The Commissioner of Sales Tax, U.P. Vs.
Bishamber Singh Layaq Ram [1980] INSC 160 (26 August 1980)
SEN, A.P. (J) SEN, A.P. (J) BHAGWATI, P.N.
VENKATARAMIAH, E.S. (J)
CITATION: 1980 AIR 2047 1981 SCR (1) 548 1981
SCC (2) 27
ACT:
U.P. Sales Tax Act 1948, ss. 2(c) Expln. 7(3)
and 11(4)-Kutcha arhatiya whether a dealer-Question of law neither raised
before the appellate nor revisional authority-High Court in reference-Whether
entitled to go into the question.
Words & Phrases-'arhatiya'-'pucca
arhatiya'-'kutcha arhatiya'-Meaning of-s. 2(2) Expln. U.P. Sales Tax Act, 1948.
HEADNOTE:
Section 2(c) of the U.P. Sales Tax Act, 1948
defines "dealer" to mean any person or association of persons
carrying on the business of buying or selling goods in Uttar Pradesh whether
for commission, remuneration or otherwise.
By the U.P. Sales Tax (Amendment) Act, 1949
an Explanation was inserted in this section to provide that a factor, a broker,
a commission agent or arhatiya, a del credere agent, an auctioneer, or any
other mercantile agent by whatever name called, and whether of the same
description as hereinbefore mentioned or not, who carries on the business of
buying or selling goods on behalf of his principles, or through whom the goods
are sold or purchased shall be deemed to be a dealer for the purposes of the
Act.
The respondent (assessee) who was registered
as a dealer under section 8A was carrying on business in jaggery, amchur,
khandsari etc. on its own account and as kutcha arhatiya. The nature of the
business carried on by the assessee was that cultivators brought their produce
to the assessee for sale. The goods were weighed at his shop and then supplied
to the pucca arhatiyas or to other persons.
Price of the commodity in full or part was
paid by the assessee to the cultivators directly, and the price from the
purchaser were realised after wards. During the assessment year 1967-68 the
Sales Tax Officer by his assessment order rejected the account books of the
assessee on the basis of some discrepancy found during the four surveys carried
out at the shop and made a best judgment assessment under sub- section (3) of
section 7 of the Act, determining the taxable turnover of purchases effected by
the assessee as a kutcha arhatiya at Rs. 5.3 lacs and taxed it. On appeal the
Assistant Commissioner (Judicial), Sales Tax reduced the taxable turnover of
purchase by Rs. 1.5 lacs. Cross- revisions by the appellant as well as by the
respondent were allowed by the Additional Judge (Revisions), Sales Tax who by
his order negatived the plea of the assessee that he was not a dealer but held
from the material on record that the taxable turnover of the assessee could not
reasonably be determined at Rs. 3.8 lacs. The orders of the Assistant
Commissioner (Judicial) and Sales Tax officer were set aside and a fresh best
judgment assessment was directed to be made.
549 The High Court upon reference, as to the
liability of the assessee to tax on the transactions effected by it as kutcha
arhatiya held that the assessee was not a dealer. It further held that a person
can be liable to tax as a dealer only if he acts as an agent having the
authority to pass title in the goods sold, and that a kutcha arhatiya merely
brought together the seller and the purchaser and helped in settling the price and
weighment of the goods etc.
In the appeal to this Court it was contended
on behalf of the appellant, that the High Court was wrong in holding that the
assessee was not a dealer within section 2(c) of the Act and that the High
Court had completely overlooked the Explanation to section 2(c) which was
inserted by the U.P. Sales Tax (Amendment) Act, 1959 particularly the words
"through whom the goods are sold or purchased", and that the Sales
Tax Officer was not justified in making an assessment to the best of his
judgment under section 7(3).
