Holding

Rule 12(3)(ii) requiring the production of Form C in addition to Form E‑1 for exemption under Section 6(2) is intra vires, valid and mandatory.

Summary

M/s. Phool Chand Gupta, a dealer in oilseeds, claimed exemption under Section 6(2) of the Central Sales Tax Act for the sale of Mohwa seeds purchased in transit and sold to dealers outside Andhra Pradesh. The Deputy Commissioner withdrew the exemption because the dealer had not furnished Form C, a requirement under Rule 12(3)(ii) of the Andhra Pradesh Sales Tax Rules, although Form E‑1 had been produced. The Sales Tax Tribunal and the Andhra Pradesh High Court upheld the withdrawal, holding the rule to be mandatory. The Supreme Court examined whether Rule 12(3)(ii), which mandates the production of both Form E‑1 and Form C, was ultra vires the Central Act and its Rules. It held that the State’s rule‑making power under Section 13(3) and (4) of the Act permits such a requirement and that the rule is not inconsistent with the Central Act or Central Rules. Consequently, the exemption can be claimed only upon furnishing both forms, and the rule is valid and mandatory. The appeals were dismissed.

Issues considered

The validity and mandatory nature of Rule 12(3)(ii) of the Central Sales Tax (Andhra Pradesh) Rules requiring Form C for exemption under Section 6(2).
Whether the State rule is ultra vires the Central Sales Tax Act, 1956 and the Central Sales Tax (Registration and Turnover) Rules, 1957.

Legislation cited

Central Sales Tax Act, 1956s. 13(3), s. 13(4), s. 3, s. 6(2), s. 8(1), s. 8(3), s. 8(4)
Central Sales Tax (Registration and Turnover) Rules, 1957s. Rule 12(1), s. Rule 12(3)(ii), s. Rule 12(4)

Subjects

Central Sales TaxSection 6(2) exemptionForm CRule 12(3)(ii)State rule‑making powerultra viresinter‑state tradeproof of subsequent sale

Judgment

A PHOOIL CHAND GUPTA
v.
STATE OF ANDHRA PRADESH

JANUARY 21, 1997

B
[A. M. AHMADI, CJ. AND SUJATA V. MANOHAR, J.]

Central Sales Tax Act, 1956/Central Sales Tax (Registration and Turn-
over) Rules, 1957/Central Sales Tax (Andhra Pradesh) Rules, 1957-Sections
C 6(2), 3(b ), 8( 1)(3)(4), 13(1)(3)(4)/Rule 12(1)/Rule 12(3)(ii)--Requirement of
furnishing Fonn C under Rule 12(3)(ii) of the Central Sales Tax (Andhra
Pradesh) Rules for securing exemption under Section 6(2) of the Act-Held:
Not ultra vires the Central Act and the Central Rules--lt is within the ambit
and scope of rnle-making power of the State under Section 13(3)(4) of the
Act-It does not rnn counter to any provision in the Act or the Central
D Rules--Restriction by the State Government to produce F01111 C as the only
mode of proof for claiming exemption-Can not be construed as direc-
tolf"Such an interpretation would destroy the ve1y pwpose of the rnle-lf the
dealer files any other document in addition to Fonn 'C', it can be treated as
mere surplusage and not a substitute of Fonn C.

E The assessee firm, a dealer in oilseeds, was granted exemption on a
turnover of Mohwa seeds for the assessment years 1971~72 and 1972-73 on
the plea that the seeds were purchased by the firm while in transit and
were sold to the dealers outside the State. The Deputy Commissioner
withdrew the exemption allowed by t~ Assessing Officer holding that the
F assessee had actually purchased the Railway receipts relating to the
Mohwa seeds from non-resident dealers while the goods were in transit
from places outside the State and sold to non-resident dealers, and there-
fore the exemption granted was irregular since the transaction fell within
section 3(b) of the Central Sales Tax Act, 1956 and hence was not eligible
for exemption in view of Section 6(2) of the Act, unless the dealer furnished
G a certificate in Form E-1 obtained from the vendor and a declaration in
Form C received from the registered dealer to whom he sold the goods.
Since no document in Form C was furnished, it was held that the assessee
was not entitled to exemption . On appeal, the Sales Tax Tribunal affirmed ~
this view since the requirement of Rule 12(3)(ii) of the Central ~ales Tax
H (Andhra Pradesh) Rules wa:> not satisfied. On appeal before the High
420

