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B.V. Patil Vs. the Commissioner of Commercial Taxes, Bangalore-9 - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberSales Tax Appeal Nos. 32 and 33 of 1976
Judge
Reported inILR1979KAR1015; [1979]43STC419(Kar)
ActsKarnataka Sales Tax Act, 1957 - Sections 2(1), 5, 5(1), 5(3), 5(5), 6, 7, 12A, 22A and 24(1); Kerala General Sales Tax Act, 1963 - Sections 5A; Tamil Nadu General Sales Tax Act, 1959 - Sections 6, 7A and 7A(1)
AppellantB.V. Patil
RespondentThe Commissioner of Commercial Taxes, Bangalore-9
Appellant AdvocateB.V. Katageri, Adv.
Respondent AdvocateS. Rajendra Babu, High Court Government Pleader
Excerpt:
.....the original owner although he had no interest in the property which resulted in miscarriage of justice. - act, section 7a of the tamil nadu act and section 5a of the kerala general sales tax act, 1963, were substantially the same, that section 7a of the tamil nadu act was at once a charging as well as remedial one and that the main object of that provision was to block leakage and prevent evasion of tax. or (c) despatches them to any place outside the state except as a direct result of sale or purchase in the course of inter-state trade or commerce .8. after considering the decision in ganesh prasad dixit's case [1969]3scr490 and analysing the provisions of section 7a of the tamil nadu act, the supreme court observed that section 7a would be attracted if the following ingredients..........to the provisions of section 5(5), if other conditions mentioned therein are satisfied. the sale turnover may not have been liable to tax either on account of such turnover being excluded from the definition of 'turnover' as provided in the tamil nadu act and in the kerala act or on account of the seller having been excluded from the definition of the expression 'dealer' as it is done by section 2(1)(k) of the act. in either event, the sales turnover not being liable for payment of tax, the purchase turnover would be liable for tax under section 6 of the act or 7a of the tamil nadu act and 5a of the kerala act. 11. in the light of the decisions of the supreme court in ganesh prasad dixit v. commissioner of sales tax : [1969]3scr490 and state of tamil nadu v. m. k. kandaswami :.....
Judgment:

Venkataramiah, J.

1. These appeals are filed under section 24(1) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the Act), against the orders passed by the Commissioner of Commercial Taxes in Karnataka, Bangalore (hereinafter referred to as the Commissioner), under section 22A of the Act revising the orders passed by the Deputy Commissioner of Commercial Taxes (Appeals), Dharwar. The assessee, the appellant in these two cases, is a dealer carrying on business in chillies, groundnut, cotton, etc. The assessment years are 1969-70 and 1970-71. By his assessment orders the Commercial Tax Officer, Ranebennur, concluded the assessments under the Act levying purchase tax under section 6 of the Act on the purchase turnover of chillies. He also passed an order under section 12A of the Act levying purchase tax on the purchase turnover of chillies which had escaped assessment earlier. In the appeals filed by the assessee, the Deputy Commissioner of Commercial Taxes (Appeals), Dharwar, following the decision of this Court in B. S. Guddad & Sons v. State of Mysore ([1974] 34 S.T.C. 421), modified the orders of assessment directing the Commercial Tax Officer to restrict the levy of tax under section 6 to the purchase turnover made up of the purchases from small dealers and to exempt the purchases made from agriculturists. Accordingly, the Commercial Tax Officer redetermined the taxable turnover under section 6 of the Act. After the decision of the Supreme Court in State of Tamil Nadu v. M. K. Kandaswami : [1976]1SCR38 , the Commissioner initiated action under section 22A of the Act to revise the orders passed by the Deputy Commissioner and the consequential orders passed by the Commercial Tax Officer as he was of the view that the orders were erroneous and prejudicial to the interests of the revenue. After hearing the learned, counsel appearing for the assessee, the Commissioner passed orders revising the orders passed in appeal by the Deputy Commissioner and the consequential orders of assessment passed by the Commercial Tax Officer in respect of the two periods 1969-70 and 1970-71 and restoring the original orders of assessment passed by the Commercial Tax Officer. He also restored the order passed under section 12A by the Commercial Tax Officer. Aggrieved by the said orders passed in revision, the assessee had filed these appeals.

2. When the above cases came up before a Division Bench for hearing, the Division Bench felt that the decision in the case of B. S. Guddad & Sons ([1974] 34 S.T.C. 421) required to be reconsidered and it accordingly referred the following question of law under section 7 of the Karnataka High Court Act to a Full Bench :

'Whether a dealer, who purchases taxable goods from agriculturist-producers and who thereafter despatches them to a place outside the State of Karnataka except as a direct result of a sale or purchase in the course of inter-State trade or commerce, is liable to pay purchase tax under section 6 of the Karnataka Sales Tax Act ?'

