State of Mysore Vs. Yaddalam
Lakshminarasimhaiah Setty and Sons [1964] INSC 261 (10 November 1964)
10/11/1964 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 1510 1965 SCR (2) 129
CITATOR INFO:
RF 1969 SC 147 (21) E 1973 SC1325 (3,4) R
1975 SC1604 (1,5,7,8,9)
ACT:
Central Sales Tax Act (74 of 1956), ss. 6,
8(2) and 9 and Mysore Sales Tax Act (25 of 1957), s. 5(3)(a)-Inter-State sale
of powerloom textiles-Assessee not the first or earliest dealer in
State-Liability to tax.
HEADNOTE:
The assessee was a dealer in Mysore dealing
in power loom textiles. His turnover in the course of inter-state trade was
assessed and taxed by the Commercial Tax Officer, under s. 9 of the Central
Sales Tax Act, 1954, before its amendment in 1958. The order was upheld by the
Deputy Commissioner of Commercial Taxes and the Sales Tax Appellate Tribunal.
The High Court, in revision, held that the sales were not "first
sales" within the State, and that not being exigible to tax under the
State Sales Tax Act (Mysore Act 25 of 1957), no tax was payable under the
Central Act. The State appealed to the Supreme Court and contended that the
assessee was liable to be taxed because of s. 6 of the Central Act
HELD : (Per Subba Rao and Sikri, JJ.) Though
s. 6 of the Central Act is the charging section the liability to pay tax is
subject to the other provisions in the Act. Section 8(2) provides that tax
shall be calculated at the same rates and in the same manner as would have been
done if the had in fact, taken place inside the appropriate State, and s. 9
provides that, under the Central Act, tax shall be levied in the same manner as
the tax on the sale or purchase of goods, under the general sales tax law of
the State is assessed, paid and collected. The word "levied" means
"imposed" and since s. 5(3)(a) of the Mysore Sales Tax Act, read with
Schedule H of that Act provides that the tax shall be levied, in the case of
powerloom goods on the first or the earliest of successive dealers in the
State, and the assessee was not such a dealer, no tax could be levied on him in
respect of the disputed turnover. Such a construction avoids the anomaly of the
State collecting tax on powerloom textiles only at a single point and the
Centre, through the agency of the State authorities, collecting the said tax
for and on behalf of the State at multi-points.
[131 A; 132 G; 133 B, D-F, H] Per Shah, J.
(dissenting) : The High Court was in error in regarding We* other than the
first sales as exempted from liability to pay tax under the Central Act, when
the sales sought to be taxed, were in the course of inter-state trade or
commerce. [138 C-D] Section 6 of the Central Act charges inter-state
transactions to tax. 'Me function of a. 8(2) is to prescribe the rate and the
manner of calculation of tax : it is not intended to incorporate the entire
procedural and substantive State law relating to tax. Section 9(1) and (2)
establish that the machinery of assessment, collection and enforcement of
liability prescribed by the State statute alone is incorporated in the Central
Act. Neither s. 8(2) nor s. 9 cut down the plenary charge imposed by a. 6, nor
130 do they attract any exemptions from tax prescribed by the State law. [136
B-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 165 of 1964.
Appeal by special leave from the judgment and
order dated January 22, 1962, of the Mysore High Court in Civil Revision
Petition No. 964 of 1961.
S. V. Gupte, Solicitor-General, M. S. K.
Sastri and B. R. G. K. Achar, for the appellant.
R. Gopalakrishnan, for the respondent.
The Judgment of Subba Rao and Sikri JJ. was
delivered by Sikri J. Shah J. delivered a dissenting Opinion.
Sikri, J. This is an appeal by special leave
directed against the judgment of the Mysore High Court accepting the revision
petition of the respondent before us, hereinafter referred to as the assessee.
