry out the purposes of the Act. Thus, the
impugned amendment in Rule 8(4)(c) was within the rule making power C
of the Lt. Governor of Delhi. [847-B, Cl

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1717-1719
of 1999.

From the Judgment and Order dated 27.11.98 of the Delhi High Court D
in C.W.P. Nos. 3304, 3727 and 3859 of 1997.

WITH

C.A. Nos. 308, 313, 314, 315/2003 and S.L.P. (C) No. 1954 of2003.

Ravi P. Mehrotra, Mrs. Kiran Bhardwaj, H.C. Bhatia, Raj K. Batra, E
Mrs. Anil Katiyar and Mrs. Sushma Suri, Rajesh Mahna Randhir Chawla,
Ms. Renu Sahgal, Ms. Malvika Bhargava, Y.P. Mahajan, K.C. Dua and D.S.
Mahra for the appearing parties.

The Judgment of the Court was delivered by
F
DR. AR. LAKSHMANAN, J. The appellants in the above appeals,
namely, C.A. Nos. 308, 313, 314, and 315 of2003 and SLP No. 1954 of
2003 are selling dealers. The respondents in Civil Appeal Nos. 1717-1719 of
1999 are the purchasing dealers. This batch of appeals raises common question
of law. The facts are essentially similar. G
We shall now take Civil Appeal No. 314 of 2003 filed by one of the
selling dealers, namely, Simran Engineering Works. They filed the writ petition
in the High Court of Delhi seeking the following reliefs:-

"(a) issue a writ of certiorari or any other writ, order or direction H
828 SUPREME COURT REPORTS [2005] I S.C.R.

A quashing Rule 8(4)(c) which is ultra vires to the provisions of
Sec. 4(2)(a)(v) of the Delhi Sales Tax Act, 1975.

(b) issue a writ of certiorari or any other writ, order or direction
quashing Rule 8(4)(c) as the same is beyond the powers of the
Administrator conferred under Section 71 of the Delhi Sales Tax
B Act, 1975 to the extent that prescribes a condition that the
declaration will only be issued if he deposits the amount of tax.

(c) Issue a writ of mandamus or any other writ, order or direction
quashing Rule 8(4)( c) which is ultra vires to the provisions of the
Delhi Sales Tax Act.

C (d) Issue a writ of mandamus or any other writ, order or direction
directing respondent Nos. 1 to 3 to issue the forms withheld vide
deficiency memo dated 29.9.1999 and rejection order dated
13.10.1999 (Annexure 'c' (colly), to respondent No. 4 without
necessitating of deposit of arrears of Sales Tax who in tum will
issue forms to the petitioners and/or also issue direction directing
D
respondent No.5 to allow deduction on account of sales made to
respondent No.4 by the petitioner.

(e) Issue any other appropriate writ, order or direction as this Hon'ble
Court may deem fit and proper on the facts and circumstances of
the case."
E
Our concern in this batch of matters is whether the selling dealers can
canvass that the Department has no authority to refuse to issue sales tax
forms to purchasing dealers or allow the deduction to the selling dealers and
whether any of the provisions of Rule 8 of the Rules empowers it to do so,
F if there is such a power.

In the present case the appellants had sold goods to registered dealers
who are not being issued the declaration form on account that they being in
arrears of some tax and thereby the selling dealers cannot claim the benefit
of Section 4(2)(a)(v) and the figure of sales become liable to be included in
G the figure of his taxable turnover.

These appeals also involve interpretation of Section 4(2)(a)(v) of the
Delhi Sales Tax Act, 1975 and Rules 7 and 8(4) of the Delhi Sales Tax Rules,
1975.

H As already noted the appellants filed writ petitions in the High Court
COMMR. OF SALES TAX v.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 829

praying for an order or direction be issued quashing Rule 8(4)(c) of the Delhi A
Sales Tax Rules, 1975 (herein after referred to as the "Rules") on the ground
that it is ultra vires the provision of Section 4(2)(a)(v) of the Delhi Sales Tax
Act, 1975 (hereinafter referred to as the "Act").

The grievance of the appellants (selling dealers) pertains to the non-
issuance of Sales Tax Forms (ST-I). In the instant case, a legal question has B
arisen because the appellants as the selling dealers sold goods to the
respondents-purchasing dealers on the latter's assurance that they will supply
·-t
requisite ST-I forms to the former. Instead it had transpired that the Sales Tax
Department has declined to issue ST-I forms to the purchasing dealers, in this
batch of appeals either for the reason that they have relinquished their C
registration or because they have not complied with the provisions of the Act
and the Rules. The consequence of Department's declining to issue ST-I
form is that the appellant (Selling dealers) would become liable to deposit the
sales tax in respect of transactions in which they are the selling dealers. The
further consequence would be that unless the appellants deposit the sales tax
payable on these transactions they would render themselves liable for non- D
issuance of ST-I forms in other transactions where they may wear mantle of
purchasing dealers. They may also encounter the extreme penalty of facing
derecognition under the Act.

