M/S. George Oakes (P.) Ltd. Vs. State of
Madras  INSC 199 (28 April 1961)
AIYYAR, T.L. VENKATARAMA KAPUR, J.L.
CITATION: 1962 AIR 1037 1962 SCR (2) 570
CITATOR INFO :
F 1962 SC1352 (5,6) R 1966 SC1738 (10) RF
1967 SC1895 (24) RF 1971 SC2216 (11) RF 1975 SC 198 (13) D 1975 SC1801 (2) D
1977 SC1459 (17) RF 1977 SC2279 (27) R 1978 SC1496 (8) RF 1981 SC 440 (13,14)
RF 1986 SC 649 (35,39) F 1987 SC 611 (5,9)
Sales Tax-Turnover-If includes tax collected
by sellerDeeming statute Constitutionality Constitution of India, Entry 54,
List II Seventh Schedule-Government of India Act, 1935 (26 Geo. 5 & 1 Ed. 8
Ch. 2), Entry 48, List 11, Sch. VII-Madras General Sales Tax Act, (Mad. Act IX
of 1939), SS. 2(i), 2(h), 8BMadras General Sales (Definition of Turnover and
Validation of Assessments) Act, 1954 (Mad. XVII Of 1954), SS. 2, 3-Turnover and
Assessment Rules, rr. 4, 5, 6, 11.
Certain amounts collected by the appellants
as sales tax were included in their turnover by the sales tax authorities. They
contested the constitutional validity of the Madras General Sales (Definition
of Turnover and Validation of Assessments) Act, 1954, on the ground inter alia
that the Sate Legislature went beyond its legislative competence under entry 54
of List If of the Constitution in enacting by the impugned Act that the amounts
collected by the dealer by way of tax shall be deemed to have formed part of
Held, that entry 54 of List II of the Seventh
Schedule of the Constitution is similar to entry 48 of List 11 of Sch.
Vil of the Government of India Act, 1935
sales under which have been held to be transactions passing title to the Goods
from the seller to the buyer and that a mere executory agreement was not a sale
within the meaning of that entry.
The same meaning must be given to entry 54.
571 State of Madras v. Gannon Dunkerly &
Co., Ltd.,  S.C.R. 379 and Sales Tax Officer v. M/s. Budh Prakash jai
Prakash,  1 S.C.R. 243, referred to.
Under ss. 2(i) and 2(h) of the Madras General
Sales Tax Act, 1939, the expression "turnover" means the aggregate
amount for which goods are sold either for cash or deferred payment or other
Valuable consideration, and when a sale attracts purchase tax which is passed
on to the consumer what the buyer has to pay includes the tax and the aggregate
amount to be paid would fall under the definition of turnover.
When the seller passes on the tax and the
buyer agrees to pay sales tax in addition to the price, the tax is really part
of the entitle considerations.
Papreka Ltd. v. Board of Trade,  1 All
E.R. 372, Love v. Norman Wright (Builders) Ltd.,  1 All E. R. 618,
Asoka Marketing Co. Ltd. v. The State of
Bihar,  IO S.T.C. 110 and Tata Iron and Steel Co. v. The State of Bihar,
 S.C.R. 1355, referred to.
Although s. 8B of the Madras General Sales
Tax Act, 1939 and the Turnover and Assessment Rules separately mentioned the
amounts collected as tax for the purpose of paying such amounts to the
Government, no immutable distinction was drawn between the sale price and the
tax nor was any such distinction maintained under S. 2 of the impugned Act.
Assuming that such a distinction did exist
the Legislature was competent to enact under entry 54 in List II of the
Constitution that the tax shall be deemed to have formed part of the turnover
and obliterate the distinction for the limited period during which the impugned
Act operated. The impugned Act was therefore valid.
The Deputy Commissioner of Commercial Taxes
v. M. Kyishnaswami Mudaliar,  5 S.T.C. 88, held not applicable.
Sri Sundararajan & Co. v. The State of
Madras,  7 S.T.C. 105, approved.
The Government of Andhya v. East India
Commercial Co., Ltd.,  8 S.T.C. 114 and Bengal Immunity Co., Ltd. v.
State Of Bihar, 2 S.C.R. 603, referred to.
CIVIL APPELLATE, JURISDICTION: Civil Appeals
Nos. 280 and 281 of 1960.
