L.N.Ray, Chairman -
(1.) THE issue for decision in this application is whether purchase of "replenishment licences" (in short, "REP licences") or "exim scrips" (namely, export import licences) by the applicant No. 1 bank on payment of a premium of twenty per cent on the face value or unutilised face value thereof is exigible to purchase tax under Section 4(6)(iii) read with Section 5(6) of the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act"). This application is in the nature of a writ application under Article 226/ 227 of the Constitution of India.
(2.) APPLICANT No. 1 is a branch of applicant No. 2, State Bank of India, which is a statutory body corporate constituted under the State Bank of India Act, 1955 for the extension of banking facilities in the country, more particularly in rural and semi -urban areas and for diverse other public purposes. Their case is that the bank has to perform various functions according to directions issued by the Reserve Bank of India in keeping with economic and monetary policies, of the Central Government. Applicant No. 1 is a registered dealer under the 1941 Act and such registration was obtained at the advice of the taxing authorities without due examination of the question as to whether it could at all be a "dealer" under the statute. Imports into and exports outside the country are regulated by statutes and statutory instruments, i.e., the Imports and Exports (Control) Act, 1947 as amended from time to time, the Imports (Control) Order, 1955 and the policy notified thereunder from time to time. Such policy declared by the Government of India contained incentive schemes and subsidies to build up foreign exchange resources of the country. Under the import policy which was in force prior to July 4, 1991, there was provision for issuance of REP licences. With effect from July 4, 1991 the name of the licence was changed to exim scrip. The idea of REP licences/exim scrips was to encourage exports and for that purpose, such licences or scrips were issued equal to the prescribed percentage of the value of exports. Those were made freely transferable and were to be governed by the ordinary law. The object was to provide to the registered exporters by way of import replenishment the essential inputs required in manufacture of the exported products and also to allow certain flexibility to enable diversification. As a matter of policy the Reserve Bank of India (in short, "the R.B.I.") being an instrumentality of Government of India and responsible for securing monetary stability of the economy of the country, decided that unutilised exim scrips in the hands of holders who were willing to dispose of the same, should be mopped up through the specified branches of the State Bank of India. Accordingly, the R.B.I. issued circular No. 12/92 dated March 27, 1992 stating, inter alia, that : "The designated branches of the State Bank of India would be purchasing these exim scrips from March 23, 1992 up to the end of May, 1992, at a premium of 20 per cent of the face value". Pursuant to that, the R.B.I. wrote letter dated March 18, 1992 to the Chairman, State Bank of India, Bombay, authorising designated branches of the State Bank of India (in short, "the S.B.I.") to purchase exim scrips on payment of the said premium subject to certain terms and conditions. Applicant No. 1 is one of the designated or specified branches which were authorised for this purpose. Thereafter having been furnished with the procedure drawn up by the central office of the S.B.I., for the purpose of such transactions, applicant No. 1 paid 20 per cent of the face value of the exim scrips to the holders thereof who surrendered their scrips according to that procedure. When applicant No. 1 was informed by respondent No. 1 that in the assessment proceeding for the period of four quarters ending March 31, 1993 the former would be liable to pay purchase tax on purchases of exim scrips, it contended before respondent No. 1 in course of that hearing that the Exim scrips were not actually purchased, but surrendered by the holders. Several other contentions were also made before him, but respondent No. 1 levied purchase tax of Rs. 1,00,04,000 on the total taxable specified price of Rs. 25 crores. An appeal was preferred before respondent No. 2, Assistant Commissioner of Commercial Taxes, Calcutta (South) Circle, against the said order of assessment. The appeal was dismissed and the order of assessment was confirmed by an order dated September 19, 1996. The said assessment order and appellate order are challenged in this application on grounds, inter alia, that the REP licences or exim scrips are not "goods" within the meaning of the 1941 Act, applicant No. 1 is not a "dealer" within the meaning of the explanation 1 to the definition of "dealer" in Section 2(c) of the 1941 Act, there is conflict between the 1941 Act and the Banking Companies Regulation Act, 1949 ("the Act of 1949", for short) with regard to the concepts of "goods", "dealer" and "business" and hence the Act of 1949 should prevail over contrary provisions in the 1941 Act which is a State Act. Further, notwithstanding that applicant No. 1 was registered as dealer allegedly without proper appreciation of the correct legal position, it cannot be considered to be a dealer under the 1941 Act in view of the decision of the Karnataka High Court in the case of Canara Bank v. Commercial Tax Officer  107 STC 488 ; : ILR 1996 Kar 810. One of the other contentions of the applicants is that purchase made by a registered dealer outside the line of his business cannot attract the levy of purchase tax. As an example, in the instant case, due to the fact that applicant No. 1 is a dealer in gold, casual purchase of exim scrips on a particular occasion cannot bring it within the mischief of Section 4(6)(iii). If such purchase is made from a person who is not a dealer at all, the transaction cannot be regarded as one in course of business. It is alleged that Section 4(6)(iii) suffers from vagueness, as it does not clearly specify that the existence of a purpose having nexus with the scheme of the Act is essential for attracting purchase tax. Unless Section 4(6)(iii) is restricted in application to a registered dealer making purchase from an unregistered dealer for the purpose of business, it gives rise to hostile discrimination or arbitrariness, thereby violating Article 14 of the Constitution. Exim scrips are not "goods" within the meaning of Section 2(b) of the 1941 Act and transactions are not purchases within the meaning of Section 4(6). These