Mr. Rajesh Mahna, learned counsel for the appellant contended that
the appellants are being made to suffer the consequence of failure and defaults E
on the part of purchasing dealers in which they have played no part whatsoever
and that under the scheme of the Act they are precluded from charging sales
tax from other registered dealers since such a demand would invite prosecution
under the Act

Learned counsel also argued that they are in a helpless position and
F
would be compelled to incur sales tax liability for events which are not
within their control. Mr. Mahna submitted that as per Rule 8(4)(c) tax assessed
must be paid as a condition for issuance of forms. The condition to deposit
assessed amount of tax is a substantive provision of law going to the root of
the right of the dealer to receive forms. The Rule laying down to deposit the G
assessed amount and therefore it affects the statutory right of the dealer to
receive the forms. It was further contended that the impugned rule has been
passed beyond the powers conferred under Section 71(2) (b) of the Act and
therefore the rule is in excess of the jurisdiction and authority of law and as
such is liable to be quashed. It was also urged that the Administrator cannot H
830 SUPREME COURT REPORTS (2005) 1 S.C.R.

A take upon himself the power of the Parliament in making any substantive
amendments in the Act or the Rules.

This Rule directly affects the vested rights conferred upon the dealers
to receive forms under Section 4. He further submitted that the legislature
lays down the guidelines for issuance of forms in exercise of powers delegated
B to the Executive. Any Rule made depriving the dealers for obtaining the
forms which is in excess of powers is violative of the constitutional rights,
free trade and commerce. The power has to be exercised with the strict limits
of authority conferred by the Statute.

It was also contended that Rules whittle down the rights for the registered
C dealers to buy goods without tax on the strength of their registration certificate.
The said Rule undo the substantive law for which the Administrator has no
authority. The Rule 8(4)(c) overrides the provisions of the Act itself and
undo the Act for the functioning for which the Rules have been framed.

D Learned counsel has also invited our attention to a similar case which
came up before the Delhi High Court in the case of Mis. Shri Krishna Engg.
Co. v. Commissioner of Sales Tax Delhi and Ors. in CWP No.3304of1997,
whereby the High Court held that the Rules which are meant for carrying out
the provisions of the Act cannot take away what is conferred by the Act or
whittle down its effect. It is to be noted that against the above judgement, the
E State has preferred Civil Appeal Nos.1717-1719of1999. We shall deal with
the correctness of the above judgment of the Delhi High Court while
considering Civil Appeal Nos. 1717-1719 of 1999 in the later part of our
judgment.

Mr. Ravi P. Mehrotra, learned counsel for the Commr. Of Sales Tax
F while arguing the State's appeal in Civil Appeal No.1717-1719 of 1999 and
also replying to the arguments of counsel for the appellants in the other
bunch of appeals made the following submissions :

(a) Section 71(1) gives the Administrator the power to make Rules
for carrying out the purposes of the Act.
G
(b) Mischief Rule is to be applied to appreciate the true scope of the
amendment.
(c) Rule 8(4)(c) provides for ample safeguards.
(d) Section 72 of the Act is directory in nature since it provides for
H a negative procedure.
COMMR. OF SALES TAX v.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 83 J
(e) Equity has no role to play in tax matters. A
Mr. Ravi P. Mehrotra while arguing further submitted that the purpose
of Act is not merely to levy but also to collect tax and in pursuance to that
objective, to provide for safeguards to protect the interest of the Revenue.
Recovery of tax is as much a purpose under any tax law as levy of tax is,
since without an effective process for recovery of tax there is no purpose for B
levy of tax. According to learned counsel for the State a measure which is
intended to check the evasion of tax is undoubtedly a valid measure and it
is in public interest to see that in the guise of freedom of trade, they do not
evade the payment of tax. Explaining the scope of the power of Administrator
the learned counsel submitted that the power of the Administrator to provide
for further safeguards to prevent evasion of tax and to enable the Revenue
c
to check such evasion and collect tax is liable to be upheld so long as it does
not contravene any specific/express provision of the Act. In the present case,
so long as the impugned rule does not violate .any provis!on of the Act, it
should be upheld as having been framed for carrying out the purposes of the
Act unless it is so remote to the purposes of the Act that no rational nexus D
exists between the two. According to the submissions of the learned counsel
that is not the situation in the present case.

He also made the following further submissions :

(a) What was the law before the making of the Act? ? E
• Unamended Rule 8(4)(c)(ii) provided that the appropriate assessing
authority could withhold the issue of Form ST- I if the applicant
had, at the time of the application, defaulted in making the payment
of the amount of tax assessed or the penalty imposed which the
applicant admits to be due from him and which is not in dispute. F
(b) What was the mischief or defect for which the law did not provide?

• The defect came to be reflected in the Delhi High Court judgment
in Gee Gee Exports Pvt. Ltd. v. Commissioner of Sales Tax,
(reported in [ 1997] 105 STC 36 (Del) delivered on 08.11.1-996) G
(Y.K. Sabharwal, J. (as he then was) and DK Jain, J.) in this
case, the assessee had filed a revision petition and stay application
against the assessment order which were pending. It was held that
since the amount was in dispute and not admitted, therefore, it
was directed that the forms be issued to the assessee. Therefore, H
832 SUPREME COURT REPORTS (2005) 1 S.C.R.

