The State of Madras & ANR Vs. M/S.
M. A. Noor Mohammed And Co  INSC 122 (12 August 1960)
SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR,
CITATION: 1960 AIR 1254
CITATOR INFO :
RF 1967 SC1537 (4)
Sales Tax--Sale of hides and skins--Exemption
from multiple taxation--Unlicensed dealers--Whether can claim single Point
taxation--Validity of rules Providing for multiple taxation--Madras General
Sales Tax (Turnover and Assessment) Rules, 1939, r. 16(5) --Madras General
Sales Tax Act, 1939 (9 of 1939), ss. 3, 5(vi), 6A.
The respondent, a firm carrying on tannery
business, used to take out licences under the provisions of the Madras General
Sales Tax Act, 1939, but did not renew the licence for the assessment year,
952-1953, and was assessed to sales tax on the sale value of tanned hides and
skins during the year.
It challenged the validity of the order of
assessment by filing a petition before the High Court under Art. 226 of the
Constitution of India, on the grounds that under s. 5(vi) of the Act the
liability to pay sales tax in respect of hides and skins could only be at a
single point, that r.
16(5) of the Madras General Sales Tax
(Turnover and Assessment) Rules, 1939, which limited the operation of this mode
of taxation to licensed dealers was ultra vires as it contravened S. 5(vi) and
had been so held in V. M. Syed Mohammed & Co. v. The State of Madras,  S.C.R. 1117, and that s. 6A was not applicable to the case of a dealer
which did not take out a licence.
Held, that s. 3 of the Madras General Sales
Tax Act, 1939, envisages multipoint taxation on the total turnover of a dealer,
149 but under S. 5 an exception is made in the case of sale transactions of
certain specified goods, providing for single point taxation subject to certain
restrictions and conditions which include conditions as to licences, and if the
conditions and restrictions are not complied with, under s. 6A the tax is to be
levied under s. 3 as if the provisions of s. 5 did not apply to such sales.
Accor- dingly, r. 16 (5) of the Madras General Sales Tax (Turnover and
Assessment) Rules, 1939, is not ultra vires.
Syed Mohamed & Company v. State of Andhra,  7 S.T.C. 465 and State of Mysore v. Sarvatula & Co.,  9 S.T.C. 593,
V. M. Syed Mohammed & Company v. The
State of Madras,  S.C.R. 1117, explained.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 38 of 1959.
Appeal by special leave from the judgment and
order dated April 2, 1956, of the Madras High Court in Writ Petition No. 313 of
R. Ganapathy Iyer and T. M. Sen, for the
C. K. Daphtary, Solicitor-General of India
and S.Venkatakrishnan, for the respondents.
A. V. Viswanatha Sastri and S. Venkatakrishnan
for Intervener No. 1 (Ambur Tanners Association).
R. Gopalakrishnan, for Interveners Nos. 2 and
3 (R. Chennappa and P. Abdul Wahab).
1960. August 12. The Judgment of the Court
was delivered by KAPUR J.-This is an appeal by special leave against the
judgment and order of the High Court of Madras allowing a petition under
Article 226 of the Constitution. The question there raised was the legality of
the assessment of Sales Tax by appellant No. 2, the Deputy Commercial Sales Tax
Officer, Saidapet, under the Madras General Sales Tax Act, 1939 (Act IX of
1939), hereinafter termed the Act.
The respondent was a partnership firm
carrying on tannery business at Chromepet near the city of Madras. Before the
year of assessment, i. e., 1952-53, it was taking out licences under the
relevant provisions of 150 the Act but it did not renew the licence for the
assessment year. When called upon to make a return it did not do so nor did it
raise any objection to the notice served on it on February 28, 1954. It was assessed
to sales tax of Rs.
10,584 on a turnover of Rs. 6,77,374-4-4. It
filed a petition under Art. 226 to quash the assessment order on the ground
that the order was illegal and not supported by the authority of law. This
contention was accepted by the High Court and the petition was allowed with
costs. The consequence of the judgment is that the respondent firm which is not
a licensed dealer under the Act is not liable to any sales tax in respect of
its dealings in hides and skins. Against this judgment and order the appellants
have come to this court by special leave.
