State of Madras Vs. T. Narayanaswami
Naidu & ANR  INSC 106 (12 April 1967)
12/04/1967 SIKRI, S.M.
CITATION: 1968 AIR 194 1967 SCR (3) 622
CITATOR INFO :
R 1987 SC2244 (1)
Madras, General Sales Tax Act, (9 of 1939)
Ss. 3 and 4-Goods in stock-Liability to tax as last purchase-
The assessee, a dealer in cotton, claimed
deduction of Sales-tax on the ground that cotton worth that value were in stock
on the last day of the assessing year. The Commercial Tax Officer disallowed
the claim holding that as subsequent disposal had not been proved, it was
liable to be taxed as a last purchase. The Assistant Commissioner upheld the
order, but the Sales Tax Appellate Tribunal accepted the assessee's claim. The
Department's revision to the High Court was dismissed. In to this Court,
HELD : The assessee was not liable till the
purchase of declared goods acquired the character of a last purchase within the
Second Schedule of the Act. It is true that Ss.
3 and 4 of the Madras General Sales Tax Act,
speak of "a year", i.e., the financial year, and it is only the
turnover during that year that is liable to taxation in the hands of the
assessee, but s. 4 has to be read with the Second Schedule, and reading s. 4 with
the Second Schedule, it is clear that a dealer is not liable to pay a tax on
the purchases until the Purchases acquire ,the quality of being last purchases
inside the State. In, other words, when he files a return and declares the
stock in hand, the stock in hand cannot be said to have been acquired by last
purchase because he may still during the next assessment year, sell it or he
may consume it himself or the goods may be destroyed, etc. He would be entitled
to claim before the assessing authorities that the character of acquisition of
the stock in hand was undetermined; in the light of subsequent events it may or
may not become the last purchase inside the State. This construction is in
consonance with s. 15 of the Central Sales Tax Act, 1956. [625E-G] Abdulsalan
Rowther v. State of Kerala, 12 S.T.C. 98, and Hornusji Hirjiblioy v. Commercial
Tax Of 113 S.T.C. 773, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
No. s. 633 & 634 of 1966.
Appeals by special leave from the judgment
and order dated August 11, 1964 of the Madras High Court in Tax Cases Nos.
105 and 125 of 1963 (Revision Nos. 64 and
G. Ramanujam and A. V. Rangam, for the
appellant (in both the appeals.
S. T. Desai and G. L. Sanghi, for the
respondents (in both the appeals).
The Judgment of the Court was delivered by
Sikri, J. These appeals by special leave are directed against the judgment of
the Madras High Court in Tax Cases Nos. 105 6 2 3 and 125 of 1963. The High
Court by its common judgment dated August 11, 1964, confirmed the, orders of
the Sales Tax Appellate Tribunal.
A common point of law is involved in both the
cases and it will suffice if we give facts in Tax Case No. 105 of 1963 (Civil
Appeal Nos. 633 of 1966) in which the respondent was one T. Narayanaswami
Naidu, hereinafter referred to as the assessee. The assessee is a dealer in
cotton and cotton seeds. Before the Additional Commercial Tax Officer,
Coimbatore, he claimed to deduct the sum of Rs. 12,32,756.45 as the value of
purchases other than the last purchases of cotton. The Commercial Tax Officer
10,11,534.40 but disallowed the remaining
amount on the ground that cotton worth Rs. 2,27,250.00 was in stock on March
31, 1961. He found that subsequent disposal in the next year had not been
proved and, therefore, it was liable to be taxed as a last purchase. In holding
this he followed the decision of the Kerala High Court in Abdulsalam Rowther v.
State of Kerala(1). The Appellate Assistant Commissioner (Commercial Taxes)
upheld the order, but the Sales Tax Appellate Tribunal, dissenting from the
decision of the Kerala High Court, in Abdulsalam Rowther v. State of Kerala(1),
accepted the appeal of the assessee and demanded the ease to the Appellate
Assistant Commissioner for disposal afresh in the light of observations made by
The Department filed a revision under s. 38
of tile Madras General Sales Tax Act, hereinafter referred to as the Madras
Act, and the High Court dismissed the revision. The State of Madras having
obtained special leave, the appeal is now before us.
The learned counsel for the appellant, Mr.
Ramanujam, urges that the decision of the Kerala High Court in Abdulsalam
Rowthel v. State of Kerala,(1) and of the Mysore High Court in Hornusji
Hirjibhoy v. Conmmercial Tax Officer(2) laid down the law correctly, and the
Madras High Court erred in dissenting from these decisions in the present case
(now reported as State of Madras v. T. Narayanaswami Naidu(3).
Section 4 of the Madras Act provides "4.
Notwithstanding anything contained in section 3, the tax under this Act shall
be payable by a dealer on the sale or purchase inside the State of declared
goods at the rate and only at the point specified against each in the Second
Schedule on the turnover in such goods in each year, whatever be the quantum of
turnover in that year." In other words, this section lays down that in
respect of declared goods we have to look at the Second Schedule in order to
find (1) 12 S.T.C. 98.
(3) 16 S.T.C. 29.
(2) 13 S.T.C. 773.