A a dealer to avoid payment of tax and at the same requiring the
issuance of Form ST-I, had to merely file a revision petition
along with stay application and easily bypass the requirement of
Rule 8(4)(c)(ii). The law therefore did not provide for any
mechanism to check this kind of evasion of tax, which was the
purpose of Rule 8(4)(c).
B
(c) What is the remedy that the Act has provided?
• Rule 8(4)(c) (ii) was amended to provide that issuance of fonns
may be withheld if the applicant had defaulted in making the
payment of the amount of tax assessed or the penalty imposed by
c the assessing authority in respect of which no orders for instalment/
stay have been obtained from the competent authority under the
provisions of law.

(d) What is the reason of the remedy?
D • The judgement in the Gee Gee Exports amply demonstrated the
possibility of a dealer to avoid payment of tax by merely filing
a revision petition along with a stay application and at the same
time, demanding from the authorities Form ST-I. To avoid this
situation and to effectuate the purpose of the Act to collect tax
and further, to prevent evasion of tax, the impugned amendment
E was brought in.

Elaborating his submissions tiiat Rule 8(4)(c) provides for ample
safeguards, Mr. Ravi P Mehrotra, submitted :

Rule 8(4)(c) provides for ample safeguards
F
(a) That the requirements of Rule 8(4)(c) are not harsh or
unreasonable. Rather, on the other hand, they comply with the
rules of natural justice. The appropriate assessing authority has to
afford the applicant an opportunity of being heard and only after
recording his reasons in writing, can withhold the issue of
G
declaration forms to the applicant and therefore, is required to
make a report to the Commissions of such withholding within a
period of three days from the date of its order.
(b) Order passed by the appropriate assessing authority is appealable
under Section 43 of the Act.
H
COMMR. OF SALES TAX 1•.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J] 833

Before considering the rival submissions made by the counsel appearing A
on either side, it is beneficial to reproduce the relevant provisions under the
Delhi Sales Tax Act, 1975 and the Rules made thereunder :

(i) That under the Delhi Sales Tax Act, 1975, Section 3 is the charging
Section, it provides for the incidence of tax. It is laid down that every dealer
whose turnover exceeds the taxable quantum shall be liable to pay tax on all B
sales effected by him. Sub clause 7 defines taxable quantum. Section 4 lays
down the rate of tax. Sub-clause 2(a) defines taxable turnover. For ready
reference the provisions are set out hereunder :

Section 4 - Rate of tax - (1) The tax payable by a dealer under this Act C
shall be levied -

(a)

(b)

(c)
D
(cc)
(d)

(2) For the purposes of this Act, "taxable turnover" means that part
of a deaier' s turnover during the prescribed period in any year which
remains after deducting therefrom; E
(a) his turnover during that period on -

(i) sale of goods, the point of sale at which such goods shall be
taxable is specified by the Administrator under section 5 and in respect
of which due tax is shown to the satisfaction of the Commissioner to F
have been paid;

(ii) sale of goods declared tax-free under Section 7;

(iii) sale of goods not liable to tax under Section 8:

(iv) sale of goods which are proved to the satisfaction of the G
Commissioner to have been purchased within a period of twelve
months prior to the date of registration of the dealer and subjected to
tax under the Bengal Finance (Sales Tax) Act, 1941, as it was then
in force, or under this Act;

(v) sale to a registered dealer - H
834 SUPREME COURT REPORTS [2005) I S.C.R.

A (A) ..... .

(!)

(2)

(3)
B
(B) ..... .

(C) ..... .

(vi) ..... .
c Provided ......

Provided ......

(b)

(ii)
D
Rule 7 - Condition subject to which a dealer may claim deduction
from his turnover on account of sales to registered dealers - (I)
A dealer who wishes to deduct from his turnover the amount in
respect of sales on the ground that he is entitled to make such
deduction under the provisions of sub-clause (v) of clause (a) of
E sub-section (2) of section 4 shall produce :
(a) copies of the relevant cash memos or bills according as the
sales are cash sales or sales on credit, and
(b) a declaration in form ST-I duly filled in and signed by the
F purchasing dealer or a person authorised by him in writing:
Provided ...... .
Provided ..... ..
(l(A) .... ..
(2) .... ..
G
(3) .... ..

(4) ...... .

