Delhi Cloth and General Mills Co. Ltd.
Vs. Commissioner of Sales Tax [1971] INSC 168 (28 July 1971)
HEGDE, K.S.
HEGDE, K.S.
GROVER, A.N.
CITATION: 1971 AIR 2216 1971 SCR 945
ACT:
Madhya Pradesh General Sales Tax Act, 1958,
ss. 2(c), (o), (t), and 4-Sales Tax recovered from buyer-If part of turnover.
HEADNOTE:
The assessee, while selling goods, charged
the sales tax separately and collected it from the buyers. It did not include
the sales-tax so collected in its turnover. The authorities under the Madhya Pradesh
General Sales Tax Act, 1958, as well as the High Court, held that the sales tax
collected from the buyers was a part of the price of the goods,sold and
therefore should have been included in the asscssee's turnover.
In appeal to this Court,
HELD: Under s. 4 of the Act the liability to
pay tax is that of the dealer. There is no provision in the Act imposing any
liability on the purchaser to pay the tax so imposed on the dealer and there is
no law empowering the dealer to collect the tax from his buyer. Hence the
dealer would not be legally entitled to collect the tax payable by him from his
buyer, and whatever collection the dealer. makes from his customers can only be
by adding the tax to the price, lo that, the tax becomes part of the valuable
consideration given by a purchaser for the goods purchased by him.
Therefore, the distinction between the two
amounts-tax and price-loses all significance, and the tax becomes a part of the
sale price as defined in s. 2(c) of the Act and must be taken into consideration
in computing the turnover. [948D-G;
950A] Tata Iron & Steel Co. Ltd. v. State
of Bihar, [1958] S.C.R.
1355, M/s. George Oakes (PI Ltd. v. State of
Madras, 12 S.T.C. 476, Paprika Ltd. & Anr. v. Board of Trade, [1944] All.
E.R. 372 and Love v. Norman Wright (Builders) Ltd., [1944] 1 All. E.R. 618,
referred to.
Deputy Commissioner of Commercial Taxes,
Coimbatore, v. M. Krishnaswamy Mudaliar & Sons, 5 S.T.C. 88, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos, 1272 and 1273 of 1967.
Appeals by special leave from the judgment
and order dated July 10, 1967 of the Madhya Pradesh High Court in Misc.
Civil Cases Nos. 61 and 62 of 1967.
AND Civil Appeal No. 2453 of 1968.
S.T. Desai, A. N. Sinha and G. S. Chatterjee
for the appellant (in C.As. Nos. 1272 and 1273 of 1967).
A. N. Sinha, for the appellant (in C.A. No.
2453 of 1968).
I. N. Shroff for the respondent (in all the,
appeals).
60-1 S.C. India/71 946 The Judgment of the
Court was delivered by Hegde, J.These appeals by special leave arise from the
decision of the High Court of Madhya Pradesh in three references under s.
44(1)of the' Madhya Pradesh General Sales Tax Act, 1958 (to be hereinafter
referred to as the Act). Those references were made at the instance of the
assessee who is the appellant in all these appeals. The question of law
referred to the High Court for its opinion in each one of these cases is
identical and that question reads :
"In the facts and circumstances of the
case is the sales tax recovered by the petitioner a part of the sale price as
defined in clause (o) of Section 2 of the Madhya Pradesh General Sales Tax Act,
1958." Herein we are concerned with the assessment years 1961-1962,
1962-1963 and 1963-1964. The assessee is a dealer in Vanaspati. The facts found
are that while selling Vanaspati, the assessee charged the sales tax separately
and collected the same from his buyers. To each of its buyer it issued a
receipt in respect of each sale transaction wherein it showed the price of the
goods as such and the sales tax payable on the price of those goods. In the
turnover returned it did not include the sales tax collected by it from its
buyers but the authorities under the Act as well as the High Court held that
sales tax collected by it from its buyers was a part of the price of the goods
sold and therefore the same will have to be taken into consideration in
computing its turnover. The assessee is challenging that conclusion.
Section 4 of that Act is the charging
section. Sub-s. (1) thereof says "Every dealer whose turnover during a
period of twelve months immediately preceding the commencement of this Act
exceeds the limit specified in sub-section (5), shall from such commencement be
liable to pay tax under this Act on his taxable turnover in respect of sales or
supplies of goods effected in Madhya Pradesh." A dealer is defined in s.
2(d) as meaning any person who carries on the business of buying, selling,
supplying or distributing goods, directly or otherwise, whether for cash, or
for deferred payment, or for commission, remuneration or other valuable
consideration, be it a society, a club, firm or association which buys goods
from or sells, supplies or distributes goods to its members or commission
agent, a broker, a del-creders agent, an auctioneer or any other mercantile
agent, by whatever name called, who carries on the business of buying, selling,
supplying or distributing goods on behalf of any principal.
