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Nandanam Construction Company and ors. Vs. Assistant Commissioner (intelligence) No. Iv, Hyderabad - Court Judgment

LegalCrystal Citation
Overruled ByAsstt Commr (Intelligence) v Nandanam Cosntruction Co
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition Nos. 2036, 3291 and 3696 of 1982
Judge
Reported in[1983]53STC42(AP)
ActsAndhra Pradesh General Sales Tax Act, 1957 - Sections 2(1), 5, 6, 6A and 28; Karnataka Sales Tax Act, 1957 - Sections 6; Kerala General Sales Tax Act, 1963 - Sections 5A(1)
AppellantNandanam Construction Company and ors.
RespondentAssistant Commissioner (intelligence) No. Iv, Hyderabad
Advocates:S. Dasaratharama Reddi, Adv.
Excerpt:
.....- raw materials purchased for construction not deemed to be consumed for manufacture of other goods for sale - held, in absence of such consumption demand of tax under section 6 a from building contractor invalid. - - 1. in these writ petitions, the constitutional validity as well as the scope and ambit of section 6-a of the andhra pradesh general sales tax act, 1957 (hereinafter referred to as 'the act'), fall for consideration. rules, 1957, were also enclosed and the petitioners were threatened with launching of prosecution for failure to comply with the summons. aggrieved against the said notice and the threat of prosecution for failure to comply with the summons, the petitioners have approached this court under article 226 of the constitution of india questioning the..........or outside the state. the question is whether the case is covered by clause (a), i.e., whether the goods purchased are consumed in the manufacture of other goods for sale or otherwise the goods purchased, viz., sand, bricks, etc., are not consumed in the manufacture of other goods for sale. they are only used in the construction of flats. the petitioners are not also manufacturing any other goods for any other purpose. the use in the manufacture of other goods appears to be a must. but the learned government pleader wants us to construe that even goods consumed otherwise than in the manufacture of other goods fall within clause (a). we do not think that clause (ii)(a) of section 6-a is susceptible of such a construction as contended by the learned government pleader. 17. in deputy.....
Judgment:
Chennakesav Reddi, J.

1. In these writ petitions, the constitutional validity as well as the scope and ambit of section 6-A of the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as 'the Act'), fall for consideration.

2. The facts and circumstances giving rise to the question in one of the cases may be broadly stated to get a proper perspective of the question. We shall take up the facts in W.P. No. 2036 of 1982.

3. The petitioners, M/s. Nandanam Construction Company, are a partnership firm. They are builders of ownership flats in Hyderabad. They buy building materials such as sand, bricks, granite and metal from persons other than registered dealers. Iron, steel, cement, hardware goods, timber, electrical goods, etc., purchased from registered dealers have suffered tax at the first sale, while the purchases of building materials such as sand, bricks, etc., from unregistered dealers have not suffered tax.

4. While so, the Assistant Commissioner of Commercial Taxes, Enforcement, issued a notice to the petitioners on 19th January, 1982, to appear before him with all their accounts relating to purchase of raw materials effected by them commencing from 1st April, 1977. The petitioners sent a reply to the Assistant Commissioner on 2nd February, 1982, informing him that they do not trade in any goods but they construct and sell flats, that they are not registered dealers and that section 6-A of the Act cannot be invoked to assess the petitioners under the Act. After receipt of the reply, the Assistant Commissioner issued a notice on 16th March, 1982, under section 28 of the Act directing the petitioners to file the details relating to purchase of raw materials effected by them for the period commencing from 1st April, 1977 and also to produce all books of account and purchase bills for the above period on 22nd March, 1982. Summons in form IX for production of accounts and purchase invoices on the aforesaid date for the years 1977-78 to 1980-81 as prescribed under rule 56 of the A.P.G.S.T. Rules, 1957, were also enclosed and the petitioners were threatened with launching of prosecution for failure to comply with the summons. Aggrieved against the said notice and the threat of prosecution for failure to comply with the summons, the petitioners have approached this Court under article 226 of the Constitution of India questioning the jurisdiction of the respondent-Assistant Commissioner to assess the petitioners under the Act.

5. The learned counsel for the petitioners, Mr. S. Dasaratharama Reddi, firstly submits that section 6-A of the Act makes an intentional discrimination between unregistered dealers or non-dealers and registered dealers. He complains that the intention of the legislature to check evasion of tax on transaction between unregistered dealers and registered dealers is not effectuated by the express language of the section and therefore the provisions of section 6-A are violative of article 14 of the Constitution.