Rule 8 - provides as to from whom the declarations have to be
obtained and the procedure for obtaining the same. The said rule
H
COMMR. OF SALES TAX 1•.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 835
is set out hereunder : A
Rule 8 Authority from whom. the declaration form may be
obtained, and use, custody and maintenance of records of such
forms and matters incidental thereto - (I) The declaration referred
to in the second proviso to clause (a) of sub-section(2) of Section
4 shall be in form ST-I which shall be obtained from the B
appropriate assessing authority by the registered dealer intending
to purchase goods on the strength of his certificate of registration.
(2)
[Provided ......
Provided further ......
c
[(2)(A) ......
((3) For obtaining declaration form ST-I, a registered dealer shall
apply in writing to the appropriate assessing authority;]
[Provided that the declaration shall be issued to a registered dealer
D
only after he has rendered satisfactory account of the forms, if
any, issued to him on previous occasions.]
(4)(a) [If, for reasons to be recorded in writing] the appropriate
assessing authority is satisfied that the declaration forms have not E
been used bona fide by the applicant or that he does not require
such Forms bona fide, the appropriate assessing authority may
reject the application or it may issue such lesser number of fc.,rms
as it may consider necessary.
(b) if the applicant for declaration forms has, at the time of making
the application, failed to comply with an order demanding s~curity F
from him under sub-seat ion (I) of section 18, the appropriate
).·
assessing authority shall reject the application .......
(c) If the applicant for declaration forms has, at the time of making
the application :
G
(i) defaulted in furnishing any return or returns in accordance
with the provisions of the Act or these Rules, or in payment of
tax due according to such return or returns; or
(ii) defaulted in making the payment of the amount of tax assessed
or the penalty imposed by an· appropriate assessing authority, H
836 SUPREME COURT REPORTS [2005] I S.C.R.

A which the applicant admits to be due from h:m and which is not
in dispute; or
(iii) been found by an appropriate assessing authority having some
adverse material against him, suggesting any concealment of sale
or purchase or of furnishing inaccurate particulars in the returns;
B the appropriate assessing authority shall, after affording the
applicant an opportunity of being heard, withhold, for reasons to
be recorded in writing, the issue of declaration forms to him and
the appropriate assessing authority shall make a report to the
Commissioner about such withholding within a period of three
c days, from the date of its order:
Provided that the appropriate assessing authority may,
instead of withholding declaration forms, issue to the applicant,
with the previous approval of the Assistant Commissioner
appointed under sub-section (2) of Section 9 of the Act, such
forms in such numbers and subject to such conditions and
D
restrictions as it may consider reasonable;
Provided further that notwithstanding the provisions of
any other rule, the issue of declaration forms to an applicant to
whom a certificate of registration under the Act has been granted
for the first time, shall be withheld by the appropriate assessing
E
authority, until such time as all the returns for the return period
commencing from the date of validity of this certificate of
registration are furnished and tax due according to such returns
is paid by him.
(d) Where the appropriate assessing authority does not proceed under
F
clause (a), clause (b), or clause (c), it shall issue the requisite number
of declaration forms to the applicant.

(5) .... .

(6) .... .
G
(7) .... .

(8) .... .

(9) .... .

H oo) ... ..
COM MR. Of SALES TAX 1•.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 83 7
(11) .... . A
(12) .... .

Provided ......."
Rule 9 ...... .
B
The Delhi Sales Tax Act, 1975 confers power under Section 71 of the
Act on administrator to make the rules. Section 71 provides for power to
make rules and the same reads as follows :

"Section 71 - Power to make rules - (I) The Administrator may make
rules for carrying out the purposes of this Act. C
(2) In particular and without prejudice to the generality of the foregoing
power, such rules may provide for -
(a) the further period after the date of expiry of three consecutive
years referred to in sub-section (3) of Section 3 for which liability
to pay tax of a dealer shall continue; D
(b) the particulars to be contained in a declaration under sub-clause
(v) of clause (a) of sub-section (2) of section 4, or under section
5, as the case may be the form of such declaration, the authority
from whom such forms shall be obtainable and the manner in
which and the time within which such declaration is to be E
furnished;
(c)
(d)
(e) F
(t)
(g) the intervals at which, and the manner in which, the tax under
this Act shall be payable under Section 21;
xxxxxx G
(s) Any other matter which is required to be, or may be prescribed;
That from the above provisions of law, it emerges that powers
have been conferred upon the Administrator to make such, rules
as may provide for carrying out the purposes of the Act. Sub-rule
(2) provides for H
838 SUPREME COURT REPORTS [2005] I S.C.R.

A (i) the particulars to be contained in a declaration nnder sub-clause
(v) of clause (a) of sub-section (2) of Section 4 or under Section
5;

(ii) the fonn of such declaration;

(iii)the authority from whom such fonns shall be obtainable; and
B
(iv) the manner and the time within which such declaration is to be
furnished."

Scheme of the Delhi Sales Tax Act, 1975

C The avowed objective of the Act is to levy a tax on the sale of goods in the
National Capital Territory of Delhi, which is evident from a reading of its
preamble. This objective is achieved by the charging section Section 3 of the
Act, which stipulates that every dealer whose turnover exceeds the taxable
quantum shall be liable to pay tax on all sales effected by him. Section 4(2)
D of the Act refers to 'taxable turnover' which means that part of a dealer's
turnover which remains after deduction therefrom the sundry transactions
mentioned in sub-section (a) thereof. None of the said transactions, however,
postulate that all sales to registered dealers per se qualify as deductions.
There are three provisos to section 4{2)(a) of the Act, the second proviso of
which declares that no deduction in respect of any sale referred to in sub-
E clause (v) shall be allowed unless a true declaration in the prescribed fonn,
duly filled and signed by a dealer, is furnished to the selling dealer.