The contention of the respondent firm in the
High Court was that under s. 5, cl. (vi) of the Act, the liability to pay sales
tax in respect of hides and skins could only be at a single point; that the
rule limiting the operation of this mode of taxation to licensed dealers was
ultra vires and therefore r. 16(5) of the Madras General Sales Tax (Turnover
and Assessment) Rules, 1939, hereinafter called the Turnover and Assessment
Rules, was void and inoperative and had been.
so held by the Supreme Court in V. M. Syed
Mohammed & Co. v. The State of Madras(1) ; that accepting this
interpretation the State of Madras had deleted cl. (5) of r. 16 by G. 0.
450, Revenue, dated February 26, 1954, i.e.,
two days before the making of the assessment order under dispute; that r.
16(5) of the Turnover and Assessment Rules
was the only provision imposing a multiple tax in respect of sales of hides and
skins by unlicensed dealers and that the imposition of the sales tax after the
repeal of that rule was illegal and the tax was without the authority of law.
It was also contended that in the taxation
scheme under the Act, hides and skins, because of their importance in the
international market, were excluded from the direct operation of s. 3(1) of the
Act which was the general charging section and were given special protection of
the single point taxation under s. 5(vi). The (1)  S.C.R. 1117.
151 argument, therefore, was that in the case
of sales of hides and skins the general provision was inapplicable and a
special rule for taxation was laid down by s. 5(vi) of the Act.
The High Court held that in the case of hides
and it skins " the charge levied by s. 3 is subject to the pro. visions of
S. 5 and in the case of licensed dealers in hides and skins, the charging
provision is r. 16 of the Turnover and Assessment Rules ".
The High Court further held that r. 16(5) of
the Turnover and Assessment Rules which restricted the benefit of single point
taxation to licensed dealers was ultra vires as it contravened s. 5(vi) of the
Act and s. 6-A was not applicable to the case of a dealer who did not take out
a licence for dealing in hides and skins and further that if r. 16(5) was ultra
vires as being in contravention of s. 5(vi), r. 5, of the Madras General Sales
Tax Rules (hereinafter called the Sales Tax Rules) which requires the taking
out of the licence in order to be able to get the benefit of single point
taxation would also be ultra vires.
Thus on a true construction of s. 3(1) and s.
5(vi) it was of the opinion that r. 5 of the Sales Tax Rules and r. 16(5) of
the Turnover and Assessment Rules were ultra vires and s. 6A was inapplicable
to a person who had not taken out a licence. As a consequence it quashed the
order of assessment of the respondent firm.
In order to decide this appeal it is
necessary to refer to and consider the relevant provisions of the Act and the
two sets of Rules made thereunder. They are as follows:- S. 3(1) " Subject
to the provisions of this Act,- (a) every dealer shall pay for each year a tax
on his total turnover for such year; and
(3) A dealer whose total turnover in any year
is less than ten thousand rupees shall not be liable to pay any tax for that
year under sub-section (1) or sub-section (2).
(4) For the purposes of this section and the
other provisions of this Act, turnover shall be determined in accordance with
such rules as may be prescribed 152 (5) The taxes under sub-sections (1) and
(2) shall be assessed, levied and collected in such manner and in such installments,
if any, as may be prescribed;
S. 5. Subject to such restrictions and
conditions as may be prescribed, including conditions as to licences and licence
(vi) the sale of hides and skins, whether
tanned or untanned shall be liable to tax under section 3, subsection (1), only
at such single point in the series of sales by successive dealers as may be
S. 6A. If any restrictions or conditions
prescribed under section 5 or notified under section 6 are contravened or are
not observed by a dealer, or in case a condition so prescribed or notified
requires that a licence shall be taken out or renewed, if a licence is not
taken out or renewed, by the dealer or if any of the conditions of a licence
taken out or renewed by him are contravened or are not observed, the sales of
the dealer, with effect from the commencement of the year in which such
contravention or non- observance took place, may be assessed to tax or taxes
under section 3, as if the provisions of section 5 or of the notification under
section 6, as the case may be, did not apply to such sales and notwithstanding
that a licence, if any, taken out or renewed by the dealer continued or
continues to be in force during the year ".
