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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1843   OF 2013 (SPECIAL LEAVE PETITION (CIVIL) NO. 36931 OF 2009)  

STATE OF UTTAR PRADESH & ORS.    APPELLANTS

VERSUS

M/S.SYSTEMATIC CONSCOM LIMITED    RESPONDENT

W I T H

CIVIL APPEAL NO.1928 OF 2013 @ SLP(C) NO. 1264 of 2011

CIVIL APPEAL NO.1929 OF 2013 @ SLP(C) NO. 1268 of 2011

CIVIL APPEAL NO.1930 OF 2013 @ SLP(C) NO. 1272 of 2011

CIVIL APPEAL NO.1931 OF 2013 @ SLP(C) NO. 1275 of 2011

CIVIL APPEAL NO.1932 OF 2013 @ SLP(C) NO. 1277 of 2011

CIVIL APPEAL NO.1933 OF 2013 @ SLP(C) NO. 1279 of 2011

CIVIL APPEAL NO.1847 OF 2013 @ SLP(C) NO. 15025 of 2010

CIVIL APPEAL NO.1853 OF 2013 @ SLP(C) NO. 15036 of 2010

CIVIL APPEAL NO.1851 OF 2013 @ SLP(C) NO. 15052 of 2010

CIVIL APPEAL NO.1852 OF 2013 @ SLP(C) NO. 15053 of 2010

CIVIL APPEAL NO.1850 OF 2013 @ SLP(C) NO. 15060 of 2010

CIVIL APPEAL NO.1848 OF 2013 @ SLP(C) NO. 15062 of 2010

CIVIL APPEAL NO.1849 OF 2013 @ SLP(C) NO. 15065 of 2010

CIVIL APPEAL NO.1869 OF 2013 @ SLP(C) NO. 19369 of 2010

CIVIL APPEAL NO.1870 OF 2013 @ SLP(C) NO. 19370 of 2010

CIVIL APPEAL NO.1871 OF 2013 @ SLP(C) NO. 19371 of 2010

CIVIL APPEAL NO.1872 OF 2013 @ SLP(C) NO. 19372 of 2010

CIVIL APPEAL NO.1873 OF 2013 @ SLP(C) NO. 19373 of 2010

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CIVIL APPEAL NO.1874 OF 2013 @ SLP(C) NO. 19374 of 2010

CIVIL APPEAL NO.1875 OF 2013 @ SLP(C) NO. 19375 of 2010

CIVIL APPEAL NO.1876 OF 2013 @ SLP(C) NO. 19376 of 2010

CIVIL APPEAL NO.1877 OF 2013 @ SLP(C) NO. 19378 of 2010

CIVIL APPEAL NO.1878 OF 2013 @ SLP(C) NO. 19379 of 2010

CIVIL APPEAL NO.1879 OF 2013 @ SLP(C) NO. 19380 of 2010

CIVIL APPEAL NO.1880 OF 2013 @ SLP(C) NO. 19382 of 2010

CIVIL APPEAL NO.1881 OF 2013 @ SLP(C) NO. 19384 of 2010

CIVIL APPEAL NO.1882 OF 2013 @ SLP(C) NO. 19385 of 2010

CIVIL APPEAL NO.1883 OF 2013 @ SLP(C) NO. 19386 of 2010

CIVIL APPEAL NO.1884 OF 2013 @ SLP(C) NO. 19388 of 2010

CIVIL APPEAL NO.1885 OF 2013 @ SLP(C) NO. 19389 of 2010

CIVIL APPEAL NO.1886 OF 2013 @ SLP(C) NO. 19391 of 2010

CIVIL APPEAL NO.1887 OF 2013 @ SLP(C) NO. 19392 of 2010

CIVIL APPEAL NO.1888 OF 2013 @ SLP(C) NO. 19395 of 2010

CIVIL APPEAL NO.1889 OF 2013 @ SLP(C) NO. 19396 of 2010

CIVIL APPEAL NO.1890 OF 2013 @ SLP(C) NO. 19397 of 2010

CIVIL APPEAL NO.1891 OF 2013 @ SLP(C) NO. 19398 of 2010

CIVIL APPEAL NO.1892 OF 2013 @ SLP(C) NO. 19407 of 2010

CIVIL APPEAL NO.1893 OF 2013 @ SLP(C) NO. 19409 of 2010

CIVIL APPEAL NO.1894 OF 2013 @ SLP(C) NO. 19411 of 2010

CIVIL APPEAL NO.1895 OF 2013 @ SLP(C) NO. 19412 of 2010

CIVIL APPEAL NO.1896 OF 2013 @ SLP(C) NO. 19413 of 2010

CIVIL APPEAL NO.1897 OF 2013 @ SLP(C) NO. 19414 of 2010

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CIVIL APPEAL NO.1898 OF 2013 @ SLP(C) NO. 19415 of 2010