Appeal from the judgment and order dated
April 20, 1956, of the Madras High Court, in T. R. C. Nos. 101 and 102 of 1956.
B. Ganapathy Iyer and G. Gopalakrishnan, for
M. M. Ismail and T. M. Sen, for the
572 D. V. Sastri and T. M. Sen, for
Intervener No. 1.
Naunit Lal, for Intervener No. 2.
S. M. Sikri, Advocate-General, Punjab and D.
Gupta, for Intervener No. 3.
S. M. Sikri, Advocate-General, Punjab, N. S.
Bindra and D.
Gupta, for Intervener No. 4.
G. C. Kasliwal, Advocate-General, Rajasthan,
S. K. Kapur and D. Gupta, for Intervener No. 5.
1961. April 28. The Judgment of the Court was
delivered by S. K. DAS, J.-These are two appeals on certificates granted by the
High Court of Madras and consolidated by its orders dated March 22, 1957. They
are from the judgment and orders of the said High Court dated April 20, 1956
and July 30, 1956 in two Tax Revision Cases, by which the High Court dismissed
two petitions filed by the appellants under s. 12B of the Madras General Sales
Tax Act (Madras Act IX of 1939), hereinafter called the principal Act, in the
Messrs. George Oakes (Private) Limited,
appellants herein, are dealers in Ford motor cars, spare parts and accessories.
For the two years 1951-52 and 1952-53 the
appellants submitted their returns under the relevant provisions of the
principal Act and claimed exemption from tax with regard to certain amount
realised on transactions of sales which the appellants contended were
inter-State sales and hence exempt from tax under Art. 286 of the Constitution
as it stood at the relevant time. The Deputy Commercial Tax Officer, Madras,
not only rejected the claim of exemption, but added to the turnover certain
amounts which the appellants had collected by way of tax. The amounts so added
for 1951-52 were -(a) Rs. 8,000 to the net turnover assessable at 3 pies per
rupee, and (b) Rs. 4,30,000 to the turnover assessable at 9 pies per rupee. For
1952-53 the amounts so added were -(a) Rs. 30,132 odd and (b) Rs. 2,92,257 odd
Aggrieved by the orders of the Deputy
Commercial 573 Tax Officer, the appellants preferred two appeals to the Special
Commercial Tax Officer, Appeals, Madras City. These appeals were dismissed. The
matter was then taken to the Sales Tax Appellate Tribunal by means of two
appeals. By this time the Madras Legislature had passed the Madras General
Sales (Definition of Turnover and Validation of Assessments) Act, 1954, being
Madras Act No. XVII of 1954.
This Act we shall refer to as the impugned
Act in this judgment, because its constitutional validity is now the only
question for decision in these appeals. The Tribunal negatived the claim of the
appellants arising out of the contention that some of the sale transactions in
the relevant years were in effect interState sales and therefore exempt from
tax; the tribunal declined to go into the second question of the constitutional
validity of the impugned Act.
We may state here, though nothing now turns
upon this, that the Tribunal held that when sales tax was included in the
turnover, it was proper to tax the amounts so included at the minimum rate
only, viz., 3 pies in the rupee under s. 3(1) of the principal Act.
Thereafter the appellants filed two revision
petitions to the High Court under s. 12-B of the principal Act. These were
dismissed in limine. By the orders dated April 20, 1956 the High Court held
that the contention as to some of the transactions being inter-State sales was
concluded by one of its earlier decisions, which came before us in Ashok
Leyland Ltd. v. The State of Madras, Civil Appeal No. 446 of 1958. In that
appeal we delivered judgment on March 28, 1961 and held that the Sales Tax Laws
(Validation) Act, 1956 applied and it was unnecessary to consider the true
nature of the transactions which the appellants contended were inter-State
sales. Learned Counsel for the appellants has conceded before us that decision
governs the present appeals, and the first question no longer survives.
As to the second question, the High Court by
oversight did not deal with it in its orders dated April 20, 1956. When the
matter was brought to the notice of 73 574 the High Court, it said in its
orders dated July 30, 1956 that the second question was also concluded by its
decision in Sri Sundararajan and Co., Ltd. v. The State of Madras(') where the
validity of the impugned Act was upheld.
