JUDGMENT
R.C. Lahoti, J.
1. M/s. Shri Krishna Engineering Co., the petitioner in C.W.P. No. 3304 of 1997 and M/s. Kishan & Company, the petitioner in C.W.P. No. 3859 of 1997 are both registered dealers under the Delhi Sales Tax Act, 1975 (hereinafter “the Act”, for short). On July 14, 1997, M/s. Kishan & Company filed an application for issuing statutory forms (form ST-1) for the assessment year 1992-93. By order dated July 17, 1997 (annexure P-4), the application has been rejected on the ground that demands were pending against the petitioner on account of arrears of sales tax payable under the local and the Central Act for the years 1991-92 and 1992-93.
2. M/s. Batra Traders, the petitioner in C.W.P. No. 3727 of 1997 is also a dealer registered under the Act. An application for issuance of statutory forms (form ST-1) was made on April 15, 1997. The issuance of forms has been withheld on the ground that the petitioner was a defaulter, having failed to clear arrears of tax.
3. Both the petitioners have sought for striking down of the amendment in Rules made vide Notification dated February 11, 1997, quashing of the orders withholding the issuance of the forms and a mandamus directing the respondents to issue the forms without insisting on deposit of arrears of sales tax allegedly due and payable by the petitioners.
4. Before considering the contentions advanced on behalf of the parties, it will be useful to briefly set out the relevant statutory provisions.
5. The Delhi Sales Tax Act, 1975 (Act No. 43 of 1975) is an Act to consolidate and amend the law relating to the levy of tax on sale of goods in the Union Territory of Delhi. The Act came into force on October 21, 1975. Section 3 is the charging section which renders every dealer whose turnover exceeds the taxable quantum and every dealer who is registered at the commencement of the Act or is liable to pay tax under the Central Sales Tax Act, 1956, liable to pay tax on all sales effected by him on or after such commencement.
5.1. Section 4 prescribes the rate of tax leviable on a dealer on his taxable turnover. The relevant part of Sub-section (2) provides that for the purpose of calculating taxable turnover of a dealer during the prescribed period certain deductions are to be made. To quote :
“(2) For the purposes of this Act, ‘taxable turnover’ means that part of a dealer’s turnover during the prescribed period in any year which remains after deducting therefrom,–
(a) his turnover during that period on–
………………
(v) sale to a registered dealer ;
………………
(B) of goods of the class or classes specified in the certificate of registration of such dealer as being intended for resale by him in Delhi, or for sale by him in the course of inter-State trade or commerce or in the course of export outside India in the manner specified in sub-item (2) or sub-item (3) of item (A), as the case may be ;
………………”
5.2. One of the provisos enacted to Sub-section (2) of Section 4, which is relevant for our purpose, reads as under :
“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 authority is furnished in the prescribed manner and within the prescribed time, by the dealer who sells the goods :”
6. In exercise of the powers conferred by Section 71 of the Act, the Administrator has framed the Rules called the Delhi Sales Tax Rules, 1975 (hereinafter “the Rules”, for short). Rule 8 (relevant part thereof), as it stood before February 11, 1997 read as under :
“8. Authority from whom the declaration form may be obtained, and use, custody and maintenance of records of such forms and matters incidental thereto.–1. The declaration referred to in the second proviso to Clause (a) of Sub-section (2) of Section 4 shall be in form ST-1 which shall be printed under the authority of the Commissioner and shall be obtained from the appropriate assessing authority by the registered dealer intending to purchase goods on the strength of his certificate of registration.
………………
(4) (a) If, for reasons to be recorded in writing the appropriate assessing authority is satisfied that the declaration forms have not 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 forms 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 security from him under Sub-section (1) 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–
(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, which the applicant admits to be due from him 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;
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 days from the date of its order :
Provided that the appropriate assessing authority may, instead of withholding declarations 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 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 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 return is paid by him :
(d) Where the appropriate assessing authority does not proceed under Clause (a), Clause (b), or Clause (c), it shall issue the requisite number of declaration forms to the applicant.