CIVIL APPEAL NO.1899 OF 2013 @ SLP(C) NO. 19416 of 2010

CIVIL APPEAL NO.1900 OF 2013 @ SLP(C) NO. 19417 of 2010

CIVIL APPEAL NO.1901 OF 2013 @ SLP(C) NO. 19418 of 2010

CIVIL APPEAL NO.1902 OF 2013 @ SLP(C) NO. 19419 of 2010

CIVIL APPEAL NO.1903 OF 2013 @ SLP(C) NO. 19420 of 2010

CIVIL APPEAL NO.1904 OF 2013 @ SLP(C) NO. 19421 of 2010

CIVIL APPEAL NO.1905 OF 2013 @ SLP(C) NO. 19422 of 2010

CIVIL APPEAL NO.1906 OF 2013 @ SLP(C) NO. 19423 of 2010

CIVIL APPEAL NO.1907 OF 2013 @ SLP(C) NO. 19424 of 2010

CIVIL APPEAL NO.1908 OF 2013 @ SLP(C) NO. 19425 of 2010

CIVIL APPEAL NO.1868 OF 2013 @ SLP(C) NO. 20762 of 2010

CIVIL APPEAL NO.1866 OF 2013 @ SLP(C) NO. 20763 of 2010

CIVIL APPEAL NO.1867 OF 2013 @ SLP(C) NO. 20764 of 2010

CIVIL APPEAL NO.1854 OF 2013 @ SLP(C) NO. 21822 of 2010

CIVIL APPEAL NO.1855 OF 2013 @ SLP(C) NO. 21823 of 2010

CIVIL APPEAL NO.1856 OF 2013 @ SLP(C) NO. 21824 of 2010

CIVIL APPEAL NO.1857 OF 2013 @ SLP(C) NO. 21825 of 2010

CIVIL APPEAL NO.1858 OF 2013 @ SLP(C) NO. 21826 of 2010

CIVIL APPEAL NO.21828 OF 2013 @ SLP(C) NO. 21828 of 2010

CIVIL APPEAL NO.1860 OF 2013 @ SLP(C) NO. 21829 of 2010

CIVIL APPEAL NO.1861 OF 2013 @ SLP(C) NO. 21831 of 2010

CIVIL APPEAL NO.1862 OF 2013 @ SLP(C) NO. 21832 of 2010

CIVIL APPEAL NO.1863 OF 2013 @ SLP(C) NO. 21834 of 2010

CIVIL APPEAL NO.1864 OF 2013 @ SLP(C) NO. 21835 of 2010

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CIVIL APPEAL NO.1865 OF 2013 @ SLP(C) NO. 22329 of 2010