3. Accordingly, the above question has come up for decision before this Full Bench.

4. Section 6 of the Act during the relevant period read as follows :

'6. Levy of purchase tax under certain circumstances. - Subject to the provisions of sub-section (5) of section 5, every dealer who in the course of his business purchases any taxable goods in circumstances in which no tax under section 5 is leviable on the sale price of such goods, and

(i) either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State, or

(ii) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce,

shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under section 5 :

Provided that this section shall not apply -

(i) in respect of sale or purchase of goods specified in the Fourth Schedule, and

(ii) in respect of sale or purchase of goods specified in the Second Schedule which have already been subject to tax under clause (a) of sub-section (3) of section 5.'

5. In the case of Guddad & sons ([1974] 34 S.T.C. 421), the facts were these : The assessee was a dealer under the Act. For the years 1969-70, he returned a total taxable turnover of Rs. 6,24,686.67, but the Additional Commercial Tax Officer, III Circle, Hubli, who was the assessing authority, determined the total and taxable turnover at Rs. 8,85,407.09, which included a turnover of Rs. 2,40,223.84 relating to the purchase of paddy, and a sum of Rs. 10,183.25 relating to the purchase of firewood. The assessee contended that the purchases of paddy were from agriculturists or non-registered dealers and, as such, were not liable to be taxed. The said contention was rejected by the Deputy Commissioner in the appeal preferred by the assessee. On second appeal to the Sales Tax Appellate Tribunal, it was held that the purchase turnover relating to firewood was not taxable, but the purchase turnover of paddy was liable to be taxed. Against the order of the Tribunal, both the assessee and the department filed revision petitions before this Court. It was urged on behalf of the assessee that a dealer who manufactured beaten rice from the paddy purchased from agriculturists or non-registered dealers was not liable to pay tax under section 6. Relying on the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 , in which section 7 of the Madhya Pradesh General Sales Tax Act, 1958 (hereinafter referred to as the M.P. Act), arose for consideration, it was urged on behalf of the department that under section 6 of the Act the turnover relating to purchases from agriculturists or non-registered dealers, was also taxable under the Act. This Court ultimately reached the following conclusion :

'The meaning of section 6 of the Act which is not at all clear appears to us to be this : where the sale attracts the charge to tax under section 5(1) of the Act, but on account of other provisions contained in the Act the transaction is exempt from tax, such sales though not taxable in the hands of the seller, are taxable at the purchase point under section 6. In order to attract the charge to tax under section 5(1) of the Act it must be shown that there is a sale by a dealer. If the sale is not by a dealer, there is no initial charge at all under section 5(1) of the Act.'

6. In order to reach the above conclusion, this Court depended upon the definition of the expression 'dealer' under section 2(1)(k) of the Act, which was as follows :

'2. (1)(K) 'Dealer' means 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, and includes ......

Exception. - An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally shall not be deemed to be a dealer within the meaning of this clause.'

7. The Division Bench of this Court observed in Guddad & Sons' case ([1974] 34 S.T.C. 421) that section 7A of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Tamil Nadu Act), which arose for consideration in M. K. Kandaswami v. State of Tamil Nadu ([1971] 28 S.T.C. 227) was not in pari materia with section 6 of the Act. After the decision of this Court in Guddad's case ([1974] 34 S.T.C. 421), the decision of the Madras High Court in M. K. Kandaswami's case ([1971] 28 S.T.C. 227) was reversed by the Supreme Court in State of Tamil Nadu v. M. K. Kandaswami : [1976]1SCR38 . There, the Supreme Court held that section 7 of the M.P. Act, section 7A of the Tamil Nadu Act and section 5A of the Kerala General Sales Tax Act, 1963, were substantially the same, that section 7A of the Tamil Nadu Act was at once a charging as well as remedial one and that the main object of that provision was to block leakage and prevent evasion of tax. The Supreme Court further observed that in interpreting such a provision a construction which would defeat its purpose and in effect obliterate it from the statute book should be eschewed and if more than one construction was possible, that which preserved its workability and efficacy was to be preferred to the one which would render it otiose or sterile. The Supreme Court, in the course of its decision, approved the decision of the Kerala High Court in Yusuf Shabeer v. State of Kerala ([1973] 32 S.T.C. 359), in which section 5A of the Kerala Act was considered by the Kerala High Court. The relevant part of section 5A of the Kerala Act, which is almost identical in language with section 6 of the Act, read as follows :

'5A. Levy of purchase tax. - (1) Every dealer who in the course of his business purchases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under section 5, and either -

(a) consumes such goods in the manufacture of other goods for sale or otherwise; or

(b) disposes of such goods in any manner other than by way of sale in the State; or

(c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce ....'

8. After considering the decision in Ganesh Prasad Dixit's case : [1969]3SCR490 and analysing the provisions of section 7A of the Tamil Nadu Act, the Supreme Court observed that section 7A would be attracted if the following ingredients were cumulatively satisfied :

'(1) The person who purchases the goods is a dealer;

(2) The purchase is made by him in the course of his business;

(3) Such purchase is either from 'a registered dealer or from any other person';

(4) The goods purchased are 'goods, the sale or purchase of which is liable to tax under this Act';

(5) Such purchase is 'in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be'; and

(6) The dealer either -

(a) consumes such goods in the manufacture of other goods for sale or otherwise, or

(b) despatches all such goods in any manner other than by way of sale in the State, or

(c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce.'

