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Ganjam Nagappa and Sons Vs. State of Mysore - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberS.T.R.P. No. 10 of 1967
Judge
Reported in[1968]21STC188(Kar)
ActsSales Tax Act - Sections 5(1) and 5(3)
AppellantGanjam Nagappa and Sons
RespondentState of Mysore
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateShantharaju, Adv. for E.S. Venkataramiah, High Court Special Government Pleader
Excerpt:
.....in which the sales tax appellate tribunal effectively concurred was that there was no such sale -the sales tax payable is only at 1 1/2 per cent. so what should follow is that it is only in a case where there is a sale of a precious stone such as diamond, emerald or the like, an enumeration of which is to be found in the second schedule, that the tax is payable at 5 per cent......not at the rate inaccurately specified by the dealer. a dealer who mentions in his return an inaccurate rate is not precluded from contending that the rate at which sales tax should be determined is the rate properly applicable and not the rate specified in his return. similarly when the deputy commissioner concurred in the finding of the commercial tax officer as to the nature of the sales, it became his duty to direct a modification of the assessment by the application of the proper rate at which sales tax is to be computed. that being the true position, mr. shantharaju cannot place any dependence upon what was stated by the petitioner in his return which stands completely excluded by the finding recorded by the commercial tax officer and the deputy commissioner. 14. we therefore allow.....
Judgment:

Somnath Iyer, J.

1. The question which arises in this revision petition is whether in respect of the turnover of the petitioner for the assessment year 1963-64 sales tax was payable under the proviso to section 5(1) or at the higher rate specified in Second Schedule to the Act. The petitioner is a jeweller, and, when he produced his return before the Commercial Tax Officer he advanced the contention that some part of the turnover included labour charges which could not be taxed. The finding of the Commercial Tax Officer was that the petitioner sold finished articles of jewellery and that no portion of the turnover could be regarded as labour charges. But he thought that the sales consisted of distinct sales of component parts of a manufactured jewel. According to him when there was a sale of a jewel in which a precious stone had been set, there was a sale of that precious stone and a sale of the gold in which it was embedded. The position, he thought, was similar when there was a sale of a jewel in which an artificial stone had been set. So he thought that tax was payable at 1 1/2 per cent. of the turnover which related to the sale of gold, at 3 per cent. of the turnover which related to the sale of artificial stones and at 5 per cent. of the turnover with respect to the sale of precious stones. In the appeal preferred to the Deputy Commissioner the finding of the Commercial Tax Officer that there was a sale of finished products was affirmed and the claim to exemption in respect of labour charges was negatived.

2. In the further appeal presented to the Sales Tax Appellate Tribunal, two arguments were presented. The first rested on the finding of the Commercial Tax Officer and the Deputy Commissioner that there was a sale of finished articles of manufactured jewels. It was urged that, if what was sold by the petitioner was a jewel, there was no sale of gold or a precious stone or an artificial stone as such, and so, tax was payable at the lowest rate of 1 1/2 per cent. of the turnover specified in the proviso to section 5(1) of the Act on every sale of a jewel. The second contention raised before the Tribunal was that labour charges which formed part of the price paid by the customer to the petitioner were wholly exempt from the payment of tax. Both these contentions were negatived by the Tribunal.

3. But in this revision petition the contention concerning labour charges was not pressed. With respect to the measure of the tax, the Tribunal was of the view that although there was a sale of a finished product by the dealer to his customer, so long as a component part of the product was a precious stone or an artificial stone, there was a sale of such precious or artificial stone, as the case may be, and so, with respect to such sale the higher tax specified in the third column of the 64th item in the Second Schedule to the Act was payable.

4. The Sales Tax Appellate Tribunal did not have any doubt in its mind about the correctness of the finding recorded by the Commercial Tax Officer and the Deputy Commissioner that the contract of sale between the customer and the petitioner in each case was a contract for the sale of a finished article of jewellery.

5. That being so, if nothing else could be said about it, the tax payable was the tax specified either in sub-section (1) of section 5 which is 2 per cent. of the turnover or the tax specified in the proviso to that sub-section which is 1 1/2 per cent. of such turnover. There is no difficulty presented in regard to the rate at which the sales tax has to be computed with respect to the sale of gold even if it could be said that there was a sale of gold as such. That is so, since even if there was a sale of gold - and the finding of the Commercial Tax Officer and the Deputy Commissioner in which the Sales Tax Appellate Tribunal effectively concurred was that there was no such sale - the sales tax payable is only at 1 1/2 per cent. of the turnover. Similarly no difficulty arises with respect to the sale of artificial stone if there was any such sale at all. That is so, since even the sale of an artificial stone is chargeable to sales tax only at 2 per cent. under section 5(1).

6. The real difficulty is created by the belief in the mind of the Sales Tax Appellate Tribunal that there was a sale of a precious stone as such in all cases in which a precious stone is used as a component for the manufacture of an article of jewellery. The 64th item of the Second Schedule to the Act which specifies the rate at which sales tax is payable in respect of precious stones reads :-

----------------------------------------------------------------------- Sl. No. Description of the goods. Rate of tax (1) (2) (3) ----------------------------------------------------------------------- 64. Precious stones, namely, diamonds, Five per cent. emeralds, rubies, real pearls, saphires, whether they are sold loose or as forming part of anything in which they are set. ------------------------------------------------------------------------

7. Although the Sales Tax Appellate Tribunal did not record a finding that there was any sale of a precious stone, as such, by the petitioner to any one of his customers, it was of the opinion that if an article in which a precious stone was set, was sold by the petitioner to his customer, that sale was a sale of precious stone. Support for this view was deduced from the words 'whether they are sold loose or as forming part of anything in which they are set' occurring in the second column of the 64th item of the Second Schedule which has been extracted above.