The relevant facts are these. The assessee is
a dealer in powerloom and handloom textiles, both within the Mysore State and
in the course of inter-State trade. For the year 1957-58, the Commercial Tax
Officer, Bangalore, assessed and taxed the turnover relating to powerloom
textiles under S. 9 of the Central Sales Tax Act (LXXIV of 1956), hereinafter
referred to as the Central Act, as it stood before its amendment by the Central
Sales Tax (Second Amendment) Act, 1958 (XXX of 1958). This was upheld by the
Deputy Commissioner of Commercial Taxes. The Mysore Sales Tax Appellate
Tribunal also affirmed the order. The High Court, in revision, accepted the
plea of the assessee that its turnover consisting of sales of textiles
manufactured by means of powerlooms in the course of inter-State trade is
liable to be taxed at the same rate and exactly in the same manner as they
would have been taxed if they had been intrastate transactions. The High Court
arrived at this conclusion because, according to it, the true construction of
s. 8 (2) of the Central Act is that any exemption given by a State Sales Tax
Act or the point determined by it at which a sale is to be taxed applies to
assessments under the Central Act.
131 The assessee's plea, in brief, is that he
is not the first or earliest of the successive dealers of the disputed
turnover, and, therefore, if he had sold the goods intrastate, no tax would
have been levied on him. The reply of the Department is that this is true but
under the Central Act he is liable to be taxed because of s. 6, and the point
at which a turnover is taxed has nothing to do with the manner of calculation
of tax.
The relevant sections of the Central Act are
as follows "6. Liability to tax on inter-State sales :Subject to the other
provisions contained in this Act, every dealer shall, with effect from such
date as the Central Government may, by notification in the Official Gazette,
appoint, not being earlier than thirty days from the date of such notification,
be liable to pay tax under this Act on all sales effected by him in the course
of inter-State trade or commerce during any year on and from the date so
notified.
8. Rate of tax on sales in the course of
inter-State trade or commerce (1) Every dealer who, in the course of
inter-State trade or commerce sells to a registered dealer goods of the
description referred to in subsection (3) shall be liable to pay tax under this
Act, which shall be one per cent of his turnover :
Provided that, if under the sales tax law of
the appropriate State, the sale or purchase of any goods by a dealer is exempt
from tax generally and not in specified cases or in specified circumstances or
is subject to tax (by whatever name called) at a rate or rates which is or are
lower than the rate specified in subsection (1), the tax payable under this Act
on the turnover in relation to sale of such goods in the course of inter-State
trade or commerce shall be nil or shall be calculated at the lower rate, as the
case may be.
(2)The tax payable by any dealer in any case
not falling within sub-section (1) in respect of the sale by him of 'any goods
in the course of inter-State trade or commerce shall be calculated at the same
rates and in the same manner as would have been done if the sale had, in fact,
taken place inside the appropriate State; and for 132 the purposes of making
any such calculation any such dealer shall be deemed to be a dealer liable to
pay tax under the sales tax law of the appropriate State, notwithstanding that
he, in fact, may not be so liable under that law.
9.Levy and collection of tax.-(1) The tax
payable by any dealer under this Act shall be levied and collected in the
appropriate State by the Government of India in the manner provided in
sub-section (2).
(2)The authorities for the time being
empowered to assess, collect and enforce payment of any tax under the
generalsales tax law of the appropriate State shall, on behalf of the
Government of India and subject to any rules made under this Act, assess,
collect and enforce payment of any tax payable by a dealer under this Act in
the same manner as the tax on the sale or purchase of goods under the general
sales tax law of the State is assessed, paid and collected; and for this
purpose they may exercise all or any of the powers they have under the general
sales tax law of the State; and the provisions of such law, including
provisions relating to returns, appeals, reviews, revisions, references,
penalties and compounding of offences, shall apply accordingly.
(3)The proceeds (reduced by the cost of
collection) in any financial year of any tax levied and collected under this
Act in any State on behalf of the Government of India shall, except insofar as
those proceeds represent proceeds attributable to Union territories, be
assigned to that S tate and shall be retained by it; and the proceeds
attributable to Union territories shall form part of the Consolidated Fund of
India." Section 6 of the Central Act is the charging section. Subject to
the other provisions contained in the Act, every dealer is liable to pay tax
under the Act on all sales effected by him. It will be noticed that the
liability is not absolute but subject to the other provisions of the Act.