·""·
P.C. GUPTAv. STATE 421
Court it was contended by the assessee that Rule 12(3)(ii) was merely A
directory and not mandatory and that if it was construed to be mandatory,
it would be ultra vires the provisions of the Act. The High Court negatived
both these contentions and dismissed the appeals. Hence the assessee filed
the present appeals before this Court.
B
Dismissing the appeals, this Court

HELD: 1. Exemption granted under Section 6(2) of the Central Sales
Tax Act is available as in the case of Section 8(1) to the goods of the
description referred to in sub-section (3) of Section 8. A conjoint reading
of various sub-sections of Section 8 of the Central Sales Tax Act shows c
that unless Form C prescribed by Rule 12 (1) of the Central Sales Tax
(Registration and Turnover) Rules, 1957 is produced as required by sub
section (4), the concession under sub-section (1) will not be available.
While granting exemption, certain conditions provided by the sub- section
have to be met, namely, the sale must be a second or subsequent sale D
effected in the course of inter-state trade, it must be effected by transfer
of documents; it must be in respect of goods of the description in section
8(3); it must be in favour of a registered dealer and the seller too should
be shown to have purchased the goods from a registered dealer . Thus it
is clear that the concessional rate under section 8(1) and the exemption
for the subsequent sale provided by section 6(2) are, in both cases, in E
respect of goods of the description referred to in section 8(3) of the Act.
While in the case of a sale governed by section 8, sub-section (4) thereof
requires the production of a certificate in Form 'C', in the case of sub-
sequent sale under Section 6(2) the benefit of exemption can be availed of
only if the dealer effecting the sale furnishes to the prescribed authority a F
certificate in Form E-1. [428-B-E]

2. It is true that while the proviso to section 6(2) of the Act imposes
a liability of production of Form 'E-1', Rule 12(3) (ii) of the State Rules
imposes the additional requirement of filing Form C as well. To secure G
exemption under Section 6(2), proof of the subsequent sale is a sine qua
non. Unless the subsequent sale to a registered dealer in the course of inter-
state trade or commerce of goods of the description referred to in section
8(3) is shown to have been effected by the transfer of documents of title to
such goods, there could be no question of grant of exemption from payment
of tax. In order to claim and sei;ure exemption, this fact has to be proved H
422 SUPREME COURT REPORTS [1997) 1 S.C.R.
A by the production of Form 'E-1' under Rule 12(4) of the Central Rules and
Form 'C' under Rule 12(3)(ii} of the State Rules. [428-H; 429-A-C]

3. A provision requiring production of the declaration in Form 'C'
for receiving the benefit of exemption under section 6(2) does not run
counter to any provision in the Act or the Central Rules and is within the
B scope and ambit of the rule making power of the state under sections 13(3)
and 13(4). The requirement of production of Form 'E-1' can not be said to
be inconsistent with the Act or the Central Rules. That is because section
6(2} applies to goods of the description in section 8(3). The Act prescribes
the mode of proof for the purpose of section 8(l)(b) but does not prescribe
C any mode of proof for the purpose of section 6(2) ()f the Act. All that the
State Government has done is to accept the same mode of proof for the
purpose of section 6(2) since the latter provision is silent on the point.
Therefore, the High Court rightly held that Rule 12 (3) (ii) of the State
Rules was not ultra vires the Act or the Central Rules. [430-E-H]

D
4. If the mode of proof for claiming concession under Section 8(2}(b)
is Form 'C' to satisfy the requirement of Section 8(3), no exce11tion can be
taken if the State Government adopts the same for the purpose of proving
the same fact for claiming exem11tion under Section 6(2) of the Act. Since
the law provides for a total exemption from the payment of tax levied by
E section 6(1), strict proof of the basic fact can be insisted· upon. If the State
G~vernment in exercise of its rule-making power under the Act, prescribes
thai the mode of proof shall be ]form 'C', it can not be said that unless it
is read down as directory, such a provision shall be ultra vires the Act and
the Central Rules. If the requirement of proof of that very fact under Sec.
F 8(2}(b) is Form 'C' alone, and if that provision is intra vires, it is difficult
to appreciate how it becomes ultra vires when applied under Section 6(2)
of the Act.