8. We do not think that the interpretation placed by the Tribunal on these words can be supported. A reference to the Second Schedule is to be found in sub-section (3) of section 5 which reads :-

'5. (3) Notwithstanding anything contained in sub-section (1), the tax under this Act shall be levied - (a) in the case of the sale of any of the goods mentioned in column (2) of the Second Schedule, by the first or the earliest of successive dealers in the State who is liable to tax under this section, a tax at the rate specified in the corresponding entry of column (3) of the said Schedule, on the taxable turnover of sales of such dealer in each year relating to such goods.'

9. It will be seen from the relevant part of this section that tax becomes payable at the rate specified in column (3) of the Second Schedule only in a case where there is a sale of any of the goods mentioned in column (2) of that Schedule. So what should follow is that it is only in a case where there is a sale of a precious stone such as diamond, emerald or the like, an enumeration of which is to be found in the Second Schedule, that the tax is payable at 5 per cent. which is the rate specified in the third column. But if there is no sale of any precious stone as such, and there is a contract for the purchase of a finished article of jwellery, whatever may be the component parts of that finished article of jewellery, the sale is a sale of jewellery and not a sale of any one of the component parts. So, even if the finished article of jewellery which is sold and which the customer intended to purchase, has precious stones set in it, the sale is of the jewellery and not of the precious stones. The words 'whether they are sold loose or as forming part of anything in which they are set' assume importance and can have relevance only in a case where stones set in that way are themselves sold as such. But if there be no such contract of sale, and in consequence there is no sale of such precious stones, those words in the 64th item of the Second Schedule cannot assist a demand for the payment of tax at the rate specified in the third column against that entry.

10. Now the finding of the Commercial Tax Officer and the Deputy Commissioner from which the Sales Tax Appellate Tribunal did not dissent, was that the sale was of finished article of jewellery, the component parts of which were either gold and a precious stone or an artificial stone. Such is the effect of that finding. So long as that finding was not disturbed by the Sales Tax Appellate Tribunal and it was not so disturbed it could not be said that there was a sale of any precious stone as such, and, so long as there was no such sale, the 64th item in the Second Schedule has no application. In this view of the matter this revision petition has to succeed and we should direct a modification of the assessment made by the Commercial Tax Officer.

11. But Mr. Shantharaju, the learned Government Pleader, contended that the question argued by Mr. Srinivasan before us as to the effect of the sale of a finished product of jewellery was not argued before the Commercial Tax Officer or before the Deputy Commissioner, and that that contention was advanced for the first time only before the Sales Tax Appellate Tribunal, and that we should therefore refuse to listen to that argument. Mr. Shantharaju pointed out that even in the return produced by the petitioner, he admitted that sales tax was payable at 5 per cent. with respect to the sales of precious stones, at 1 1/2 per cent. with respect to the sale of gold and at 2 per cent. with respect to the sale of artificial stones. It was pointed out to us that although the petitioner claimed an exemption in respect of labour charges, he did not ask the Commercial Tax Officer to charge sales tax at the lower rates in respect of the precious stones set in the articles of jewellery manufactured.

12. But this argument fails for the reason that the Commercial Tax Officer who did not accept the return produced by the petitioner in which he claimed an exemption in respect of labour charges, recorded a clear finding that the sales were sales of finished products of jewellery. He did not record a finding that there was a sale of either gold, or a precious stone or an artificial stone as such. Whatever may be the return produced by a dealer under the Sales Tax Act and whatever may be the rate at which a dealer claims to be charged, it is the duty of the Commercial Tax Officer to make a determination of the tax really payable under the provisions of the Act which are applicable to the sales, having regard to the character of those sales determined by him.

13. That being so, if the Commercial Tax Officer had no doubt in his mind that the sale in the present case is a sale of a finished product of jewellery, it became his imperative duty to charge sales tax only at the rate specified in sub-section (1) of section 5 or in the proviso to that sub-section, and not at the rate inaccurately specified by the dealer. A dealer who mentions in his return an inaccurate rate is not precluded from contending that the rate at which sales tax should be determined is the rate properly applicable and not the rate specified in his return. Similarly when the Deputy Commissioner concurred in the finding of the Commercial Tax Officer as to the nature of the sales, it became his duty to direct a modification of the assessment by the application of the proper rate at which sales tax is to be computed. That being the true position, Mr. Shantharaju cannot place any dependence upon what was stated by the petitioner in his return which stands completely excluded by the finding recorded by the Commercial Tax Officer and the Deputy Commissioner.

14. We therefore allow this revision petition and direct the Commercial Tax Officer to make a modification of the assessment. Normally we should have directed the computation of the sales tax at 1 1/2 per cent. on articles made of gold or silver and at 2 per cent. on other articles of jewellery. But Mr. Srinivasan says that the sales tax may be computed at 2 per cent. on all the finished articles of jewellery since, according to him, every article of jewellery manufactured did have some kind of a precious stone or artificial stone. That being so, we make an order that the sales tax will be computed for the entire turnover of the articles of jewellery disclosed by the petitioner at 2 per cent. of the turnover.

15. The petitioner will be entitled to his costs of this revision petition. Advocate's fee rupees one hundred (Rs. 100).

16. Petition allowed.


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