9. Section 6 of the Act also levies a tax on the purchase turnover when the above ingredients are present. The expression 'taxable goods' appearing in section 6 refers not to goods whose turnover is taxable under section 5 as held by this Court in the case of Guddad & Sons ([1974] 34 S.T.C. 421), but it refers to goods other than those whose turnover is exempted from tax by inclusion in the Fifth Schedule to the Act. The expression 'in circumstances in which no tax is leviable on the sale price of such goods' refers to events under which tax may not be levied under section 5 on the sales turnover including the case of a seller being an agriculturist who is not treated as a dealer under section 2(1)(k) of the Act. Section 6, which is also a charging section, brings to tax goods other than those referred to in the proviso thereof the sale of which would normally have been taxed at some point in the State whose sale in favour of the dealer has not been taxed under section 5 owing to certain circumstances and where subsequent to the purchase by the dealer those goods are not available for taxation owing to the act of the dealer in consuming them in the manufacture of other goods for sale or otherwise or despatching them in any manner other than by way of sale in the State or despatching them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. In the instant case, the sales of chillies by the agriculturists to the assessee were not liable to tax in the hands of the sellers as they were agriculturists and the goods were the produce of crops raised by them. After purchase the assessee despatched them outside the State but not as a result of sale or purchase in the course of inter-State trade or commerce. Hence, under section 6, the purchase turnover of those goods is liable to tax subject only to section 5(5) of the Act, which provides that a dealer whose total turnover in any year is less than Rs. 25,000, shall not be liable to pay tax in that year. In reaching the above conclusion, we have followed the pronouncement of the Supreme Court in State of Tamil Nadu v. M. K. Kandaswami : [1976]1SCR38 , which read :

'In our opinion, the Kerala High Court has correctly construed section 5A of the Kerala Act which is in pari materia with the impugned section 7A of the Madras Act. 'Goods, the sale or purchase of which is liable to tax under this Act' in section 7A(1) means 'taxable goods,' that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that section 7A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act have not, due to the circumstances of particular sales, suffered tax under section 3, 4 or 5, and which after the purchase, have been dealt by him in any of the modes indicated in clauses (a), (b) and (c) of section 7A(1).'

10. It was contended on behalf of the assessee that the decision of the Supreme Court was not applicable to the present case because the pattern of the Act was different from that of the Tamil Nadu Act inasmuch as an agriculturist who sells exclusively agricultural produce grown on land, is excluded from the category of dealers by section 2(1)(k) of the Act, whereas the Tamil Nadu Act has only provided that the turnover relating to the proceeds of agricultural produce grown by a person a grown on any land in which such person has interest, shall be excluded from the sales turnover of that person for purpose of taxation under the Act. We are not impressed by this argument. The Act does not say that in order to attract section 6 of the Act, a sale should be by a dealer as defined in the Act. Section 6 only provides that every dealer, who in the course of his business purchases any taxable goods in the circumstances in which no tax is leviable on the sale price of such goods, is liable to pay purchase tax subject to the provisions of section 5(5), if other conditions mentioned therein are satisfied. The sale turnover may not have been liable to tax either on account of such turnover being excluded from the definition of 'turnover' as provided in the Tamil Nadu Act and in the kerala Act or on account of the seller having been excluded from the definition of the expression 'dealer' as it is done by section 2(1)(K) of the Act. In either event, the sales turnover not being liable for payment of tax, the purchase turnover would be liable for tax under section 6 of the Act or 7A of the Tamil Nadu Act and 5A of the Kerala Act.

11. In the light of the decisions of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax : [1969]3SCR490 and State of Tamil Nadu v. M. K. Kandaswami : [1976]1SCR38 , we hold that the following observations of the Division Bench of this Court in Guddad & Sons' case ([1974] 34 S.T.C. 421) do not lay down the law correctly :

'..... where the sale attracts the charge to tax under section 5(1) of the Act, but on account of other provisions contained in the Act the transaction is exempt from tax, such sales though not taxable in the hands of the seller, are taxable at the purchase point under section 6. In order to attract the charge to tax under section 5(1) of the Act, it must be shown that there is a sale by a dealer. If the sale is not by a dealer there is no initial charge at all under section 5(1) of the Act.'

12. We, therefore, overrule the decision in Guddad & Sons' case ([1974] 34 S.T.C. 421). Our answer to the question referred to the Full Bench is that a dealer who purchases taxable goods from agriculturist-producers and who thereafter despatches them to a place outside the State of Karnataka except as a direct result of a sale or purchase in the course of inter-State trade or commerce, is liable to pay purchase tax under section 6 of the Act.

13. The cases will now go back to the Division Bench for disposal in accordance with law.

14. Ordered accordingly.


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