If the mode of proof is leU to the dealer to choose, each dealer may
choose his own mode and the concerned authority would be required in
G each case to apply his mind to each situation and come to an independent
conclusion which may on the same set of facts vary from authority to
authority and thus introduce uncertainty and consequently lead to
avoidable delay and litigation. To avoid such a situation, if the State
Government decided to restrict: the mode of proof to one, namely, the
H production of Form 'C', it is dlifficult to see how the provision can be
P.C. GUPTAv. STATE [AHMADI, CJ.] 423

....... construed, as directory as such an interpretation would destroy tbe very A
purpose of the rule. [433-G-H; 434-A-E]

Govindarayulu and Brothe1:i v. S. T. Appellate Tribunal, Andhra
Pradesh, (1974) 33 STC 580, approved.

State of Madras v. P. Subhiah Pillai, (1967) 20 STC 263 (Mad); State B
of Gujarat v. Yakubhai Haji Hakumutdin, (1969) 23 STC 117 (Guj) and
CST, M.P. v. Shivnarayan Jagatnarayan, (1978) 42 STC 315 (MP), disap-
proved. [434-G-H; 435-A-B]

5. The High Court's observation in Govindarayulu's case that the
assessee would be at liberty to produce in addition to Form 'C' other c
evidence also, does not mean that Form 'C' can be substituted by any other
evidence, but it is intended to convey that in addition to Form 'C' if the
dealer desires to produce any other additional evidence it may be a mere
surplusage once Form 'C' is produced.
.
, "Govindarayulu and Brothers v. St. Appellate Tnbunal, Andhra
D
Pradesh'~ (1974) 33 STC 580 (AP), approved.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 534-535
of 1979.
E
From the Judgment and Order dated 14.8.78 of the Andhra Pradesh
High Court in T.R.C. No. 17 of 1977 and W.P. No. 693 of 1978.

Praveen Kumar and Dhruv Agarwal for the Appellant.

AHMADI, CJ. These two appeals arise out of a common judgment
delivered on 14.8.1978 by a Division Bench of the High Court of Andhra
Pradesh whereby it repelled the contention of the appellant firm that Rule G
12(3)(ii) of the Central Sales Tax (Andhra Pradesh) Rules was directory
and not mandatory and if held to be mandatory the said rule was ultra vires
the Central Sales Tax Act, 1956, hereinafter called 'the Act'.

The appellant, M/s. Phool Chand Gupta, was at all material times a
dealer in oil seeds. This firm was assessed under the Act by the Commer- H
424 SUPREME COURT REPORTS [1997] 1 S.C.R.
A cial Tax Officer, Vizianagaram, for the relevant assessment years 1971-72
and 1972-73. He granted exemption on a turnover in respect of mohwa
seeds on the plea that the seeds were purchased by the firm while in transit
and were sold to dealers outside the state. The Deputy Commissioner,
however, noticed that the assessee had actually purchased th·~ Railway
Receipts relating to the mowha seeds from non-resident dealers while the
B goods were in transit from places outside the State and were sold to non-
resident dealers. He, therefore, opined that the exemption granted was
irregular since the transaction fell within Section 3(b) and hence was not
eligible for exemption in view of Section 6(2) of the Act unless the dealer
furnished a certificate in Form E-1 obtained from the vendor and a
C declaration in Form C received from the registered dealer to whom he sold
the goods. Since no document in Form C was furnished, it was held that
the assessee was not entitled to exemption. The Deputy Commissioner,
therefore, withdrew the exemption allowed by the Assessing Officer. In
appeal the Sales Tax Appellate Tribunal affirmed this view since the
D requirement of Rule 12(3)(ii) of the Central Sales Tax (Andhra Pradesh)
Rules (hereinafter called 'the State Rules'), was not satisfied. The High
Court also approved the said point of view.

The High Court noticed that the appellant firm had purchased
mohwa seeds from a dealer in the State of Orissa and while the consign-
E ment was in transit, it sold the same to a dealer in West Bengal by
endorsing the Railway Receipt for that consignment. Thus, there is no
dispute that the transaction took place in the course of inter-State trade
falling within the scope of Section 3(b) of the Act. On the turnover of these
seeds exemption was claimed under Section 6('.i:) of the Act which was
p denied by the authorities since Rule 12(3)(ii) was not complied with.
Before the High Court it was contended that the said rule was merely
directory and not mandatory and that if it was construed to be mandatory,
it would be ultra vires the provisions of the Act. The High Court negatived
both these contentions and hence the present appeals by special leave.