………………”
7. Vide Notification No.F.4(36)/96-Fin.(G)/2210 dated February 11, 1997, the Lt. Governor has made Rules called the Delhi Sales Tax (First Amendment) Rules, 1997 whereby for the existing Sub-clause (ii) in Clause (c) of Sub-rule (4) of Rule 8, the following has been substituted :
“(ii) defaulted in making the payment of the amount of tax assessed or penalty imposed by assessing authority, in respect of which no orders for instalments/stay have been obtained from the competent authority under the provisions of law ; or.”
7.1. The amendment has come into force with immediate effect, that is, February 11, 1997.
7.2. It is the above said amendment in rules which is under challenge.
8. The challenge in substance is on the following three grounds :
(i) The amended rule is in excess of rule-making power of the Lt. Governor or in other words, is beyond the delegated legislative authority and hence is ultra vires the power of the rule-making authority;
(ii) The rule causes an unreasonable restriction on the petitioner’s fundamental right to trade and hence is violative of Article 19(1)(g) of the Constitution ;
(iii) The amended rule having not been laid on the floor of Parliament as provided by Section 72 of the Act, has ceased to be enforceable.
9. According to the respondents, the restriction laid down by the amended rule is not in any way unreasonable. It has been enacted to safeguard the interest of the Revenue and for proper and timely realisation of the tax assessed. It is neither ultra vires the provisions of the Act nor is repugnant to the scheme of the Act. A similar provision is to be found in Rule 4 of the Central Sales Tax (Delhi) Rules, 1957 for obtaining the declaration form C issuance whereof can be denied to a tax defaulter. The rule has successfully withstood the test of time. The amended rule has been forwarded to the Ministry of Home for the purpose of laying the same before each House of the Parliament. However, the provision as to laying before the Houses of Parliament is only directory and not mandatory and hence non-laying of the notification does not result in nullification thereof.
10. The first question is whether the amendment is in excess of the rule-making authority of the Lt. Governor? Rule-making power is conferred by Section 71 of the Act. Sub-section (1) provides that the Administrator may make Rules for carrying out the purposes of the Act. There are 17 items–“a” to “s” enumerated below Sub-rule (2) listing the item as to which provision can be made by rules. We need not reproduce all of them. For our purpose, it would suffice to extract and reproduce only Clause (b) thereof. The relevant extract from Section 71 is as under :
71. Power to make Rules.–(1) The Administrator may make Rules for carrying out the purposes of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, such Rules may provide for–
………………
(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 furnished ;
………………”
11. The scheme of the Act shows that tax is payable by a dealer on the taxable turnover. The rate of tax may vary depending on the fact whether it is specified in one of the Schedules appended to the Act or if not so specified which of the clauses of Sub-section (1) of Section 4 covers the class of the goods. Turnover of certain goods is liable to be excluded from quantifying the taxable turnover. Amongst others, if the dealer may sell the goods to a registered dealer and the goods belong to a class specified in the certificate of registration of the purchaser-dealer and the same be intended for resale, then the same is not liable to be included in the quantum of taxable turnover of the seller-dealer. The underlying idea is to avoid multi-point taxation and enable a dealer passing on the burden of sales tax in such a way that it ultimately reaches the buyer-consumer.
12. There is pari materia provision in the Central Sales Tax Act, 1956, dealing with the issuance of “C” forms applicable to inter-State sales. Their Lordships have dealt with such scheme in State of Madras v. Radio and Electricals Ltd. in the following words :
“The Act seeks to impose tax on transactions, amongst others, of sale and purchase in inter-State trade and commerce. Though the tax under the Act is levied primarily from the seller, the burden is ultimately passed on to the consumers of goods because it enters into the price paid by them. Parliament with a view to reduce the burden on the consumer arising out of multiple taxation has provided in respect of sales of declared goods which have special importance in inter-State trade or commerce, and other classes of goods which are purchased at an intermediate stage in the stream of trade or commerce, prescribed low rates of taxation, when transactions take place in the course of inter-State trade or commerce. Indisputably the seller can have in these transactions no control over the purchaser. He has to rely upon the representations made to him. He must satisfy himself that the purchaser is a registered dealer, and the goods purchased are specified in his certificate : but his duty extends no further……….. That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer. The selling dealer is under the Act authorised to collect from the purchasing dealer the amount payable by him as tax on the transaction, and he can collect that amount only in the light of the declaration mentioned in the certificate in form ‘C’.”