Allowing the appeal ^
HELD: 1(i) The finding arrived at by the High
Court that the assessee as a kutcha arhatiya merely brought together the seller
and the buyer charging an additional sum by way of commission and, therefore,
could not be regarded as a dealer i.e. a person engaged in the business of
buying and selling goods, is contrary to the admitted facts of the case. [551
H] (ii) Explanation to s. 2(c) brought within the definition of 'dealer' not
only a commission agent, a factor, a del credere agent or any other mercantile
agent by whatever name called, and whether of such description or not, but also
a broker, an auctioneer as well as an arhatiya. [554 D] (iii) The definition of
'dealer' in section 2(c) is wide enough to include selling or purchasing agent
of whatever name or description. The term 'arhatiya' is wide enough to include
kutcha arhatiya. [554 E] (iv) The basic distinction between a kutcha and a
pucca arhatiya is that a kutcha arhatiya acts as an agent on behalf of his
constituent and never acts as a principal to him. A pucca arhatiya acts as a
principal as regards his constituent and not as disinterested middleman who
brings principals together, there being no privity of contract between the
constituent and the third party. On the other hand a kutcha arhatiya usually
denotes a person who merely 'brings together the buyer and seller' charging his
commission, who has no dominion or control over the goods unlike a pucca
arhatiya who deals as a principal in relation to both his constituent and to
the third party. In a commercial sense, a kutcha arhatiya acts as an agent on
behalf of his constituent. [552 G-553 B, F] Bhagwandas Parasram v. Burjorji
Ruttonji Bomanji, LR (1917-18) 45 IA 29, Shivnarayan Kabra v. State of Madras.
[1967] 1 SCR 138, Sobhagmal Gianmal v.
Mukundchand Balia, L.R. (1926) 53 I.A. 241, Chowringhee Sales Bureau (P) Ltd. v.
C.I.T. West Bengal, [1973] 2 SCR 618, referred to.
2(i) The High Court should have declined to
go into the question of the applicability of s. 7(3) of the Act. When a
question of law was neither raised before the Addl. Judge (Revisions) nor
considered by him nor did it arise on findings given by him, it will not be a
question arising out of his order. [556 F] (ii) The question as to whether the
Sales Tax Officer was justified in making a best judgment assessment under
section 7(3) of the Act was not referred to the High Court.
It was, therefore, not open to the High Court
to go into the question. It could not allow the new point to be raised for the
first time in reference. [556 G] 550 (iii) The High Court was also not entitled
on a reference under section 11(4) of the Act to set aside the findings of the
Addl. Judge (Revisions) merely because on a reappraisal of the evidence it
would have come to a contrary conclusion. It was also not entitled to examine
whether the explanation of the assessee in regard to the deficiencies found in
the account books should or should not be accepted.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 717 of 1973.
Appeal by Special Leave from the Judgement
and Order dated 27-10-1972 of the Allahabad High Court in Sales Tax Ref. No.
857/71.
S. Markandeya, for the Appellants.
O. P. Verma, for the Respondent.
The Judgment of the Court was delivered by
SEN J.-This is an appeal from a judgment of the Allahabad High Court dated
October 27, 1972 which was given upon a reference of certain questions of law
made to the High Court by the Additional Judge (Revisions), Sales Tax, Meerut
in compliance with its directions under sub-s. (4) of s. 11 of the U.P. Sales
Tax Act, 1948 calling for a statement of the case. The two questions referred
were as follows:
1. Whether there is no material in support of
best judgment assessment ?
2. Whether on the facts and in the
circumstances of this case the assessee acted in respect of the estimated
purchase turnover of Rs. 3,80,000 as a dealer so as to be liable to purchase
tax ? The Commissioner of Sales Tax submitted that the first question should be
answered in the negative and the second in the affirmative. The High Court
decided in favour of the assessee and against the Commissioner, holding that
the submission of the assessee was right and answered both the questions to the
contrary. From this decision the appellant, the Commissioner of Sales Tax, has
appealed.
The reference arose out of assessment for the
assessment year 1967-68 of Messrs Bishamber Singh Layaq Ram which carries on
business in jaggery, amchur, khandsari etc.
on its own account and as kuccha arhatiya in
jaggery, foodgrains etc. at Shahpur in the district of Muzaffarnagar, and is
registered as a dealer under s. 8-A of the Act (hereinafter referred to as 'the
assessee').
The material facts may be stated as follows:
During the assessment year in question, the Sales Tax Officer, Muzaffarnagar by
his order dated December 27, 1968 rejected the account books of the 551
assessee on the basis of some discrepancies found during the four surveys
carried out at his shop and made a best judgment assessment under sub-s. (3) of
s. 7 of the Act, determining the taxable turnover of purchases effected by it
as a kutcha arhatiya at Rs. 5,30,000 and the tax payable thereon at Rs. 25,450.
On appeal the Assistant Commissioner (Judicial), Sales Tax, Muzaffarnagar by
his order dated August 11, 1969 reduced the taxable turnover of purchases by
Rs. 1,50,000 and the tax by Rs. 7,500.