When we heard these appeals along with Ashok
Leyland Ltd. v. The State of Madras, Civil Appeal No. 446 of 1958, we expressed
the view that there was some divergence of opinion in the High Courts on the
second question and the substantial point for consideration before us was
whether the impugned Act was validly made under entry 54 of the State List in
the Seventh Schedule to the Constitution: thus the question raised was one of
legislative competence and affected all the States. The State of Madras was
already a party respondent to these appeals. Accordingly, we directed the issue
of notices to the Advocates-General of all other States also. In pursuance of
the said notices the Advocates-General of Andhra Pradesh, Assam, West Bengal, Gujarat,
Maharashtra, Punjab and Rajasthan have appeared before us. They have
unanimously supported the State of Madras in its submission that the impugned
Act is valid;
some of them have added supplementary
arguments in support of that submission.
For convenience and brevity we shall refer in
this judgment to the main arguments as representing two differing points of
view; firstly, there is the argument on behalf of the appellants that the
several provisions of the principal Act as also s. 2 of the impugned Act make a
distinction between the sale price of goods sold and the amount collected by
way of tax and in view of that distinction made, What the impugned Act seeks to
impose is a 'tax on Sales-tax' a subject which does not come within the ambit
of entry 54 of List II which at the relevant time read as "Taxes on the
sale or purchase of goods other than newspapers." On the other side, the
argument is that what the impugned Act seeks to do is to enlarge the scope of
the definition of 'turnover' so as to include the amount collected by way of
tax in the turnover by a deeming (1) (1956) 7 S.T.C. 105.
575 provision, and this the State Legislature
was competent to enact under entry 54 of the State List. These are the main
arguments on two sides; but there are several subsidiary points in support of
the main argument on each side, and it would be an over simplification to
ignore these altogether.
We shall, therefore, consider them also when
dealing with the main argument on each side.
We shall first refer to the relevant
provisions of the principal Act and of the impugned Act, in so far as they bear
on the points debated before us. Under s. 3 of the principal Act which is the
charging section, every dealer is liable to pay, subject to the provisions of
the Act, for each year a tax on his total turnover for that year calculated at
a particular percentage of such turnover.
What is 'turnover' is defined in s. 2(i). The
definition substantially states-"'turnover' means the aggregate amount for
which goods are either bought or sold by a dealer whether for cash or for
deferred payment or other valuable consideration....... 'Sale' is defined in s.
2(h) and means (we are reading so much of the definition only as is material
for our purpose) "every transfer of property in goods by one person to
another in the course of trade or business for cash or deferred payment or
other valuable consideration." It is worthy of note here that the tax
imposed by the principal Act is a tax on total turnover, and turnover means the
aggregate amount for which goods are either bought or sold by a dealer.
Therefore, one of the questions which fall for consideration is whether the
State Legislature went beyond its legislative competence in enacting by the
impugned Act that the amounts collected by the dealer by way of tax shall be
deemed to have formed part of his turnover. This brings us to s. 8B of the
principal Act, which provides in sub-s. (1) that no person who is not a
registered dealer shall collect any amount by way of tax;
nor shall a registered dealer make any such
collection except in accordance with such conditions and restrictions, if any,
as may be prescribed; sub-s. (2) provides inter alia that every person who has
collected or collects by way of tax any amounts shall pay 576 over the same to
the State Government. Section 15 provides for penalties for a, contravention of
some of the provisions of the principal Act including the provisions of s. 8B.
In The Deputy Commissioner of Commercial
Taxes, Coimbatore Division v. M. Krighnaswami Mudaliar & Sons (1) the
Madras High Court held that the amount collected by a registered dealer from
the consumer by way of sales tax and paid over to -Government should not be
included in the turnover of the registered dealer as part of the sale price of
the goods sold and it was not liable to be taxed again. This decision was given
on January 7, 1954. In July 1954 was enacted the impugned Act sections 2 and 3
whereof need only be set out here.
"S. 2. Sales Tax Collections by dealers
to be deemed part of turnover.-In the case of sales made by a dealer before the
1st April 1954, amounts collected by him by way of tax under the Madras General
Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the
principal Act), shall be deemed to have formed part of his turnover.