6. This contention need not detain us long since the very same contention and already been considered and repelled by a Division Bench of this Court consisting of Alladi Kuppuswami, C.J., and Seetharam Reddy, J., in Hindustan Milkfood . v. State of Andhra Pradesh [1982] 51 STC 1. Seetharam Reddy, J., speaking for the court observed :

'The differential treatment of purchases from registered dealers and persons other than registered dealers is reasonable and has a rational relation to the object of taxation. It is well-settled that courts admit, subject to adherence to the fundamental principles of the doctrine of equality, a larger play of legislative discretion in the matter of classification in regard to tax legislation.'

7. We entirely agree with the opinion of the learned Judges in that regard.

8. Then there remains a more formidable contention that the conditions requisite for invoking the provisions of section 6-A of the Act to assess the petitioners are not satisfied. It is, therefore, necessary to read section 6-A.

'6-A. Levy of tax on turnover relating to purchase of certain goods. - Every dealer, who in the course of business -

(i) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a registered dealer in circumstances in which no tax is payable under section 5 or under section 6, as the case may be, or

(ii) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a person other than a registered dealer, and

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

shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 6.'

9. Liability to pay tax is created by this charging section. To incur the liability the conditions requisite are :

(1) The person must be a dealer as defined in the Act.

(2) He must have purchased goods from a registered dealer under such circumstances that no tax is payable thereon; or he must have purchased goods from an unregistered dealer and must have either consumed such goods in the manufacture of their goods or disposed of such goods either within or outside the State.

10. The learned counsel for the petitioners submits that the petitioners are not dealers within the meaning of section 2(1)(e) of the Act. Section 2(1)(e) defines a dealer to mean, '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.' It is the contention of the learned counsel that the petitioners do not carry on the business of selling goods, that they are only building contractors who construct flats for sale and purchase only sand, metal, etc., from unregistered dealers. Since the business of the petitioners relates to sale of flats, their business is only in immovable property and therefore, they do no business in goods and so are not 'dealers' within the meaning of section 2(1)(e), so goes the argument.

11. On the other hand, the learned Government Pleader relying upon section 2(1)(bbb)(ii) of the Act which defines 'business' as including 'any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern', submits that the petitioners who purchase material like sand, etc., in connection with the main business of construction of flats are 'dealers' within the meaning of section 2(1)(e) of the Act.

12. It is now well-settled that a dealer need not carry on the business of both buying and selling goods to fall within the definition of 'dealer' in section 2(1)(e) of the Act. A person who purchases goods in the course of his business is as much a dealer as a person who sells the goods or distributes the goods. Notwithstanding that the petitioners engage themselves in the business of constructing flats for sale, the petitioners, by virtue of their purchasing goods like sand, gravel, etc., in the course of and in connection with the main business of construction of flats are 'dealers' within the scope of the definition of a 'dealer' in section 2(1)(e) read with section 2(1)(bbb)(ii) of the Act. Section 6-A commences with the words 'every dealer'. It does not say every registered dealer. It is enough if the person is a dealer within the meaning of section 2(1)(e) of the Act to attract the provisions of section 6-A of the Act. He need not be a registered dealer. Registration of a dealer depends on the turnover of the business. Therefore, we have no hesitation in holding that the petitioners are 'dealers' within the meaning of section 2(1)(e) of the Act.

13. The Supreme Court in State of Andhra Pradesh v. H. Abdul Bakshi : [1964]7SCR664 held :

'But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption, i.e., without a profit-motive, will not make a person dealer within the meaning of the Act, but a person who consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer.'

14. In State of Madras v. Gannon Dunkerly & Co. : [1959]1SCR379 the Supreme Court held :

'In the case of a building contract the property in materials used does not pass to the other party to the contract as movable property. It would so pass if that is the agreement between the parties. But if there is no such agreement and the contract is only to construct a building, then the materials used therein would become the property of the other party to the contract only on the theory of accretion.'

15. The Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh : [1969]3SCR490 while considering the question whether the building contractors are dealers or not held that 'a person to be a 'dealer' within the meaning of the definition in section 2(d) of the Act need not both purchase and sell goods; a person who carries on the business of buying is by the express definition of the term in section 2(d) a 'dealer''. In that case, the appellants before the Supreme Court were registered dealers under the Madhya Pradesh General Sales Tax Act, 1958. Therefore, the question did not directly arise whether a building contractor is a dealer. We are positively of the firm opinion that the petitioners who purchase building materials such as bricks, granite, etc., from unregistered dealers in connection with their main business of construction and sale of flats are 'dealers' within the meaning of section 2(1)(e) of the Act.