The preamble of the Delhi Sales Tax Act, 1975 reads as under:

An Act to consolidate and amend the law relating to the levy of tax
F on sale of goods in the National Capital Territory of Delhi.

The undisputed objective of the Act is to levy and collect tax on the
sale of goods in the National Capital Territory of Delhi. Levy to tax is
meaningless if the tax is not collected. It can never be the intention of the
lawmakers to keep on levying tax without any effort to collect the tax so
G levied. This Court in lndo International Industries v. Commissioner of Sales
Tax, Uttar Pradesh, (1981] 47 STC 359 held that

"It is well settled that in interpreting items in statutes like the Excise
Tax Acts or Sales Tax Acts, whose primary stipulated object is to
raise revenue.....
H
COMMR. OF SALES TAX v.SHRI KRISHNA ENGG. CO. [LAKSHMANAN, J.] 839
Needless to stress that the object of every taxing statute is to raise A
revenue.

In The State of Tamil Nadu v. MK Kandaswami and Ors, [1975] 36
STC 191, this Court held that where the object of a provision is to plug
leakage and prevent evasion of tax. In interpreting such provision, a
construction which would defeat its purpose and, in effect. obliterate it from B
the statute book should be eschewed. If more than one construction is possible,
that which preserves its workability and efficacy is to be preferred to the one
which would render it otiose or sterile.

Further a Division Bench of the Karnataka High Court in N. V. Bagi v.
Commissioner of Commercial Taxes in Karnataka, [ 1991] 83 STC 449 has C
held "in matters which deal with provisions to prevent evasion of tax which
is due to the State the construction of the provision must be strict and in
favour of the enforcement of the provision".

Thus, in our view, the entitlement to deduction under the Act, for D
purposes of the present controversy, postulates two requirements I. Sale to
a registered dealer and 2. a true declaration filled and signed by the registered
dealer in the prescribed forms (ST-I) is submitted by the dealer who sells the
goods. Selling/Purchasing dealers, as the case may be, are liable to pay sales
tax on every sale, and would be entitled to deduct the value of only those
transactions in respect of which they are in a position to provide ST-I Forms. E
In the event of the said forms being unavailable to them for whatever reason,
they are responsible for payment of the tax. The State cannot lose its tax
entitlement, in the light of the purpose and object of the Sales Tax Act.

Section 71 stipulates that rules may be made for carrying out the purposes
of the Act. The modalities for claiming deduction and obtaining declaration F
forms and withholding of the same, are contained in Rules 7 and 8 of the
Delhi Sales Tax Rules.

The intent behind the devising of ST-I Forms/C Forms is to avoid
multipoint taxation and enable a dealer passing on the burden of sales tax in G
such a way that it ultimately reaches the buyer-consumer.

Section 2(e) defines a 'dealer' to mean any person who carries on the
business of selling goods in Delhi. Thereafter sub-section (k) of Section 2
defines 'registered' to mean registered under the Act. Significantly, although
the nomenclature 'registered dealer' has been used in the Act, this term has H
840 SUPREME COURT REPORTS [2005] I S.C.R.

A not been defined in Section 2. However, it does not create any controversy ,. ;.
in assuming it to mean any dealer who has been accorded registration under
the Act. Section 2( e) define 'turnover' as the aggregate of the amounts of
sale price receivable or actually received by any dealer in respect of any sale
of 'goods. As in the case of the term 'registered dealer', the definition of
'taxable turnover' is not contained in Section 2 of the Act. For the meaning
B of ·taxable turnover', we must travel to Section 4(2) of the Act which clarifies
that for the purposes of the Act, taxable turnover means that part of a dealers
turnover which remains after deducting therefrom the sundry transactions
mentioned in sub-section (a) thereof. None of these, however, postulates that
all sales to registered dealers per se qualify as deductions.
c There are three provisos to Section 4(2)(a) of the Act, the penultimate
declares that no deduction in respect of any sale referred to in sub-clause (v)
shall be allowed unless a true declaration in the prescribed form duly filled
and signed by a dealer is furnished to the selling dealer. The last proviso is
also of immense import as it specifies that where goods are not utilised by
D the purchasing dealer for the purposes mentioned in sub-clause (v), the price
of such goods shall nonetheless be deductible from the turnover of the selling
dealer and instead, shall be included in the taxable turnover of the purchasing
dealer.

Benefits of registration : Registration confers certain benefits, privileges and
E concessions.
(1) it gives the registered dealer a right to collect tax. (Section 22).
An unregistered dealer cannot collect or charge tax. But;
(a) liability to pay is not dependent upon whether you have collected
F or not;
(2) a registered dealer can purchase goods specified in his registration
certificate on the strength of such registration without payment of
tax by furnishing the prescribed declaration.

It is not a vested right but in the nature of concession or privilege or
G at best a statutory right. Being a statutory right, it is not an absolute right but
conditional one.