3. Validation of certain assessment and
collections.(1) All assessments, and collections made, all orders passed, all
actions taken by any officer in the exercise or purported exercise of
jurisdiction or power conferred by the principal Act, and all judgments,
decrees or orders pronounced by any Tribunal or Court in the exercise of its
jurisdiction or powers with respect to matters in the principal Act, on the
basis that amounts collected by a dealer by way of tax under the principal Act
before the 1st April 1954, formed part of the turnover of the dealer are hereby
declared to have been validly made, passed, taken or pronounced, as the case
may be; and any finding recorded by any officer, Tribunal or Court to a
contrary effect and any order, judgment or decree in so far as such order,
judgment or decree embodied or is based on any such finding and does not relate
merely to the costs of the proceeding which result in the judgment, decree or
order shall be void and of no effect:
(2)  5 S.T.C. 88.
577 Provided that no act or omission on the
part of any person shall be punishable as an offence which would not have been
so punishable if this Act had not been passed.
(2) Nothing in sub-section (1) shall be
construed as authorising any officer, in assessing any dealer in s the exercise
or purported exercise of jurisdiction or powers conferred by the principal Act,
to include in the turnover of the dealer amounts collected by him after the 1st
April 1954 by way of tax under the principal Act." The validity of the
impugned Act was then questioned in the Madras High Court and in Sri
Sundararajan and Co., Ltd. v. The State of Madras (1) it was held that the
impugned Act was valid. The High Court pointed out that the earlier decision in
Krishnaswami Mudaliar's case (2) was not that the State Legislature could not
make the amounts collected by a registered dealer by way of tax under s. 8B
part of the assessable turnover, but that the principal Act as it stood at the
relevant time did not make such amounts part of the assessable turnover. It
held that in pith and substance the impugned Act validated the assessments
already made before April 1, 1954 and that -even where the registered dealer
collected any amount by way of tax under the authority of s. 8B, the payment by
the purchaser was on the occasion of the sale by the dealer and vis-a-vis the
latter it was in reality part of the price the purchaser paid the seller for
purchasing the goods. The same view was also expressed -by the Patna High Court
in Ashoka Marketing Company Ltd. v. The State of Bihar (3) with regard to the
Bihar Sales Tax (Definition of Turnover and Validation of Assessments) Act,
1958. The question before us is whether the aforesaid view is correct.
The relevant legislative entry, as we have
said earlier, is entry 54 of List II-"Taxes on the sale or purchase of
goods other than newspapers." A similar entry (no. 48) in List 11 of
Schedule VII to the Government of India Act, 1935 read as "Taxes on the
(1)  7 S.T.C. 105. (2)  5 S.T.C. 88.
(3)  10 S.T.C. 110, 578 sale of
goods." The true scope and effect of that entry was considered by this
Court in the State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. (1) and
on a review of several decisions bearing on the subject it held that the
expression "sale of goods" was a term of well-recognised legal import
in the general law relating to sale of goods and in the, legislative practice
relating to that topic and must be interpreted as having the same meaning as in
the Sale of Goods Act, 1930; in other words, it was held that sales
contemplated by entry 48 of the Government of India Act, 1935 were transactions
in which title to the goods passed from the seller to the buyer, and in The
Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash (2) it was held
that a mere executory agreement was not a sale within the meaning of that
entry. We think that the same meaning must be given to entry 54 of List 11 of
the Seventh Schedule to the Constitution. The question before us is that giving
that meaning to the entry, is the impugned Act a valid piece of legislation by
a competent Legislature? Now, learned Counsel for the appellants has not raised
before us the extreme contention that in no case could the State Legislature
validly make a law which would include the amount collected by way of tax as
part of the turnover of the dealer. He has submitted that it is unnecessary for
him in this case to press into service any such wide proposition. His argument
is that the principal Act by ss.
8B and 15 and the impugned Act by s. 2
thereof having made a distinction between what he calls the sale price and what
is collected by way of tax by the dealer, the question of the validity of the
impugned Act must be determined on the basis of that distinction and so
determined, what the impugned Act does is to impose what learned Counsel calls
"a tax on tax" and therefore not covered by the relevant legislative
His submission further is that what is
collected by way of tax being distinct from sale price and therefore from
turnover, it must be necessarily held that the amount collected by way of tax
is not essentially (1)  S.C.R. 379.