CIVIL APPEAL NO.1909 OF 2013 @ SLP(C) NO. 24897 of 2010

CIVIL APPEAL NO.1910 OF 2013 @ SLP(C) NO. 24900 of 2010

CIVIL APPEAL NO.1911 OF 2013 @ SLP(C) NO. 24903 of 2010

CIVIL APPEAL NO.1912 OF 2013 @ SLP(C) NO. 24919 of 2010

CIVIL APPEAL NO.1913 OF 2013 @ SLP(C) NO. 25011 of 2010

CIVIL APPEAL NO.1914 OF 2013 @ SLP(C) NO. 25014 of 2010

CIVIL APPEAL NO.1915 OF 2013 @ SLP(C) NO. 25016 of 2010

CIVIL APPEAL NO.1916 OF 2013 @ SLP(C) NO. 25017 of 2010

CIVIL APPEAL NO.1917 OF 2013 @ SLP(C) NO. 25018 of 2010

CIVIL APPEAL NO.1935-36 OF 2013 @ SLP(C) NO. 2620-2621 of  2011

CIVIL APPEAL NO.1934 OF 2013 @ SLP(C) NO. 2625 of 2011

CIVIL APPEAL NO.1937 OF 2013 @ SLP(C) NO. 2630 of 2011

CIVIL APPEAL NO.1938 OF 2013 @ SLP(C) NO. 2631 of 2011

CIVIL APPEAL NO.1939 OF 2013 @ SLP(C) NO. 2633 of 2011

CIVIL APPEAL NO.1940 OF 2013 @ SLP(C) NO. 2636 of 2011

CIVIL APPEAL NO.1941 OF 2013 @ SLP(C) NO. 2637 of 2011

CIVIL APPEAL NO.1918 OF 2013 @ SLP(C) NO. 26469 of 2010

CIVIL APPEAL NO.1942 OF 2013 @ SLP(C) NO. 2647 of 2011

CIVIL APPEAL NO.1943 OF 2013 @ SLP(C) NO. 2648 of 2011

CIVIL APPEAL NO.1944 OF 2013 @ SLP(C) NO. 2651 of 2011

CIVIL APPEAL NO.1945 OF 2013 @ SLP(C) NO. 2653 of 2011

CIVIL APPEAL NO.1919 OF 2013 @ SLP(C) NO. 27966 of 2010

CIVIL APPEAL NO. 1920 OF 2013 @ SLP(C) NO. 27967 of 2010

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CIVIL APPEAL NO.1921  OF 2013 @ SLP(C) NO. 34079 of 2010

CIVIL APPEAL NO.1922 OF 2013 @ SLP(C) NO. 34085 of 2010

CIVIL APPEAL NO.1923 OF 2013 @ SLP(C) NO. 36473 of 2010

CIVIL APPEAL NO.1924 OF 2013 @ SLP(C) NO. 36474 of 2010

CIVIL APPEAL NO.1925 OF 2013 @ SLP(C) NO. 36475 of 2010

CIVIL APPEAL NO.1926 OF 2013 @ SLP(C) NO. 36478 of 2010

CIVIL APPEAL NO.1927 OF 2013 @ SLP(C) NO. 36479 of 2010

A N D

WITH CIVIL APPEAL NOS.1845-1846 OF 2013 @SLP(C) NO. 8975- 8976 of 2010

O R D E R

1. Applications for exemption from filing Official  

Translation are allowed.

2. Delay in filing and re-filing the Special Leave  

Petitions is condoned.

3. Leave granted in all the Special Leave Petitions.

4. In this batch of Civil Appeals we are required to  

consider  the  exactness  or  otherwise  of  the  circular  

issued by the Commissioner of Trade Tax, Uttar Pradesh  

dated  04.06.2007.  By  the  impugned  Circular,  the  

Commissioner taking resort to the proviso appended to  

Section 7-D of the Uttar Pradesh Trade Tax Act, 1948

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(for  brevity  'the  Act')  has  directed  the  assessing  

authorities to recover State development tax from the  

dealers under Section 3-H of the Act in addition to the  

composition  money  payable  under  the  scheme  of  

composition  introduced  by  the  government  of  Uttar  

Pradesh prior to 01.05.2005.

5. Aggrieved  by  the  circular  so  issued  by  the  

commissioner,  the  respondents  herein  had  filed  writ  

petitions before the Allahabad High Court inter alia  

calling in question the correctness or otherwise of the  

said circular. The Division Bench of the High Court by  

the impugned judgment and order has allowed the Writ  

Petitions  filed  by  the  assessees  and  annulled  the  

circular  instructions  issued  by  the  Commissioner  of  

Trade Tax dated 04.06.2007 and also set aside the orders  

of assessment passed by the assessing authority pursuant  

to the circular instructions so issued.  

6. The facts in nutshell are:  The respondents are  

civil and electrical contractors engaged in executing  

the  civil  works  for  repairing,  construction  of  

buildings, etc. The materials used by the dealers in  

execution of the said civil works is either purchased  

within the state  or from outside the state attracting

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liability for payment of tax under the provisions of the  

Act as envisaged under Section 3-F of the Act. Section 3  

of the Act provides for levy and incidence of tax by  

which the tax is levied on every transaction in the  

nature of sales and purchases of goods at the ‘rates of  

tax’   stipulated  in  respect  of  different  goods  in  

Section 3-A of the Act.  