MADRAS GENERAL SALES TAX (TURNOVER AND
Rule 4(1). " Save as provided in
sub-rule (2) the gross turnover of a dealer for the purposes of these rules
shall be the amount for which goods are sold by the dealer.
(2) In the case of the under mentioned goods
turnover of a dealer for the purposes of these rules shall be the amount for
which the goods are bought by the dealer.
(c) untanned hides and skins bought by a
licensed tanner in the State, and 153 (d) untanned hides and skins exported
outside the State by a licensed dealer in hides or skins.
Rule 15(1). Rules 6 to 13 shall not apply to
licensed tanners and other licensed dealers in hides or skins in respect of
their dealings in hides or skins; but the provisions of this and the following
rule shall apply to them in respect of such dealings.
Rule 16(1). In the case of hides and skins,
the tax payable under section 3(1) shall be levied in accordance with the
provisions of this rule.
(2) No tax shall be levied on the sale of
untanned hides or skins by a licensed dealer in hides or skins except at the
stage at which such hides or skins are sold to a tanner in the State or are
sold for export outside the State ;
(i) in the case of all untanned hides or
skins sold to a tanner in the State, the tax shall be levied from the tanner on
the amount for which the hides or skins are bought by him;
(ii) In the case of all untanned hides or
skins which are not sold to a tanner in the State but are exported outside the
State, the tax shall be levied from the dealer who was the last dealer not
exempt from taxation under section 3(3), who buys them in the State on the
amount for which they were bought by him.
(5) Sale of hides or skins by dealers other
than licensed dealers in hides or skins shall,subject to the provisions of
section 3, be liable to taxation on each occasion of sale." Rule 5(1) of
the ax Rules provides :- "Every person who
(d) deals in hides and/or skins whether as a
tanner, or otherwise, or ........................................................
shall, if he desires to avail himself of the
exemption provided in sections 5 and 8 or of the concession of single point
taxation provided in section 6, submit an 20 154 application in Form 1 for a
licence in respect of each of his places of business to the authority specified
in sub- rule (2) so as to reach him not later than the 15th day of October,
The scheme of taxation under the Act is this.
Section 3 is the general charging section under which tax is levied in the
manner prescribed in the turnover of a dealer, except that a dealer whose
turnover is less than Rs. 10,000/- is exempted from sales tax. Section 3
envisages multipoint taxation on the total turnover of a dealer. In the case of
the sale transactions of certain specified goods set out in s. 5 of the Act an
exception is made. That section provides for single point taxation subject to
certain prescribed restrictions and conditions. By sub-s. (vi) of that section
sales of hides and skins are liable to tax under s.3, sub-s. (1), at one single
point in the series of sales by successive dealers. The language of the section
(s.5) shows however that this exemption applies subject to certain restrictions
and conditions which include conditions as to licences. The rule, which deals with
licences is r. 5 of the Sales Tax Rules, the relevant portion of which has
already been set out It lays down that if a dealer desires to avail himself of
the exemption provided in ss. 5 and 8 or of the concession as to taxation in s.
5 only at a single point, then he must obtain a licence as prescribed in that
rule. If the restrictions and conditions contemplated by s. 5 read with the
rules are not complied with, certain consequences follow as a result of s. 6-A
of the Act which specifically states that where a condition prescribed or
notified requires the taking out or the renewal of a licence, then in the case
of contravention of such conditions or restrictions the tax is to be levied
under s. 3 as if the provisions of s. 5 did not apply to such sales.
This, therefore, is a clear provision which
makes the single point imposition of sales tax on hides and skins to be
conditional on observing the condition of taking a licence.
The argument of inconsistency between r.