G We may at the outset notice a few relevant provisions of the Act as
they stood at the material time. Section 3 provides that a sale or purchase
of goods shall be deemed to tak,e place in the course of inter-state trade
or commerce if the sale or purchase occasions the movement of goods
from one State to another or is effected by a transfer of documents of title
H to the goods during their movement from one State to another. Section 6
P.C. GUPTA v. STATE [AHMADI, CJ.) 425

1
* imposes a liability to tax on inter-State sales. Sub-section (1) provides that A
subject to the other provisions in the Act, every dealer shall be liable to
pay tax on all sales of goods other than electric energy effected by him in
the course of inter-State trade or commerce during any year on and from
the notified date. Sub-section (2) as it stood before 1.4.1973 read as follows:
I
"6(2) Notwithstanding anything contained in sub-section (1) or B
~
sub-section (lA) where a sale in the course of inter-State trade or
~ commerce of goods of the description referred to in sub- section
(3) of section 8 -

(a) has occasioned the movement of such goods from one State
to another; or
c
i
~
(b) has been effected by a transfer of documents of title to such
goods during their movement from one State to another;

any subsequent sale to a registered dealer during such move- D
ment effected by a transfer of documents of title to such goods
shall not be subject to tax under this Act :

Provided that no such subsequent sale shall be exempt from
tax under this sub-section unless the dealer effecting the sale
furnishes to the prescribed authority in the prescribed manner a E
certificate duly filled and signed by the registered dealer from
whom the goods were purchased, containing the prescribed par-
ticulars."

_,..,( After its amendment with effect from 1.4.1973, the said sub-section reads
as under: F

"6(2) Notwithstanding anything contained in sub-section (1) or
sub-section (lA) where a sale of any goods in the course of
inter-state trade or commerce has either occasioned the movement
of such goods from one State to another or has been effected by
G
a transfer of documents of title to such goods during their move-
ment from the State to another, any subsequent sale during such
~ movement effected by a transfer of documents of title. to such
goods, -

(A) to the Government, or H
426 SUPREME COURT REPORTS [1997] 1 S.C.R.
A (B) to a registered dealer other than the Government, if the goods
are of the description referred to in sub-section (3) of section
8, shall be exempt from tax under this Act :
t
Provided that no such subsequent sale shall be exempt from
tax under this sub-section unless the dealer effecting the sale
B furnishes to the prescribed authority in the prescribed manner and
within the prescribed time or within such further· time as that
authority may, for sufficient cause, permit, -

(a) a certificate duly filled and signed by the registered dealer
c from whom the goods were purchased containing the
prescribed particulars in a prescribed form obtained from the
prescribed authority, and (b) if the subsequent sale is r
...
made-

(i) is a registered dealer, a declaration referred to in clause
D (a) of sub-section (4) of section 8, or
>-
(ii) to the Government, not being a registered dealer, a
certificate referred to in clause (b) of sub-section (4)
of section 8 :
E
Provided further that it shall not be necessary to furnish the
declaration or the certificate referred to in clause (b) of the
preceding proviso in respect of a subsequent sale of goods if, -

(a) the sale or purchase of such goods is, under the sales tax law
F of the appropriate State, exempt from tax generally or is
subject to tax gem:rally at a rate which is lower than (four
per cent) whether called a tax or fee or by any other name;
and

(b) the dealer effecting such subsequent sale proves to the satis-
G faction of the authority referred to in the preceeding proviso
that such sale is olf the nature referred to in clause (A) or I-
.. clause (B) of this sub-section."
er
Incidentally, the proviso to sub .. section (1) also underwent change with
H effect from l.4.1973 and read as under :

..>-
P.C. GUPTA v. STATE [AHMADI, CT.] 427

,,,, "Provided that a dealer shall not be liable to pay tax under this A
Act on any sale of goods which in accordance with the provisions
of sub-section (3) of section 5, is a sale in the course of export of
those goods out of the territory of India."

i, Section 13 empowers the Central Government to make rules, providing for
B
"( d) the form in which and the particulars to be contained in any
declaration of certificate and the time within which any such
.... certificate or declaration shall be produced or furnished."

We may now turn to Rule 12(1) of the Central Government Sales Tax
(registration and Turnover) Rules, 1957 which lays down that the declara- c
tion and certificate referred to shall be in Forms 'C' and 'D', respectively.
Sub-rule (4) next provides that the certificate referred to in section 6(2)
shall be in Form E-1 or E-II as the case may be.