Considering the full effect of the provisions, we are fortified in our
conclusion that exemption from including the total turnover of the selling
H dealer is possible only where the requisite ST-I form is produced. The embargo
COMMR OF SALES TAX 1•.SHRl KRISHNA ENGG. CO. [LAKSllMANAN. Jj 841

on charging tax under the Act is only in those instances where the purchasing A
dealer contemporaneously offers ST- I Form to the selling dealer. The Sales
Tax Department neither privy to nor is it concerned with any assurances that
might have been exchanged inter se these parties. As observed by the High
Court quite frequently ST-l Forms are obtained from Sales Tax Department
by the purchasing dealer, but for sundry reasons are not forwarded to the
selling dealer. The only legal recourse is for the seiling dealer to file a suit B
for the recovery of the sales tax from the purchasing dealer. There is no
reason to deviate from this position. It should be recalled that, for the benefit
of the assessee, the Rules permit the filing of exemption Forms till the time
of assessment, this is probably the reason why dealers postpone their
obtainment. There is no reason for the consequences of the dealers acts of C
omission or commission to visit the Department. The Act and the Rules do
not prohibit the simultaneous furnishing ofST-1 Forms. They, in fact, envisage
it.

The Sales Tax department has adopted the following Application Form
for issue of declaration in Form ST-I. We are reproducing the application D
form herein below:

"Application Form for Issue of Declarations in Fonns ST- I.

To

The Assessing Authority, E

Ward No ......
I. Name and style of the business:
2. Full address:
F
3. Local R.C.No.:
4. No. of unutilised forms in hand:
5. No. of fonns now required:
6. Return period quarterly/monthly: G
7. The period/year upto which the assessment has been last made:·
8. Whether all returns due till date since the last assessment have
been furnished and the tax due according to them paid? If not,
state the defau Its and reasons therof.
H
842 SUPREME COURT REPORTS [2005) 1 S.C.R.

A 9. Whether the amount of arrears of tax still remains payable. If so,
state the year and the amount of arrears and reasons for non-
payment.
I do hereby solemnly affirm and declare that the above information
is true and correct to the best of my knowledge and belief.
B
Signature of the dealer

Status....................... .

Please deliver .......... Forms to Shri... ........... an employee of my firm.
His signatures are as attested below:
c
Signature of dealer

Signature of Shri....... .
Signature attested
D Signature"

As already noticed in this batch of writ petitions filed by the selling
dealers, the challenge is directed to the vires of Rule 8(4)(c) of the Rules, on
the ground that they traverse beyond the ambit of Section 4(2)(a}(v) of the
Act. The grievance of the appellant is not that they have requested the Sales
E Tax Department for issuance of the Forms in advance and this has been
turned down, but that their purchasing dealers should be supplied with ST-
1 Forms regardless of whether such dealers have relinquished their registered
status, or have committed other infractions of the Act and the Rules. Even if
a purchasing dealer has applied for ST-I Forms but has not received them for
F any reason, the selling dealer is not automatically exonerated from liability.
It is their statutory duty to collect tax, since the ST- I Form is not forthcoming.
Likewise, no reason for the State to lose its revenue merely because the
purchasing dealer is unable to obtain such forms because of its falling in
arrears. It is the dealer, because of its own acts of omission, who has broken
the chain whereby tax is arranged and devised by the Department to be
G collected at a single point only.
It is settled law that equity plays only a minuscule role in fiscal matters,
even if such considerations were to be applied, there would still be no
justification for an application adverse to the interest of the State. The dealer
who has chosen to trust the other dealer must suffer for his mercantile
H
COMMR. OF SALES TAX 1'.SHRI KRISHNA ENGG. CO. [LAKSHMANAN. J.] 843
recklessness. This is the risk they run and if for any reason, including a A
subsequent decision of the Sales Tax Department to withhold the supply of
ST-I forms to a purchasing dealer they are put in an uncomfortable position
of having to pay the tax and initiate appropriate legal action for recovering
it from the purchasing dealer. The state is entitled to its tax, where the
requisite ST-! Form is unavailable for any reason.
B
The scheme of the Act is that either ST-I Form should be available or
tax should be collected. If a dealer shows such indulgence as to delivery of
ST-I Forms for a particular period, he takes the risk. It would have been
further the best advised to insist on their supply even for the transaction
intended to be completed by them. C
This Court in A. V. Fernandez v. The State of Kera/a, AIR (1957) SC
657 opined that, however great the hardship may appear to the judicial mind,
"In construing fiscal statutes and in determining the liability of a subject to
tax one must have regard to the strict letter of the law and not merely to the
spirit of the statute or the substances of the law. If the revenue satisfies the D
Court that the case falls strictly within the law, the subject can be Taxed. "A
few years later another Constitution Bench in the case of Commissioner of
Sales Tax, U.P. v. Modi Sugar Mills ltd., AIR (1961) SC 1047 observed thus
- "In interpreting a taxing statute, equitable consideration are entirely out of
place. Nor can taxing statutes be interpreted on any presumptions or
assumptions. The court must look squarely at the words of the statute and E
interpret them. It must interpret a taxing statute in the light of which is
clearly expressed; it cannot imply anything which is not expressed it cannot
import provisions in the statute so as to supply any assumed deficiency."