There were two cross-revisions by the
Commissioner of Sales Tax and by the assessee, both of which were allowed by
the Additional Judge (Revisions), Sales Tax, Meerut who by his order dated
February 10, 1970 while negativing the plea of the assessee that he was not a
dealer, however, felt that on the material on record, the taxable turnover of
the assessee could not reasonably be determined at Rs. 3,80,000.
He accordingly set aside the orders of the
Assistant Commissioner (Judicial) and of the Sales Tax Officer and directed
that there should be a fresh best judgment assessment.
Upon reference, the High Court on question
No. 2, as to the liability of the assessee to tax on transactions effected by
it as kutcha arhatiya held that the assessee was not a dealer, observing:
"If the assessee is a Kutcha Arhatiya
then he is not liable to sales tax. The change in the definition of the word 'dealer'
in 1961 upon which the Judge (Revisions) has relied does not change the
situation. A person can be liable to tax as a dealer only if he acts as an
agent having the authority to pass title in the goods sold. A kutcha arhatiya
merely brings together the seller and the purchaser and helps in settling the
price and weighing the goods etc. The fact that he sometimes advances money to
cultivators who bring their produce for sale or sometimes pays the entire sale
price to the cultivator from his own pocket is not inconsistent with his being
a kutcha arhatiya." It was rightly contended on behalf of the Commissioner
that the High Court was wrong in holding that the assessee was not a dealer
within s. 2(c) of the Act and that the Sales Tax Officer was not justified in
making an assessment to the best of his judgment under s. 7(3). It is pointed
out that the High Court has completely overlooked Explanation to s. 2(c) of the
Act which was inserted by the U.P. Sales Tax (Amendment) Act, 1959,
particularly the words 'through whom the goods are sold or purchased' appearing
therein. with regard to the applicability of s. 7(3), it is urged that the
question was not referred.
552 The finding arrived at by the High Court
that the assessee as a kutcha arhatiya merely brought together the seller and
the buyer charging an additional sum by way of commission and, therefore, could
not be regarded as a dealer, i.e., a person engaged in the business of buying
and selling goods, is contrary to the admitted facts of the case. The facts
stated in the agreed statement of the case clearly show that the assessee is
not a kutcha arhatiya, in the usual sense of the term, but his business brings
into existence the relation of vendor and purchaser. The nature of the business
carried on by the assessee is described thus:
"Cultivators bring their produce to the
assessee for sale. The goods are weighed at his shop and then supplied to the
pucca arhatiyas or to other persons.
Price of the commodity in full or part is
paid by the assessee to the cultivators directly. The price from the purchasers
is readied afterwards. In any case it is not the responsibility of the
cultivators to realise the price from the purchasers. On the contrary, it is
the assessee who is responsible for the payment of the price to the
cultivators. Sometimes the cultivators are also paid advances and these are
adjusted when the price of the produce is paid to the cultivators."
(Emphasis supplied) The decision on the question whether the assessee is a
dealer must turn on the construction of s. 2(c), which insofar as material,
reads:
"2(c) "dealer" means any
person or association of persons carrying on the business of buying or selling
goods in Uttar Pradesh, whether for commission, remuneration or otherwise,
Explanation: A factor, a broker, a commission agent or arhati, a del credere
agent, an auctioneer, or any other mercantile agent by whatever name called,
and whether of the same description as hereinbefore mentioned or not, who
carries on the business of buying or selling goods on behalf of his principals,
or through whom the goods are sold or purchased shall be deemed to be a dealer
for the purposes of this Act." There can be no doubt that a pucca arhatiya
comes within the substantive part of the definition of 'dealer' contained in s.
2(c) of the Act, but the question still remains whether a kutcha arhatiya is
covered by the definition, by reason of the Explanation thereto.
The basic distinction between a kutcha and a
pucca arhatiya is that a kutcha arhatiya acts as an agent on behalf of his
constituent and never acts as a principal to him. The person with whom he
enters into a transaction on behalf of his constituent is either brought into
contact with the constituent or at least the constituent is informed of 553 the
fact that the transaction has been entered into on his behalf with a particular
person. But in the case of a pucca arhatiya, the agent makes himself liable
upon the contract not only to third parties but also to his constituent. He
does not inform his constituent as to the third party with whom he has entered
into a contract on his behalf.