Next, we may reproduce Rule 12(3)(ii) of the State Rules. It reads :
D
. "Rule 12(3)(ii) - For the purposes of claiming exemption from tax
on his subsequent sale under sub-section (2) of Section 6, the
purchasing dealer who effects a subsequent sale to another
registered dealer by transfer of documents of title to the goods
during their movement from one State to another, shall furnish to E
the appropriate assessing authority.

(i) the portion marked 'original' of the form E-1 received by him
from the registered dealer from whom he purchased the
goods, and
F
(ii) the original of the declaration in form C received from the
registered dealer to whom he sold the ·goods."

On a conjoint reading of the various sub-sections of Section 8 it
appears that the concessional rate of three percent of the turnover is
admissible on all inter-state sales when the goods in question are of the G
description referred to in sub-section (3). Thus, the concessional rate
prescribed under sub-section (1) is available to goods described under
~ sub-section (3). However, sub- section (4) requires the dealer claiming the
benefit of the concessional rate prescribed under sub-section (1) to furnish
to the prescribed authority in the prescribed manner a declaration duly H

_,
~
428 SUPREME COURT REPORTS (1997] 1 S.C.R.
~
A filled and signed by the registered dealer to whom the goods are sold 7-'
containing the prescribed particulars in the prescribed form obtained from
the prescribed authority. That form is 'C' form prescribed under the Rules
and unless this certificate is produced as required by sub-section (4), the
concession under sub-section (1) will not be available.
B
Turning now to Section 6(2) it is clear that the exemption granted
thereunder is also available as in the case of Section 8(1) to the goods of
the description referred to in sub-section (3) of Section 8. While granting ~
the exemption certain conditions prescribed by the sub-section have to be
met. These are (i) the sale must be a second or subsequent sale effected
c in the course of inter-State trade, (ii) it must be effected by transfer of
documents of title while the goods are in movement from one State to
another, (iii) it must be in respect of goods of the description in section
8(3), (iv) it must be in favour of a registered dealer and (v) the seller too
should be shown to have purchased the goods from a registered dealer.
D Thus, it seems clear to us that the concessional rate under Section 8(1) and
}--
.
the exemption for the subsequent sale provided by Section 6(2) are, in both
cases, in respect of goods of the description referred to in Section 8(3) of
the Act. While in the case of a sale governed by Section 8, sub-section (4) )

thereof requires the production of a certificate in form 'C', in the case of
E the subsequent sale under Section 6(2) the benefit of the exemption can
be availed of only if the dealer effecting the sale furnishes to the prescribed
authority a certificate as postulated by the proviso thereto as it stood before
1.4.1973.

Form 'C' has been prescrib::d under Rule 12 of the Rules by the
F >---
Central Government to satisfy the requirement of Section 8(4) and similar-
ly to satisfy the requirement of Section 6(2), Rule 12(3)(ii) of the State .
Rules provides for the production of the declaration in Form 'C' received
from the registered dealer to whom the goods were sold. Of course under
the Central Rules, sub- rule (4) of Rule 12 the certificate reforred to must
G be in Form 'E-1' or 'E-II' as the case may be. It is the requirement of
furnishing Form 'C' under rule 12(3)(ii) of the State Rules which is the
bone of contention in the present proceedings. It is contended that if this
is not construed to be directory in character, it will be ultra vires the Act.
"' ~

H It is true that while the proviso to Section 6(2) of the Act imposes
P.C. GUPTAv. STATE [AHMADI, CT.] 429
·x the liability of production of Form 'E-I', rule 12(3)(ii) of the State Rules A
imposes the additional requirement of filing Form 'C' as well. As pointed
out earlier to secure exemption under Section 6(2), proof of the subsequent
sale is a sine qua non. Unless the subsequent sale to a registered dealer in
the course of inter-State trade or commerce of goods of the description
referred to in Section 8(3) is shown to have been effected by the transfer B
of documents of title to such goods, there could be no question of grant of
exemption from payment of tax. In order to claim and secure exemption,
~ this fact has to be proved by the production of Form 'E-I' under Rule
i
12(4) of the Central Rules and Form 'C' under Rule 12 (3)(ii) of the State
Rules.
c
We may now consider the challenge to the vires of Rule 12(3)(ii) of
the State Rules. It, in no uncertain terms, says that for claiming exemption
from tax on his subsequent sale under Section 6(2), the purchasing dealer
effecting the subsequent sale to another registered dealer by transfer of
documents of title to goods during their inter-state movement, 'shall' D
--4.: furnish to the appropriate assessi:ng authority Form 'E-1' received by him
from the vendor registered dealer, and the original of the declaration in
Form 'C' received from the registered dealer to whom the goods came to
be sold. It must be remembered that it is implicit from the plain language
of Section 6(2), proviso, that the seller too must be a registered dealer. In E
other words, the sale must be from one registered dealer to another
registered dealer. This fact can be proved by the production of Form 'C'
declaration. The production of these certificates would provide the re-
quired proof for claiming and securing the exemption provi~ed in respect
of the transaction under Section 6(2) of the Act. Was the State Government
F
empowered in law to frame Rule 12(3)(ii)? The answer to this question
must depend on whether or not the Act empowers the State Government
to frame such a rule.