If the effect of another provision is to take
away the liability, effect will have to be given to it. Section 8 prescribes
the rates of tax to be levied. It is common ground that s. 8 (1) does not apply
to the facts of the case, but the proviso is important as it indicates that in
some cases falling within the proviso the rate may be nil.
In other words, notwithstanding S. 6, the
dealer, may not be liable to pay any tax if 133 he comes within the proviso to
& 8 1 ). It follows that the scheme of the Act is not that every transaction
in interState trade must bear some tax.
Section 8(2) provides for the method of
calculating the tax;
under that sub-section, the tax shall be
calculated at the same rates and in the same manner as would have been done if
the sale had, in fact, taken place inside the appropriate State. The expression
"in the manner" may give rise to two conflicting views, namely, (i)
it is concerned only with the calculation of the tax, and (ii) it deals not
only with the calculation of the rates but also the manner of levy of the tax.
But s. 9(1) dispels the ambiguity for it says that the tax payable by any
dealer under the Central Act shall be levied and collected in the appropriate
State by the Government of India in the manner provided in sub-section (2); and
sub-s. (2) of s. 9 empowers the appropriate State authorities to assess,
collect and enforce payment of any tax payable by any dealer under the Central
Act in the same manner as the tax on the sale or purchase of goods under the
general sales tax law of the State is assessed, paid and collected. The
expression "levy' means "impose". Under s.
5(3) (a) of the Mysore Sales Tax Act, 1957,
hereinafter called the State Act, tax shall be levied in the case of the sale
of any of the goods mentioned in col. (2) of the Second Schedule by the first
or the earliest of successive dealers in the State, who is liable to tax under
that section, a tax at the rate specified in the corresponding entry of Col.
(3) of the said Schedule on the turnover of sales of such dealer in each year
relating to such goods. When s. 9(1) says that under the Central Act tax shall
be levied in the same manner as the tax on the sale or purchase of goods under
the general sales tax law of the State is assessed, paid and collected, it is
reasonable to hold that the expression "levied" in s. 9(1) of the
Central Act refers to the expression "levied" in s. 5 (3) (a) of the
State Act. There is no reason why the Central Act made a departure in the
manner of levy of tax on the specified goods which are taxed only at a single
point under the State Act : if any such radical departure was intended, the
Central Act would have expressly stated so. The Central Act was passed to levy
and collect sales-tax on inter State sales to avoid confusion and conflict of
jurisdictions; the tax is also collected only for the benefit of the States.
Therefore. the construction we accept avoids the anomaly of the State
collecting tax on power loom textiles only at a single point and the Centre,
through the agency of the State authorities, collecting the said tax for and on
behalf of the State at multi-points.
134 There has been considerable difference of
opinion among the High Court’s about the true construction of S. 8(2), but none
of them have relied on S. 9 of the Central Act. Therefore, it is not necessary
to refer to cases cited before us.
For the foregoing reasons we hold, though for
different reasons, that the order of the High Court is correct. In the result,
the appeal is dismissed with costs.
Shah, J. The High Court of Mysore has held
that sales which were not "first sales" within the Mysore State being
not exigible to tax under the Mysore Sales Tax Act, no tax was payable thereon
under the Central Sales Tax Act, 1956.
The provisions of the Central Sales Tax Act
in force at the relevant time may be briefly referred to. Section 6 imposes
upon ;every dealer, subject to the other provisions contained in the Act,
liability to pay tax under the Act on all sales effected by him in the course
of inter-State trade or commerce during any year. Section 7 provides for
registration of dealers. Section 8 deals with the rates of tax on sales in the
course of inter-State trade or commerce.
By sub-s. (2), as it stood at the relevant
time, it was provided :
"The tax payable by any dealer in any
case not falling within sub-section (1) in respect of the sale by him of any
goods in the course of inter-State trade or commerce shall be calculated at the
same rates and in the same manner as would have been done if the sale had, in
fact, taken place inside the appropriate State and for the purpose of making
any such calculation any such dealer shall be deemed to be dealer liable to pay
tax under the sales tax law of the appropriate State, notwithstanding that he,
in fact, may not be so liable under that law." Section 9 provided for levy
and collection of tax. It provided "(1) The tax payable by any dealer
under this Act shall be levied and collected in the appropriate State by the
Government of India in the manner provided in subsection (2).