7. The Government of Uttar Pradesh had  announced a  

scheme,  known  as  “Composition  Scheme”,  under  the  

provisions of Section 7-D of the Act under which the  

state  government  is  empowered  to  accept  a  lump  sum  

amount in-lieu of tax that may be payable by the dealer  

in respect of such goods or class of goods and for such  

period as may be agreed upon. For that purpose, the  

dealer is obliged to execute an agreement of undertaking  

to  pay  the  sales  tax  in  lump  sum  and  the  same  was  

assessed at an agreed rate as envisaged under the Act  

itself.  The  scheme  as  introduced  by  the  legislature  

provides for a bilateral agreement between the assessee  

and the Sales Tax Authorities with an object to dispense  

with the requirement of regular assessment and for the  

easy purposes of levy and collection of the tax payable  

under the Act.  A dealer who has opted for payment of  

lump sum amount in lieu of tax, is not required to file

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monthly, quarterly or annual returns of his turnover. It  

is the choice of a dealer to opt for compounded payment  

of tax and if the said choice is in accordance with the  

scheme  and  is  ultimately  accepted  by  the  authority  

concerned,  it  becomes  an  agreed  amount  of  tax.  The  

department and the dealer are thereafter bound by the  

said agreement.

8. The  Sate  Government  by  Act No.  9  of  2005  dated  

24.03.2005 with effect from May 1, 2005 has introduced the  

State Development Tax under Section 3-H of the Act at the  

rate not exceeding one percent of the taxable turnover as  

the State Government may by notification specify on the  

dealers  whose  aggregate  turnover  exceeds  fifty  lakh  

rupees.  In  pursuance  of  such  notification,  the  

Commissioner of Trade Tax keeping in view the proviso so  

appended to Section 7-D of the Act, has issued Circular  

instruction to all the assessing authorities in exercise  

of his powers under Rule 4 of the U.P. Trade Tax Rules,  

1948 ('the Rules' for short) to levy one percent of state  

development  tax  on  civil  and  electrical  contractors  in  

addition to composition money payable under the aforesaid  

composition scheme. The said circular instructions dated  

04.06.2007, omitting what is not necessary, is extracted  

and it reads as under:

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“  Office of the Commissioner Trade Tax, Uttar  Pradesh

           (Vidhi Anubhag)

Lucknow: Dated: 4/6/2007

All Assessing Officers Trade Tax Uttar Pradesh

The  State  Government  had  from  time  to  time,  communicated a number of scheme for composition of  Tax payable in lieu of tax payable on sales made by  the various dealers as per provisions contained in  Section 7-D of the UP Trade Tax Act, 1948.  The  proviso to Section 7-D of the reads as under:-

‘Provided that  any change in the rate of tax,  which may come into force after the date of such  agreement  shall  have  the  effect  of  making  a  proportionate change, in the lump sum or the rate  agreed upon in relation to that part of the period  of assessment during which the changed rate remained  in force’.

2. The State Development Tax as incorporated  u/s 3-H of the UP Trade Tax Act, 1948, had been  included in the definition of ‘Tax’ with effect from  24/3/2005  vide  Act  No.9  of  2005.   The  State  Development Tax had been enforced with effect from  1/5/2005  vide  State  Govt.  Notification  no.  1308  dated  28/4/2005.   Thus  besides  recovering  the  composition  fee  from  dealers  opting  composition  scheme  prior  to  1/5/05,  the  recovery  of  State  Development Tax had also to be ensured.  ”

[ Emphasis supplied by us ]

9. The  assessing  authorities  are  bound  by  the  

circular  instruction  issued  by  the  Commissioner  and  

therefore in pursuance thereof have quantified the tax  

payable  by  the  dealers,  who  had  once  opted  for  

composition facility in respect of State Development Tax  

also. The said circular and the orders of assessment

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based on such circular has prompted the assessees to  

approach the High Court by filing Writ Petitions under  

Article 226 of the Constitution of India.  The main  

prayer in the Writ Petitions was to declare void the  

circular instructions issued by the Commissioner dated  

04.06.2007 and also to set aside the levy and demand of  

the State Development Tax in addition to the composition  

amount which was already agreed upon by the dealers and  

the assessing authorities.  