Thus, a pucca arhatiya acts as a principal as
regards his constituent and not as a disinterested middleman who brings about
two principals together, there being no privity of contract between the
constituent and the third party, and may substitute his own goods towards the
contract made for the principal and buy the principals goods on his personal
account. On the other hand a kutcha arhatiya usually denotes a person who
merely 'brings together the buyer and the seller' charging his commission, who
has no dominion or control over the goods, unlike a pucca arhatiya who deals as
a principal in relation to both his constituent and to the third party.
The crucial test is whether the agent has any
personal interest of his own when he enters into the transaction or whether
that interest is limited to his commission agency charges and certain out of
pocket expenses, and in the event of any loss his right to be indemnified by the
principal.
This principle was applied in the case of
pakki arhat by Sir Lawrence Jenkins C.J. in Bhagwandas Narotmdas v. Kanji Deoji
and approved of by the Judicial Committee in Bhagwandas Parasram v. Burjorji
Ruttonji Bomanji and by this Court in Shivnarayan Kabra v. State of Madras. As
to the incidents of pakkiarhat, Sir Lawrence Jenkins in Bhagwandas Narotamdas's
case succinctly states the legal position, in his own terse language:
"A pakka adatia is not, in the proper
sense of the word, an agent or even a del credere agent. The relation between
him and his up-country constituent is substantially one of principal and
principal." In a commercial sense, a kutcha arhatiya acts as an agent on
behalf of his constituent. The main characteristic of a kutcha arhatiya has
been described by the Judicial Committee in Sobhagmal Gianmal v. Mukundchand
Balia(4) in these terms:
"When a katcha adatia enters into
transactions under instructions from and on behalf of his up-country
constituent with a third party in Bombay, he makes privity of contract between
the third party and the constituent, so that each becomes liable 554 to the
other, but also he renders himself responsible on the contract to the third
party." Vivian Bose J. in Kalyanji Kuwarji v. Tirkaram Sheolal(1) puts the
matter thus:
"The test to my mind is this: does the
commission agent when he sells have authority to sell in his own name? Has he
authority in his own right to pass a valid title? If he has then he is acting
as a principal vis- a-vis the purchasers and not merely as an agent and
therefore from that point or he is a debtor of his erstwhile principal and not
merely an agent. Whether this is so or not must of course depend upon the facts
in each particular case." It is plain, on an examination of the language
as it stood at the material time, from the definition of 'dealer' in s. 2(c)
that even a selling or purchasing agent is within that definition. A person to
be a 'dealer' under that definition must be engaged in the business of buying
and selling goods in Uttar Pradesh whether for commission, remuneration or
otherwise. Explanation to s. 2(c) brought within the definition of 'dealer' not
only a commission agent, a factor, a del credere agent or any other mercantile
agent by whatever name called, and whether of such description or not, but also
a broker, an auctioneer as well as an arhatiya. The use of the words
"through whom the goods are sold or purchased" in the Explanation is
significant, and they must be given their due meaning. Thus, the definition of
'dealer' in s. 2(c) is wide enough to include a selling or purchasing agent of
whatever name or description. The term 'arhatiya' is wide enough to include a
kutcha arhatiya.
If the Explanation to s. 2(c) of the Act were
not there, perhaps it could be said that a kutcha arhatiya is merely an agent
who helps cultivators who bring their produce to the market for sale, to find
buyers, assist them in weighment and secure to them payment of price, but the
assessee here certainly does not answer that description.
That apart, the Explanation clearly brings
within the definition of 'dealer' in s. 2(c) a kutcha arhatiya. It was not
suggested at any time that the Explanation was ultra vires the State
Legislature being beyond the ambit of Entry 54 of List II of the Seventh
Schedule. The constitutional validity of a similar Explanation to s. 2(c) of
the Bengal Finance (Sales Tax) Act, 1941 which brought an auctioneer within the
purview of the definition of 'dealer' in that section. was upheld by this Court
in Chowringhee Sales Bureau (P) Ltd. v. C.I.T., West Bengal.(2) The whole
object is to tax a transaction of sale in the 555 hands of a person who carries
on the business of selling goods and who has the legal or customary authority
to sell goods belonging to the principal.
It is evident from the statement of the case
that the business carried on by the assessee was more or less similar to that
of a pucca arhatiya and it is a misnomer to call it a kutcha arhatiya. It
actually purchased the goods from the sellers, i.e., the cultivators, and then
sold them in the market to the other buyers, as if they were its own, obviously
at a profit. It paid to the cultivators the price of the goods it purchased and
received from the buyers the price at which is sold. Selling of goods was not
simultaneous with receiving them. These facts can lead to no other conclusion
except that it bought and then sold goods and not merely brought buyers into
contact with sellers and arranged transactions between them. In these
circumstances, the High Court should have held the assessee to be a dealer
under s. 2(c) of the Act, read with the Explanation thereto.