Section 13 provides for the rule making power. Sub-section (1) of
Section 13 empowers the Central Government to make rules providing inter G
alia prescribing (d) 'the form in which the particulars to be contained in
any declaration of certificate and the time within which any such certificate
or declaration shall be produced or furnished. It should be remembered
""" that From C is prescribed under this rule Making power by the central
Government. Form 'C' is, therefore, a form prescribed by the Central H
430 SUPREME COURT REPORTS [1997] 1 S.C.R.
A Government and not the State Government. Next, Section 13(3) provides
that the State Government may make rules, not inconsistent with the
provisions of the Act and the Rules made under sub-section (1), to carry
out the purposes of the Act. Sub- section (4) of Section 13 next provides
that in particular and without prejudice to the powers conferred by sub-
B section (3), the State Government may frame rules for the purposes
enumerated therein. The High Court has placed reliance on clause (c)
which reads as under :

"( c) The furnishing of any information relating to the stocks of \..,:
goods of, purchases, sales and deliveries of goods by, any dealer
c or any other information relating to his business as may be neces-
sary for the purposes of this Act."

Section 13(3) confers wide powers on the State Government to make rules
to carry out the purposes of the Act, provided the said rules are not
D inconsistent with the Act and the Rules framed by the Central Government
in exercise of power conferred by sub- section (1) of Section 13. Without
prejudice to this power, the State Government may make rules for all or
any of the matters enumerated in the sub-section (4) thereof which includes
the matter in clause (c) extracted earlier. A provision requiring the produc-
tion of the declaration in Form 'C' for receiving the benefit of exemption
E under Section 6(2) does not run counter to any provision in the Act or the
Central Rules and seems to be within the scope and ambit of the rule
making power under Section 13(3) as well as within the specific provision
in ciause (c) of Section 13(4) which empowers the making of any rule which
requires the .furnishing of information relating to purchases, sales and
F delivery of goods by any dealer. The requirement of the production of
Form 'C' in addition to the requirement of production of Form 'E-1' cannot
be said to be inconsistent with the Act or the Central Rules. That is
because Section 6(2) applies to goods of the description in Section 8(3).
The Act prescribes the mode of proof for the purpose of Section 8(1)(b)
but does not prescribe any mode of proof for the purpose of Section 6(2)
G of the Act. How then can rule 12(3)(ii) be said to be ultra vires Section
6(2j of the Act? All that the State Government has done is to accept the
same mode of proof for the purposes of Section 6(2) since the latter
provision is silent on the point. We are, therefore, in agreement with the
High Court that Rule 12(3)(ii) of the State Rules is not ultra vires the Act
H or the Central Rules.
P.C. GUPTAv. STATE [AHMADI, O.] 431

* The second limb of the submission is that unless the said Rule
12(3)(ii) is construed as directory, it would be ultra vires the Act should
A

not detain us. The use of the expression 'shall furnish' would indicate that
the choice in regard to production is limited to furnishing the portion
marked 'original' of Form 'E-1' and the original declaration in Form 'C'. If
exemption from tax is sought on the subsequent.sale under Section 6(2),
B
the purchasing dealer must produce the documents mentioned in clauses
(i) and (ii) of the Rule i2(3)(ii) of the Rules. The rule deliberately restricts
itself to. the production of the specified documents as that would be the
. best possible evidence in regard to subsequent sale under Section 6(2) by
transfer of documents of title to the goods. To permit substantial com-
pliance would introduce uncertainty and may lead to avoidable litigation. c
In order to avail of the concession granted under Section 8(1){b) of the
Act, the dealer has to prove the fact that the goods are of the description
mentioned under Section 8(3) by furnishing the declaration in Form 'C'
and in no other manner. So also, in order to claim the benefit under Section
6(2), the very same fact has to be proved and if the State Government D
adopts the same mode of proof, it is impossible to say that the mode of
proof adopted is inconsistent with the provisions of the Act and/or the
Central Rules. All that the State Government has done is to fill the gap
left by Section 6(2) in regard to the mode of proof that the goods are of
the description of Section 8(3) of the Act. It was open to the State
' Government to select the mode of proof accepted by the Central Govern-
ment as the exclusive mode of proof to avoid uncertainty and avoidable
E