(2)The authorities for the time being
empowered to assess, collect and enforce payment of any tax under the general
sales tax law of the appropriate State shall, on behalf of the Government of
India and subject to any 135 rules made under this Act, assess, collect and
enforce payment of any tax payable by a dealer under this Act in the same
manner as the tax on the sale or purchase of goods under the general sales tax
law of the State is assessed, paid and collected; and for the purpose they may
exercise all or any of the powers they have under the general sales tax law of
the State; and the provisions of such law, including provisions relating to
returns, appeals, reviews, revisions, references, penalties and compounding of
offences, shall apply accordingly.
(3) The turnover of the respondents sought to
be taxed arises out of transactions of sale of handloom and power loom cloth
effected by them in the course of inter-State trade or commerce. Under the
Mysore Sales Tax Act, 1957, sale of these goods was liable to tax under S. 5 (3
) (a) read with Entry 7 in Sch. II of the Act, at a single point on sale by the
first or the earliest of successive dealers in the State. It is common ground
that the respondents are not the first or the earliest of successive dealers in
the State in respect of the transactions sought to be taxed. Section 6 charges
to tax sales in the course of inter-State trade or commerce of every dealer,
but the Act does not prescribe the rates at which tax is to be levied, nor does
it set up machinery for assessment, collection and enforcement of liability to
pay tax, charged upon inter-State sales of dealers. By S. 8(2) tax payable by
the dealer in respect of his sales not falling within sub-s. (1)-and the
turnover in the present case is not in respect of sales falling within sub-s.
(1)-has to be calculated at the same rates and in the same manner as would have
been calculated, if the sale had taken place inside the appropriate State. The
clause in terms only deals with calculation of the tax-the rate at which and
the manner in which the tax has to be calculated under the State law : it does
not attract any exemptions from tax prescribed by the State law.
Use of the expression "in the same
manner" in S. 8 (2) has not the effect of assimilating the procedural and
the substantive provisions relating to the imposition, levy and collection of
tax as are provided by the State law in the matter of collection of tax under
the Central Sales Tax Act.
The Legislature has not said so in express
terms, and there is no implication to that effect in the scheme of the Act.
Section 9(1) invests the appropriate State
Government with authority to levy and collect tax, in the manner provided by
sub-s. (2). By sub-s. (2) of S. 9 the Legislature has expressly provided that
the tax has to be assessed, collected and 136 payment has to be enforced under
the general sales tax law of the appropriate State on behalf of the Government
of India. The scheme devised by the Legislature is fairly clear. Section 6
charges inter-State transactions to tax.
The function of S. 8(2) is to prescribe the
rate and the manner of calculation of tax : it is not intended to incorporate
the entire procedural and substantive State law relating to tax. By sub-s. (2)
of S. 9 the machinery for assessment, collection and enforcement of liability
to pay tax is set up. Neither S. 8 (2) nor S. 9 (2) cuts down the plenary
charge imposed by s. 6. It is true that s. 9(1) directs that the tax payable by
IL dealer shall be levied and collected, in the manner provided in that
sub-section.
The sub-section, however, does not charge
turnover to tax :
the turnover stands already charged by S. 6.
Again the inter-relation of the two sub-sections of S. 9 clearly establishes
that the machinery of assessment, collection and enforcement of liability
prescribed by the State statute alone is incorporated in the Central Sales Tax
Act. I am, therefore, unable to hold that under sub-sections (1) and (2) of s.
9, the power conferred upon the authority competent to assess the tax in the
same manner as the tax on the sale or purchase of goods under the general sales
tax law includes the power to admit to exemptions provided by the State law,
inter-State sales-taxable under the Central Sales Tax Act.
This view has been taken in several cases
which have come before the Madras. Kerala and Andhra Pradesh High Courts, in S.