It was urged by learned counsel for the appellant that dues are F
recoverable as arrears of land revenue, the department should proceed against
the purchasing dealers and not penalise the selling dealers. We find no
substance in this argument as the said sub-section does not obliterate the
selling dealers duties under the Act, namely, to collect tax where the purchasing
dealer fails to furnish the requisite form. It should also be noted that the right
to file an appeal bestowed by Section 43 stipulates in sub-section (v) that it G
shall be entertained only if it is accompanied by satisfactory proof of the
payment of tax with or without penalty. These provisions appear not to have
been highlighted before the Bench of the High Court which decided Skri
Krishna Engineering Co. case in C.W.P. 3304 of 1997 dated 30.11.1998.
Learned counsel for the appellant heavily relied upon the judgment of the H
844 SUPREME COURT REPORTS (2005] I S.C.R.

A Division Bench in Shri Krishna Engineering Co. case. In that case, sub·
clause (ii) inserted in clause (c) of sub-rule (4) of Rule 8 of the Delhi Sales
Tax Rules, 1975 by Notification dated 11.02.1997 was declared ultra vires
the authority of the Lt. Governor of the NCT of Delhi and was consequently
struck down. In our view, the said judgment does not cover the present
controversy on all fours and. therefore, the contention of the learned counsel
B for the appellant is misplaced. The only similarity is that the appellants in
those batch matters had assailed the said provisions because of refusal by the
respondent Department to issue Sales Tax Fonns on the grounds that arrears
of Sales Tax existed against the applicants therein. The applicants, in the
above case, were the purchasing dealers themselves and arrears of Sales Tax
C were assignable to their account. As has already been pointed out, in the
present bunch of cases, it is the selling dealers who have approached the
High Court because of the department's refusal to issue Forms to their
purchasing dealers, for the reason that the latter had large outstandings of
sales tax.

D In the Shri Krishna Engineering Co. case (CWP 3304 of I997 dated
30. I I.I 998 Civil Appeal Nos. 1717-19 of 1999) as already noticed, the
purchasing dealers had challenged the I 997 amendment in the Delhi Sales
Tax Act Rules, 1975 in exercise of powers under Section 71 of Delhi Sales
Tax Act, 1975 whereby Rule 8(4)(c)(ii) of the said Rules was substituted.

E Existing Rule 8(4){c)(ii)

defaulted in making the payment of amount of tax assessed or the
penalty imposed by an appropriate Assessing Authority, which the application
admits to be due from him and which is not in dispute.

F Substituted Rule 8(4){c)(ii)

defaulted in making the payment of the amount of tax assessed or
penalty imposed by the Assessing Authority in respect of which no
orders for instalment or stay have been obtained from the competent
authority under the provisions of the law.
G
According to the purchasing dealers the amended rule is in excess of
the rule making power under Section 71 of the Act. The Division Bench
allowed the writ petitions and held substituted Rule 8(4)(c)(ii) ultra vires the
rule making power of the Lt. Governor of Delhi under Section 71 of the Act.

H The reasoning by the Division Bench is that the Act nowhere provides
COMMR. OF SALES TAX 1·.SHRI KRISHNA ENGG. CO. \LAKSHMANAN,J.] 845
for withholding of the issuance of form in the eventuality of the applicant A
dealer being a defaulter or in arrears of tax. A denial on the part of the Sales
Tax Authorities to issue the requisite declaration form takes away the
substantive right conferred by the Act on the dealer for which act itself does
not provide. In the instant batch of Civil Appeal Nos. 308, 313, 314 and 315
of 2003 both the selling and purchasing dealers had challenged the 2001
amendments in the second proviso to Section 4 (2)(a)(v) of the Act and the B
Rules to insert sub-clause (ii) in Rule 8(4)(c). We have already extracted the
prayer in the writ petition in paragraphs supra.

We shall now reproduce the existing second proviso to Section 4(2)(a)(v)
and the amended second proviso to the said section.
c
Existing second proviso to Section 4(2)(a)(v)

Provided further that no deduction in respect of any sale referred to in
sub-clause (v) shall be allowed unless a true declaration duly filled and
signed by the registered dealer to whom the goods are sold and containing
the prescribed particulars in the prescribed form obtainable from the prescribed D
authority is furnished in the prescribed manner and within the prescribed
time, by the dealer who sells the goods.

Amended second proviso to Section 4(2)(a)(v)

Provided further that no deduction in respect of any sale referred to in E
sub-clause (v) shall be allowed unless a true declaration duly filled and
signed by the registered dealer to whom the goods are sold and containing
the prescribed particulars in the prescribed form obtainable from the prescribed
authority in the manner and subject to such conditions as may be prescribed
is furnished in the prescribed manner and within the prescribed time, by the F
dealer who sells the goods.

Inserted Rule 8(4)(c)(ii)

Defaulted in making the payment of the amount of tax assessed or
penalty imposed by the Assessing Authority in respect of.which no orders for G
instalment or stay have been obtained from the competent authority under the
provisions of law.