litigation. If the provision is held to be directory, substantial compliance
would suffice. That would permit the dealer to adopt any other mode of
proof. It would be for the authorities to accept it as sufficient or to reject
it. If the authorities reject it as insufficient, it would lead to avoidable F
litigation. It was, therefore, open lo the State Government to accept the
recognised mode as the exclusive mode of proof to avoid disputes on the
sufficiency or otherwise of the proof and also to make the process of
granting exemption easy and uniform. Such a rule must be held lo be within
the scope and ambit of Section 13(3) read with Section 13(4) of the Act
and not inconsistent with the Act or the Central Rules. G

This is the view taken by the High Court under the impugned
decision based on the view taken by a learned Single Judge of the same
High Court in the case of Govindarayulu & Brothers v. S. T. Appellate
Tribunal, Andhra Pradesh, (1974) 33 STC 580. However, our attention was H
432 SUPREME COURT REPORTS [1997) 1 S.C.R.
A drawn to the decisions of the Madras, Gujarat and Madhya Pradesh High
Courts which have taken a different view. We will briefly deal with these
cases. In the case of the State of Madras v. P. Subbiah Pillai, (1967) 20 STC
263, the Court held that Section 6(2) imposed only the requirement of
production of Form 'E-1' for availing the exemption and there was no
B indication in the said provision regarding production of Form 'C'. There-
fore, any rule made compelling the production of Form 'C' by the State
Government would tantamount to adding a condition not imposed. by ~
Section 6(2) and would be outside the scope of Section 13, in particular,
Section 13(4) of the Act. However, the High Court did not examine the
C impact of Section 8 of the Act but merely confined itself to the language
of Section 6(2) nor did it appreciate the purpose for the requirement of
Form 'C' under the Central Rules. The Divisfon Bench of the High Court
did not bear in mind the entire scheme of the Act and the Central Rules
and therefore, in our view, reached an incorrect conclusion. The High
Court of Gujarat in the case of State of Gujarat v. Yakubhai Haji Hakumut-
D din, (1969) 23 STC 117 has taken the view that the scheme of the Act shows
that Section 6 is the charging Section which fixes the liability of the tax on
inter-State sales. Under sub-Section (1) thereof every dealer has to pay the
tax on .all sales effected by him in the course of inter-State trade or
commerce while sub- section (2), which applies notwithstanding sub-sec-
E tion (1), grants an exemption from the liability to pay tax if the conditions
stipulated thereunder are met. The proviso merely prescribes the condition
in regard to the production of Form 'E-1/E-2' but nowhere provides for
the production of Form 'C' and therefore such an additional requirement
is not consistent with Section 6(2) of the Act. In fact, the learned Advocate
F General for the State tried to contend that unless a declaration in Form
'C' was· produced, there would! be nothing to show that goods fell within
the description of Section 8(3). Since the question referred to the Court
was a limited one, namely, whether the want of a certificate in Form 'C'
from the purchaser disentitled the assessee from claiming exemption under
G Section 6(2), and since the question of production of certificate in Form
'C' must be limited to the requirements of concession under Section 8 of
the Act, the learned advocate General was not allowed to urge the point
holding that it was a new point travelling beyond the scope of the reference.
In reaching the conclusion it did, the ratio of the Madras case was accepted
H as correct. The Madhya Pradesh case, Commissioner of Sales Tax, M.P. v.
Shivnarayan Jagatnarayan, (1978) 42 STC 315, follows the line of reasoning
P.C. GUPTA v. STATE [AHMADI, CJ.] 433
adopted by the Madras and Gujarat High Courts. Dealing with the decision A
of the Andhra Pradesh High Court in the case of Govindarayulu supra, the
Division Bench of the High Court distinguished it on the ground that it
arose out of a writ petition challenging the validity of similar rule framed
by the State Government requiring production of Form 'C' to claim exemp-
tion under Section 6(2) of the Act. That was, therefore, a case in which the B
validity of the rule was questioned. Since no such question arose in the case
on hand and since the Court had presumed it to be valid, the Andhra
Pradesh High Court decision was held to be clearly distinguishable. It was,
therefore, held that the rule was directory and not mandatory.