Mariappa Nadar and others v. The State of Madras(1) it was held by the Madras
High Court that tax leviable under s. 8(2) was on the turnover under the Central
Sales Tax Act, and not under the Madras General Sales Tax Act. There was, in
the view of the Court, nothing in S. 8(2) which provided that the inter State
nature of the transaction was taken away and the transaction became
intra-State. The Act did not declare that the transaction shall be deemed to be
one inside the State. The local sales tax law applied to it only to the extent
to which it was specifically directed.
Therefore by the terms of S. 8 the assessee
was not entitled to exclude from the turnover the inter-State sales. The Court
also held that the phrase "in the same manner" in S. 9(3) which was
substituted for the original sub-s. (2) of S. 9, by the Central Sales Tax
(Second Amendment) Act, 19581 did not make applicable all the incidents of the
local sales tax law to the assessment under the Central Sales Tax Act.
The phrase merely contemplated that the
procedure of making an assessment, collection (1)[1962] 13 S.T.C. 371.
137 of tax, and the provisions relating to
the determination of turnover shall be the same as laid down in the local Sales
Tax Act.
In M. Abbas and Company v. The State of
Madras(1) it was held by the Madras High Court that for the purpose of
attaching liability to sales tax under S. 8 (2) the fact that in respect of
that transaction the dealer may not be liable under the local sales tax law
(goods sold being subject only to a single point levy under the local sales tax
law) is of no consequence.
The principle of Mariappa's case(2) was
applied by the Kerala High Court in Parvathi Mills (Private) Ltd v. The State
of Kerala(8), in which excise duty paid to the Central Government by a dealer
and collected from his customers was not permitted to be excluded from the
turnover by the application of rule 7(1) of the General Sales Tax Rules, 1950,
framed under the local Sales Tax Act. It was observed in that case that the
expression "in the same manner" in S. 9(2) of the Central Sales Tax
Act did not attract the application of the rule which justified the exemption.
The Andhra Pradesh High Court in Sri Surya
Trading Firm and others v. The State of Andhra Pradesh ( 4 ) held that an
assessee dealing in handloom cloth and whose inter-State sales fell under s.
8(2) of the Central Sales Tax Act, 1956, was not entitled to the benefit of the
exemption granted to handloom cloth under the notification issued by the State
Government on December 13, 1957, in exercise of the powers conferred under S.
9(1) of the Andhra Pradesh General Sales Tax Act, 1957. The fiction created by
s. 8 (2) of the Central Sales Tax Act, 1956, was only for the limited purpose
of calculating the rate, and the position of a dealer under S. 8 (2) could not
be equated with that of a dealer governed by the Andhra Pradesh General Sales
Tax Act, 1957, for every purpose.
In The State of Mysore and another v. Mysore
Paper Mills Ltd(5) the Mysore High Court also approved of the principle of
Mariappa's case(2) and Parvathi Mills' case(3) and held that by the use of the
expression "in the same manner" in S. 9 (3) which was substituted for
the original s. 9 (2) by the Central Sales Tax (Second Amendment) Act, 19581
all the incidents of the local sales tax law to the assessment under the Central
Sales Tax Act are not applied: what is contemplated by that phrase is that the
procedure of making an assessment and collection of tax is the same as in the
local Sales Tax Act.
(1) (1962) 13 S.T.C. 433.
(2) (1962) 13 S.T.C. 371.
(3) (1962) 13 S.T.C. 927.
(4) (5964) 1 5 S.T.C. 176.
(5) (1964) 15 S.T.C. 176.
Sup./65-10 138 In my view these cases
correctly interpret the words of s. 8 (2) and S. 9 (2) of the Central Sales Tax
Act as they stood before, its amendment in the year 1958. These cases, it is
true, did not expressly deal with the interpretation of S. 9(1) of the Central
Sales Tax Act, but in my judgment, for reasons already stated, the machinery
incorporated by subss. (1) & (2) of s. 9 of the Central Sales Tax Act from
the State statute only relates to assessment, collection and enforcement of
liability to tax.
In my view the High Court was in error in
regarding sales other than the first sales exempt from liability to pay tax
under the Central Sales Tax Act when the sales sought to be taxed were in the
course of inter-State trade or commerce.
ORDER In accordance with the Opinion of the
majority this Appeal is dismissed with costs.
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