It is the contention of the selling/purchasing dealers that selling dealers
are made to suffer the consequences of failures and defaults on the part of
the purchasing dealers in which they have played no part whatsoever they are H
846 SUPREME COURT REPORTS [2005) l S.C.R.

A in hapless position and would be compelled to incur Sales Tax liability for
events which are not within their control and that Rule 8(4)(c) travels beyond
the ambit of Section 4 - (2)(a)(v) of the Act. A Division Bench of the Delhi
High Court, by their judgment dated 12.07 .2002, which is impugned in these
civil appeals dismissed the challenge in regard to the vires of Rule 8(4)(c).

B We have carefully gone through the judgment of the Division Bench in
Simran Engineering Works etc. The reasoning given by the Bench in rejecting
the challenge in regard to the vires of Rule 8(4)(c) are very sound. As rightly
pointed out by the Division Bench, the Sales Tax Department is neither privy
to nor is it concerned with any assurances that might have been exchanged
C inter se between the selling and purchasing dealers in the matter of furnishing
ST- I Forms. There is no reason for the consequences of the dealers acts of
omission or commission to visit the Department. The Act and the Rules do
not prohibit the simultaneous furnishing of ST- I Forms, they, in fact, envisage
it. Supply of ST-I Forms by the Department under the Rules is an advance,
however, the actual practice may be different (para 7 onwards of page 36 of
D the judgment).

In our opinion, the generality of the provision of Section 71 (I) should
be given its full effect so as to enable the making of Rules for the full
implementation of any provisions of the Act. The impugned rule also gives
effect to Section 43(5) of the Act which deals with appeals and contains the
E requirement of pre-deposit of tax and penalty. Other situations where the
Commissioner has the discretion to cancel the dealers registration for failure
to pay tax including penalty, furnishing a false declaration etc. which must
be borne in mind while considering the sweep of Section 71 (I) of the Act.
Thus, the primary intendment of the Act is to levy and collect tax and every
F devise, including of stipulations pertaining to the dealer friendly declaration
forms are incorporated to implement the objective of the Act itself as pointed
out by the High Court they cannot be conceived as ultra vires the statute
(pages 63-64 of the judgment).

In Shri Krishna Co. case, the Court had to investigate firstly whether
G there was any provision in the Act which authorise the withholding of forms
on the grounds of the applicant being in arrears of tax. The Court perused
sub-section (2) of Section 71 of the Act but could not locate any power
contained therein. It was in those circumstances that it arrived at the conclusion
that the newly added clause (2) in clause (c) of sub-rule (4) of Rule 8 of the
H Rules was ultra vires the powers of Lt. Governor.
--i·
I

COMMR. OF SALES TAX v.SHRI KRISHNA ENGG. CO. [LAKSHMANAN,J] 847

We are of the opinion that the judgment and order of the High Court A
in Shri Krishna Engineering Co. case (CWP 3304 of 1997) is passed on a
mis-construction of the clear statutory provisions contained in Section 4,
71(1), 71 (2)(b) and (s) of the Delhi Sales Tax Act, 1975 and that th~ High
Court has also not appreciated the true scope of the rule making power which
has been conferred on the Lt. Governor of Delhi by Section 71 (I) of the Act
which lays down that the administrator may make rules for carrying out the B
purposes of the Act. A general power has thus been conferred upon the
administrator to make appropriate rules to carry out the purposes of the Act.
The purpose of the Act is not just to fix liability but also to recover the
liabilities which are so fixed. The High Court also has not noticed that Section
71 (2)(s) of the Act which confers a residual power on the administrator to C
make rules in respect of any other matter which is required to be or may be
prescribed. We are, therefore, of the opinion that the impugned amendment
was within the rule making power of the Lt. Governor of Delhi under Section
71 (2)(b) read in conjunction and harmoniously with Section 71 (2)(s).

We, therefore, hold that the Civil Appeal Nos. 308, 313, 314 and 315 D
of 2003 and SLP No. 1954 of 2003 are without merit and are dismissed and
the common judgment and order passed by the High Court in the writ petitions
dated 12.07.2002 is confirmed.

In view of the judgment now passed by this Court in Civil Appeal No.
314 of 2003 batch, we hold that the judgment and order passed by the High E
Court in CWP NO. 3304 of 1997 Mis Shri Krishna Engineering Co. case is
no longer good law. Consequently, Civil Appeal Nos. 1717-1719 of 1999
stands allowed. Other consequences will follow. Before parting with this
case, we also place on record the statement made by Shri Ravi P. Mehrotra,
learned counsel appearing for the Department that if a purchasing dealer
applies for Form ST-I in advance he will be supplied with the forms within F
one week subject to the rules and regulations and if it is in order under the
Act and Rules. The same shall be furnished by the Department to the applicant
not later than one week.
However, in view of the understandable mis-construction by the parties
to these appeals of the decision of Shri Krishna Engineering Co. case, we G
desist from awarding costs.

D.G. C.A.Nos. 1717-1719/99 allowed.
C.A. Nos. 308, 313, 314, 315/2003
and SLP No. 1954/2003 dismissed.