10. We have heard learned counsel appearing for the  

respective parties.

11. In our view, the only issue that requires to be  

considered  and  decided  by  us,  is,  whether  the  

Commissioner was justified in issuing the Circular dated  

04.06.2007 on the sole ground that with the introduction  

of the State Development Tax, there is a change in the  

rate of tax as provided under the proviso to Section 7-D  

of the Act and  therefore, the assessing authorities are  

expected to levy and collect the State Development Tax  

in  addition  to  the  composition  fee  payable  by  the  

dealer.

12. In  order  to  appreciate  the  aforesaid  issue  a  

bird's eye view of the Act requires to be noticed. The

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dictionary clause of the Act defines the meaning of the  

expressions apart from others 'assessing authority', the  

'Commissioner',  'trade  tax',  'dealer',  'turn-over',  

'works contract' and 'tax'. The expression “trade tax”  

means a tax payable under this Act on sales or purchase  

of goods, as the case may be.  The 'Commissioner' means,  

the Commissioner of Trade Tax appointed by the State  

Government. The 'assessing authority' means, any person  

appointed by the State Government or the Commissioner to  

perform all or any of the functions of the assessing  

authority under this Act.  'Dealer' means any person who  

carries  on  in  Uttar  Pradesh  (whether  regularly  or  

otherwise) the business of buying, selling, supplying or  

distributing goods directly or indirectly, for cash or  

deferred  payment  or  for  commission,  remuneration  or  

other valuable consideration.  After the introduction of  

the amended provision the person executing the works  

contract  is  also  included  in  the  definition  of  the  

'dealer'.  The 'turnover' means, the aggregate amount  

for which goods are supplied or distributed by way of  

sale  or  are  sold,   by  a  dealer,  either  directly  or  

through another, on his action or on account of others,  

whether for cash or deferred payment or other valuable  

consideration.  The  expression  ‘Tax’  includes  an  

additional tax and the composition money accepted under

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Section 7-D and the State Development Tax.  The meaning  

of  the  expression  'works  contract'  includes  any  

agreement for carrying out, for cash, deferred payment  

or  other  valuable  consideration  the  building  

construction,  manufacture,  processing,  fabrication,  

erection,  installation,  fitting  out,  improvement,  

modification, repair or commissioning of any movable or  

immovable property.

13. Section  3  of  the  Act  is  the  charging  provision.  

Section 3-A of the Act provides for rates of tax payable by  

a dealer under the Act. The said section is as under :-

“3-A.  Rate of tax.-(1)  Except as provided in  Section 3-D, the tax payable by a dealer under this Act  shall be livied:-

(a)on the turnover in respect of “declared goods”,  at  the  point  of  sale  to  the  consumer  at  the  maximum  rate  for  the  time  being  specified  in  Section 15 of the Central Sales Tax Act, 1956, or  where  the  State  Government,  by  notification,  declares any other single point or a lesser rate,  at such other point or at such lesser rate ;

(b)on the turnover in respect of such goods, other  than the goods referred to in clause (a), at such  point and at such rate, not exceeding fifty per  cent,  as  the  State  Government  may,  by  notification,  declare,  and  different  points  and  different  rates  may  be  declared  in  respect  of  different goods.  

(c)on the turnover in respect of goods, other than  those referred to in clause (a) or clause (b), at  the point of sale by manufacturer or importer at  the rate of ten percent.

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(2)  Every  notification  made  under  this  section  shall, as soon as may be after it is made, be laid  before each House of the State Legislature, while  it is in session, for a total period of not less  than fourteen days, extending in its one session  or more than one successive sessions, and shall,  unless some later date is appointed, take effect  from the date of its publication in the Gazette  subject to such modifications or annulments as the  two houses of the legislature may during the said  period agree to make, so, however, that any such  modification  or  annulment  shall  be  without  prejudice to the validity of anything previously  done  thereunder  except  that  any  imposition,  assessment, levy or collection of tax or penalty  shall  be  subject  to  the  said  modification  or  annulment.   

(3)  Where the State Government has declared any  point or rate at which the tax payable by a dealer  under the Act be levied under clause (b), clause  (c), clause(c-1), clause (d) or clause (e) of sub- section (1) as it existed immediately before the  commencement of the Uttar Pradesh Trade Tax (Second  Amendment)  Act,  2000  and  such  declaration  is  in  force on such commencement, such rate or point of  tax  shall  continue  to  be  in  force  after  such  commencement, until modified or rescinded.”