There remains the question whether the High
Court was justified in holding that there was no basis for making a best
judgment assessment. The Addl. Judge (Revisions) had remanded the case for a
reassessment on the basis of best judgment, on his finding that there was no
material whatever on record to enable him to come to a conclusion one way or
the other, on the disputed question of fact, i.e., whether the best judgment
assessment of the taxable turnover at Rs. 3,80,000 could be sustained.
Though the question of the applicability of
s. 7(3) of the Act was not, in terms, referred to the High Court under s.
11(4), the Addl. Judge (Revisions) in stating the case mentioned that the
assessee had contended before him that his account books had been wrongly
rejected.
The statement of the case sets out the
details of the various surveys made and the nature of the deficiencies found.
The High Court treating the question referred to be a composite one, embarked
upon an enquiry as to whether the Sales Tax Authorities were justified in
rejecting the account books and in making the best judgment assessment under s.
7(3). It has referred to the four surveys carried out on August 11, 1967,
December 13, 1967, January 7, 1968 and March 8, 1968. In the first survey held
on August 11, 1967 it was found that the Nagal Bahi had not been written for
eleven days. The High Court observes that 'no adverse inference could be drawn
on this account because the assessee's explanation was that there were no cash
transactions for this period, and, therefore, the Nagal Bahi had not been
written'. With regard to the second survey carried out on December 13, 1967 it
was discovered that there was 556 a loose parcha containing several entries.
One of the entries of Rs. 371.17 in the name of Sakh Chand Udit Mohan alone was
entered in the account books. That too on December 13, 1967 after inspection
while the payment was actually made on December 11, 1967, i.e., it was not
contemporaneous with the transaction. The High Court observes that 'it has not
been found that any other entry contained in the loose parcha had not been
entered in the account books', With regard to the third survey carried out on
January 7, 1968 when twelve bags of wheat were found in stock, the stock
register was not shown to the surveying officer. The High Court has again
accepted the explanation of the assessee saying that 'there was no duty cast on
the assessee to produce the stock register and it was not shown since there was
no demand for it'. It observes that 'there is nothing in s. 13 or in any other
provisions of the Act or the rules framed thereunder which requires a dealer to
produce his books of accounts and other documents, before the surveying
officer'. As regards the last survey held on March 8, 1968 the Mondhi Bahi was
found to be posted up to February 29, 1968. Thus there were no entries for
eight days. The explanation of the assessee was that it had not entered into
any contract during the eight days in question. The High Court observes that
'as there was no material whatever for rejecting his explanation, no adverse
inference could be drawn with regard to the veracity of the accounts, since Mondhi
Bahi is not a necessary account book'. We are not inclined to agree with this
line of reasoning. While we refrain from expressing any opinion on the
requirements of s. 13(2) of the Act, we are satisfied that the finding of the
High Court that there was nothing wrong with the method of accounting adopted
by the assessee cannot be upheld.
In our opinion, the High Court should have
declined to go into the question of the applicability of s. 7(3) of the Act.
When a question of law was neither raised before the Addl. Judge (Revisions)
nor considered by him nor did it arise on the findings given by him, it will
not be a question arising out of his order.
The question as to whether the Sales Tax
officer was justified in making a best judgment assessment under s. 7(3) of the
Act was not referred to the High Court. It was, therefore, not open to the High
Court to go into the question. It could not allow the new point to be raised
for the first time in reference. Nor was the High Court entitled on a reference
under s. 11(4) of the Act to set aside the finding of the Addl. Judge
(Revisions) merely because on a reappraisal of the evidence it would have come
to a contrary conclusion. It was also not entitled to examine whether the
explanation of the assessee in regard to the deficiencies found in the account
books 557 should or should not be accepted. It may be that the Sales Tax
Authorities should have accepted the explanation of the assessee with regard to
the aforesaid deficiencies, but it may as well be that there are various other
deficiencies which the assessee will have still to explain.
For all these reasons, the judgment of the
High Court is set aside and that of the Addl. Judge (Revisions), Sales Tax
Meerut remanding the case for a fresh judgment assessment under s. 7(3) of the
Act is restored. There shall be no order as to costs.
N.V.K. Appeal allowed.
Back