947 "Turnover" is defined thus in
S. 24t) "turnover"'. used in relation to any period means the
aggregate of the amount of sale prices received and receivable by a dealer in
respect of any sale or supply or distribution of goods made during that period,
whether or not the whole or any portion of such turnover is liable to tax but
after deducting the amount. if any. refunded by the dealer to a purchaser, in
respect of any goods purchased and returned by the purchaser within the
prescribed period:
Provided that in the case of a sale by a
person of agricultural or horticultural produce grown by himself or grown on
any land in which he has an interest, whether as owner, usufructuary mortgagee,
tenant or otherwise, the amount of the consideration relating to such sale
shall be excluded from his turnover when such produce is sold in the form in
which it was produced, without being subjected to any physical, chemical or
other process for being made fit for consumption save mere dehusking, cleaning,
grading or sorting." "Sale price" is defined In s. 2(o) :
" sale price' means the amount payable
to a dealer as valuable consideration for the sale of any goods, less any, sum
allowed as cash discount according to ordinary trade practice but including any
sum charged for anything done by the dealer in respect of the goods at the time
or before delivery thereof other than the cost of installation when such cost
is separately charged and the expression purchase price' shall be construed
accordingly." In view of the definition of sale price all that we have to
see is whether the collection of sales tax by the dealer from his purchasers can
be considered as valuable consideration received by him for the sale of goods.
Under s. 4 the liability to pay tax is that
of the dealer.
The purchaser has no liability to pay tax.
There is no provision in the Act from which it can be gathered that the Act
imposes any liability on the purchaser to pay the tax imposed on the. dealer.
If the dealer passes on his tax burden to his purchasers he can only do it by
adding the tax in question to the price of the goods sold. In that event the
price fixed for the goods including the tax payable becomes the valuable
consideration given by the purchasers for the goods purchased by him. If that
be so, the tax collected by the dealer from his purchasers becomes a part of
the sale 948 price fixed, as defined in S. 2(o). In some of the Sales Tax Acts
power has been conferred on the dealers to pass on the incidence of tax to the
purchasers subject to certain conditions. Those provisions may call for
different consideration. In the Act there is no such provision except S. 7-A
which was introduced into the Act by Madhya Pradesh Act 23 of 1963. That
provision would have relevance only in respect of the assessment for the year
1963-64.
Section 7-A says "No dealer shall
collect any amount, by way of sales-tax or purchase tax, from a person who
sells agricultural or horticultural produce grown by himself or grown on any
land in which he has an interest, whether, as owner, usufructuary mortgagee,
tenant or otherwise, when such produce is sold in the form in which it was
produced, without being subjected to any physical, chemical or other process
for being made fit for consumption save mere dehusking, cleaning, grading or
sorting." In these appeals, it is not necessary to examine the relevance
of that provision. But that provision does not give any statutory power to
collect sales tax as such from any class of buyers. There is no other provision
in the Act which confers such a power on the dealers. Unless the price of an
article is controlled, it is always open to the buyer and the seller to agree
upon the price to be payable. While doing so it is open to the dealer to
include in the price the tax payable by him to the government. If he does so,
he cannot be said to be collecting the tax payable by him from his buyers. The
levy and collection of tax is regulated by law and not by contract. So long as
there is no law empowering the dealer to collect tax from has buyer or seller,
there is no legal basis for saying that the dealer is entitled to collect the
tax payable by him from his buyer or seller. Whatever collection that may be
made by the dealer from his customers the same can only be considered as
valuable consideration for the goods sold.
In M/s. George Oakes (Private) Ltd. v. The
State of Madras and Ors. (1) this Court was called upon to consider whether a
dealer' can pass on his tax liability as such to his customer. In that decision
while rejecting the contention that the tax liability as such can be
transferred to the buyers this Court referred to the observations of Lawrence J.
in Paprika Ltd. and anr. v. Board of (1) 12 S.T.C. 476.
949 Trade(1) and Goddard L. J. in Love v.
Norman Wright (Builders) Ltd.(2).
In the former case Lawrence J. observed :
"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." In Love's case
(supra) Goddard L. J. observed "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." In that decision reference was also made to the decision of
this Court in Tata Iron and Steel Co. Ltd. v. State of Bihar(1) Therein Das C.
J. who delivered the majority judgment of the Court 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 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."(2) (1)[1944] 1, All. E.R. 372. (2) [1944]1 All. E.R (3) [1959] S. C.
R. 1355.
618 950 From all these observations, it is
clear that when the seller passed on his tax liability to the buyer, the amount
recovered by dealer is really part of the entire consideration paid by the
buyer and the distinction between the two amounts, tax and price looses all
significance.
In support of his contention the appellant
relied on the decision of the Madras High Court in The Deputy Commissioner of
Commercial Taxes, Coimbatore v. M. Krishnaswamy Mudaliar and sons(1). Therein
on an interpretation of the relevant provisions of the Madras General Sales Tax
Act, the court came to the conclusion that the sales tax which the dealer was
authorised to collect from his customers was not a part of the sale price
received by him. This conclusion was primarily based on s. 8(B) (1) of the
Madras General Sales Tax Act, 1939. There is no similar provision in the Act.
Therefore it is not necessary for us to
consider the correctness of that decision.
In the result these appeals fail and they are
dismissed with costs. Hearing fee one set.
V. P. S. Appeals dismissed.
(1) 5 S.T.C. 88.
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