14. Section 3-F of the Act provides tax on the right  

to use any goods or goods involved in the execution of  

works contract.  The said Section reads as under :

“Section 3-F, Tax on the right to use any goods  or  goods  involved  in  the  executed  of  a  works  contract.

(1)  Notwithstanding  anything  contained  in  Section 3-A, or (1) Section 3-AAA or Section 3-D but  subject to the provisions of Sections 14 and 15 of  the Central Sales Tax Act, 1956, every dealer shall  for  each  assessment  year,  pay  a  tax  on  the  net  turnover of-  

(a) transfer of the right to use any good for

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any purpose (whether or not for a specified period)  for a specified period for cash, deferred payment of  other valuable consideration; or  

(b) transfer of property in goods (whether as  goods  or  in  some  other  form)  involved  in  the  execution of a works contract,

At such rate not exceeding twenty percentum as  the State Government may, by notification, declare  and different rates may be declared for different  goods or different classes of dealers.”

15. Section 3-H of the Act, prior to its amendment,  

with  effect  from  01.05.2005,  provided  for  levy  of  

turnover tax at the rate of one per cent on a  dealer  

whose aggregate turnover as referred to in sub-section  

(2) of Section 3 exceeds more than fifty lakh rupees, in  

addition to the tax payable under the Act.  Such tax  

requires to be levied and collected notwithstanding any  

rebate, concession or exemption as provided under the  

Act.  Sub-section (2) of Section 3-H of the Act had  

authorized the assessing authority to levy and collect  

turnover tax separately in addition to the money payable  

by way of composition money under Section 7-D of the  

Act.  The other sub-sections of Section 3-H are not  

necessary for disposal of these appeals and therefore  

they are not noticed.   

16. The  aforesaid  section  is  deleted  and  a  new  

provision is inserted by the State legislature by U.P.

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Act  9  of  2005,  dated  24.03.2005  with  effect  from  

01.05.2005. The said section provides for the levy of  

the State Development Tax. In order to appreciate the  

contentions canvassed by learned counsel appearing for  

the parties, it is desirable to extract sub-section 3-H  

of the Act before and after its amendment.  They are as  

under:

“  Section 3-H of the Act prior to 1.5.2005  .

 Section 3-H, Turnover Tax (1) There shall be  levied a turnover tax at the rate of one percent  on  the  dealers  of  whose  aggregate  turnover  as  referred  to  in  sub-section  (2)  of  Section  (3)  exceeds fifty lakh rupees, in addition to the tax  payable under this Act. Such tax shall be levied  and  collected  notwithstanding  any  rebate,  concession or exemption provided under this Act.  

 (2)  In  the  case  of  composition  of  tax  liability  under  Section  7-D,  the  turnover  tax  leviable under sub-section (1) shall be calculated  separately  and  be  charged  in  addition  to  the  amount payable as composition.  

 (3) No tax under sub-section (1) shall be  leviable on

 (a) the newspapers and other goods or the  dealers specified or notified under Section 4;

 (b) the declared goods mentioned under Section  14 of the Central Sales Tax Act, 1956;

 (c)  the  goods  liable  for  the  payment  of  additional tax;

 (d) sales to, or purchase by, manufactures of  such  goods  as  specified  in  the  recognition  certificate issued under Section 4-B;

 (d) goods on the turnover of which tax is  leviable under Section 3-A or 3-D at the rate not

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exceeding two percent.

 (f) goods exempted under Section 4-C.

Explanation – For the purpose of this section  the expression “turnover tax” means the turnover  tax on the sale or the purchase of goods as the  case may be.

Section 3-H of the Act after 1.5.2005.     Section  3-H,  State  Development  Tax,  -  (1)  

There shall be levied a State Development Tax at  the rate not exceeding one percent of the taxable  turnover  as  the  State  Government  may  by  notification  specify  on  the  dealers  whose  aggregate turnover as referred to in sub-section  (2) of Section 3, exceeds fifty lakh rupees. The  State  Development  Tax  shall  be  realized  in  addition  to  the  tax  payable  under  any  other  provision of this Act.  This tax shall cease to be  levied after a period of five years from the date  of publication of the notification issued by the  State Government under this section.