(2)  1 S.C.R. 243.
579 connected with the transaction of sale
and therefore the imposition of "a tax on tax" has no necessary connection
with the transaction of sale as understood in the general law relating to sale
We are unable to accept this argument as
correct. First of all, we do not think that either the principal Act or the
impugned Act proceeds on any immutable distinction between sale price and tax
such as learned Counsel for the appellants has suggested. The principal Act
does not contain any separate definition of sale price. We have already
referred to the definitions of 'sale' and 'turnover'; those definitions do not
show any such distinction. On the contrary, the expression 'turnover' means the
aggregate amount for which goods are bought or sold, whether for cash or for
deferred payment or other valuable consideration, and when a sale attracts
purchase tax and the tax is passed on to the consumer, what the buyer has to
pay for the goods includes the tax as well and the aggregate amount so paid
would fall within the definition of turnover. In Paprika Ltd. and Another v.
Board of Trade (1) Lawrence, J. said "Whenever a sale attracts purchase
tax, that tax presumably affects the price which the seller who is liable to
pay the tax demands but it does not cease to be the price which the buyer has
to pay even if the price is expressed as x plus purchase tax." The same
view was again expressed in Love v. Norman Wright (Builders), Ltd. (2) when
Goddard, L. J. said:
"Where an article is taxed, whether by
purchase tax, customs duty, or excise duty, the tax becomes part of the price
which ordinarily the buyer will have to pay. The price of an ounce of tobacco
is what it is because of the rate of tax, but on a sale there is only one
consideration though made up of cost plus profit plus tax. So, if a seller
offers goods for sale, it is for him to quote a price which includes the tax if
he desires to pass it on to the buyer. If the buyer agrees to the price, it is
not for him to consider how it is made up or whether the seller has included
tax or not." (1)  1 All E.R. 372. (2)  1 All E.R. 618.
580 We think that these observations are
apposite even in the context of the provisions of the Acts we are considering
now, and there is nothing in those provisions which would indicate that when
the dealer Collects any amount by way of tax, that cannot be part of the sale
price. So far as the purchaser is concerned, he pays for the goods what the
seller demands, viz., price even though it may include tax. That is the whole
consideration for the sale and there is no reason why the whole amount paid to
the seller by the purchaser should not be treated as the consideration for the
sale and included in the turnover.
But, argues learned Counsel for the appellants,
s. 8-B of the principal Act and Turnover and Assessment Rules made under s. 19
show that under the scheme of the principal Act a distinction is drawn between
the amount collected by way of tax and the amount of purchase price. It is
indeed true that in s. 8-B the amount collected by way of tax is separately
mentioned, and while sub-s. (1) thereof is merely enabling in the sense that a
registered dealer may pass on the tax, sub-s. (2) imposes an obligation on the
registered dealer to pay over the amount of tax collected by him to Government.
The position under the Turnover and Assessment Rules is correctly summarised in
the following extract from the judgment in Krishnaswamy Mudaliar's case (1):
"Rule 4 provides that the gross turnover
of a dealer for the purposes of the rules is the amount for which goods are
sold by the dealer.
Provision is made in rule 5 for certain
deductions, and the mode or manner in which the tax to be levied has to be
The object of these rules is to assess., the
net turnover on which the tax is to be levied under the charging section. It is
therefore clear that under the charging section, tax is to be paid on the
turnover which is assessed according to the rules. Rule 11 requires that every
dealer should submit a return under rule 6 every year to the assessing
authority in Form A in which he has to show the actual gross and net turnover
for the preceding (1)  5 S.T.C. 88.
581 year and the amounts by way of tax or
taxes actually collected during that year. In Form A columns 1 to 10 relate to
the gross turnover and the deductions to be made from the gross turnover;
column 10 requires the net turnover liable to tax to be shown. In column 11 the
amount actually collected by way of tax or taxes under s. 8-B has to be
shown." The question however still remains-do the aforesaid provisions
show such a distinction under the scheme of the two Acts that the amount
collected by way of tax cannot be part of the turnover of the dealer and if the
impugned Act makes it a part of the turnover by a deeming provision, it must be
struck down as being outside the legislative competence of the State
Legislature? It is necessary to emphasise here that no question of legislative
competence arose in Krishnaswamy Mudaliar's case(') the decision being based on
a construction of s. 8-B and the Turnover and Assessment Rules only.
