Advocate Rajnish R. Singla
In order to discuss section 7(2) of CST Act, 1956 – A Reality it will be imperative to go through the provisions of the central sales Act, 1956.
The relevant provision of the Central Sales Tax Act, 1956 is as follow-
Section 7(2)- Any dealer liable to pay tax under the sales tax law of the appropriate state, or where there is no such law in force in the appropriate state or any part thereof, any dealer having a place of business in that state or part, as the case may be, may, notwithstanding that he is not liable to pay tax under this act, apply for registration under this Act to the authority referred to in sub-section (1), and every such application shall contain such particulars as may be prescribed.
Explanation:- For the purpose of this sub- section, a dealer shall be deemed to be liable to pay tax under the sales tax law of the appropriate state notwithstanding that under such law a sales or purchase made by him is exempt from tax or a refund or rebate of tax is admissible is respect thereof.
From the perusal of section 7(2) of the Act it is evident above provision deals with Voluntary Registration. Any dealer liable to pay tax under the Uttarakhand Value Added Tax Act, 2005, may notwithstanding that he is not liable to pay tax under Central Sales Tax Act as he does not make any inter- state sale, apply for registration voluntarily in the following cases :-
(i) He is liable to pay tax under the local sales tax Act meaning thereby is selling taxable goods in the state.
(ii) He is not liable to get himself registered under section 7(1) of CST Act meaning thereby is not liable to pay tax under the Central Sales Tax Act.
Therefore, two conditions are required for registration under section 7(2), namely, (i) that he must be a dealer liable to pay tax under the sales tax of law of the appropriate State, and (ii) that he is not liable to pay tax under the Central Sales Tax Act. In the case of such a person only, an enabling provision has been made in section 7(2) under which he may apply for registration. A person, who is not himself a seller in inter- state trade but is only a purchaser of good s from outside his State, if he gets himself registered under section 7(2), can obtain goods with the concessional rate of tax under section 8 (1) (b) if those goods are specified in his certificate of registration.
From the perusal of explanation given to Section 7 (2) above it is evident that a dealer shall be deemed to be liable to pay tax under the sales tax law of the appropriate state notwithstanding that under such law a sales or purchase made by him is exempt. Meaning thereby that even if the transaction of sales or purchase of a dealer is exempt under schedule IV even then he may apply for registration voluntarily.
The aforesaid view has also been affirmed in a judgment of The honorable Supreme Court. Rendered in the case of Commissioner of sales tax v/s Pine chemicals Ltd.(1995) 96 STC 355 (SC) 58: !995 NTN (6) 19 (SC).By government order no.159 DT. 26-3-1971 issued under the J&K general sales tax act, 1962 exemption from tax was granted under the act to the goods, the sale or purchase of which is claimed to be exempt from tax, are manufactured by a large or medium scale industry and the said goods are manufactured and sold within five years from the date the said industrial unit has gone into production. The question is whether exemption under the Central Act is applicable to the case. Held: The idea behind sub-s. (2a) of s.8 of the Central Sales Tax Act is to exempt the sale/ purchase of such goods is exempt generally under the State sales tax. Sub-s (2A) requires specifically that such exemption must be a general exemption and not an exemption operative in specified circumstances or under specified conditions. Goods are exempt from tax only when they are manufactured in a large or medium scale industrial unit within five years of its commencement of production and sold within the said period, I.e., in certain specified circumstances alone. The exemption is not a general one but a conditional one. The exemption is not with reference to goods or a class or category of goods but with reference to the industrial unit producing them and their manufacture and sale within a participating period. For the purpose of the government order, the nature, class or category of goods in irrelevant; it may be any goods. It is concerned only with the industrial unit producing them and the period within which they are manufactured and sold. So long as it is (I) a large or medium scale industry and (ii) it manufactures and sells goods within the five years of its going into production, the sale of such goods is exempt irrespective of the nature or classification of goods. Similar goods may be manufactured by another unit but if it does not satisfy the above two requirements, the goods manufactured and sold by it would not be entitled to exemption from tax. Indeed, the goods manufactured by that very unit would not be eligible for exemption if they are manufactured after the expiry of five years from the date it goes into production and/or sells them beyond the said period. The period of exemption may also vary from unit to unit depending on the date of commencement of production in each unit. The exemption granted under the aforesaid government order does not satisfy the requirements of s. 8(2A).Registration under sub- section (2) is, however, voluntary. A dealer who is liable to pay tax under the general sales tax law of his state, may apply for registration even under the Central Act, even though he is not liable to pay tax there under, and an application for registration by such a dealer may be moved at any time.
In Jagraons Co- op Sugar Mills ltd. Vs. St. of Punjab& Others (1994)94 STC 98(P&H), Goods to be entered or included in the registration as raw materials as well as final product should be taxable items. Tax free goods manufactured for sales do not qualify for raw materials and other goods purchased free of tax. Thus the items deleted from R. C. are valid exercise of power by the authority as the dealer in manufacturing sugar a tax free item. Even if some taxable by products by products are produced, that will not change the very nature of the industry.
In Shyam Cold Storage v. S.T.O. (1976) 38 STC 386( All.) “What was required by section 7 (2) of the central Act was that the person applying for registration should be liable to pay sales tax under the law of the appropriate state”.
In Pole Star Electronics (Private) Limited v. Additional Commissioner of Sales Tax, 1979 UPTC 129 : (1987) 41 STC 409 (SC).” A well-settled rule of interpretation in construing a taxing statute is that one must pay due regard to the strict letter of the law and not merely to the strict of the statute or the substance of the law. It is a rule firmly established that the “words of a taxing statute must never be stretched against the tax payer. If the language of the statute is clear and explicit, effect must be given to it, for in such a case the words best declare the intention of the lawgiver. It would not be right to refuse to place on the language of the statute the plain and natural meaning that it must bear on the ground that it produces a consequence, which could not have been intended by the Legislature. It is only from the language of the statute that the intention of the legislature must be gathered, for the Legislature means no more and no less than what it says. It is not permissible to the Court to speculate as to what the Legislature must have intended and then to twist or bend the language of the statute to make it accord with the presumed intention of the Legislature.”
Now coming to Doctrine of unjust enrichment which means the unjust obtaining money benefits at the expense of another.
In my opinion by virtue of registering exempt dealer u/s 7(2) of CST Act, he will be unjustifiably enriched because he is already exempt with in the state and he will be also enjoy partial exemption on purchases from outside the state.
Another famous legal maxim is Nemo debet ex alieno damno lucrari– no one should be enriched out of the loss or damage sustained by another.
Therefore, as a sequel to the above discussion, it is clear that if a dealer is selling the goods which are exempt as per schedule I of The Uttarakhand Value Added Tax Act, 2005, he legally can not be registered under section 7 (2) of The Central Sales Tax Act, 1956.
Similarly if a dealer is manufacturing the goods which are exempt under schedule I of The Uttarakhand Value Added Tax Act, 2005 even then he legally cannot be registered under section 7 (2) of the Central Sales Tax Act, 1956.