 (2) The facility of composition of tax in  relation to compoundable goods under Section 7-D  shall  also  be  available  in  respect  of  State  Development Tax.

 (3)  The  State  Development  Tax  shall  be  adjustable in the monetary limit specified in the  eligibility certificate issued under Section 4-A.

 (4) No State Development Tax shall be leviable  on;-

 (a) the newspapers and other goods or the  dealers specified or notified under section 4;

 (b) declared goods liable for the payment of  additional excise duty.

(d) such goods as may be specified by notified  by the State Government.“

17. The State Legislature by inserting the amended

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provisions by the Act 9 of 2005 has introduced the levy  

and collection of the State Development Tax.  Except for  

some  changes,  the  State  Development  Tax  bears  

resemblance to the levy and collection of the Turnover  

Tax.   We  say  so,  for  the  reason  that  the  State  

Development  Tax  is  levied  on  a  particular  class  of  

dealers at a particular rate.  What is added in Section  

3-H of the Act, after its amendment is that the said  

section will operate only for a period of five years  

from the date of issuance of the notification by the  

State Government.

18. Sub-section  (2)  of  Section  3-H  of  the  Act  

provides for the compounding facility even in respect of  

the State Development Tax. This is yet another change  

that has been brought in by the  State Legislature while  

inserting  Section  3-H  of  the  Act  with  effect  from  

01.05.2005.   The other sub-sections of Section 3-H of  

the Act are not necessary for the purpose of disposal of  

these Civil Appeals.

19. Section 7 of the Act provides for determination  

of turnover and assessment of tax.  Section 7-D of the  

Act commences with a  non-obstante clause and provides  

for composition of the tax liability.  The said section  

requires to be extracted and reads as under :

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“7-D.  Composition  of  tax  liability.  Notwithstanding anything contained in this Act, but  subject to directions of the State Government, the  assessing  authority  may  agree  to  accept  a  composition  money  either  in  lump  sum  or  at  an  agreed rate on his turnover in lieu of tax that may  be payable by a dealer in respect of such goods or  class of goods and for such period as may be agreed  upon;

   Provided that any change in the rate of tax,  which may come into force after the date of such  agreement  shall  have  the  effect  of  making  a  proportionate change in the lump sum or the rate  agreed upon in relation to that part of the period  of assessment during which the changed rate remains  in force.  

   Explanation.- For the purpose of this section  the  assessing  authority  included  an  officer  not  below the rank of Trade Tax Officer posted at a  check-post.”     

       20. Taxation is a mode of raising revenue for public  

purposes.  The term is ordinarily used to express the  

exercise of the sovereign power to raise revenue for the  

expenses  of  the  government.   In  modern  times,  

governments have been accustomed to levy a great variety  

of taxes;  sometimes relying upon a single kind for all  

needs of the state and sometimes levying a number of  

different kinds with a view to distribute the burden  

more equally or more to the general acceptance.  Taxes  

are often spoken of as special if levied for a special  

purpose, and general if levied for some of the ordinary  

purposes of a government.  A ‘special’ tax as the term

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is used in the statutes, is sometimes held to mean an  

additional tax over and above the general tax.  The  

broad feature of ‘taxation’ would include, the persons,  

proper or occupation to be taxed;  the amount or rate of  

the tax;  the purposes for which taxes shall be levied;  

the mode, method or kind of tax;  the apportionment of  

the tax;  the situs for taxation of goods;  and the  

method of collection.   

Section 3 of the Act is the charging provision under the  

Act:  Section 3-A of the Act provides for rate of tax  

payable by a dealer under the Act.  Section 3-H of the  

Act  which  has  come  into  effect  from  01.05.2005,  the  

state  legislature  authorises  the  State  Government  to  

levy State Development Tax not exceeding one percent of  

the  taxable  turnover  of  the  dealer  by  issuing  

notification.  The  said  section  is  also  a  charging  

provision,  since  it  has  all  the  ingredients  of  the  

charging  provision  as  explained  by  this  Court  in  

M/s.Ganga Saran & Sons (Pvt.) Ltd., Calcutta Vs. Income  

Tax Officer & Ors., reported in (1981) 3 SCC 143. The  

four components of incidence of tax was explained as,  

first,  the  character  of  the  imposition  known  by  its  

nature  which  prescribes the taxable event attracting  

the  levy,  the  second,  is  a  clear  indication  of  the  

person on whom the levy is imposed and who is obliged to

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pay the tax, the third, is the rate at which the tax is  

imposed , and the fourth, is the measure or value to  

which the rate will be applied for computing the tax  

liability. The levy would only exist in law when all the  

aforesaid  components  are  clearly  and  definitely  

ascertainable.  