We do not think that the distinction drawn in
Krishnaswamy Mudaliar's case(') whether right or wrong on a question of
construction only, is material to the question of legislative competence. In
The Tata Iron & Steel Co., Ltd.
v. The State of Bihar (2) this Court dealt
with a provision in the Bihar Sales Tax Act, 1947 similar to s. 8-B of the
principal Act. Das, C. J., delivering the majority opinion said:
"The circumstance that the 1947 Act,
after the amendment, permitted the seller who was a registered dealer to
collect the sales tax as a tax from the purchaser does not do away with the
primary liability of the seller to pay the sales tax. This is further made
clear by the fact that the registered dealer need not, if he so pleases or
chooses, collect the tax from the purchaser and sometimes by reason of
competition with other registered dealers he may find it profitable to sell his
goods and to retain his old customers even at the sacrifice of the sales tax.
This also makes it clear that the sales tax need not (1)  5 S.T.C. 88.
(2)  S.C.R. 1355.
74 582 be passed on to the purchasers and
this fact does not alter the real nature of the tax which, by the express
provisions of the law, is cast upon the seller. The buyer is under no liability
to pay sales tax in addition to the agreed sale price unless the contract
specifically provides otherwise. See Love, v.
Norman Wright (Builders), Ltd. L. R.  1
K. B. 484." These observations show that when the seller passes on the tax
and the buyer agrees to pay sales tax in addition to the price, the tax is
really part of the entire consideration and the distinction between the two
amounts-tax and price loses all significance from the point of view of
legislative competence. The matter is not in any way different under the
Turnover and Assessment Rules. It is true that in column 11 of Form A the
amount collected by way of tax under s. 8-B has to be shown; that does not,
however, mean that an immutable distinction such as will go to the root of
legislative competence has been drawn and must be always maintained. It appears
to us that the true effect of s. 8-B and the Turnover and Assessment Rules is
that (a) a registered dealer is enabled to pass on the tax, (b) an unregistered
dealer cannot do so, and (c) the amount collected by way of tax is to be shown
separately, for it has to be paid over to Government. This does not mean that
it is incompetent to the legislature enacting legislation pursuant to entry 54
in List 11 by suitable provision to make the tax paid by the purchaser to the
dealer together with the sale price in consideration of the goods sold, a part
of the turnover of the dealer; nor does it mean that in law the tax as imposed
by Government is a tax on the buyer making the dealer a mere collecting agency
so that the tax must always remain outside the sale price.
There is another aspect from which the
question may be considered. We shall assume that -under the ,scheme of the
principal Act a distinction is drawn between the amount collected by way tax
and the sale price other than the tax.
Is such a distinction continued and
maintained by the impugned Act? Learned Counsel for the appellants has referred
us to 583 s. 2 of the impugned Act where the expression "collected by him
by way of tax under the Madras General Sales Tax Act, 1939" occurs. It is
argued that the aforesaid expression in the impugned Act has to be read with
the provisions of the principal Act and so read, B. 2 maintains and continues
the distinction made under the principal Act. Again, we are unable to agree.
The expression "collected by him by way of tax etc." is merely
descriptive of the "amounts" so collected; the essential and operative
part of s. 2 says that the amounts so collected shall be deemed to have formed
part of the turnover of the dealer. Therefore, in express terms s. 2 states
that the tax shall be deemed to have formed part of the turnover and
obliterates the distinction, if any, between 'tax' and 'turnover' for the
limited period during which the impugned Act operates. To hold that the
distinction is maintained and continued under the impugned Act is to go against
the express terms of s. 2. This aspect of the question was adverted to in The
Government of Andhra v. East India Commercial Co. Ltd. (1) where the Andhra
High Court had occasion to consider the question from a somewhat different
point of view, namely, an amendment made by the Andhra Pradesh Legislature in
the definition of the expression 'turnover' in the principal Act. Section 2 of
the amending Act substituted the following definition of 'turn-over':Turnover
means the total amount set out in the bill of sale (or if there is no bill of
sale, the total amount charged) as the consideration for the sale or purchase
of goods ...
including any sums charged by the dealer for
anything done in respect of the goods sold at the time of or before the
delivery of the goods and any other sums charged by the dealer, whatever be the
description, name or object thereof." Section 4 of the amending Act
repeated ss. 8-B and 8-C of the principal Act. Dealing with the effect of these
amendments, the High Court of Andhra Pradesh said, (1)  8 S.T.C. 114.