6 2 4 ,out the point at which the tax would
be payable by the dealer. The Second Schedule describes the declared goods in
respect of which a single point tax only is leviable under s. 4. Item 2 of the
Second Schedule is "Cotton, that is to say, all kinds of cotton
(indigenous or imported) in its unmanufactured state, whether ginned or
unginned, baled, pressed or otherwise, but excluding cotton waste". The
point of levy is stated as "at the point of last purchase in the
The question that arises is : what is the
exact meaning of the expression "at the point of last purchase in the
State" ? In this connection it may be mentioned that S. 14 of the Central
Sales lax Act, 1956, hereinafter referred to as the Central Act, declares
certain goods as of special importance in inter-State trade and commerce, and
cotton is one of the goods included in s. 14. Section 15 provides :
"15. Every sales tax law of a State
shall, in so far as it imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the following restrictions
and conditions, namely :- (a) the tax payable under that law in respect of any
sale or purchase of such goods inside the State shall not exceed two per cent.
of the sale or purchase price thereof, and such tax shall not be levied at more
than one stage;" Section 4 of the Madras Act was intended to comply with
15 of the Central Act. The relevant portion
of s. 3 of the Madras Act, on which. the learned counsel for the appellant
relies, provides :
3(1) Every dealer (other than a casual trader
or agent of a non-resident dealer) whose total turnover for a year is not less
than ten thousand rupees and every casual trader or agent of a non-resident
dealer, whatever be his turnover for the year, shall pay a tax for each year at
the rate of two per cent of his taxable turnover I" Section 2(p). defines
"taxable turnover" to mean "the turnover on which a dealer shall
be liable to pay tax as determined after making such deductions from his total
turnover and in such manner as may be prescribed", and "year" is
defined to mean "financial year". "Turnover" is defined in
S. 2(r) as follows "'turnover' means the aggregate amount for which goods
are bought or sold, or supplied or distributed, by a dealer, either directly or
through another, on his 62 5 own account or on account of others whether for
cash or for deferred payment or other valuable consideration, provided that the
proceeds of the sale by a person of agricultural or horticultural produce,
other than tea, grown within the State by himself or on any land in which he
has an interest whether as owner, usufructuary mortgagee, tenant or otherwise.
shall be excluded from his turnover;......
The learned counsel for the appellant says
that it is clear from ss. 3 and 4 that a tax under the Madras Act is a yearly
tax. In other words, he says, that just as under the, Indian Income Tax Act
each assessment year is a self- contained unit, so is the assessment year a
self-contained unit under the Madras Act. If that is so, he argues, then what
happens in subsequent year-., cannot be taken into consideration for
determining the taxability of any purchase inside the State of declared goods.
He says that the taxable event is the last purchase in the State during the
assessment year and if stocks are held at the end of the assessment year it
follows that the assessee holding the stocks is the last purchaser in the
In our opinion, this reasoning is fallacious.
It is true that ss. 3 and 4 speak of "a year", i.e., the financial
year, and it is only the turnover during that year that is liable to taxation
in the hands of the assessee, but s. 4 has to be read with the Second Schedule,
and reading s. 4 with the Second Schedule, it seems to us clear that a dealer
is not liable to pay a tax on the purchases until the purchases acquire the
quality of being the last purchases inside the State. In other words, when he
files a return and declares the stock in hand, the stock in hand cannot be said
to have been acquired by last purchase because he may still during the next
assessment year,, sell it or he may consume it himself or the goods may be
destroyed, etc. He would be entitled to claim before the assessing authorities
that the character of acquisition of the stock in hand was undetermined; in the
light of subsequent events it may or may not become The last purchase inside
In our view this construction is in
consonance with s. 15 of the Central Act. If the argument of the learned
counsel for the State were to be accepted it would mean that the States could
with impunity levy purchase tax on declared goods at more than one stage, i.e.
on purchases in the hands of one dealer during one assessment year and
purchases of the same goods in the hands of another dealer in a subsequent
assessment year, and so on. Therefore, we agree with the Madras High Court that
the assessee is right in contending that he was entitled to claim deduction in
respect of the value of the stock of Rs. 2,27,250 as being the purchases other
than last purchases of cotton.
L7 Sup. Cl/67-1 0 626 The Kerala High Court
in Abdulsalam Rowther v. State of Kerala(1), following certain cases decided
under the Income Tax Act, was influenced by the consideration that an assessee
could not rely on subsequent events in order to escape taxation' That may be so
even under the Sales Tax Act, but, according to our view, the assessee is not
liable till the purchase of declared goods acquires the character of a last
purchase within the Second Schedule referred to above. In Hornusji Hirjibhoy v.
Commercial Tax Officer(1) the Mysore High Court also seems to have been
impressed by similar considerations.
The judgment under appeal draws a distinction
between tax- able event and a stage at which the levy of tax in the case of
declared goods is subject to single point levy. This may cause confusion, and
indeed, the High Court gives one illustration, which it found unnecessary to
deal with. The illustration given is :
"One can visualise a case for example,
where goods mentioned above purchased on the 30th of March, 1960 may be
exported by the purchaser himself, outside the State, on the 2nd of April,
1960. In that case the goods could not be assessed in 1960-61 in the hands of
the exporting purchaser, because the taxable event did not occur in that year;
it could not be assessed in the hands of the seller in 1959-60 because though
the taxable event occurred that year, the single point stage was not reached in
that year. One possible way of dealing with such a case is to assess it
subsequently as escaped turnover." In our opinion, in this illustration,
the assessee would be liable in the financial year 1960-61 as the purchases
became the last purchases in that year.
In the result the appeal fails and is
dismissed with costs.
The facts in Tax Case No. 125 of 1963 (Civil
Appeal No. 634 of 1966) are similar. That appeal is also dismissed with costs.
The Appellate Assistant Commissioner (Commercial Taxes) will now dispose of the
cases remanded to him by the Sales Tax Appellate Tribunal in the light of the
Y.P. Appeal dismissed.
(1) 12 S.T.C. 99.
(2) 13 S.T.C. 773.