21. The power to levy tax is an inherent attribute of  

sovereign function of the State Government by which the  

Government under the charging provision has the power to  

levy tax on the taxable turnover of the dealer at the  

rate prescribed under the provisions of the Act. The  

said rate of tax as prescribed by the legislature under  

the charging section can be altered when the legislature  

empowers the government to change the rate of tax by  

issuing  notification.  In  the  instant  case,  the  

Commissioner has issued the impugned circular on the  

ground that by the introduction of State Development Tax  

by Act 9 of 2005, the State Government has effected the  

change in the rate of tax as envisaged under the proviso  

to Section 7-D of the Act.  

22. As we have already noticed, Section 7-D of the  

Act provides for composition of amount at an agreed rate  

on the turnover of the dealer, in lieu of taxes payable

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by the dealer under the Act.  Firstly, offer would be  

made  by  the  assessee  and  the  same  requires  to  be  

accepted by the assessing authority and then only there  

would be a concluded contract between the dealer and the  

assessing authority for payment of tax. The proviso, as  

we have already noticed, comes into play only when there  

is a change in the rate of tax. It provides, that, when  

there is any change in the rate of tax on the goods,  

such increase will proportionately affect the rate of  

compounding of tax. For the purpose of understanding the  

meaning of ‘change in rate of tax’ employed under the  

proviso  to  Section  7-D  of  the  Act,  the  dictionary  

meaning of ‘change’ and the ‘rate’ is required to be set  

out.  The  ordinary  meaning  of  change  is  to  become  

different,  to  transform  or  convert  and  rate  is  the  

standard or measure. On a combined reading of both the  

meanings, the change in the rate of tax would mean any  

such change in the already existing standard or measure  

of computing the tax payable but not the introduction of  

a yet another kind of tax for levy and collection of the  

tax  from  the  dealers.  State  Development  Tax  as  

introduced by the State Government under Section 3-H of  

the Act provides for imposition of one percent of State  

Development  Tax  separately  on  the  taxable  turnover  

thereby creating an independent charge. The introduction

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of State Development Tax has therefore not led to any  

change in the rate of tax on goods and therefore there  

is no proportional change in the rate of compounding of  

tax for the purposes of proviso to Sec 7-D of the Act.  

By virtue of the circular issued by the Commissioner of  

Tax, the dealers though have agreed to pay the tax under  

Section 7-D of the Act are also expected to pay the  

State  Development  Tax  .   This,  in  our  opinion,  is  

fallacious view of the Commissioner.  The Commissioner  

of Commercial Taxes could have issued the circular only  

if there is a change in the rate of tax.  There is  

difference between the “change in the rate of tax” and  

introduction of altogether a new provision or new kind  

of tax for levy and collection from the dealers.

23. In view of the aforesaid discussion, we cannot  

sustain  the  circular  instructions  issued  by  the  

Commissioner dated 04.06.2007 and, therefore, the same  

requires to be set aside.  Accordingly, we confirm the  

judgment and order passed by the High Court for the  

reasons stated by us.

24. Now,  we  leave  it  open  to  the  assessing  

authorities, whether to demand the State Development Tax  

from  those  dealers  who  had  already  opted  for  the  

composition charges under the composition scheme by way

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of issuing appropriate demand notices in accordance with  

law. If and when such demand notices are issued by the  

assessing authority/ authorities, the assessees are at  

liberty  to  question  the  same  before  the  appropriate  

forum.

25. With  these  observations  and  directions,  these  

appeals  are  disposed  of.  Parties  to  bear  their  

respective costs.

Ordered accordingly.

.......................J. (H.L. DATTU)

.......................J. (DIPAK MISRA)

NEW DELHI; FEBRUARY 26, 2013.