13. This mechanism of passing on the burden of tax is made by the Act conditional upon the purchaser-dealer making available a declaration duly filled in and signed by him and containing the prescribed particulars in the prescribed pro forma. Such pro forma is available from the prescribed authority. If the purchaser-dealer is not in a position to produce declaration in the prescribed pro forma within the prescribed time, then the seller-dealer cannot claim the benefit of Sub-section (2) of Section 4. The figure of sales becomes liable to be included in the figure of his taxable turnover.
14. The procedure relating to issuance of the forms in which declaration is to be made is not provided by the Act itself. That aspect is left to be taken care of by delegated legislation.
15. Sub-section (1) of Section 71 incorporates a general rule-making power conferred on the Administrator subject to an overriding qualification that the Rules framed by the Administrator must be “for carrying out the purposes of this Act”. Sub-section (2) is illustrative of the general power conferred by Sub-section (1). So far as the declarations are concerned, Clause (b) of Sub-section (2) provides for the subjects that may be covered by the Rules. They are :
(i) Particulars to be contained in the declaration, (ii) form of such declaration, (iii) the authority from whom such form shall be obtainable, (iv) the manner in which and the time within which such declaration is to be furnished.
16. It is pertinent to note that the Act does nowhere provide for withholding of the issuance of form in the eventuality of the applicant-dealer being a defaulter or in arrears of tax. The rule-making power contained in Section 71 does not specifically confer the power on the Administrator to provide for the categories of the dealers or the disqualifications by reference to which the issuance of forms may be denied by the prescribed authority.
17. In Bharat Barrel & Drum Mfg. Co. Private Ltd. v. Employees’ State Insurance Corporation , the Act did not provide any limitation for claim by an employee for payment of any benefit thereunder, but the same was provided by Rules. The bar of limitation so created by the Rules was struck down by their Lordships holding :
“Such a provision affects substantive rights and must therefore be dealt with by the Legislature itself and is not to be inferred from the rule-making power conferred for regulating the procedure unless that is specifically provided for.”
18. In Commissioner of Income-tax v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), their Lordships have held that the Rules which are meant only “for the purpose of carrying out the provisions of the Act” cannot take away what is conferred by the Act or whittle-down its effect.
19. A division Bench decision by the Madhya Pradesh High Court in Dawar Brothers v. State of Madhya Pradesh [1979] 44 STC 286 is very near to the cases at hand. It was a case under the Central Sales Tax Act. Declaration forms in form “C” as provided for and prescribed under Section 8 of the Central Act on being furnished to the selling dealers entitled the petitioner/assesee to concessional rate of tax. The issuance of “C” forms was withheld by the sales tax authorities on the ground that the petitioner was in arrears of tax. This was done under the purported exercise of the power conferred by Rule 8(1-A)(f) of the M.P. Sales Tax (Central) Rules, 1957 made by the State Government under the rule-making power conferred by the Central Act. The rule was similarly worded. It provided that if the Sales Tax Officer was satisfied that the applicant at the time of making the application had defaulted in furnishing the return or was in arrears of tax, then the issuance of the declaration forms could be withheld till such time as the applicant paid the tax and furnished the return.
19.1. The general rule-making power conferred by the Central Act provided for the rules being made “for carrying out the purposes of the Act”. Under Sub-section (4) particular topics were enumerated in respect of which the State may make Rules.
19.2. The Division bench has held :
(i) that the particularisation of topics [in Sub-section (4)] is merely illustrative of the general power conferred on the State Government by Sub-section (3) and, as such, the Rules made by the State Government were subject to the same qualification that is (a) the Rules could not be inconsistent with the provisions of the Act, and (b) the Rules have to be made for carrying out the purposes of the Act.