16. Then there still remains the question, whether the petitioners who undoubtedly purchase goods from persons other than the registered dealers fall within the ambit of clause (a) or (b) or (c) of sub-section (ii) of section 6-A. It is common ground that the provisions of clause (b) or (c) are not attached since the goods are not disposed of or despatched as such either in the State or outside the State. The question is whether the case is covered by clause (a), i.e., whether the goods purchased are consumed in the manufacture of other goods for sale or otherwise The goods purchased, viz., sand, bricks, etc., are not consumed in the manufacture of other goods for sale. They are only used in the construction of flats. The petitioners are not also manufacturing any other goods for any other purpose. The use in the manufacture of other goods appears to be a must. But the learned Government Pleader wants us to construe that even goods consumed otherwise than in the manufacture of other goods fall within clause (a). We do not think that clause (ii)(a) of section 6-A is susceptible of such a construction as contended by the learned Government Pleader.

17. In Deputy Commissioner of Sales Tax (Law), Board of Revenue v. Pio Food Packers : 1980(6)ELT343(SC) , the Supreme Court had occasion to consider clause (a) of section 5A(1) of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963), which is identical to section 6-A(ii)(a). In that case, the question was whether the petitioner who carries on the business of manufacturing and selling canned fruit and purchases pineapple and uses it in the conversion into pineapple slices, etc., is assessable to tax under section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. Answering the question - is the pineapple fruit consumed in the manufacture of pineapple slices - the Supreme Court observed :

'The learned counsel for the revenue contends that even if no manufacturing process is involved, the case still falls with section 5A(1)(a) of the Kerala General Sales Tax Act, because the statutory provision speaks not only of goods consumed in the manufacture of other goods for sale but also goods consumed otherwise. There is a fallacy in the submission. The clause, truly read, speaks of goods consumed in the manufacture of other goods for sale or goods consumed in the manufacture of other goods for purposes other than sale.'

18. The Karnataka High Court in Reliable Rocks Builders and Suppliers v. State of Karnataka [1982] 49 STC 110, while construing section 6(i) of the Karnataka Sales Tax Act which is identical to section 6-A(ii) of the Act held that the process of breaking boulders into jelly cannot be described as a manufacturing process. The learned Government Pleader however invited our attention to the decision in Ganesh Prasad Dixit v. Sales Tax Commissioner, Madhya Pradesh : [1969]3SCR490 , wherein the Supreme Court interpreting section 7 of the Madhya Pradesh General Sales Tax Act which is similar to section 6-A of the Act held that even if the goods were consumed otherwise than in the process of manufacture, the liability to pay sales tax under section 7 of the Act cannot be escaped. The learned Judges observed :

'Mr. Chagla, for the appellants urged that the expression 'or otherwise' is intended to denote a conjunctive introducing a specific alternative to the words 'for sale' immediately preceding. The clause in which it occurs means, says Mr. Chagla, that by section 7 the price paid for buying goods consumed in the manufacture of other goods, intended to be sold or otherwise disposed of, alone is taxable. We do not think that that is a reasonable interpretation of the expression 'either consumes such goods in the manufacture of other goods for sale or otherwise'. It is intended by the legislature that consumption of goods renders the price paid for their purchase taxable, if the goods are used in the manufacture of other goods for sale or if the goods are consumed otherwise.'

19. But this decision was not referred to by the Supreme Court in Pio Food Packer's case : 1980(6)ELT343(SC) . Thus there is a conflict of opinion between the two cases of the Supreme Court one rendered in Ganesh Prasad Dixit's case : [1969]3SCR490 and the other in Pio Food Packer's case : 1980(6)ELT343(SC) . Both the decisions are rendered by a Bench of three Judges. Article 141 of the Constitution embodies the doctrine of precedents, as a rule of law. It makes the law declared by the Supreme Court binding on all the Courts in India. In Mattulal v. Radhelal : [1975]1SCR127 the Supreme Court was confronted with two conflicting judgments of the Supreme Court. Bhagwati, J., speaking for the court said :

'We must prefer to follow the decision in Sarvate's case 1966 MPLJ 26 (SC) as against the decision in Kamala Soni's case AIR 1969 NSC 186, as the former is a decision of a larger Bench than the latter. Moreover, on principle, the view taken in Sarvate's case 1966 MPLJ 26 (SC), commends itself to us and we think that is the right view.'

20. But we are now confronted with conflicting decisions rendered by Benches of same strength. The decision in Pio Food Packer's : 1980(6)ELT343(SC) is a 'subsequent' or later decision.

21. In the circumstances, we choose to follow the later decision. Accordingly we rely on Pio Food Packer's case : 1980(6)ELT343(SC) and hold that to attract the provisions of section 6-A(ii)(a) there must be consumption of the original goods for the purpose of manufacture. In the absence of any such consumption, the petitioners are not liable to tax.

22. In the result, the writ petitions are allowed and the notices issued to the petitioners are quashed. There shall be no order as to costs. Advocate's fee Rs. 150 in each case.

23. The learned Government Pleader makes an oral application for leave to appeal to the Supreme Court. In our opinion no substantial question of law of general importance which requires to be decided by the Supreme Court is involved in these cases. The request of the learned Government Pleader is therefore rejected.


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