From the aforesaid decisions of the Madras, Gujarat and Madhya
c
Pradesh High Courts, it seems clear to us that they upheld the validity
of a similar provision but held that insofar as its application to claims
for exemption under Section 6(2) is concerned, it is directory and not
mandatory. This view is based on the premise that Section 6(2) requires
the production of a certificate in Form 'E-1/E-2' and not a ·declaration D
of certificate in form 'C'. This requirement of From 'C' is therefore, in
addition to the requirement under Section 6(2) and can only be directory
and not mandatory. But what is overlooked is the fact that even under
Section 6(2), the dealer claiming exemption from payment of tax has to
show that the goods in question are of the description set out in Section E
8(3). Even under Section 8(4), it is stated that sub-section (1) shall not
apply to any sale in the course of inter-State trade or commerce unless
the dealer selling the goods furnished to the prescribed authority in the
prescribed manner a declaration duly tilled and signed by the registered
dealer to whom the goods are sold containing the prescribed particulars
F
in a prescribed form. Therefore, even this provision requires that the
particulars referred to in Section 8(3) must be contained and furnished
in a prescribed form. As stated earlier, Form 'C' is prescribed under
Rule 12 of the Central Rules and not under the State Rules. In a case
where concession is claimed under Section 8(2)(b), the dealer must
produce a certificate in Form 'C' to prove that the goods are of the G
description mentioned in section 8(3). If the mode of proof for claiming
a concession under Section 8(2)(b) is Form 'C' to satisfy the requirement
of Section 8(3), no exception can be taken if the State Government
adopts the same for the purpose of proving the same fact for claiming
exemption under Section 6(2) of the Act. If such a rule made by the H
434 SUPREME COURT REPORTS [1997] 1 S.C.R.
A State Government is intra l'ires the Act and the Central Rules as held
by all the .High Courts, we fail to see how it can be said that if that
mode is made the sole or exclusive mode of proof in the case of Section
6(2) also, the said Rule will be rendered Uitra vires the Act and the
Central Rules. Since the law provides for a total exemption from the
B payment of tax levied by Section 6(1), strict proof of the basic fact can
be insisted upon. If the State Government, in exercise of its rule- making
power under the Act,· prescribes that the mode of proof shall be Form
'C', can it be said that such a provision shall be ultra vires the Act and
the Central Rules unless it is read down as directory? If the requirement
of proof of that very fact under Section 8(2)(b) read with 8(3) is Form
c 'C' alone, and if that provision is intra vires, it is difficult to appreciate
how it becomes ultra vires when applied under Section 6(2) of the Act.
If the mode of proof is left to the dealer to choose, each dealer may
choose his own mode and tlhe concerned authority would be required in
each case to apply his mind to each situation and come to an inde-
D pendent conclusion which may on the same set of facts vary from
authority to authority and thus introduce uncertainty and consequently
lead to avoidable delay and litigation. To avoid such a situation, if the
State Government decided to restrict the mode of proof to one, namely, '
the production of Form 'C', it is difficult to see how the provision can ·
E be construed as directory as such an interpretation would destroy the
very purpose of the rule. We are, therefore, inclined to take the view
which the High Court of Andhra Pradesh took in Govindarayulu's case
and which has been approved by the impugned decision.

Before we part, we must notice one observation found in the im- ·""'-
F pugned judgment. In Govindarayulu's case, the learned Single Judge
referred to the prescription of production of Form 'C' as the exclusive
mode of proof because he held the rule to be mandatory. While referring
to this observation, the Division Bench in the impugned judgment observes:

"We have already made it clear that while the production of Form
G
C is mandatory, th<i.t is not the exclusive mode of proof and the
assessee will be at liberty to produce in addition to Form C, other
evidence."

We must at once clarify that this does not mean that Form 'C' can be
H subst~tuted by any other evidence but is intended to convey that in addition
P.C. GUPTAv. STATE [AHMADI, CJ.] 435
to Forll! 'C' if the dealer desires to produce any other additional evidence A
he may do so. Such additional evidence may be a mere surplusage once
Form 'C' is produced.

I~ the result, we see no merit in these appeals and dismiss them but
in view of the conflict of views, we make no order as to costs.
B
H.K. Appeals are dismissed.