(ii) that Rule 8(1-A)(f) transgresses the limit of what is necessary for carrying out the purpose of the Act.
19.3. The division Bench further held, “………the said rule, including the impugned Rule 8(1-A)(f), is apparently concerned with the procedure relating to the grant of declaration forms for the purpose of giving the benefit of concessional rate of tax under Section 8(1) of the Central Act. The Central Act seeks to impose tax on transactions, amongst others, of sale and purchase in inter-State trade and commerce. Though the tax under the Act is levied primarily from the seller, the burden is ultimately passed on to the consumers of goods because it enters into the price paid by them. Parliament, with a view to reduce the burden on the consumer arising out of multiple taxation as provided in respect of sales of declared goods, which have special importance in inter-State trade or commerce, and other classes of goods, which are purchased at an intermediate stage in the stream of trade or commerce, prescribed concessional rate of taxation, when transactions take place in the course of inter-State trade or commerce.”
19.4. In the result Rule 8(1-A)(f) in so far as it empowered the Sales Tax Officer to withhold the issuance of form “C” to the purchasing dealer on the ground of his being a defaulter was struck down as being ultra vires the provisions of the Act.
20. In Salvicate (Bangalore) Private Limited v. Sales Tax Officer [1998] 109 STC 543 (Ker), there was no specific provision either in the Act or the Rules for withholding issuance of forms on the ground of the assessee being a defaulter. Therefore, the case may not be applicable on all the fours to the cases at hand, but during the course of judgment, the High Court of Kerala observed that the issue of delivery notes and “C” forms was not in any way intended to restrict the trade or business ; on the other hand, they were intended to regulate the conduct of the trade and business. Withholding of these document may sometimes result in the complete destruction of trade or business in which event it may amount to total restriction which is impermissible under the law.
20.1. During the course of its judgment, the Kerala High Court has quoted a division Bench judgment of the Madras High Court in Chanda Paints (Madras) Ltd. v. Commercial Tax Officer [1986] 61 STC 335 wherein the division Bench has observed that the Commercial Tax Officer was not constituted as a policeman to regulate and conduct the assessee along with virtuous path. If the assessee had registered himself under” the provisions of the Central Act, he was, as a matter of right, entitled to get “C” forms from the officer, who had no authority to refuse the same.
21. The learned counsel for the petitioners has invited attention of the court to a decisions of the Delhi High Court in Modern Automobiles (I) v. Union of India [1984] 56 STC 85. The nature of right to have form “ST-1” issued came up for consideration. It was held :
“Section 4(2)(a)(v)(B) of the Delhi Sales Tax Act, 1975, shows that a purchasing registered dealer, on furnishing form ST-1, is entitled to exemption from sales tax of goods of the class or classes specified in his certificate of registration, which he declares in the form as being intended for resale by him in Delhi, etc. Rule 7(1) of the Delhi Sales Tax Rules, 1975, states the procedure and the formalities to be completed before the exemption is claimed. The object of Rule 7 is not to take away the right of the purchasing dealer for deductions or exemptions created by Section 4 or Section 5. In fact, if the rule purports to do so it would be ultra vires the provisions of the Act. Sections 4 and 5 create a vested right in the registered dealer to the deduction/exemption.”
