1. These are connected petitions. They are filed by the same assessee. Writ Petition No. 595 of 1962 relates to the assessment for the assessment year 1959-60, Writ Petition No. 596 of 1962 relates to the assessment for the assessment year 1960-61 and Writ Petition No. 597 of 1962 relates to the assessment for the assessment year 1961-62. The turnover computed for the assessment year 1959-60 is Rs. 6,10,665 on which a tax of Rs. 12,213-30 is levied; the turnover computed for the assessment year 1960-61 is Rs. 21,91,168 on which the tax levied is Rs. 43,932-46 and the turnover computed for the assessment year 1961-62 is Rs. 14,86,730 and the tax levied is Rs. 29,956-96. Aggrieved by the orders of assessment made by the Commercial Tax Officer, Additional Circle, South Kanara, Mangalore, the petitioner has moved this Court under Article 226 of the Constitution to quash the orders of assessment alleging that on the proved facts, the assessing authority had no competence to make any levy of sales tax on the petitioner.
2. The petitioner is a commission agent residing in the town of Mangalore holding a licence under section 11 of the Mysore Sales Tax Act, 1957, to be referred to as the 'Act' hereafter. According to him during the relevant period, the growers of arecanut had entrusted to him for sale the areca nuts grown by them and they had also authorised him in writing permitting him to grade the areca nuts entrusted to him into several grades and pool them with the areca nuts of the same grade entrusted to him by other growers and thereafter sell the same at the Bombay market at the best available prices. It is found as well as admitted that the areca nuts entrusted by the several growers had been graded into several grades; thereafter the respective grades of areca nuts were pooled together and sent to the Bombay market for sale and sold there. The price fetched at the Bombay market after meeting the incidental expenses and deducting the commission due to the petitioner was distributed between the several growers on the basis of the quality and quantity of areca nuts supplied by them. The case of the petitioner is that despite the pooling in question, he continues to have the benefits available to the commission agents under the Act. To be exact, he contends that he continues to be not liable to pay sales tax. But according to the assessing authority, he had lost the privileges conferred on him under the Act as he had pooled the areca nuts belonging to the several growers. The question for consideration is whether the view taken by the assessing authority can be justified on the language of the relevant provisions in the Act.
3. Before proceeding to answer this question, we may conveniently dispose of a subsidiary contention advanced by the learned Government Pleader. It was contended by him that a commission agent in order to avoid being assessed to sales tax, should not deduct any sum from the price fetched, as incidental expenses; he can only deduct the commission agreed and nothing else. This contention evidently overlooks the second proviso to section 11 of the Act which reads thus :
'the commission or brokerage agreed upon the specified in the accounts represents the entire remuneration payable to the agent, apart from the tax paid by him on behalf of the principal and the legitimate incidental charges actually incurred by him and specified in the accounts in respect of insurance, transport, loading and unloading, godown rent, interest, correspondence, telegram, the use of the telephone and the like.'
4. It is not the case of the Revenue that the expenses deducted are not genuine items of expenditure. Hence the argument that because the petitioner had incurred certain incidental expenses he should be considered as a 'dealer' pure and simple, who is liable to pay sales tax, has to be negatived. The basis on which the Commercial Tax Officer came to the conclusion that the petitioner is liable to be taxed as a 'dealer' is that he had pooled the areca nuts belonging to the several growers before selling them. Admittedly he has done so. The question is whether by doing so, he has become liable to pay sales tax. 'Sale' as defined under section 2(t) of the Act reads as follows :-
''Sale' with all its grammatical variations and cognate expressions means 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 and includes a transfer of property in goods involved in the execution of works contract, and in the supply or distribution of goods by a co-operative society, club, firm or any association to its members for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge.'
The petitioner is admittedly a selling agent. Explanation 3 to section 2(t) of the Act says :
'Notwithstanding anything to the contrary contained in this Act, two independent sales or purchases shall, for the purpose of this Act be deemed to have taken place -
(a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or
(b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the gent is found -
(i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate, or
(ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate, or
(iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal, or
(iv) to have acted for fictitious or non-existent principal.'
5. The assessing authority came to the conclusion that the petitioner had contravened the provisions contained in explanation 3(b)(iii). The learned Government Pleader went a step further and contended that the petitioner comes within the mischief of explanation 3(b)(i) also. We shall now proceed to consider whether the petitioner can be held to have contravened either explanation 3(b)(i) or 3(b)(iii). Explanation 3(b)(i) as mentioned earlier applies to a case where the commission agent has sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate. In the instant case, it is not the case of the Revenue that the petitioner retained any portion of the sale price excepting the agreed commission. But it is contended on behalf of the Revenue that as the goods of the several principals were pooled together before they were sold it is not possible to say at what rate the goods of any particular principal were sold. That is undoubtedly so. But the goods of the several principals were pooled together with their consent. Hence they became joint principals. The word 'principal' in the aforementioned explanation 3 includes 'principals' also. Hence the 'rate' is the rate fetched for the entire lot of any particular grade. Therefore it is not possible to agree with the learned counsel for the Revenue that there has been any contravention of explanation 3(b)(i). For that very reason, we are unable to agree with him when he contends that there is any contravention of explanation 3(b)(iii) of the Act. Quite clearly, he had accounted to his principals for the entire collection. No provision in the Act is brought to our notice which prohibits a commission agent from pooling the goods of the several principals even when those principals agree to such a pooling. We should not be understood as having laid down that if any pooling is done without the consent of the several principals the commission agent would become liable to pay sales tax. That question we have not considered. The department appears to have unduly strained the language of explanation 3 to section 2(t) to find out some way to levy sales tax on the petitioner wholly ignoring the inconveniences that are likely to be caused to the commission agents as well as to their principals by adopting the interpretation adopted by it.
6. For the reasons mentioned above, the sales tax levied on the petitioner amounts to an illegal levy. Hence the orders of assessment impugned in these proceedings are quashed by issuing of a writ of certiorari.
7. The petitioner without good reasons has failed to go up in appeal to the Tribunals constituted under the Act. If there was any need to investigate into facts, we should have declined to grant any relief in these petitions. As the petitioner had improperly ignored the Tribunals constituted under the Act, we think we should refuse to grant him any costs in these petitions. It is ordered accordingly.
8. Ordered accordingly.