584 "The ultimate economic incidence of
the sales tax is on the consumer or the last purchaser and whatever he pays for
the goods is paid only as price, that is to say, as consideration for the
purchase. The statutory liability, however, for payment of sales tax is laid on
the dealer on his total 'turnover' whether or not he realises the tax from the
purchasers. Generally speaking, the price charged by the dealer would be
inclusive of sales tax, for, it is to his interest to pass the burden of the
tax to the purchaser. So far as the dealer is concerned, the payment of a sum
covering the tax made by a purebaser on the occasion of sale, is really part of
the price which the purchasers pay for the goods." Later, it referred with
approval to the decision in Sri Sundararajan and Co., Ltd. v. The State of
Madras (1). In this latter decision the validity of the impugned Act was
questioned and dealing with s. 2 of the impugned Act, the High Court said:
"Section 2 only enacted that such amount
shall be deemed' to be part of the turnover and for a limited period. It may
not be necessary to set out authorities for the well-settled principle of what
the effect is of the use of the expression 'deemed' in a statute. Was the
legislature competent to enact section 2 including the deeming provision, is
the real question. If the validity of section 2 of the impugned Act is
established there should be little difficulty in upholding the validity of
section 3, which gave effect to the legal fiction enacted by section 2.
Obviously, it is not the name the legislature
accords to a payment by a purchaser to a seller, who is a dealer as defined by
the Act, that determines the question of the legislative competence. No doubt
section 8B called the payment as amount (collected) by way of tax. It is
equally true that the statutory liability to pay the sales tax is laid on the
dealer. What is taxable is not each transaction of sale but the total turnover
of the dealer, computed in accordance with the provisions of the (1) (1956) 7
585 Act and the Rules. But it is
well-recognised that whatever be the form of the statutory provisions, the
ultimate economic incidence of the tax is on the consumer, the purchaser. It
was that well-settled principle that was restated in Bengal Immunity Co. Ltd.
v. State, of Bihar (1). Even if the registered dealer collects the amount by
way of tax under the authority of section 8B of the Act, the payment is by the
purchaser on the occasion of the sale by the dealer. Vis-a-vis the dealer it is
in reality part of the price the purchaser has to pay the seller for purchasing
the goods. A tax on such a payment, in our opinion, is well within the ambit of
Entry 54 of List 11, Schedule VII, read with Article 246(3) of the
Constitution." We are of the view that the aforesaid observations
correctly give the true effect of s. 2 of the impugned Act, and s. 3 of the
impugned Act is merely consequential.
Mr. Sikri appearing on behalf of. the States
of Maharashtra and Punjab has drawn our attention to certain American decisions
which show that treating tax as part of the sale price in cases where the tax
is passed on to the buyer, is well-recognised and is not unknown to law (see
Lash's Products Company v. United States, 73 L. Edn. 251; Pure Oil Company v.
State Of Alabama, 148 American Law Reports 260).
We consider it unnecessary to examine these
decisions, because the validity of the impugned Act must be determined on its
own terms in the context of the provisions of the principal Act. Reading the
impugned Act in the light of the provisions of the principal Act, it seems
clear to us that the impugned Act cannot be held to be bad on the ground of
legislative incompetence. Under the definition of turnover the aggregate amount
for which goods are bought or sold is taxable. This aggregate amount includes
the tax as part of the price paid by the buyer. The amount goes into the common
till of the dealer till he pays the tax. It is money which he keeps using for
his business till he pays it over to Government. Indeed, (1)  2 S.C.R.
586 he may turn it over again and again till
he finally hands it to Government. There is thus nothing anomalous in the law
treating it as part of the amount on which tax must be paid by him. This
conception of a turnover is not new. It is found in England and America and there is no reason to think that when the legislatures in India defined 'turnover' to include tax also, they were striking out into something quite
unknown and unheard of before.
The only question which has been raised in
these appeals is regarding the validity of the impugned Act. That question
having been decided against the appellants, the appeals fail and are dismissed
with costs. One hearing fee.