16(5) of the Turnover and Assessment Rules and s. 5(vi) of the Act which was
accepted in the High Court receives 155 no support from the language of that
section which is a concessional provision for making the sales of hides and
skins liable to taxation at a single point; but that, as the opening words of
the section show, is subject to restrictions and conditions prescribed in the
rules and one of these conditions is the taking of a licence. All that r. 16(5)
does is to emphasise the consequences of non- observance of the conditions
which ss. 5(vi) & 6-A have in clear terms prescribed. We find no
inconsistency between the rule and the sections of the Act. But it was
submitted that this Court on appeal from a judgment of the Madras High Court
had sId r. 16(5) to be ultra vires the Act. That contention is based on the
judgment of the Madras High Court in V. M. Syed Mohammed & Company v. The
State of Madras (1) which on appeal was affirmed by this Court (2). This
contention is not well-founded. In that case, when it was in the Madras High
Court, it was contended that the rules did not properly carry out the policy
underlying the Act, which was to keep the price of hides and skins at a
competitive level for the world market. It was there argued that hides and
skins were articles much in demand in the foreign markets and their export was
one of the main items of the foreign trade of the State of Madras which enjoyed
considerable natural advantage in tanning because of the plentiful supply of
" Avaram bark " which was especially suited for the purpose. It was
also argued that untanned hides and skins were acquired locally or by import
from other States and were either tanned in the State or exported and therefore
the scheme of taxation was to levy the tax at a single point, i.e., at the
stage when articles were tanned in the State or exported to foreign countries
For this reason multiple taxation was
violative of s. 5(vi) of the Act. This, it appears, was not disputed by the
Government and it was therefore held that r. 16(5) of the Turnover and
Assessment Rules was ultra vires. But the question was really (1) (1952) 3
(2) V. M. Syed Mohammed and Company v. The
State of Andhra,  S.C.R. 1117.
156 not relevant to the issue as was pointed
out by Venkatarama Ayyar, J., at p. 394, where he said:- " Now the
contention of the petitioners is that where there are sales by unlicensed
dealers to unlicensed tanners or unlicensed dealers, there is the possibility
of multiple taxation and that would be in violation of section 5(vi).
It is not disputed on behalf of the
Government that Rule 16(5) is repugnant to section 5(vi). It must therefore be
held to be ultra vires. But this can bring no relief to the petitioners, as
they are all licensed tanners and are in no manner hurt by the operation of r.
16(5). This was conceded by the learned Advocate for the petitioners ".
This case was then brought in appeal to this
Court and S. R.
Das, J. (as he then was), observed at p.
1121:- " Lastly, the learned advocate urges that rule 16 (5) clearly
contravenes the provisions of section 5(vi) of the Act.
This sub-rule has been held to be ultra vires
by the High Court, and indeed, the learned Advocate General of Madras did not
in the High Court, as before us, dispute that rule 16(5) was repugnant to
,section 5(vi). That sub-rule, however affects only unlicensed dealers and the
appellants who are admittedly licensed dealers are not affected by that
This judgment does not show that the
repugnancy of the rule was in controversy or the court pronounced its opinion
upon the merits or it was necessary to do so.
The learned Solicitor-General then contended
before us that in their counter-affidavit filed in the High Court the
appellants had accepted the position that r. 16(5) of the Turnover and
Assessment Rules was ultra vires. But that will not carry the matter any
further, because on a construction of the provisions of the Act this argument
of repugnancy is not sustainable.
The Andhra Pradesh High Court rightly did not
accept the view that r. 16(5) was ultra vires of the rule making authority:
Syed Mohamed & Company v. State of Andhra (1).
The same view was taken by the (1)  7
S.T.C. 465. 472.
157 Mysore High Court in the State of Mysore v. Sarvatula & Co. (1).
A consideration of the relevant provisions of
the Act and the rules made there under shows that the charging section is s.
3(1) and the general rule is taxation i at multiple points on the total
turnover of the dealer, but in the case of sale of certain specified articles a
departure has been made and tax at single point is leviable provided certain
conditions and restrictions as to licences which are envisaged in s. 5 and laid
down in the rules are complied with and that r. 16(5) of the Turnover and
Assessment Rules is not ultra vires.
It was then contended that the provision as
to licensing and taxation in the case of licensed dealers and tanners at a
single point and a taxation at multiple point in the case of unlicensed dealers
were violative of Art. 14 of the Constitution. But we did not allow this point
to be taken because it was not raised in the High Court and was raised for the
first time in this Court. In our opinion the judgment of the High Court in
regard to the ultra vires nature of r. 16(5) and the inapplicability of s. 6-A
of the Act was erroneous and the appeal must, therefore, be allowed, the
judgment and order of the High Court set aside and the respondent's petition
dismissed. The respondent will pay the costs of the appellants in this Court
and in the courts below.
(1)  9 S.T.C. 593.