are merely surrenders by the holders of the scrips. Before imposing purchase tax, respondents Nos. 1 and 2 did not verify whether holders of exim scrips who surrendered their scrips to applicant No. 1, were registered dealers or not. If they are registered dealers, no purchase tax can be levied even if the transactions are treated as purchases by applicant No. 1. Moreover, applicants have taken a ground that no purchase tax can be levied under Section 4(6)(iii) on the ground that the purpose or intention of purchase was not resale. According to applicants, Section 4(6)(iii) should be construed to the effect that purchase tax can be levied under that provision where purchases are for the purpose of resale. Section 4(6)(i) deals with purchase for the purpose of direct use in manufacture. Hence, it is contended that under Section 4(6)(iii) the purpose should be resale, otherwise no purchase tax can be levied. As the transactions were for implementing the Government policy, it is contended that those cannot be brought to tax under Section 4(6)(iii). The case of respondents is, according to their affidavit -in -opposition, that applicant No. 1 was compulsorily liable to get itself registered under Section 7 of the 1941 Act, because they incurred liability to pay tax under Section 4, and such liability has not been denied. By referring to definition of "dealer" in Section 2(c) of the 1941 Act, respondents have stated that from any point of view applicant No. 1 is a "dealer". Even commission agents, Governments and statutory bodies are dealers under that definition. The first applicant got itself correctly registered under the 1941 Act as dealer. It was held by the Supreme Court of India in the case of Vikas Sales Corporation  102 STC 106, that exim scrips are "goods" and transfer of such scrips for consideration is a "sale". Hence, purchases made by applicants in terms of the direction of Reserve Bank of India on payment of a premium of 20 per cent on the face value of the scrips are purchases for the purpose of Section 4(6)(iii). The transactions were not mere surrenders, but were purchases. The premium paid was valuable consideration. In this connection reference is made to the definition of "purchase price" in Section 2(ee) of the 1941 Act. Any event subsequent to purchase of the exim scrips does not, according to respondents, change the character of the transactions. In all respects, the transactions were purchases and taxable under Section 4(6)(iii). The fact that the exim scrips were later returned or surrendered to the R.B.I. by the applicants did not change the character of the transactions being purchases in the hands of applicants vis -a -vis the holders thereof. Applicants themselves are purchasers, and alternatively they are commission agents, and in both ways they are liable to tax under Section 4(6)(iii). Exim scrips may become scraps of paper by subsequent action of the applicants but that has nothing to do with the transactions which are purchases. The letter of the R.B.I. to the S.B.I. clearly mentioned that the designated branches of the S.B.I. could "purchase" exim scrips from holders who are willing to abide by the terms and conditions. The transactions were not of mandatory nature. In spite of certain compulsive elements regulating or restricting the area of operation of purchase of exim scrips, the transactions retained the basic character of "purchase". According to respondents, there was an implied contract of transfer of ownership of exim scrips for a money consideration. It was not obligatory on the part of the holders to deliver the scrips or to surrender them to the applicants. It was an act of volition on the part of the holders. It is well -settled that transactions of supply of goods pursuant to direction or orders of Central Government amounted to sale of goods. Section 4(6)(iii) nowhere lays down that purchase of goods must be for the purpose of resale. Purchase tax is levied on purchase of the goods, and not on the use thereof. Purchase is the taxing event and liability to pay tax is incurred as soon as purchase takes place, and it has not to wait till the goods purchased are put to some specific use. Reference is made to Section 4(7) under which the burden of proof lies on the applicants themselves to prove that purchases were made from registered dealers. The object of Section 4(6)(iii) is to take care of those purchases which are not covered by Clauses (i) and (ii) of Section 4(6). The object was to levy purchase tax on all purchases in order to discourage avoidance of liability to pay sales tax by unregistered dealers or persons and to induce them to get the selling dealers registered under the 1941 Act. The scheme of Section 4(6) is to levy purchase tax where liability to pay sales tax has been avoided on the point of sale by the selling dealers. The provision in Section 4(6)(iii) is very clear and unambiguous as to the taxable event, taxable person, taxable object and rate of tax. Taxable event is the purchase of goods. Taxable person is a registered dealer under the 1941 Act. Taxable object is the goods purchased. Rate of purchase tax is specified in Section 5(6)(a). Hence, allegations of uncertainty or vagueness are misconceived and baseless. It is of no consequence if the purpose for which the goods are purchased is not expressly specified. Profit -motive is immaterial in the definition in Section 2(1a). Purchases of exim scrips by the applicants are transactions ancillary to their trade or commerce. The applicant No. 1 is a registered dealer and it purchased exim scrips from unregistered persons or dealers and such purchases were ancillary or incidental to its business. Levy of purchase tax is not violative of Article 14. There is no hostile discrimination in the levy of purchase tax under Section 4(6)(iii). It is clearly within the plenary power of the State to levy tax on sales and purchases of goods under entry 54 of List II of the Seventh Schedule to the Constitution of India. The examples given in the application by the applicants is assailed by the respondents. Purchase of second hand motor car in those examples is said to be of no relevance because motor car is subjected to levy of a single point tax. There is no conflict, according to the respondents, between the Act of 1949 and the provisions of the 1941 Act.
(3.) THE applicants have used an affidavit -in -reply. Hardly any new point is taken therein. However, in the said reply the applicants have reiterated that the transactions are surrenders and do not amount to purchases.;