22. We are, therefore, of the opinion that the impugned amendment in the Rules made by notification dated February 11, 1997 enacting Sub-clause (ii) in Clause (c) of Sub-rule (4) of Rule 8 of the Delhi Sales Tax Rules, 1975 is in excess of the rule-making power conferred on the Administrator/Lt. Governor of the NCT of Delhi and is therefore ultra vires the authority. The Act confers a substantive right on a dealer to have the amount of turnover made to registered dealers for the purpose of resale being excluded from the quantum of his taxable turnover. So long as the purchasing dealer is prepared to furnish a declaration form as prescribed, the selling dealer cannot refuse to make sales to him nor insist on tax being charged from him. A denial on the part of the authorities of the sales tax to issue the requisite declaration form takes away the substantive right conferred by the Act on the dealer for which the Act itself does not provide. The rule-making power under Section 71 also does not specifically provide for provision being made in the Rules prescribing the conditions in which the issuance of forms may be withheld. Subsection (1) contemplates Rules being framed for carrying out, the purposes of the Act. Sub-section (2), the classes whereunder are illustrative of the general rule-making power conferred by Sub-section (1), is subject to the same condition that the Rules framed on the subjects covered by Sub-section (2) must also be for carrying out the purposes of the Act. No rule can be framed which may be inconsistent with the provisions of the Act.
23. There is yet another angle of looking at the issue. The declaration forms are to be obtained by the purchasing dealer and then delivered to the seller-dealer. The purchasing dealer being in default of payment of tax would be denied the issuance of statutory forms. The consequence would be told on the seller-dealer who shall be held liable to payment of tax on account of failure on the part of the purchasing dealer. Such a situation, not contemplated by the Act, cannot be brought into being by the Rules. As held by their Lordships in the case of Radio and Electricals Ltd. [1966] 18 STC 222 (SC) the seller-dealer which entering into transactions with purchaser-dealer has only to see that the later is a registered dealer and the item of sale is mentioned in his registration certificate. He is not called upon also to ascertain whether the purchaser is a defaulter or not. He can act on the assurance of purchaser-dealer that form ST-1 would be made available by him to the seller-dealer.
24. Mr, J.R. Goel, the learned counsel for the respondents, submitted that the impugned amendment in the rule is very reasonable and made in public interest as it ensures, rather accelerates, the recovery of tax. He also submitted that procuring the declaration forms is not a vested right of any dealer; it is only a privilege conferred which enables the incidence of tax being passed on failing which the seller-dealer must recover the tax from the purchasing dealer. We are not impressed. We have already noticed that the Act has conferred a substantive right on the dealers whereby the burden of tax can be passed on to the consumers of goods. The mechanism enables avoidance of multiple taxation on the same goods which in the ultimate analysis is conducive to the development of trade and commerce. A right so conferred by the Act cannot be taken away or so obstructed as to amount to prohibition by the rule-making authority. Howsoever laudable the object may be.
25. The learned counsel for the respondent also placed reliance on Nand Lal Raj Kishan v. Commissioner of Sales Tax [1961] 12 STC 324 (SC). The impugned provision authorised the Commissioner to demand security from a dealer as a condition precedent to the issuance of a registration certificate in the interest of proper realisation of tax. Failure to furnish security entailed rejection of registration. Challenge was laid to the constitutional validity of the provision which was turned down. For two reasons, in our opinion, the law as laid down by their Lordships cannot be relied on for applying to the case at hand. Firstly, the provision was in the Act itself and not made by the Rules. Secondly, the provision was regulatory in nature and not prohibitory.
26. Makum Tea Company (India) Ltd. v. State of Assam [1998] 109 STC 353, a single Bench decision from the Gauhati High Court was also relied on wherein the provision requiring deduction of tax at source and payment in Government treasury was held not to be an unreasonable restriction on right to carry on business.
27. We have carefully gone through the decisions so relied on. In our opinion, none of the decisions has any bearing on the case at hand.
28. For the foregoing reasons, we are of the opinion that the impugned amendment is ultra vires the rule-making authority of the Administrator/Lt. Governor. Out of the three contentions raised on behalf of the petitioners inasmuch as we have found the impugned rule liable to be struck down on the first contention itself, we do not deem it necessary to enter into the other two contentions.
29. The petitions are allowed. Sub-clause (ii) inserted in Clause (c) of Sub-rule (4) of Rule 8 of the Delhi Sales Tax Rules, 1975 by notification dated February 11, 1997 is declared ultra vires the authority of the Lt. Governor of NCT of Delhi (being the rule-making authority) and struck down. No order as to the costs.
